As filed with the Securities and Exchange Commission on
May 26, 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. 10
/X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 /X/
Amendment No. 15
/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
x on May 30, 1995, pursuant to paragraph (b)
60 days after filing pursuant to paragraph
(a), or
_____ on_________pursuant to paragraph (a) of Rule
485
The Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule
24f-2 under the Investment Company Act of 1940, as
amended. Registrant's Rule 24f-2 Notice for the fiscal
year ended January 31, 1995 was filed on March 29, 1995.
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
<PAGE>
- ------------------------------------------------------------
- -------------------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 family of diversified investment portfolios
(individually, a "Fund" and collectively, the "Funds" or the
"Money Market 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 TAX-FREE MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
Shares may not generally 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. ("LBGAM" or 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
30, 1995, as amended or supplemented from time to time,
has been filed with the Securities and Exchange Commission
(the "SEC") 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
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 30,
1995.
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
MAY 30, 1995
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
P
a
g
e
- -
- -
- -
- -
<S>
<C> Summary of Investment Objectives
3
Background and Expense Information
4
Financial Highlights
6
Investment Objectives and Policies
9
Portfolio Instruments and Practices
12
Investment Limitations
17
Purchase and Redemption of Shares
17
Dividends
21
Taxes
21
Management of the Funds
22
Performance and Yields
24
Description of Shares
24
</TABLE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE MONEY MARKET FUNDS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
MONEY MARKET FUNDS. INVESTORS WISHING TO OBTAIN
SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING
THEM BY CONTACTING LEHMAN BROTHERS AT 1-800-368-5556.
2 <PAGE>
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are summarized
below. See "Investment
Objectives and Policies" beginning on page 9 for more
detailed information.
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 of 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.
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 in "Investment Objectives
and Policies."
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 in "Investment Objectives
and Policies."
THERE IS NO ASSURANCE THAT THE FUNDS WILL
ACHIEVE THEIR RESPECTIVE
INVESTMENT OBJECTIVES.
3 <PAGE>
BACKGROUND AND EXPENSE INFORMATION
Each Money Market Fund, with the exception of
Cash Management Fund,
currently offers four 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
service and/or distribution fees and expenses than
Class A 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 designed specifically for the Trust ("LEX").
The purpose of the following table is to assist an
investor in understanding
the various costs and estimated 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
<TABLE>
<CAPTION>
GOVERNMENT PRIME
VALUE
OBLIGATIONS CASH
PRIME MONEY MONEY
MONEY MANAGEMENT
MARKET FUND MARKET FUND
MARKET FUND FUND
--------------- -
- -------------- ------------
- --- ---------------
<S> <C>
<C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net
assets)
Advisory Fees (net of applicable fee
waivers) .10%
.10% .04% .00%
Rule 12b-1 fees None
None None None
Other Expenses -- including
Administration Fees .08%
.08% .14% .26% -----
----- ----- -----
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement) .18%
.18% .18% .26%
- ----- ----- ----- -----
- ----- ----- ----- -----
<CAPTION>
TREASURY 100%
INSTRUMENTS TREASURY
MONEY INSTRUMENTS TAX-
FREE MUNICIPAL
MARKET FUND MONEY
MONEY MONEY
II MARKET FUND MARKET
FUND MARKET FUND
- --------------- --------------- ------------
- --- ---------------
<S> <C>
<C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net assets)
Advisory Fees (net of applicable fee
waivers) .10%
.08% .03% .06%
Rule 12b-1 fees None
None
None None
Other Expenses -- including
Administration Fees .08%
.10% .15% .12% -----
----- ----- -----
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement) .18%
.18% .18% .18%
- ----- ----- ----- -----
- ----- ----- ----- -----
<FN>
*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.
</TABLE>
4 <PAGE>
In order to maintain a competitive expense ratio,
the Adviser and
Administrator have voluntarily agreed to waive fees and
reimburse expenses 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 Funds (.26%
with respect to the Cash Management Fund). 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 of the Funds. Absent fee waivers and expense
reimbursements,
the Total Fund Operating Expenses of Class A Shares would be as
follows:
<TABLE>
<CAPTION>
PERC
E
N
T
A
G
E
O
F
A
V
E
R
A
G
E
D
A
I
L
Y
N
E
T
A
S
S
E
T
S
----
- ----------------------<S>
<C>
Prime Money Market Fund
.25%
Prime Value Money Market Fund
.25%
Government Obligations Money Market Fund
.34%
Cash Management Fund
1.84%
Treasury Instruments Money Market Fund II
.25%
100% Treasury Instruments Money Market Fund
.32%
Tax-Free Money Market Fund
.35%
Municipal Money Market Fund
.32%
<FN>
- ------------------------
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:
</TABLE>
MONEY MARKET FUNDS
(OTHER THAN THE CASH MANAGEMENT
FUND)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
10 YEARS
- ----------- ----------- ----------- ------------<S>
<C>
<C> <C>
$2 $6 $10
$23
</TABLE>
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
10 YEARS
- ----------- ----------- ----------- ------------<S>
<C>
<C> <C>
$3 $8 $15
$33
</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.
5 <PAGE>
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.
<TABLE>
<CAPTION>
PRIME MONEY
PRIME VALUE
MONEY MARKET
MARKET FUND FUND
- ------------------------ -
- -----------------------
1/31/95 1/31/94* 1/31/95 1/31/94*
------
- ----- ----------- -
- ---------- ----------<S>
<C> <C> <C> <C>
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 to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,538,802
$2,866,353
$1,470,317 $3,981,184
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)
<FN>
* The Class A Shares commenced operations on February 8, 1993.
(1) Net investment income before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by
the Investment 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
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by
the Investment 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.
</TABLE>
6 <PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS
CAS
H
MAN
AGE
MEN
T
FUN
D**
MONEY MARKET FUND
- ---------------------- ----
- --------------------
1/31/95 1/31/94*
1/31/95 1/31/94*
- ---------- ---------- ----
- ------- -----------
<S>
<C> <C> <C> <C>
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 to 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)
<FN>
* The Class A Shares commenced operations on February 8, 1993.
** Cash Management Fund was formerly named 100% Government
Obligations Money
Market Fund.
(1) Net investment income before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment 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
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment 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.
</TABLE>
7 <PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
TREASURY INSTRUMENTS 100% TREASURY MONEY INSTRUMENTS
MONEY
MARKET FUND II MARKET FUND
- ---------------------- --
- --------------------
1/31/95 1/31/94*
1/31/95 1/31/94*
- ---------- ---------- --
- -------- ----------
<S>
<C> <C>
<C> <C>
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 to 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)
<FN>
* The Class A Shares commenced operations on February 8, 1993.
(1) Net investment income before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment Adviser and Administrator for the Class A Shares was
$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
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment 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.
</TABLE>
8 <PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET
MUNICIPAL MONEY
MARKET FUND FUND
- ----------------------- ---
- ------------------1/31/95 1/31/94* 1/31/95 1/31/94*
---------- ----------- ---
- ------- ---------<S>
<C> <C> <C> <C>
Net asset value, beginning of period
$1.00 $1.00 $1.00 $1.00
---------- ----------- ---
- ------- ----------
Net investment income (1)
0.0288 0.0228 0.0300 0.0243
Dividends from net investment income
(0.0288) (0.0228) (0.0300) (0.0243)
---------- ----------- ---
- ------- ----------
Net asset value, end of period
$1.00 $1.00 $1.00 $1.00
- ---------- ----------- ---
- ------- ----------
- ---------- ----------- ---
- ------- ----------
Total return (2)
2.93% 2.30% 3.04% 2.46% ---------- ----------- -----
- ----- ----------
- ---------- ----------- ---
- ------- ----------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's)
$60,351 $59,735 $93,595 $350,975
Ratio of net investment income to average net assets
2.99% 2.38% (3) 2.86% 2.53%(3)
Ratio of operating expenses to average net assets (4)
0.16% 0.11% (3) 0.15% 0.13%(3)
<FN>
* The Class A Shares commenced operations on February 8, 1993.
(1) Net investment income before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment Adviser and Administrator for the Class A Shares was
$0.0266 for the
year ended January 31, 1995 and $0.0093 for the period ended
January 31, 1994 for
the Tax-Free Money Market Fund and $0.0283 for the year ended
January 31, 1995
and $0.0201 for the period ended January 31, 1994 for the
Municipal 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
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment Adviser and Administrator for Class A Shares were
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 and 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.
</TABLE>
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.
9 <PAGE>
The Trust's 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. Each Fund operates as a diversified
investment portfolio.
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
limitations. 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 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 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 invests
only in securities that are payable in U.S. dollars and that have
(or,
10
<PAGE>
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.
TAX-FREE MONEY MARKET FUND and MUNICIPAL 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 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 Tax-Free Money Market Fund and Municipal 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 periods,
including when suitable tax-exempt obligations are
unavailable. There is no
percentage limitation on the amount of assets which may be
held uninvested.
Uninvested cash reserves will not earn income.
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.
11 <PAGE>
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 Tax-Free Money Market Fund and
Municipal 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 bonds 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, Tax-Free
Money Market Fund and Municipal 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"). The 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
The Funds (other than Tax-Free Money Market Fund and Municipal
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
12
<PAGE>
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
Prime Money Market Fund, Prime Value Money Market Fund,
Tax-Free Money
Market Fund and Municipal 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. Discounts 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 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.
13 <PAGE>
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, Tax-Free Money Market Fund and Municipal 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 securities. 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
Tax-Free Money Market Fund and Municipal 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
Tax-Free Money Market Fund and Municipal Money Market Fund may
invest in the
Municipal Obligations described below.
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.
14 <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 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 Board of 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
15
<PAGE>
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 their 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.
16 <PAGE>
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 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.
2. Purchase any securities which would cause 25% or more
of the value of its
total assets at the time of purchase to be invested in the
securities of issuers
conducting their principal business activities in the same
industry, provided
that there is no limitation with respect to investments in
U.S. Government
securities. For the purposes of this restriction, state and
municipal governments and
their agencies and instrumentalities are not deemed to be
industries.
Each Fund may, in the future, seek to achieve its 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.
17 <PAGE>
<TABLE>
<CAPTION>
ORDER PAYMENT
RECEIVED
BY*
RECEIVED
BY*
EFFECTIVE
*
<S>
<C> <C> <C>
Prime Money Market Fund, noon
noon noon
Prime Value Money Market Fund,
Government Obligations Money Market Fund 3:00 P.M.
3:00 P.M. 3:00 P.M.
and Treasury Instruments Money Market Fund II
4:00 P.M. 4:00 P.M.
100% Treasury Instruments Money Market Fund noon
noon noon
1:00 P.M. 1:00 P.M. 1:00 P.M.
4
:
0
0
P
.
M
.
4:00 P.M.
Cash Management Fund** noon
noon noon 3:00 P.M. 3:00 P.M. 3:00 P.M.
5:00 P.M. 5:30 P.M. 5:00 P.M.
Tax-Free Money Market Fund noon
noon noon
and Municipal Money Market Fund
4:00 P.M. 4:00 P.M.
<FN>
- ------------------------
* 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.
</TABLE>
Payment for Fund shares may be made only in federal
funds immediately
available to Boston Safe Deposit and Trust Company ("Boston
Safe"). Payment for orders which are not received or
accepted by Lehman Brothers will be returned after prompt
inquiry to the sending institution. 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.
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.
Under certain circumstances, individuals may purchase shares
of the Funds. The minimum aggregate initial investment
by an individual in the Funds is $5 million. 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. TSSG
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.
18 <PAGE>
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.
<TABLE>
<CAPTION>
ORDER
RECEIVE
D BY*
PAYMEN
T MADE
<S>
<C> <C>
Prime Money Market Fund, 3:00
P.M. same business
Prime Value Money Market Fund,
day
Government Obligations Money Market Fund,
Treasury Instruments Money Market Fund II
and Cash Management Fund
100% Treasury Instruments Money Market Fund 1:00
P.M. same business
day
Tax-Free Money Market Fund noon
same business
and Municipal Money Market Fund
day
<FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
Shares are redeemed at the net asset value per share
next determined after
Lehman Brothers' receipt of the redemption order. While the
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 TSSG 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 or through LEX. See "Redemption Procedures." In
exchanging shares, an investor must meet the minimum
initial investment
19
<PAGE>
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 or through LEX. 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.
<TABLE>
<CAPTION>
N
E
T
A
S
S
E
T
V
A
L
U
E
CALCULATED* <S>
<C> Prime Money Market Fund,
noon
Prime Value Money Market Fund,
Government Obligations Money Market Fund, and
3:00 P.M.
Treasury Instruments Money Market Fund II
4:00 P.M. 100% Treasury Instruments Money Market Fund
noon
1:
00
P.
M.
4:
00
P.
M.
Cash Management Fund
n
oo
n
3:
00
P.
M.
5:
00
P.
M.
Tax-Free Money Market Fund
noon
and Municipal Money Market Fund
4:00 P.M. <FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
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
20
<PAGE>
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
Funds do 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 shares of each class
bear all the expenses associated with that 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 Lehman Brothers, 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 qualified in its last taxable year and
intends to qualify in
future years as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company is exempt from federal income
tax on amounts distributed to its investors.
Qualification as a regulated investment company under
the Code for a taxable year requires, among other things,
that 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 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.
21
<PAGE>
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.
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.
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.
22
<PAGE>
INVESTMENT ADVISER -- LEHMAN BROTHERS GLOBAL ASSET
MANAGEMENT INC.
LBGAM, 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 $12 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.
ADMINISTRATOR AND TRANSFER AGENT -- 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, a wholly-owned subsidiary of Mellon,
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, 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, administrator, 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.
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
Funds, with the exception of the Cash Management Fund.
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.
23 <PAGE>
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, Tax-Free Money
Market Fund and Municipal Money Market Fund may be quoted
in advertisements or in reports to shareholders. Yield
quotations are computed separately for each class of
shares. The "yield" quoted in advertisements for a
particular class 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 is
assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The
"tax-equivalent yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to
the Fund's tax-free yield for each class of shares. It
is calculated by increasing the yield (calculated as above)
by the amount necessary to reflect the payment of federal
taxes at a stated rate. The "tax-equivalent yield" will
always be higher than the "yield."
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-REGISTERED TRADEMARK-, 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 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 ten 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. 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
24
<PAGE>
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."
25 <PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS --
- -------------------------------------------------
- ------
<TABLE>
<S>
<C>
Client Service Center
(8:30 am to 5:00 pm, Eastern time):
800-851-3134
fa
x
:
6
1
7
- -
2
6
1
- -
4
3
3
0
o
r
6
1
7
- -
2
6
1
- -
4
3
4
0
Dividend factors and yields:
800-238-2560
Administration/Sales/Marketing:
800-368-5556
To place a purchase or redemption order:
800-851-3134
To change account information:
800-851-3134
Additional Prospectuses:
800-368-5556
Information on Service Agreements:
800-851-3134
LEX Help Desk
800-566-5LEX
</TABLE>
LEHMAN BROTHERS
- -------------------------------------------------
- --------
LBP-202E5
<PAGE>
- ------------------------------------------------------------
- -------------------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 family of diversified investment portfolios
(individually, a "Fund" and collectively, the "Funds" or the
"Money Market Funds"). This Prospectus describes one class
of shares ("Class B Shares") of the following investment
portfolios:
PRIME MONEY MARKET FUND
PRIME VALUE MONEY MARKET FUND
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
TREASURY INSTRUMENTS MONEY MARKET FUND II
100% TREASURY INSTRUMENTS MONEY MARKET
FUND
TAX-FREE MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
Shares may not generally 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. ("LBGAM" or 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
30, 1995, as amended or supplemented from time to time,
has been filed with the Securities and Exchange Commission
(the "SEC") 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
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 30,
1995.
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST MAY 30, 1995
PROSPECTUS TABLE OF
CONTENTS
<TABLE>
<CAPTION>
P
a
g
e
- -
- -
- -
- -
<S>
<C> Summary of Investment Objectives
3
Background and Expense Information
4
Financial Highlights
6
Investment Objectives and Policies
8
Portfolio Instruments and Practices
11
Investment Limitations
16
Purchase and Redemption of Shares
16
Dividends
20
Taxes
20
Management of the Funds
21
Performance and Yields
23
Description of Shares
23
</TABLE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE MONEY MARKET FUNDS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
MONEY MARKET FUNDS. INVESTORS WISHING TO OBTAIN
SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING
THEM BY CONTACTING LEHMAN BROTHERS AT 1-800-368-5556.
2 <PAGE>
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are summarized
below. See "Investment
Objectives and Policies" beginning on page 8 for more
detailed information.
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.
TREASURY INSTRUMENTS MONEY MARKET FUND II seeks to
provide current income
with liquidity and security of 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.
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 in "Investment Objectives
and Policies."
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 in "Investment Objectives
and Policies."
THERE IS NO ASSURANCE THAT THE FUNDS WILL
ACHIEVE THEIR RESPECTIVE
INVESTMENT OBJECTIVES.
3 <PAGE>
BACKGROUND AND EXPENSE INFORMATION
Each Money Market Fund currently offers four 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
service and/or distribution fees 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 Trust ("LEX").
The purpose of the following table is to assist an
investor in understanding
the various costs and estimated 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
<TABLE>
<CAPTION>
GOVERNMENT PRIME VALUE OBLIGATIONS
PRIME MONEY
MONEY MONEY
MARKET FUND MARKET
FUND MARKET FUND
--------------- -
- -------------
- - ---------------
<S> <C>
<C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net
assets)
Advisory Fees (net of applicable fee
waivers) .10%
.10% .04%
Rule 12b-1 fees .25%
.25% .25%
Other Expenses -- including
Administration Fees .08%
.08% .14% ----- ----- -----
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement) .43%
.43% .43%
- ----- ----- -----
- ----- ----- -----
<CAPTION>
TREASURY 100%
INSTRUMENTS TREASURY
MONEY INSTRUMENTS TAX-
FREE MUNICIPAL
MARKET FUND MONEY
MONEY MONEY
II MARKET FUND MARKET
FUND MARKET FUND
- --------------- --------------- ------------
- --- ---------------
<S> <C>
<C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net
assets)
Advisory Fees (net of applicable fee
waivers) .10%
.08% .03% .06%
Rule 12b-1 fees .25%
.25% .25% .25%
Other Expenses -- including
Administration Fees .08%
.10% .15% .12% -----
----- ----- -----
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement) .43%
.43% .43% .43%
- ----- ----- ----- -----
- ----- ----- ----- -----
<FN>
*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.
</TABLE>
4 <PAGE>
In order to maintain a competitive expense ratio,
the Adviser and
Administrator have voluntarily agreed to waive fees and
reimburse expenses 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
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 of the Funds. Absent fee
waivers and
expense reimbursements, the Total Fund Operating Expenses of Class
B Shares would be
as follows:
<TABLE>
<CAPTION>
PERCENTA
G
E
O
F
A
V
E
R
A
G
E
D
A
I
L
Y
N
E
T
A
S
S
E
T
S
---------
- -------------------<S>
<C>
Prime Money Market Fund
.50%
Prime Value Money Market Fund
.50%
Government Obligations Money Market Fund
.59%
Treasury Instruments Money Market Fund II
.50%
100% Treasury Instruments Money Market Fund
.57%
Tax-Free Money Market Fund
.60%
Municipal Money Market Fund
.57%
</TABLE>
- ------------------------
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
10 YEARS
- ----------- ----------- ----------- ------------<S>
<C>
<C> <C>
$ 4 $ 14 $ 24
$ 54
</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.
5 <PAGE>
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. As of
January
31, 1995, Class B Shares of the Municipal Money Market Fund had
not been
offered to the public and there were no investors in Class B
Shares of
the 100% Treasury Instruments Money Market Fund.
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.
<TABLE>
<CAPTION>
PRIME VALUE MONEY PRIME MONEY
MARKET FUND MARKET FUND
- -------------------- --
- -------------------
1/31/95 1/31/94*
1/31/95
1/31/94*
--------- --------- --
- ------- ---------<S>
<C> <C> <C> <C>
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
(0.0417) (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 to 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)
<FN>
* 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
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by
the Investment 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
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by
the Investment 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.
</TABLE>
6 <PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS
TREASURY INSTRUMENTS
MONEY MARKET FUND MONEY MARKET FUND II
- ----------------------
- ---------------------
1/31/95 1/31/94* 1/31/95 1/31/94*
---------- ----------
- --------- ---------<S>
<C> <C> <C> <C>
Net asset value, beginning of period
$1.00 $1.00 $1.00 $1.00
---------- ----------
- --------- ----------
Net investment income (1)
0.0410 0.0091 0.0399 0.0198
Dividends from net investment income
(0.0410) (0.0091) (0.0399) (0.0198)
---------- ----------
- --------- ----------
Net asset value, end of period
$1.00 $1.00 $1.00 $1.00
- ---------- ----------
- --------- ----------
- ---------- ----------
- --------- ----------
Total return (2)
4.19% 0.90% 4.05% 2.00% ---------- ---------- ------
- --- ----------
- ---------- ----------
- --------- ----------
Ratios to average net
assets/supplemental
data:
Net assets, end of period (in 000's)
$9,322 $27,242 $33,862 ------(5)
Ratio of net investment income to average net assets
4.03% 2.93%(3) 4.13% 2.87%(3)
Ratio of operating expenses to average net assets (4)
0.41% 0.28%(3) 0.37% 0.28%(3)
<FN>
* The Class B Shares commenced operations on August 16, 1993
with respect to
the Government Obligations Money Market Fund and May 24, 1993
with respect to
the Treasury Instruments Money Market Fund II.
(1) Net investment income before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment 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 $0.0384 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.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the
Investment 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 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.
(5) Total net assets for Class B Shares were $100 at January
31, 1994 for the
Government Obligations Money Market Fund.
</TABLE>
7 <PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
100% TREASURY
INSTR
UME
NTS TAX-FREE MONEY MONEY MARKET MARKET
FUND FUND
- -----
- ----- ----------
1/31/
94* 1/31/95*
- -----
- ----- ----------
<S>
<C> <C>
Net asset value, beginning of period
$1.00 $1.00
-----
- ----- ----------
Net investment income (1)
0.0149 0.0263
Dividends from net investment income
(0.0149) (0.0263)
-----
- ----- ----------
Net asset value, end of period
$1.00 $1.00
- -----
- ----- ----------
- -----
- ----- ----------
Total return (2)
1.55
% 2.63%
- -----
- ----- ----------
- -----
- ----- ----------
Ratio
s to
avera
ge
net
asset
s/sup
pleme
ntal
data:
Net assets, end of period (in 000's)
- ----
- --
(5) ------(5)
Ratio of net investment income to average net assets
2.78%(3) 2.74%
Ratio of operating expenses to average net assets (4)
0.30%(3) 0.41%
<FN>
* The Class B Shares commenced operations on May 2, 1993 with
respect to the
100% Treasury Instruments Money Market Fund and December
30, 1994 with respect to the Tax-Free Money Market Fund.
(1) Net investment income before waiver of fees by the
Investment Adviser, Administrator, Custodian and/or Transfer
Agent and/or expenses reimbursed by the Investment Adviser
and Administrator for the Class B Shares was $0.0124 for the
period ended January 31, 1994 for the 100% Treasury
Instruments Money Market Fund and $0.0242 for the year
ended January 31, 1995 for the Tax-Free 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
Investment Adviser, Administrator, Custodian and/or Transfer
Agent and/or expenses reimbursed by the Investment Adviser
and Administrator for Class B Shares were 0.76% for the
period ended January 31, 1994 for the 100% Treasury
Instruments Money Market Fund and 0.63% for the year ended
January 31, 1995 for the Tax-Free Money Market Fund.
(5) Total net assets for Class B Shares were $100 at January
31, 1994 for the 100% Treasury Instruments Money Market
Fund and January 31, 1995 for the Tax-Free Money Market
Fund.
</TABLE>
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
8
<PAGE>
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.
The Trust's 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. Each Fund operates as a
diversified investment portfolio. 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 limitations. 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 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 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 ratings 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, TREASURY
INSTRUMENTS MONEY MARKET
FUND II and 100% TREASURY INSTRUMENTS MONEY MARKET FUND seek to
provide income with liquidity and security of principal.
9
<PAGE>
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 invests in
obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities (in addition to direct Treasury obligations)
and repurchase agreements relating to such obligations.
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.
TAX-FREE MONEY MARKET FUND and MUNICIPAL 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 Tax-Free Money Market Fund and Municipal 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 periods, including when suitable tax-exempt
obligations are unavailable. There is no percentage limitation
on the amount of assets which may be held uninvested.
Uninvested cash reserves will not earn income.
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.
10 <PAGE>
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 Tax-Free Money Market Fund and
Municipal 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 bonds 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, Tax-Free Money Market Fund and Municipal 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"). The 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 and Treasury
Instruments Money Market Fund II 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
The Funds (other than Tax-Free Money Market Fund and
Municipal 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
11
<PAGE>
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
Prime Money Market Fund, Prime Value Money Market Fund,
Tax-Free Money Market Fund and Municipal 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. Discounts 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 and Treasury
Instruments Money Market Fund II, 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.
12 <PAGE>
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, Tax-Free Money Market
Fund and Municipal 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 securities. 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
Tax-Free Money Market Fund and Municipal 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
Tax-Free Money Market Fund and Municipal Money Market Fund
may invest in the Municipal Obligations described below.
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.
13 <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 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 Board of 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
14
<PAGE>
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 their 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.
15 <PAGE>
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 and Treasury Instruments Money Market Fund II,
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.
2. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry, provided that there
is no limitation with respect to investments in U.S.
Government securities. For the purposes of this
restriction, state and municipal governments and their
agencies and instrumentalities are not deemed to be
industries.
Each Fund may, in the future, seek to achieve its
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
16
<PAGE>
accepted only on days on which both Lehman Brothers and the
Federal Reserve Bank of Boston are open for business and must be
transmitted to Lehman Brothers, by telephone at 1-800-851-3134
or through LEX. Orders for the purchase of shares must be made
according to the following schedule.
<TABLE>
<CAPTION>
ORDER PAYMENT
RECEIVED
BY*
RECEIVED
BY*
EFFECTIVE
*
<S>
<C> <C> <C>
Prime Money Market Fund, noon
noon noon
Prime Value Money Market Fund,
Government Obligations Money Market Fund, and 3:00 P.M.
3:00 P.M. 3:00 P.M.
Treasury Instruments Money Market Fund II
4:00 P.M. 4:00 P.M.
100% Treasury Instruments Money Market Fund noon
noon noon
1:00 P.M. 1:00 P.M. 1:00 P.M.
4
:
0
0
P
.
M
.
4:00 P.M.
Tax-Free Money Market Fund and noon
noon noon
Municipal Money Market Fund
4:00 P.M. 4:00 P.M.
<FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
Payment for Fund shares may be made only in federal
funds immediately
available to Boston Safe Deposit and Trust Company ("Boston
Safe"). Payment for orders which are not received or
accepted by Lehman Brothers will be returned after prompt
inquiry to the sending institution. 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.
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.
Under certain circumstances, individuals may purchase shares
of the Funds. The minimum aggregate initial investment
by an individual in the Funds is $5 million. 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.
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 - 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 Department of
Labor or state securities commissions, are urged to
consult their legal advisers before investing fiduciary
funds in Class B Shares.
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. TSSG
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.
17 <PAGE>
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.
<TABLE>
<CAPTION>
ORDER
RECEIVE
D BY*
PAYMEN
T MADE
<S>
<C> <C>
Prime Money Market Fund, 3:00
P.M. same business
Prime Value Money Market Fund,
day
Government Obligations Money Market Fund and
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund 1:00
P.M. same business
day
Tax-Free Money Market Fund and noon
same business
Municipal Money Market Fund
day
<FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
Shares are redeemed at the net asset value per share
next determined after
Lehman Brothers' receipt of the redemption order. While the
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 TSSG 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
18
<PAGE>
the Exchange Privilege, exchange instructions must be
given to Lehman Brothers by telephone or through LEX. 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 or
through LEX. 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.
<TABLE>
<CAPTION>
N
E
T
A
S
S
E
T
V
A
L
U
E
CALCULATED* <S>
<C> Prime Money Market Fund,
noon
Prime Value Money Market Fund,
Government Obligations Money Market Fund, and
3:00 P.M.
Treasury Instruments Money Market Fund II
4:00 P.M. 100% Treasury Instruments Money Market Fund
noon
1:
00
P.
M.
4:
00
P.
M.
Tax-Free Money Market Fund and
noon
Municipal Money Market Fund
4:00 P.M. <FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
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
19
<PAGE>
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 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
Funds do 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 shares of each class
bear all the expenses associated with that 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 Lehman Brothers,
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 qualified in its last taxable year and
intends to qualify in
future years as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company is exempt from federal income
tax on amounts distributed to its investors.
Qualification as a regulated investment company under
the Code for a taxable year requires, among other things,
that 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 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.
20
<PAGE>
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.
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.
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.
INVESTMENT ADVISER -- LEHMAN BROTHERS GLOBAL ASSET
MANAGEMENT INC.
LBGAM, 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 $12 billion as of April 30, 1995.
21 <PAGE>
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.
ADMINISTRATOR AND TRANSFER AGENT -- 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, a wholly-owned subsidiary of Mellon,
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, SEC 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,
22
<PAGE>
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 .43% of average daily net
assets with respect to the 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 may be quoted in
advertisements or in reports to shareholders. Yield
quotations are computed separately for each class of
shares. The "yield" quoted in advertisements for a
particular class 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 is
assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The
"tax-equivalent yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to
the Fund's tax-free yield for each class of shares. It
is calculated by increasing the yield (calculated as above)
by the amount necessary to reflect the payment of federal
taxes at a stated rate. The "tax-equivalent yield" will
always be higher than the "yield."
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-REGISTERED TRADEMARK-, 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 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
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 ten 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 and 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. 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.
23 <PAGE>
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."
24 <PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS --
- -------------------------------------------------
- ------
<TABLE>
<S>
<C>
Client Service Center
(8:30 am to 5:00 pm, Eastern time):
800-851-3134
fa
x
:
6
1
7
- -
2
6
1
- -
4
3
3
0
o
r
6
1
7
- -
2
6
1
- -
4
3
4
0
Dividend factors and yields:
800-238-2560
Administration/Sales/Marketing:
800-368-5556
To place a purchase or redemption order:
800-851-3134
To change account information:
800-851-3134
Additional Prospectuses:
800-368-5556
Information on Service Agreements:
800-851-3134
LEX Help Desk
800-566-5LEX
</TABLE>
LEHMAN BROTHERS
- -------------------------------------------------
- --------
LBP-201E5
<PAGE>
- ------------------------------------------------------------
- -------------------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 family of 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:
PRIME MONEY MARKET FUND
PRIME VALUE MONEY MARKET FUND
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
TREASURY INSTRUMENTS MONEY MARKET FUND II
100% TREASURY INSTRUMENTS MONEY MARKET
FUND
TAX-FREE MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
Shares may not generally 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. ("LBGAM" or 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
30, 1995, as amended or supplemented from time to time,
has been filed with the Securities and Exchange Commission
(the "SEC") 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 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 30,
1995.
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST PROSPECTUS
MAY 30, 1995 TABLE OF
CONTENTS
<TABLE>
<CAPTION>
P
a
g
e
- -
- -
- -
- -
<S>
<C> Summary of Investment Objectives
3
Background and Expense Information
4
Financial Highlights
6
Investment Objectives and Policies
6
Portfolio Instruments and Practices
9
Investment Limitations
14
Purchase and Redemption of Shares
14
Dividends
18
Taxes
18
Management of the Funds
19
Performance and Yields
21
Description of Shares
21
</TABLE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE MONEY MARKET FUNDS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
MONEY MARKET FUNDS. INVESTORS WISHING TO OBTAIN
SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING
THEM BY CONTACTING LEHMAN BROTHERS AT 1-800-368-5556.
2 <PAGE>
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are summarized
below. See "Investment Objectives and Policies" beginning on
page 6 for more detailed information.
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.
TREASURY INSTRUMENTS MONEY MARKET FUND II seeks to
provide current income
with liquidity and security of 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.
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 in "Investment Objectives
and Policies."
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 in "Investment Objectives
and Policies."
THERE IS NO ASSURANCE THAT THE FUNDS WILL
ACHIEVE THEIR RESPECTIVE
INVESTMENT OBJECTIVES.
3 <PAGE>
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
service and/or distribution fees 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 Trust("LEX").
The purpose of the following table is to assist an
investor in understanding
the various costs and estimated 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
<TABLE>
<CAPTION>
GOVERNMENT PRIME VALUE OBLIGATIONS
PRIME MONEY
MONEY MONEY
MARKET FUND MARKET
FUND MARKET FUND
--------------- -
- -------------
- - ---------------
<S> <C>
<C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net
assets)
Advisory Fees (net of applicable fee
waivers) .10%
.10% .04%
Rule 12b-1 fees .35%
.35% .35%
Other Expenses -- including
Administration Fees .08%
.08% .14% ----- ----- -----
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement) .53%
.53% .53%
- ----- ----- -----
- ----- ----- -----
<CAPTION>
TREASURY 100%
INSTRUMENTS TREASURY
MONEY INSTRUMENTS TAX-
FREE MUNICIPAL
MARKET FUND MONEY
MONEY MONEY
II MARKET FUND MARKET
FUND MARKET FUND
- --------------- --------------- ------------
- --- ---------------
<S> <C>
<C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net assets)
Advisory Fees (net of applicable fee
waivers) .10%
.08% .03% .06%
Rule 12b-1 fees .35%
.35% .35% .35%
Other Expenses -- including
Administration Fees .08%
.10% .15% .12% -----
----- ----- -----
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement) .53%
.53% .53% .53%
- ----- ----- ----- -----
- ----- ----- ----- -----
<FN>
*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.
</TABLE>
4 <PAGE>
In order to maintain a competitive expense ratio,
the Adviser and
Administrator have voluntarily agreed to waive fees and
reimburse expenses 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 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 of the
Funds. Absent fee
waivers and expense reimbursements, the Total Fund Operating
Expenses of Class C
Shares would be as follows:
<TABLE>
<CAPTION>
PERCENTA
G
E
O
F
A
V
E
R
A
G
E
D
A
I
L
Y
N
E
T
A
S
S
E
T
S
---------
- -------------------<S>
<C>
Prime Money Market Fund
.60%
Prime Value Money Market Fund
.60%
Government Obligations Money Market Fund
.69%
Treasury Instruments Money Market Fund II
.60%
100% Treasury Instruments Money Market Fund
.67%
Tax-Free Money Market Fund
.70%
Municipal Money Market Fund
.67%
</TABLE>
- ------------------------
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
10 YEARS
- ----------- ----------- ----------- ------------<S>
<C>
<C> <C>
$ 5 $ 17 $ 30
$ 66
</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.
5
<PAGE>
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 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.
<TABLE>
<CAPTION>
PRIM
E
MONE
Y
MARK
ET
FUND
-------------------<S>
<C> <C>
1/31/95 1/31/94*
Net asset value, beginning of period
$1.00 $1.00
-------- ---------
Net investment income (1)
0.0407 0.0001
Dividends from net investment income
(0.0407) (0.0001)
-------- ---------
Net asset value, end of period
$1.00 $1.00
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
Total return (2)
4.14% ------(5)
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
R
a
t
i
o
s
t
o
a
v
e
r
a
g
e
n
e
t
a
s
s
e
t
s
/
s
u
p
p
l
e
m
e
n
t
a
l
d
a
t
a
:
Net assets, end of period (in 000's)
$7,245 ------(6)
Ratio of net investment income to average net assets
3.95% 2.81%(3)
Ratio of operating expenses to average net assets (4)
0.47% 0.46%(3)
<FN>
* The Class C Shares commenced operations on December 27, 1993.
(1) Net investment income before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or
expenses reimbursed by the Investment 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.
(2) Total return represents aggregate total return for the
periods indicated. (3) Annualized.
(4) Annualized expense ratios before waiver of fees by the
Investment Adviser,
Administrator, Custodian and/or Transfer Agent and/or
expenses reimbursed by the Investment 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.
(5) All Class C Shares of the 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 Fund were $100
at January 31, 1994.
</TABLE>
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 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
6
<PAGE>
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.
The Trust's 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. Each Fund operates as a
diversified investment portfolio. 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 limitations. 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 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 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 ratings 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.
7 <PAGE>
GOVERNMENT OBLIGATIONS MONEY MARKET 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 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 invests in
obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities (in addition to direct Treasury obligations)
and repurchase agreements relating to such obligations.
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.
TAX-FREE MONEY MARKET FUND and MUNICIPAL 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 Tax-Free Money Market Fund and Municipal 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 periods, including when suitable tax-exempt
obligations are unavailable. There is no percentage limitation
on the amount of assets which may be held uninvested.
Uninvested cash reserves will not earn income.
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.
8 <PAGE>
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 bonds 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, Tax-Free
Money Market Fund and Municipal 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 and Treasury
Instruments Money Market Fund II 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
The Funds (other than Tax-Free Money Market Fund and
Municipal 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
9
<PAGE>
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
Prime Money Market Fund, Prime Value Money Market Fund,
Tax-Free Money Market Fund and Municipal 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. Discounts 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 and Treasury
Instruments Money Market Fund II 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.
10 <PAGE>
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, Tax-Free Money Market
Fund and Municipal 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 securities. 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
Tax-Free Money Market Fund and Municipal 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
Tax-Free Money Market Fund and Municipal Money Market Fund
may invest in the Municipal Obligations described below.
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.
11 <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 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 Board of 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
12
<PAGE>
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 their
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.
13 <PAGE>
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 and Treasury Instruments Money Market Fund II
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.
2. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry, provided that there
is no limitation with respect to investments in U.S.
Government securities. For the purposes of this
restriction, state and municipal governments and their
agencies and instrumentalities are not deemed to be
industries.
Each Fund may, in the future, seek to achieve its
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.
14 <PAGE>
<TABLE>
<CAPTION>
ORDER PAYMENT
RECEIVED
BY*
RECEIVED
BY*
EFFECTIVE
*
<S>
<C> <C> <C>
Prime Money Market Fund, noon
noon noon
Prime Value Money Market Fund,
Government Obligations Money Market Fund, and 3:00 P.M.
3:00 P.M. 3:00 P.M.
Treasury Instruments Money Market Fund
4:00 P.M. 4:00 P.M.
100% Treasury Instruments Money Market Fund noon
noon noon
1:00 P.M. 1:00 P.M. 1:00 P.M.
4
:
0
0
P
.
M
.
4:00 P.M.
Tax-Free Money Market Fund and noon
noon noon
Municipal Money Market Fund
4:00 P.M. 4:00 P.M.
<FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
Payment for Fund shares may be made only in federal
funds immediately
available to Boston Safe Deposit and Trust Company ("Boston
Safe"). (Payment for orders which are not received or
accepted by Lehman Brothers will be returned after prompt
inquiry to the sending institution.) 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.
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.
Under certain circumstances, individuals may purchase shares
of the Fund. The minimum aggregate initial investment by an
individual in the Funds is $5 million. 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.
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 -- 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 Department of
Labor or state securities commissions, are urged to
consult their legal advisers before investing fiduciary
funds in Class C Shares.
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. TSSG
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.
15 <PAGE>
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.
<TABLE>
<CAPTION>
ORDER
RECEIVE
D BY*
PAYMEN
T MADE
<S>
<C> <C>
Prime Money Market Fund, 3:00
P.M. same business
Prime Value Money Market Fund,
day
Government Obligations Money Market Fund and
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund 1:00
P.M. same business
day
Tax-Free Money Market Fund and noon
same business
Municipal Money Market Fund
day
<FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
Shares are redeemed at the net asset value per share
next determined after
Lehman Brothers' receipt of the redemption order. While the
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 TSSG 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
16
<PAGE>
the Exchange Privilege, exchange instructions must be
given to Lehman Brothers by telephone or through LEX. 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 or
through LEX. 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.
<TABLE>
<CAPTION>
N
E
T
A
S
S
E
T
V
A
L
U
E
CALCULATED* <S>
<C> Prime Money Market Fund,
noon
Prime Value Money Market Fund,
Government Obligations Money Market Fund, and
3:00 P.M.
Treasury Instruments Money Market Fund II
4:00 P.M. 100% Treasury Instruments Money Market Fund
noon
1:
00
P.
M.
4:
00
P.
M.
Tax-Free Money Market Fund and
noon
Municipal Money Market Fund
4:00 P.M. <FN>
- ------------------------
* All times stated are Eastern time.
</TABLE>
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
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
17
<PAGE>
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
Funds do 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 shares of each class
bear all the expenses associated with that 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 Lehman Brothers,
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 qualified in its last taxable year and
intends to qualify in
future years as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company is exempt from federal income
tax on amounts distributed to its investors.
Qualification as a regulated investment company under
the Code for a taxable year requires, among other things,
that 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 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.
18
<PAGE>
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.
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.
INVESTMENT ADVISER -- LEHMAN BROTHERS GLOBAL ASSET
MANAGEMENT INC.
LBGAM, 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 $12 billion as of April 30, 1995.
19 <PAGE>
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.
ADMINISTRATOR AND TRANSFER AGENT -- 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, a wholly-owned subsidiary of Mellon,
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.
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, SEC 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,
20
<PAGE>
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 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, Tax-Free Money
Market Fund and Municipal Money Market Fund may be quoted
in advertisements or in reports to shareholders. Yield
quotations are computed separately for each class of
shares. The "yield" quoted in advertisements for a
particular class 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 is
assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The
"tax-equivalent yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to
the Fund's tax-free yield for each class of shares. It
is calculated by increasing the yield (calculated as above)
by the amount necessary to reflect the payment of federal
taxes at a stated rate. The "tax-equivalent yield" will
always be higher than the "yield."
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-REGISTERED TRADEMARK-, 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 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
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 ten 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 and 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. 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.
21 <PAGE>
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."
22 <PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS --
- -------------------------------------------------
- ------
<TABLE>
<S>
<C>
Client Service Center
(8:30 am to 5:00 pm, Eastern time):
800-851-3134
fa
x
:
6
1
7
- -
2
6
1
- -
4
3
3
0
o
r
6
1
7
- -
2
6
1
- -
4
3
4
0
Dividend factors and yields:
800-238-2560
Administration/Sales/Marketing:
800-368-5556
To place a purchase or redemption order:
800-851-3134
To change account information:
800-851-3134
Additional Prospectuses:
800-368-5556
Information on Service Agreements:
800-851-3134
LEX Help Desk
800-566-5LEX
</TABLE>
LEHMAN BROTHERS
- -------------------------------------------------
- --------
<PAGE>
- ------------------------------------------------------------
- ------------------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 family of 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:
PRIME MONEY MARKET FUND PRIME
VALUE MONEY MARKET FUND
GOVERNMENT OBLIGATIONS MONEY MARKET
FUND
TREASURY INSTRUMENTS MONEY MARKET FUND
II 100% TREASURY INSTRUMENTS MONEY MARKET
FUND
TAX-FREE MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
Shares may not generally 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. ("LBGAM" or 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
30, 1995, as amended or supplemented from time to time, has
been filed with the Securities and Exchange Commission (the
"SEC") 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 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 APPORVED 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
<PAGE>
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRATY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------
- -------------------
THE DATE OF THIS PROSPECTUS IS MAY 30,
1995.
- - 2 -
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
MAY 30, 1995 PROSPECTUS
TABLE OF CONTENTS
P
a
g
e
- -
- -
- -
- -
Summary of Investment Objectives
3
Background and Expense Information
4
Financial Highlights
5
Investment Objectives and Policies
6
Portfolio Instruments and Practices
9
Investment Limitations
15
Purchase and Redemption of Shares
16
Dividends
20
Taxes
20
Management of the Funds
22
Performance and Yields
24
Description of Shares
25
**1 THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE MONEY MARKET FUNDS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
MONEY MARKET FUNDS. INVESTORS WISHING TO OBTAIN SIMILAR
INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY
OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN BROTHERS AT 1-800-368-5556.
- - 3 -
<PAGE>
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are
summarized below. See
"Investment Objectives and Policies" beginning on page 6 for
more detailed information.
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.
TREASURY INSTRUMENTS MONEY MARKET FUND II seeks to
provide current
income with liquidity and security of 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.
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 in "Investment Objectives and Policies."
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 in
"Investment Objectives and Policies."
- - 4 -
<PAGE>
THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE
THEIR RESPECTIVE
INVESTMENT 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 service
and/or distribution fees 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
Trust ("LEX").
The purpose of the following table is to assist an
investor in
understanding the various costs and estimated 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
<TABLE>
<CAPTION>
GOVERNMENT PRIME VALUE OBLIGATIONS
PRIME MONEY MONEY MONEY
MARKET FUND
MARKET FUND
MARKET FUND
<S> <C>
<C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net assets)
Advisory Fees (net of applicable fee waivers) .10%
.10% .04%
Rule 12b-1 fees
.15% .15% .15%
Other Expenses - including Administration Fees .08%
.08% .14%
Total Fund Operating Expenses
(after fee waivers and/or expense reimbursement) .33%
.33% .33%
</TABLE>
- - 5 -
<PAGE>
<TABLE>
<CAPTION>
TREASURY
100%
INSTRUMENTS
TREASURY
MONEY INSTRUMENTS TAX-FREE MUNICIPAL
MARKET FUND MONEY MONEY MONEY
II MARKET FUND MARKET FUND MARKET FUND
<S> <C>
<C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net assets)
Advisory Fees (net of applicable fee waivers) .10%
.08% .03% .06%
---- -
- --- ----
Rule 12b-1 fees .15%
.15% .15% .15%
Other Expenses - including Administration Fees .08%
.10% .15% .12%
- ---- ---- ----
Total Fund Operating Expenses
(after fee waivers and/or expense reimbursement) .33%
.33% .33% .33%
- ---- ---- ----
<FN>
*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.
</TABLE>
In order to maintain a competitive expense ratio,
the Adviser and
Administrator have voluntarily agreed to waive fees and
reimburse expenses 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 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 of the
Funds. Absent fee waivers and expense reimbursements, the
Total Fund Operating Expenses of Class E Shares would be as
follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF
AV
ER
AG
E
DA
IL
Y
NE
T
AS
SE
TS
- --
- --
- --
- --
- --
<S>
<C> Prime
Money Market Fund
.40%
Prime Value Money Market Fund
.40%
Government Obligations Money Market Fund
.49%
Treasury Instruments Money Market Fund II
.40%
100% Treasury Instruments Money Market Fund
.47%
Tax-Free Money Market Fund
.50%
Municipal Money Market Fund
.47%
- --------------------
</TABLE>
- ---------------------------------------
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5
YEARS 10 YEARS
- ------ ------- --
- ----- --------
<S> <C>
<C> <C>
$3
$11 $19 $42
</TABLE>
- - 6 -
<PAGE>
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 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.
<TABLE>
<CAPTION>
PRIME
MONEY
MARKET
FUND ---
- --------
- --------
- ----
<S>
<C> 1/31/95*
Net asset value, beginning of period
$1.00
Net investment income (1)
0.0165
Dividends from net investment income
(0.0165)
Net asset value, end of period
$1.00
Total return (2)
1.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
$8,318
Ratio of net investment income to average net assets
4.15%(3)
Ratio of operating expenses to average net assets (4)
0.27%(3)
<FN>
* The Class E Shares commenced operations on
October
6, 1994. (1) Net investment income before waiver
of fees by the Investment Adviser,
Administrator, Custodian and/or Transfer Agent
and/or expenses reimbursed by the Investment
Adviser and Administrator for the Class E Shares
was $0.0160 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 Investment
Adviser, Administrator, Custodian and/or Transfer
Agent and/or expenses reimbursed by the Investment
Adviser and Administrator for Class E Shares was
0.39% for the period ended January 31, 1995.
</TABLE>
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
- 7 -
<PAGE>
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.
The Trust's 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. Each Fund operates as
a diversified investment portfolio. 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 limitations. 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 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 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 ratings 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
- 8 -
<PAGE>
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, 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 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 invests in
obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities (in addition to direct Treasury
obligations) and repurchase agreements relating to such
obligations.
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.
TAX-FREE MONEY MARKET FUND and MUNICIPAL 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."
- 9 <PAGE>
Both the Tax-Free Money Market Fund and Municipal 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 periods,
including when suitable tax-exempt obligations are
unavailable. There is no percentage limitation on the
amount of assets which may be held uninvested. Uninvested
cash reserves will not earn income.
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.
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 Tax-Free Money Market Fund and
Municipal 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 bonds
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, Tax-Free
Money Market Fund and Municipal 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
- 10 -
<PAGE>
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 and Treasury
Instruments Money
Market Fund II 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
The Funds (other than Tax-Free Money Market Fund and
Municipal 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
Prime Money Market Fund, Prime Value Money Market Fund,
Tax-Free Money
Market Fund and Municipal 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.
- 11 <PAGE>
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. Discounts
with respect to stripped taxexempt 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 and Treasury
Instruments Money
Market Fund II 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, Tax-Free Money Market Fund
and Municipal 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. Taxexempt 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 securities. 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 taxexempt variable or floating rate
obligation to be treated as illiquid for purposes of a
Fund's limitation on illiquid investments.
- 12 <PAGE>
TAX-EXEMPT COMMERCIAL PAPER
Tax-Free Money Market Fund and Municipal 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
Tax-Free Money Market Fund and Municipal Money Market
Fund may invest in
the Municipal Obligations described below.
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.
- 13 <PAGE>
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 Board of 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,
- 14 -
<PAGE>
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 their 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.
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.")
- 15 <PAGE>
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 and Treasury Instruments Money Market Fund
II 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.
2. Purchase any securities which would cause 25% or
more of the value of its total assets at the time of
purchase to be invested in the securities of issuers
conducting their principal business activities in the same
industry, provided that there is no limitation with respect
to investments in U.S. Government securities. For the
purposes of this restriction, state and municipal
governments and their agencies and instrumentalities are not
deemed to be industries.
Each Fund may, in the future, seek to achieve its
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
- --------------------
ORDER
PAYMENT
RECEIVED BY*
RECEIVED BY*
EFFECTIVE*
- ------------------------------------------------------------
- --------------------
<S> <C>
<C> <C>
Prime Money Market Fund, noon
noon noon
Prime Value Money Market Fund,
Government Obligations Money 3:00 P.M.
3:00
P.M. 3:00 P.M.
Market Fund and
Treasury Instruments Money
4:00
P.M. 4:00 P.M.
Market Fund II
- ------------------------------------------------------------
- --------------------
- 16 -
<PAGE>
- ------------------------------------------------------------
- -------------------100% Treasury Instruments Money
noon noon noon
Market Fund
1:00 P.M. 1:00
P.M. 1:00 P.M.
4:00
P.M. 4:00 P.M.
- ------------------------------------------------------------
- -------------------Tax-Free Money Market Fund
noon noon
and Municipal Money Market
Fund
noon 4:00 P.M.
4:00
P.M.
- ------------------------------------------------------------
- -------------------<FN>
* All times stated are Eastern time.
</TABLE>
Payment for Fund shares may be made only in federal
funds immediately
available to Boston Safe Deposit and Trust Company ("Boston
Safe"). Payment for orders which are not received or
accepted by Lehman Brothers will be returned after prompt
inquiry to the sending institution. 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.
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.
Under certain circumstances, individuals may purchase shares
of the Funds. The minimum initial investment by an
individual is $5 million.. 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.
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 - 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 Department of Labor or state
securities commissions, are urged to consult their legal
advisers before investing fiduciary funds in Class E Shares.
- 17 <PAGE>
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. TSSG 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.
<TABLE>
<CAPTION>
ORDER
RECEIVED BY* PAYMENT MADE
<S> <C>
<C>
Prime Money Market Fund,
3:00 P.M. same
Prime Value Money Market Fund,
business day
Government Obligations Money Market Fund
and
Treasury Instruments Money Market
Fund II
- ------------------------------------------------------------
- -------------------100% Treasury Instruments Money
1:00 P.M. same
Market Fund
business day
- ------------------------------------------------------------
- --------------------
Tax-Free Money Market Fund and noon
same business
Municipal Money Market Fund
day
- ------------------------------------------------------------
- -------------------<FN>
- -------------------
*All times stated are Eastern time.
</TABLE>
Shares are redeemed at the net asset value per share
next determined after
Lehman Brothers' receipt of the redemption order. While the
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.
- 18 <PAGE>
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 TSSG 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 or through LEX. 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 1-800-3685556 or through LEX. 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------
- -----
- -----
- -----
NET
ASSET
VALUE
CALCULATED* ---------------------------------------
- -------------------------------
<S>
<C>
Prime Money Market Fund, noon
Prime Value Money Market Fund,
Government Obligations Money Market Fund, 3:00
P.M.
and Treasury Instruments Money Market Fund II
4:00
P.M. --------------------------------------------------
- --------------------
- 19 <PAGE>
- -------------------------------------------------------
- --------------100% Treasury Instruments Money Market
Fund noon
1:00
P.M.
4:00
P.M.
- -------------------------------------------------------
- --------------Tax-Free Money Market Fund and
Municipal Money Market Fund noon
4:00
P.M.
- -------------------------------------------------------
- ---------------
<FN>
- -----------------
*All times stated are Eastern time.
</TABLE>
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
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 Funds do
not expect to realize net long-term capital gains.
- 20 <PAGE>
Dividends are determined in the same manner and are
paid in the same amount for each Fund share, except that
shares of each class bear all the expenses associated with
that 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 Lehman Brothers, 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 qualified in its last taxable year and
intends to qualify in
future years as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company is exempt from federal income
tax on amounts distributed to its investors.
Qualification as a regulated investment company under
the Code for a taxable year requires, among other things,
that 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 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.
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
- 21 -
<PAGE>
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.
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
LBGAM, 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.
INVESTMENT ADVISER - LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT
INC.
LBGAM, 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
$12 billion as of April 30, 1995.
- 22 -
<PAGE>
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.
ADMINISTRATOR AND TRANSFER AGENT - 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, a wholly-owned subsidiary of Mellon,
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.
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.
- 23 <PAGE>
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, SEC 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 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, Tax-Free Money
Market Fund and Municipal Money Market Fund shares may be
quoted in advertisements or in reports to shareholders.
Yield quotations are computed separately for each class of
shares. The "yield" quoted in advertisements for a
particular class 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 is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed
reinvestment. The "tax-equivalent yield" demonstrates the
level of taxable yield necessary to produce an after-tax
yield equivalent to the Fund's tax-free yield for each class
of shares. It is calculated by increasing the yield
(calculated as above) by the amount necessary to reflect the
payment of federal taxes at a stated rate. The "tax-
equivalent yield" will always be higher than the "yield."
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-Registered Trademark-, 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 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.
- 24 <PAGE>
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Trust is a Massachusetts business trust established
on November 25,
1992. The Trust's Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest in the Trust and to
classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end
management investment company, which currently offers ten
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 and 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.
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."
- 25
Lehman Brothers
Floating Rate U.S. Government Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Premier Shares") of the Floating Rate U.S.
Government Fund (the "Fund"), a diversified investment
portfolio of the Trust. Fund shares may not be purchased by
individuals directly, but institutional investors may
purchase shares for accounts maintained by individuals.
The Fund's investment objective is to provide a high
level of current income consistent with minimal fluctuation
of net asset value. The Fund invests primarily in a
portfolio consisting of U.S. Government and agency
securities, including floating rate and adjustable rate
mortgage securities, and repurchase agreements
collateralized by such obligations.
Lehman Brothers Inc. ("Lehman Brothers" or the
"Distributor") sponsors the Fund and acts as Distributor of
its shares. Lehman Brothers Global Asset Management Inc.
("LBGAM" or 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;
for yield information call 1-800-238-2560; for other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information
about the Fund that investors should know before investing.
Investors are advised to read this Prospectus and retain it
for future reference. Additional information about the Fund,
contained in a Statement of Additional Information dated May
30, 1995, as amended or supplemented from time to time, has
been filed with the Securities and Exchange Commission (the
"SEC") 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 Fund are not deposits or obligations of,
or guaranteed or endorsed by, any bank, and such shares are
not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other
government agency. Shares of the Fund involve certain
investment risks, including the possible loss of principal.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________
LEHMAN BROTHERS
May 30, 1995
TABLE OF CONTENTS
P
a
g
e
Background and Expense Information
3
Financial Highlights
4
Investment Objective and Policies
4
Purchase, Redemption and Exchange
of Shares
1
1
Dividends
1
3
Taxes
1
4
Management of the Fund
1
5
Description of Shares
1
7
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.
BACKGROUND AND EXPENSE INFORMATION
The Fund consists of three separate classes of shares,
only one of which, Premier Shares, is offered by this
Prospectus. Each class represents an equal, pro rata
interest in the Fund. The Fund's other classes of shares
have different sales charges and expenses than Premier
Shares which would affect the performance of these classes
of shares. Investors may obtain information concerning the
Fund's other classes of shares by calling Lehman Brothers at
1-800-368-5556.
The purpose of the following table is to assist an
investor in understanding the various costs and expenses
that an investor in the Fund would bear directly or
indirectly. For more complete descriptions of the various
costs and expenses, see "Management of the Fund" in this
Prospectus and the Statement of Additional Information.
Expense Summary
Annual Fund Operating
Expenses
(as a percentage of average
net assets)
Advisory Fees (net of
applicable fee waivers)
.
0
0
%
Rule 12b-1 fees
n
o
n
e
Other Expenses - including
Administration Fees (net
of applicable fee waivers)
.
1
0
%
Total Fund Operating
Expenses (after fee
waivers and expense
reimbursement)
.
1
0
%
_______________________________
In order to maintain a competitive expense ratio, the
Adviser and Administrator have voluntarily agreed to waive
fees and reimburse expenses to the extent necessary to
maintain an annualized expense ratio at a level no greater
than .10% of the average daily net assets of the Fund. The
voluntary fee waiver and expense reimbursement arrangements
described above will not be changed unless shareholders are
provided at least 60 days' advance notice. Absent waivers
or reimbursement of expenses, Advisory Fees with respect to
Premier Shares were .30% annually, Other Expenses were .36%
annually and the Total Fund Operating Expenses were .66% of
the Fund's average daily net assets.
Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to
the Premier Shares:
1
Y
e
a
r
3
Y
e
a
r
s
5
Y
e
a
r
s
1
0
Y
e
a
r
s
$
1
$
3
$
6
$
1
3
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year
ended January 31, 1995, are derived from the Fund's
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.
F
l
o
a
t
i
n
g
R
a
t
e
U
.
S
.
G
o
v
e
r
n
m
e
n
t
F
u
n
d
1
/
3
1
/
9
5
*
Net
asse
t
valu
e,
begi
nnin
g of
peri
od
$
1
0
.
0
0
Net
inve
stme
nt
inco
me
(1)
0
.
4
3
Net
real
ized
and
unre
aliz
ed
loss
on
inve
stme
nts
(
0
.
1
4
)
Net
incr
ease
in
net
asse
ts
resu
ltin
g
from
inve
stme
nt
oper
atio
ns
0
.
2
9
Divi
dend
s
from
net
inve
stme
nt
inco
me
(
0
.
4
4
)
Net
asse
t
valu
e,
end
of
peri
od
$
9
.
8
5
Tota
l
retu
rn
(2)
2
.
9
6
%
Rati
os
to
aver
age
net
asse
ts/s
uppl
emen
tal
data
:
Net
asse
ts,
end
of
peri
od
(in
000'
s)
$
4
4
,
6
3
8
Rati
o of
net
inve
stme
nt
inco
me
to
aver
age
net
asse
ts
5
.
2
1
%
(
3
)
Rati
o of
oper
atin
g
expe
nses
to
aver
age
net
asse
ts
(4)
0
.
1
0
%
(
3
)
Port
foli
o
turn
over
rate
1
6
4
%
* The Premier Shares commenced operations on March 28, 1994.
(1) Net investment income before waiver of fees by the
Investment
Adviser, Administrator and Custodian and expenses reimbursed by
the Investment Adviser for the Premier Shares was $0.39.
(2) Total return represents aggregate total return for the
period
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the
Investment
Adviser, Administrator and Custodian and expenses reimbursed by
the Investment Adviser for Premier Shares was 0.66%.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a
high level of current income consistent with minimal
fluctuation of net asset value. Current income includes, in
general, discount earned on U.S. Treasury bills and agency
discount notes, interest earned on mortgage-related
securities and other U.S. Government and agency securities,
and short-term capital gains. While there can be no
assurance that the Fund will be able to maintain minimal
fluctuation of net asset value or that it will achieve its
investment objective, the Fund endeavors to do so by
following the investment policies described in this
Prospectus. The Fund is not a money market fund and its net
asset value will fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of
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.
The 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 (i) if the Fund is unaware that
a savings association is a shareholder at the time such
change is to be made or (ii) 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.
There is no assurance that the Fund will meet its
investment objective.
Duration
Under normal interest rate conditions, the Fund's
average portfolio duration will be between that of a
six-month and a one year U.S. Treasury bill (approximately
six months to one year). This means that the Fund's net
asset value fluctuation is expected to be similar to the
price fluctuation of a six-month to 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). 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).
Acceptable Investments
The types of U.S. Government mortgage securities in
which the Fund may invest include the following:
* adjustable rate mortgage securities;
* collateralized mortgage obligations;
* real estate mortgage investment conduits; and
* other securities collateralized by or representing
interests in real estate mortgages whose interest
rates reset at periodic intervals and are issued
or guaranteed by the U.S. Government, its agencies
or instrumentalities.
In addition to the securities described above, the Fund
may also invest in direct obligations of the U.S. Treasury,
such as U.S. Treasury bills, notes, and bonds, as well as
obligations of certain U.S. Government agencies or
instrumentalities which are not collateralized by or
represent interests in real estate mortgages.
The Fund may also invest in mortgage-related securities
which are issued by private entities such as investment
banking firms and companies related to the construction
industry. The privately issued mortgage-related securities
in which the Fund may invest include:
* privately issued securities which are
collateralized by pools of mortgages in which
payment of principal and interest are guaranteed
by the issuer and such guarantee is collateralized
by U.S. Government securities; and
* other privately issued securities in which the
proceeds of the issuance are invested in
mortgage-backed securities and payment of the
principal and interest are supported by the credit
of any agency or instrumentality of the U.S.
Government.
The privately issued mortgage-related securities
provide for a periodic payment consisting of both interest
and principal. The interest portion of these payments will
be distributed by the Fund as income, and the capital
portion will be reinvested.
Adjustable Rate Mortgage Securities ("ARMS"). ARMS are
pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Fund invests are
issued by Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and Federal
Home Loan Corporation ("FHLMC") and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA
are fully guaranteed by the Federal Housing Administration
("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically
conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over
the life of the ARMS rather than at maturity. Thus, a holder
of the ARMS, such as the Fund, would receive monthly
scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of
principal that it receives, the holder may receive a rate of
interest paid on the existing ARMS. As a consequence, ARMS
may be a less effective means of "locking in" long-term
interest rates than other types of U.S. Government
securities.
Not unlike other U.S. Government securities, the market
value of ARMS will generally vary inversely with changes in
market interest rates. Thus, the market value of ARMS
generally declines when interest rates rise and generally
rises when interest rates decline.
While ARMS generally entail less risk of a decline
during periods of rapidly rising rates, ARMS may also have
less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases
that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and
unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium
paid. Conversely, if ARMS are purchased at a discount, both
a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total
returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
Collateralized Mortgage Obligations ("CMOs"). CMOs are
bonds issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government
agencies, investment banks or companies related to the
construction industry. CMOs purchased by the Fund may be:
* collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of
the U.S. Government;
* collateralized by pools of mortgages in which
payment of principal and interest is guaranteed by
the issuer and such guarantee is collateralized by
U.S. Government securities; or
* securities in which the proceeds of the issuance
are invested in mortgage securities and payment of
the principal and interest are supported by the
credit of an agency or instrumentality of the U.S.
Government.
All CMOs purchased by the Fund are investment grade, as
rated by a nationally recognized statistical rating
organization.
Real Estate Mortgage Investment Conduits
("REMICs"). REMICs are offerings of multiple class real
estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as
trusts, partnerships, corporations, associations or a
segregated pool of mortgages. Once REMIC status is elected
and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and
is taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes
of "regular interests," some of which may offer adjustable
rates (the type in which the Fund primarily invests), and a
single class of "residual interests." To qualify as a REMIC,
substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real
property.
Other Investments and Practices
Resets. The interest rates paid on the ARMS, CMOs and
REMICs in which the Fund invests generally are readjusted or
reset at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such
as a cost of funds index or a moving average of mortgage
rates. Commonly utilized indices include the one-year and
five-year Constant Maturity Treasury (CMT) rates, the
three-month Treasury bill rate, the 180-day Treasury bill
rate, rates on longer term Treasury securities, the National
Median Cost of Funds (COFI), the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices, such
as the one-year CMT rate, closely mirror changes in market
interest rate levels. Others tend to lag changes in market
rate levels and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages which
collateralize the ARMS, CMOs and REMICs in which the Fund
invests may have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower
may change up or down: (1) per reset or adjustment interval
and (2) over the life of the loan. Some residential mortgage
loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment
caps may result in negative amortization.
The value of mortgage securities in which the Fund
invests may be affected if market interest rates rise or
fall faster and farther than the allowable caps or floors on
the underlying residential mortgage loans. An example of the
effect of caps and floors on a residential mortgage loan may
be found in the Statement of Additional Information.
Additionally, even though the interest rates on the
underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the
Fund invests to be shorter than the maturities stated in the
underlying mortgages.
Repurchase Agreements. 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 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
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).
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.
When-Issued Securities. The Fund may purchase securities on
a "when-issued" basis. When-issued securities are
securities purchased for delivery beyond the normal
settlement date at a stated price and yield. The Fund will
generally not pay for such securities or start earning
interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset
and are subject to changes in value based upon changes in
the general level of interest rates. The Fund expects that
commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual
market conditions. The Fund does not intend to purchase
when-issued securities for speculative purposes but only in
furtherance of its investment objectives.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net assets in
illiquid securities, including time deposits and repurchase
agreements having maturities longer than seven days.
Securities that have readily available market quotations are
not deemed illiquid for purposes of this limitation
(irrespective of any legal or contractual restrictions on
resale). The Fund may invest in commercial obligations
issued in reliance on the so-called "private placement"
exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended ("Section 4(2) paper").
The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended, but
which can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A
securities"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally
is sold to institutional investors such as the Fund who
agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2)
paper is normally resold to other institutional investors
like the Fund through or with the assistance of the issuer
or investment dealers who make a market in the Section 4(2)
paper, thus providing liquidity. Rule 144A securities
generally must be sold to other qualified institutional
buyers. If a particular investment in Section 4(2) paper or
Rule 144A securities is not determined to be liquid, that
investment will be included within the percentage limitation
on investment in illiquid securities.
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 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.
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
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.
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
Standard & Poor's Corporation or P-1 by Moody's Investors
Service, Inc. and, in the case of commercial paper, rated in
one of the two highest rating categories by at least two
nationally recognized statistical rating organizations.
Portfolio Turnover. The Fund's historical portfolio
turnover rate is listed under "Financial Highlights."
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. High turnover in the Fund's portfolio
will result in the payment by the Fund of above average
amounts of taxes on realized investment gains.
Investment Limitations
The Fund's investment objective and the policies
described above are not fundamental and, except as indicated
elsewhere in this Prospectus, 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 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).
2. Purchase any securities which would cause 25% or
more of the value of its total assets at the time of
purchase to be invested in the securities of issuers
conducting their principal business activities in the same
industry, provided that there is no limitation with respect
to investments in U.S. Government obligations.
The Fund may, in the future, seek to achieve its
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.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
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.
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. 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 Lehman Brothers
ExpressNET, an automated order entry system designed
specifically for the Trust ("LEX") before 4:00 p.m., Eastern
time. Payment in federal funds immediately available to the
Custodian, Boston Safe Deposit & Trust Company ("Boston
Safe"), must be received before 3:00 p.m., Eastern time on
the next business day following the order. The Fund may in
its discretion reject any order for shares. (Payment for
orders which are not received or accepted by Lehman Brothers
will be returned after prompt inquiry to the sending
institution.) Any person entitled to receive compensation
for selling or servicing shares of the Fund may receive
different compensation for selling or servicing one class of
shares over another class.
The minimum aggregate initial investment by an
institution in the investment portfolios that comprise the
Trust is $1 million (with not less than $25,000 invested in
any one investment portfolio offered by the Trust); however,
broker-dealers and other institutional investors may set a
higher minimum for their customers. To reach the minimum
Trust-wide initial investment, purchases of shares may be
aggregated over a period of six months. There is no minimum
subsequent investment.
Subaccounting Services. Institutions are encouraged to
open single master accounts. However, certain institutions
may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of
subaccounting services rendered. Institutions holding Fund
shares in a fiduciary, agency, custodial or similar capacity
may charge or pass through subaccounting fees as part of or
in addition to normal trust or agency account fees. They may
also charge fees for other services provided which may be
related to the ownership of Fund shares. This Prospectus
should, therefore, be read together with any agreement
between the customer and the institution with regard to the
services provided, the fees charged for those services and
any restrictions and limitations imposed.
Redemption Procedures
Redemption orders must be transmitted to Lehman
Brothers by telephone at 1-800-851-3134 or through LEX.
Shares are redeemed at the net asset value per share next
determined after Lehman Brothers' receipt of the redemption
order. The proceeds paid to a shareholder upon redemption
may be more or less than the amount invested depending upon
a share's net asset value at the time of redemption.
Subject to the foregoing, payment for redeemed shares
for which a redemption order is received by Lehman Brothers
before 4:00 P.M., Eastern time, on a day that both Lehman
Brothers and the Federal Reserve Bank of Boston are open for
business is normally made in federal funds wired to the
redeeming shareholder on the next business day following the
redemption order. The Fund reserves the right to wire
redemption proceeds within seven days after receiving the
redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Fund.
The Fund shall have the right to redeem involuntarily
shares in any account at their net asset value if the value
of the account is less than $10,000 after 60 days' prior
written notice to the shareholder. Any such redemption shall
be effected at the net asset value per share next determined
after the redemption order is entered. If during the 60 day
period the shareholder increases the value of its account to
$10,000 or more, no such redemption shall take place. In
addition, the Fund may redeem shares involuntarily or
suspend the right of redemption as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"),
or under certain special circumstances described in the
Statement of Additional Information under "Additional
Purchase and Redemption Information."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is
automatically established on a shareholder's account.
However, the Fund reserves the right to refuse a redemption
order transmitted by telephone if it is believed advisable
to do so. Procedures for redeeming Fund shares by telephone
may be modified or terminated at any time by the Fund or
Lehman Brothers. In addition, neither the Fund, Lehman
Brothers nor the Transfer Agent will be responsible for the
authenticity of telephone instructions for the purchase,
redemption or exchange of shares where the instructions are
reasonably believed to be genuine. Accordingly, the investor
will bear the risk of loss. The Fund will attempt to confirm
that telephone instructions are genuine and will use such
procedures as are considered reasonable, including the
recording of telephone instructions. To the extent that the
Fund fails to use reasonable procedures to verify the
genuineness of telephone instructions, it or its service
providers may be liable for such instructions that prove to
be fraudulent or unauthorized.
Exchange Procedures
The Exchange Privilege enables a shareholder to
exchange shares of the Fund without charge for shares of
other funds of the Trust which have different investment
objectives that may be of interest to shareholders. To use
the Exchange Privilege, exchange instructions must be given
to Lehman Brothers by telephone or through LEX. See
"Redemption Procedures." In exchanging shares, a shareholder
must meet the minimum initial investment requirement of the
other fund and the shares involved must be legally available
for sale in the state where the shareholder resides. Before
any exchange, the shareholder must also obtain and should
review a copy of the prospectus of the fund into which the
exchange is being made. Prospectuses may be obtained from
Lehman Brothers by calling 1-800-368-5556. Shares will be
exchanged at the net asset value next determined after
receipt of an exchange request in proper form. The exchange
of shares of one fund for shares of another fund is treated
for Federal Income Tax purposes as a sale of the shares
given in exchange by the shareholder and, therefore, a
shareholder may realize a taxable gain or loss. The Fund
reserves the right to reject any exchange request in whole
or in part. The Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
Valuation of Shares - Net Asset Value
The Fund's net asset value per share for purposes of
pricing purchase and redemption orders is determined by the
Fund's Administrator as of 4:00 p.m., Eastern time, on each
weekday, with the exception of those holidays on which
either the New York Stock Exchange or the Federal Reserve
Bank of Boston is closed. Currently, one or both of these
institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas Day. The net
asset value per share of Fund shares is calculated by adding
the value of all securities and other assets of the Fund,
subtracting liabilities, and dividing the result by the
total number of the Fund's outstanding shares (irrespective
of class or sub-class). The Fund's net asset value per share
for purposes of pricing purchase and redemption orders is
determined independently of the net asset value of the
Trust's other investment portfolios.
Other Matters
Fund shares are sold and redeemed without charge by the
Fund. Institutional investors purchasing or holding Fund
shares for their customer accounts may charge customers fees
for cash management and other services provided in
connection with their accounts. A customer should,
therefore, consider the terms of its account with an
institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to Lehman
Brothers in accordance with its customer agreements.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and
distributions arising only from the net investment income
and capital gains, if any, earned on investments held by the
Fund. The Fund's net investment income is declared daily as
a dividend to shares held of record at the close of business
on the day of declaration. Shares begin accruing dividends
on the next business day following receipt of the purchase
order and continue to accrue dividends up to and including
the day that such shares are redeemed. Dividends are paid
monthly within five business days after the end of the month
or within five business days after a redemption of all of a
shareholder's shares of a particular class. Net capital
gains distributions, if any, will be made annually.
Dividends are determined in the same manner and are
paid in the same amount for each Fund share, except that
shares of the other classes bear all the expenses associated
with a specific class.
Institutional shareholders may elect to have their
dividends reinvested in additional full and fractional
shares of the same class of shares with respect to which
such dividends are declared at the net asset value of such
shares on the payment date. Reinvested dividends receive the
same tax treatment as dividends paid in cash. Such election,
or any revocation thereof, must be made in writing to The
Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation and the Fund's transfer agent, at
P.O. Box 9690, Providence, Rhode Island 02940-9690, and will
become effective after its receipt by TSSG, with respect to
dividends paid.
TSSG, as transfer agent, will send each Fund
shareholder or its authorized representative an annual
statement designating the amount, if any, of any dividends
and distributions made during each year and their federal
tax qualification.
TAXES
The Fund qualified in its last taxable year and intends
to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the
"Code"). A regulated investment company is exempt from
federal income tax on amounts distributed to its
shareholders.
Qualification as a regulated investment company under
the Code for a taxable year requires, among other things,
that the Fund distribute to its shareholders at least 90% of
its investment company taxable income for such year. In
general, the Fund's investment company taxable income will
be its taxable income (including dividends and short-term
capital gains, if any) subject to certain adjustments and
excluding the excess of any net long-term capital gains for
the taxable year over the net short-term capital loss, if
any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income
each year. Such distributions will be taxable as ordinary
income to Fund shareholders who are not currently exempt
from federal income taxes, whether such income is received
in cash or reinvested in additional shares. (Federal income
taxes for distributions to an IRA or a qualified retirement
plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the
dividends received deduction for corporations.
Dividends declared in October, November or December of
any year payable to shareholders of record on a specified
date in such months will be deemed to have been received by
the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during
January of the following year. Shareholders will be advised
at least annually as to the federal income tax status of
distributions made to them each year.
Distributions of net investment income may be taxable
to shareholders as dividend income under state or local law
even though a substantial portion of such distributions may
be derived from interest on U.S. Government obligations,
which, if realized directly, would be exempt from such
income taxes. The Fund will provide investors annually with
information about the portion of dividends from the Fund
derived from U.S. Treasury and U.S. Government and agency
obligations. Investors should be aware of the application of
their state and local tax laws to investments in the Fund.
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 their
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.
The foregoing discussion is only a brief summary of
some of the important federal tax considerations generally
affecting the Fund and its shareholders. As noted above,
IRAs receive special tax treatment. No attempt is made to
present a detailed explanation of the federal, state or
local income tax treatment of the Fund or its shareholders,
and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisers with specific
reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under
the direction of the Trust's Board of Trustees. The
Trustees approve all significant agreements between the
Trust and the persons or companies that furnish services to
the Fund, including agreements with its Distributor,
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 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.
The Trust has adopted a Plan of Distribution with
respect to Premier Shares of the Fund pursuant to Rule 12b-1
under the 1940 Act. The Plan of Distribution does not
provide for the payment by the Fund of any Rule 12b-1 fees
for distribution or shareholder services for Premier Shares
but provides that Lehman Brothers may make payments to
assist in the distribution of Premier Shares out of the
other fees received by it or its affiliates from the Fund,
its past profits or any other sources available to it.
Investment Adviser - Lehman Brothers Global Asset Management
Inc.
LBGAM, located at 3 World Financial Center, New York,
New York 10285, serves as the Fund's Investment Adviser.
LBGAM is a wholly owned subsidiary of Holdings. LBGAM,
together with other Lehman Brothers investment advisory
affiliates, serves as investment adviser to investment
companies and private accounts and has assets under
management of approximately $12 billion as of April 30,
1995.
As Adviser to the Fund, LBGAM manages the Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio managers and securities analysts who
provide research services to the Fund. For its services
LBGAM is entitled to receive a monthly fee from 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 and Trustee of the Trust. Mr. Hartman
joined LBGAM's Mortgage Department in 1987 and was Senior
Vice President of Mortgage Finance, responsible for
Resolution Trust Corporation, 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 making investment selections. Mr. Hartman
is assisted by Andrew J. Stenwall, a Senior Vice President
of LBGAM, and Timothy Neumann, a Vice President of LBGAM.
Administrator and Transfer Agent - 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 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 Fund. This duty to recommend
expires on May 21, 2000.
Custodian - 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.
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, 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,
administrator, transfer agent and dividend disbursing agent,
certain insurance premiums, outside auditing and legal
expenses, costs of shareholder reports and shareholder
meetings and any extraordinary expenses. The Fund also pays
for brokerage fees and commissions (if any) in connection
with the purchase and sale of portfolio securities. In
order to maintain a competitive expense ratio, 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 .10%. 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. 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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
shareholders, the "total return" and "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 Fund's performance may be compared to that of other
mutual funds with similar objectives, to stock or other
relevant indices, or to rankings prepared by independent
services or other financial or industry publications that
monitor the performance of mutual funds. For example, such
data are reported in national financial publications such as
Morningstar, Inc., Barron's, IBC/Donoghue's Inc. Bond Fund
Report, The Wall Street Journal and The New York Times,
reports prepared by Lipper Analytical Services, Inc. and
publications of a local or regional nature. The Fund's
Lipper ranking in the "U.S. Mortgage Fund" or "ARM Fund"
categories may also be quoted from time to time in
advertising and sales literature.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by
annualizing the most recent distribution of net investment
income for a monthly, quarterly or other relevant period and
dividing this amount by the ending net asset value for the
period for which the distribution rates are being
calculated.
The Fund's total return and yield figures for a class
of shares represent past performance, will fluctuate and
should not be considered as representative of future
results. The performance of any investment is generally a
function of portfolio quality and maturity, type of
investment and operating expenses. Any fees charged by
institutional investors directly to their customers in
connection with investments in Fund shares are not reflected
in the Fund's expenses, total return or yields; and, such
fees, if charged, would reduce the actual return received by
customers on their investments. The methods used to compute
the Fund's total return and yields are described in more
detail in the Statement of Additional Information. Investors
may call 1-800-238-2560 (Premier Shares Code: 012) to obtain
current performance information.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established
on November 25, 1992. The Trust's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest
in the Trust and to classify or reclassify any unissued
shares into one or more additional classes of shares. The
Trust is an open-end management investment company, which
currently offers ten 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. 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 Fund 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."
Floating Rate U.S. Government Fund
Premier Shares
PROSPECTUS
May 30, 1995
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
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
_________
LEHMAN BROTHERS
No person has been authorized to give any information or to
make any representations not contained in this Prospectus,
or in the Fund's Statement of Additional Information
incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given or made, such
information or representations must not be relied upon as
having been authorized by the Trust or its distributors.
This Prospectus does not constitute an offering by the Trust
or by the distributors in any jurisdiction in which such
offering may not lawfully be made.
LEHMAN BROTHERS INSTITUTIONAL FUNDS
Client Service Center 800-851-3134
(8:30 am to 5:00 p.m. Eastern time): fax: 617-261-4330
or 617-261-4340
Dividend factors and yields: 800-238-2560
Administration/Sales/Marketing: 800-368-5556
To place a purchase or redemption order: 800-851-
3134
To change account information: 800-851-3134
Additional Prospectuses: 800-368-5556
LEX Help Desk 800-5565LEX
LEHMAN BROTHERS
LBP-205E5
Lehman Brothers
Floating Rate U.S. Government Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Select Shares") of the Floating Rate U.S.
Government Fund (the "Fund"), a diversified investment
portfolio of the Trust. Fund shares may not be purchased by
individuals directly, but institutional investors may
purchase shares for accounts maintained by individuals.
The Fund's investment objective is to provide a high
level of current income consistent with minimal fluctuation
of net asset value. The Fund invests primarily in a
portfolio consisting of U.S. Government and agency
securities, including floating rate and adjustable rate
mortgage securities, and repurchase agreements
collateralized by such obligations.
Lehman Brothers Inc. ("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. The Fund can be contacted as follows:
for purchase and redemption orders only call 1-800-851-3134;
for yield information call 1-800-238-2560; for other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information
about the Fund that investors should know before investing.
Investors are advised to read this Prospectus and retain it
for future reference. Additional information about the Fund,
contained in a Statement of Additional Information dated May
30, 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 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 30, 1995
TABLE OF CONTENTS
P
a
g
e
Background and Expense Information
2
Financial
Highlights.......................
.................................
.................................
.......................
3
Investment Objective and Policies
3
Purchase, Redemption and Exchange
of Shares
9
Dividends
1
2
Taxes
1
2
Management of the Fund
1
3
Performance Information
1
6
Description of Shares
1
6
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.
BACKGROUND AND EXPENSE INFORMATION
The Fund consists of three separate classes of shares,
only one of which, Select Shares, is offered by this
Prospectus. The Fund's other classes of shares have
different sales charges and expenses than Select Shares
which would affect the performance of these classes of
shares. Investors may obtain information concerning the
Fund's other classes of shares by calling Lehman Brothers at
1-800-368-5556.
The purpose of the following table is to assist an
investor in understanding the various costs and expenses
that an investor in the Fund would bear directly or
indirectly. Certain institutions may also charge their
clients fees in connection with investments in Select
Shares, which fees are not reflected in the table below. For
more complete descriptions of the various costs and
expenses, see "Management of the Fund" in this Prospectus
and the Statement of Additional Information.
Expense Summary
Annual Fund Operating
Expenses
(as a percentage of average
net assets)
Advisory Fees (net of
applicable fee waivers)
.
0
0
%
Rule 12b-1 fees
.
2
5
%
Other Expenses - including
Administration Fees (net
of applicable fee waivers)
.
1
0
%
Total Fund Operating
Expenses (after fee
waivers and expense
reimbursement)
.
3
5
%
_______________________________
*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 the 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 and reimburse expenses to the extent necessary to
maintain an annualized expense ratio at a level no greater
than .35% of the average daily net assets of the Fund. The
voluntary fee waiver and expense reimbursement arrangements
described above will not be changed unless shareholders are
provided at least 60 days' advance notice. Absent waivers
or reimbursement of expenses, Advisory Fees with respect to
Select Shares would be .30% annually, Other Expenses would
be .25% annually and the Total Fund Operating Expenses would
be .80% of the Fund's average daily net assets.
Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to
the Select Shares:
1
Y
e
a
r
3
Y
e
a
r
s
5
Y
e
a
r
s
1
0
Y
e
a
r
s
$
4
$
1
1
$
2
0
$
4
4
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Select Shares of the 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 Premier Shares of the
Fund is included in that Class' prospectus and the Trust's
Annual Report dated January 31, 1995, which are available
upon request.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a
high level of current income consistent with minimal
fluctuation of net asset value. Current income includes, in
general, discount earned on U.S. Treasury bills and agency
discount notes, interest earned on mortgage-related
securities and other U.S. Government and agency securities,
and short-term capital gains. While there can be no
assurance that the Fund will be able to maintain minimal
fluctuation of net asset value or that it will achieve its
investment objective, the Fund endeavors to do so by
following the investment policies described in this
Prospectus. The Fund is not a money market fund and its net
asset value will fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of
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.
The 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 (i) if the Fund is unaware that
a savings association is a shareholder at the time such
change is to be made or (ii) 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.
There is no assurance that the Fund will meet its
investment objective.
Duration
Under normal interest rate conditions, the Fund's
average portfolio duration will be between that of a
six-month and a one year U.S. Treasury bill (approximately
six months to one year). This means that the Fund's net
asset value fluctuation is expected to be similar to the
price fluctuation of a six-month to 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). 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).
Acceptable Investments
The types of U.S. Government mortgage securities in
which the Fund may invest include the following:
* adjustable rate mortgage securities;
* collateralized mortgage obligations;
* real estate mortgage investment conduits; and
* other securities collateralized by or representing
interests in real estate mortgages whose interest
rates reset at periodic intervals and are issued
or guaranteed by the U.S. Government, its agencies
or instrumentalities.
In addition to the securities described above, the Fund
may also invest in direct obligations of the U.S. Treasury,
such as U.S. Treasury bills, notes, and bonds, as well as
obligations of certain U.S. Government agencies or
instrumentalities which are not collateralized by or
represent interests in real estate mortgages.
The Fund may also invest in mortgage-related securities
which are issued by private entities such as investment
banking firms and companies related to the construction
industry. The privately issued mortgage-related securities
in which the Fund may invest include:
* privately issued securities which are
collateralized by pools of mortgages in which
payment of principal and interest are guaranteed
by the issuer and such guarantee is collateralized
by U.S. Government securities; and
* other privately issued securities in which the
proceeds of the issuance are invested in
mortgage-backed securities and payment of the
principal and interest are supported by the credit
of any agency or instrumentality of the U.S.
Government.
The privately issued mortgage-related securities
provide for a periodic payment consisting of both interest
and principal. The interest portion of these payments will
be distributed by the Fund as income, and the capital
portion will be reinvested.
Adjustable Rate Mortgage Securities ("ARMS"). ARMS are
pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Fund invests are
issued by Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and Federal
Home Loan Corporation ("FHLMC") and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA
are fully guaranteed by the Federal Housing Administration
("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically
conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over
the life of the ARMS rather than at maturity. Thus, a holder
of the ARMS, such as the Fund, would receive monthly
scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of
principal that it receives, the holder may receive a rate of
interest paid on the existing ARMS. As a consequence, ARMS
may be a less effective means of "locking in" long-term
interest rates than other types of U.S. Government
securities.
Not unlike other U.S. Government securities, the market
value of ARMS will generally vary inversely with changes in
market interest rates. Thus, the market value of ARMS
generally declines when interest rates rise and generally
rises when interest rates decline.
While ARMS generally entail less risk of a decline
during periods of rapidly rising rates, ARMS may also have
less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases
that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and
unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium
paid. Conversely, if ARMS are purchased at a discount, both
a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total
returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
Collateralized Mortgage Obligations ("CMOs"). CMOs are
bonds issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government
agencies, investment banks or companies related to the
construction industry. CMOs purchased by the Fund may be:
* collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of
the U.S. Government;
* collateralized by pools of mortgages in which
payment of principal and interest is guaranteed by
the issuer and such guarantee is collateralized by
U.S. Government securities; or
* securities in which the proceeds of the issuance
are invested in mortgage securities and payment of
the principal and interest are supported by the
credit of an agency or instrumentality of the U.S.
Government.
All CMOs purchased by the Fund are investment grade, as
rated by a nationally recognized statistical rating
organization.
Real Estate Mortgage Investment Conduits
("REMICs"). REMICs are offerings of multiple class real
estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as
trusts, partnerships, corporations, associations or a
segregated pool of mortgages. Once REMIC status is elected
and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and
is taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes
of "regular interests," some of which may offer adjustable
rates (the type in which the Fund primarily invests), and a
single class of "residual interests." To qualify as a REMIC,
substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real
property.
Other Investments and Practices
Resets. The interest rates paid on the ARMS, CMOs and
REMICs in which the Fund invests generally are readjusted or
reset at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such
as a cost of funds index or a moving average of mortgage
rates. Commonly utilized indices include the one-year and
five-year Constant Maturity Treasury (CMT) rates, the
three-month Treasury bill rate, the 180-day Treasury bill
rate, rates on longer term Treasury securities, the National
Median Cost of Funds (COFI), the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices, such
as the one-year CMT rate, closely mirror changes in market
interest rate levels. Others tend to lag changes in market
rate levels and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages which
collateralize the ARMS, CMOs and REMICs in which the Fund
invests may have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower
may change up or down: (1) per reset or adjustment interval
and (2) over the life of the loan. Some residential mortgage
loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment
caps may result in negative amortization.
The value of mortgage securities in which the Fund invests
may be affected if market interest rates rise or fall faster
and farther than the allowable caps or floors on the
underlying residential mortgage loans. An example of the
effect of caps and floors on a residential mortgage loan may
be found in the Statement of Additional Information.
Additionally, even though the interest rates on the
underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the
Fund invests to be shorter than the maturities stated in the
underlying mortgages.
Repurchase Agreements. 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 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
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).
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.
When-Issued Securities. The Fund may purchase securities on
a "when-issued" basis. When-issued securities are
securities purchased for delivery beyond the normal
settlement date at a stated price and yield. The Fund will
generally not pay for such securities or start earning
interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset
and are subject to changes in value based upon changes in
the general level of interest rates. The Fund expects that
commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual
market conditions. The Fund does not intend to purchase
when-issued securities for speculative purposes but only in
furtherance of their investment objectives.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net assets in
illiquid securities, including time deposits and repurchase
agreements having maturities longer than seven days.
Securities that have readily available market quotations are
not deemed illiquid for purposes of this limitation
(irrespective of any legal or contractual restrictions on
resale). The Fund may invest in commercial obligations
issued in reliance on the so-called "private placement"
exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended ("Section 4(2) paper").
The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended, but
which can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A
securities"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally
is sold to institutional investors such as the Fund who
agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2)
paper is normally resold to other institutional investors
like the Fund through or with the assistance of the issuer
or investment dealers who make a market in the Section 4(2)
paper, thus providing liquidity. Rule 144A securities
generally must be sold to other qualified institutional
buyers. If a particular investment in Section 4(2) paper or
Rule 144A securities is not determined to be liquid, that
investment will be included within the percentage limitation
on investment in illiquid securities.
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 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.
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
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.
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
Standard & Poor's Corporation or P-1 by Moody's Investors
Service, Inc. and, in the case of commercial paper, rated in
one of the two highest rating categories by at least two
nationally recognized statistical rating organizations.
Portfolio Turnover. The Fund's historical portfolio
turnover is listed under "Financial Highlights." 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. High turnover in the Fund's portfolio will
result in the payment by the Fund of above average amounts
of taxes on realized investment gains.
Investment Limitations
The Fund's investment objective and the policies
described above are not fundamental and, except as indicated
elsewhere in this Prospectus, 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 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).
2. Purchase any securities which would cause 25% or
more of the value of its total assets at the time of
purchase to be invested in the securities of issuers
conducting their principal business activities in the same
industry, provided that there is no limitation with respect
to investments in U.S. Government obligations.
The Fund may, in the future, seek to achieve its
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.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
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.
Purchase Procedures
Shares of the Fund are sold at the net asset value per
share of the Fund next determined after receipt of a
purchase order by Lehman Brothers, the Distributor of the
Fund's shares. Purchase orders for shares are accepted only
on days on which both Lehman Brothers and the Federal
Reserve Bank of Boston are open for business and must be
transmitted to Lehman Brothers by telephone at 1-800-851-
3134 or through Lehman Brothers ExpressNET, an automated
order entry system designed specifically for the Trust
("LEX") before 4:00 p.m., Eastern time. Payment in federal
funds immediately available to the Custodian, Boston Safe
Deposit & Trust Company ("Boston Safe"), must be received
before 3:00 p.m., Eastern time on the next business day
following the order. The Fund may in its discretion reject
any order for shares. (Payment for orders which are not
received or accepted by Lehman Brothers will be returned
after prompt inquiry to the sending institution.) Any person
entitled to receive compensation for selling or servicing
shares of the Fund may receive different compensation for
selling or servicing one Class of shares over another Class.
The minimum aggregate initial investment by an
institution in the investment portfolios that comprise the
Trust is $1 million (with not less than $25,000 invested in
any one investment portfolio offered by the Trust); however,
broker-dealers and other institutional investors may set a
higher minimum for their customers. To reach the minimum
Trust-wide initial investment, purchases of shares may be
aggregated over a period of six months. There is no minimum
subsequent investment.
Conflict of interest restrictions may apply to an
institution's receipt of compensation paid by the Fund in
connection with the investment of fiduciary funds in Select
Shares. See also "Management of the Fund - Service
Organizations." Institutions, including banks regulated by
the Comptroller of the Currency and investment advisers and
other money managers subject to the jurisdiction of the
Securities and Exchange Commission, the Department of Labor
or state securities commissions, are urged to consult their
legal advisers before investing fiduciary funds in Select
Shares.
Subaccounting Services. Institutions are encouraged to
open single master accounts. However, certain institutions
may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of
subaccounting services rendered. Institutions holding Fund
shares in a fiduciary, agency, custodial or similar capacity
may charge or pass through subaccounting fees as part of or
in addition to normal trust or agency account fees. They may
also charge fees for other services provided which may be
related to the ownership of Fund shares. This Prospectus
should, therefore, be read together with any agreement
between the customer and the institution with regard to the
services provided, the fees charged for those services and
any restrictions and limitations imposed.
Redemption Procedures
Redemption orders must be transmitted to Lehman
Brothers by telephone at 1-800-851-3134 or through LEX.
Shares are redeemed at the net asset value per share next
determined after Lehman Brothers' receipt of the redemption
order. The proceeds paid to a shareholder upon redemption
may be more or less than the amount invested depending upon
a share's net asset value at the time of redemption.
Subject to the foregoing, payment for redeemed shares
for which a redemption order is received by Lehman Brothers
before 4:00 p.m., Eastern time, on a day that both Lehman
Brothers and the Federal Reserve Bank of Boston are open for
business is normally made in federal funds wired to the
redeeming shareholder on the next business day following the
redemption order. The Fund reserves the right to wire
redemption proceeds within seven days after receiving the
redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Fund.
The Fund shall have the right to redeem involuntarily
shares in any account at their net asset value if the value
of the account is less than $10,000 after 60 days' prior
written notice to the shareholder. Any such redemption shall
be effected at the net asset value per share next determined
after the redemption order is entered. If during the 60 day
period the shareholder increases the value of its account to
$10,000 or more, no such redemption shall take place. In
addition, the Fund may redeem shares involuntarily or
suspend the right of redemption as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"),
or under certain special circumstances described in the
Statement of Additional Information under "Additional
Purchase and Redemption Information."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is
automatically established on a shareholder's account.
However, the Fund reserves the right to refuse a redemption
order transmitted by telephone if it is believed advisable
to do so. Procedures for redeeming fund shares by telephone
may be modified or terminated at any time by the Fund or
Lehman Brothers. In addition, neither the Fund, Lehman
Brothers nor the Transfer Agent will be responsible for the
authenticity of telephone instructions for the purchase,
redemption or exchange of shares where the instructions are
reasonably believed to be genuine. Accordingly, the investor
will bear the risk of loss. The Fund will attempt to confirm
that telephone instructions are genuine and will use such
procedures as are considered reasonable, including the
recording of telephone instructions. To the extent that the
Fund fails to use reasonable procedures to verify the
genuineness of telephone instructions, it or its service
providers may be liable for such instructions that prove to
be fraudulent or unauthorized.
Exchange Procedures
The Exchange Privilege enables a shareholder to
exchange shares of the Fund without charge for shares of
other funds of the Trust which have different investment
objectives that may be of interest to shareholders. To use
the Exchange Privilege, exchange instructions must be given
to Lehman Brothers by telephone or through LEX. See
"Redemption Procedures." In exchanging shares, a shareholder
must meet the minimum initial investment requirement of the
other fund and the shares involved must be legally available
for sale in the state where the shareholder resides. Before
any exchange, the shareholder must also obtain and should
review a copy of the prospectus of the fund into which the
exchange is being made. Prospectuses may be obtained from
Lehman Brothers by calling 1-800-368-5556. Shares will be
exchanged at the net asset value next determined after
receipt of an exchange request in proper form. The exchange
of shares of one fund for shares of another fund is treated
for Federal Income Tax purposes as a sale of the shares
given in exchange by the shareholder and, therefore, a
shareholder may realize a taxable gain or loss. The Fund
reserves the right to reject any exchange request in whole
or in part. The Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
Valuation of Shares - Net Asset Value
The Fund's net asset value per share for purposes of
pricing purchase and redemption orders is determined by the
Fund's Administrator as of 4:00 p.m., Eastern time, on each
weekday, with the exception of those holidays on which
either the New York Stock Exchange or the Federal Reserve
Bank of Boston is closed. Currently, one or both of these
institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas Day. The net
asset value per share of Fund shares is calculated by adding
the value of all securities and other assets of the Fund,
subtracting liabilities, and dividing the result by the
total number of the Fund's outstanding shares (irrespective
of class or sub-class). The Fund's net asset value per share
for purposes of pricing purchase and redemption orders is
determined independently of the net asset value of the
Trust's other investment portfolios.
Other Matters
Fund shares are sold and redeemed without charge by the
Fund. Institutional investors purchasing or holding Fund
shares for their customer accounts may charge customers fees
for cash management and other services provided in
connection with their accounts. A customer should,
therefore, consider the terms of its account with an
institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to Lehman
Brothers in accordance with its customer agreements.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and
distributions arising only from the net investment income
and capital gains, if any, earned on investments held by the
Fund. The Fund's net investment income is declared daily as
a dividend to shares held of record at the close of business
on the day of declaration. Shares begin accruing dividends
on the next business day following receipt of the purchase
order and continue to accrue dividends up to and including
the day that such shares are redeemed. Dividends are paid
monthly within five business days after the end of the month
or within five business days after a redemption of all of a
shareholder's shares of a particular class. Net capital
gains distributions, if any, will be made annually.
Dividends are determined in the same manner and are
paid in the same amount for each Fund share, except that
shares of the other classes bear all the expenses associated
with a specific class.
Institutional shareholders may elect to have their
dividends reinvested in additional full and fractional
shares of the same class of shares with respect to which
such dividends are declared at the net asset value of such
shares on the payment date. Reinvested dividends receive the
same tax treatment as dividends paid in cash. Such election,
or any revocation thereof, must be made in writing to The
Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation and the Fund's transfer agent, at
P.O. Box 9690, Providence, Rhode Island 02940-9690, and will
become effective after its receipt by TSSG, with respect to
dividends paid.
TSSG, as transfer agent, will send each Fund
shareholder or its authorized representative an annual
statement designating the amount, if any, of any dividends
and distributions made during each year and their federal
tax qualification.
TAXES
The Fund qualified in its last taxable year and intends
to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the
"Code"). A regulated investment company is exempt from
federal income tax on amounts distributed to its
shareholders.
Qualification as a regulated investment company under
the Code for a taxable year requires, among other things,
that the Fund distribute to its shareholders at least 90% of
its investment company taxable income for such year. In
general, the Fund's investment company taxable income will
be its taxable income (including dividends and short-term
capital gains, if any) subject to certain adjustments and
excluding the excess of any net long-term capital gain for
the taxable year over the net short-term capital loss, if
any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income
each year. Such distributions will be taxable as ordinary
income to Fund shareholders who are not currently exempt
from federal income taxes, whether such income is received
in cash or reinvested in additional shares. (Federal income
taxes for distributions to an IRA or a qualified retirement
plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the
dividends received deduction for corporations.
Dividends declared in October, November or December of
any year payable to shareholders of record on a specified
date in such months will be deemed to have been received by
the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during
January of the following year. Shareholders will be advised
at least annually as to the federal income tax status of
distributions made to them each year.
Distributions of net investment income may be taxable
to shareholders as dividend income under state or local law
even though a substantial portion of such distributions may
be derived from interest on U.S. Government obligations,
which, if realized directly, would be exempt from such
income taxes. The Fund will provide investors annually with
information about the portion of dividends from the Fund
derived from U.S. Treasury and U.S. Government and agency
obligations. Investors should be aware of the application of
their state and local tax laws to investments in the Fund.
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 their
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 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 Fund will provide investors annually with
information about federal income tax consequences of
distributions made each year. Investors should be aware of
the application of their state and local tax laws to
investments in the Fund.
The foregoing discussion is only a brief summary of
some of the important federal tax considerations generally
affecting the Fund and its 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.
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, 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 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 Brothers investment
advisory affiliates, serves as investment adviser to
investment companies and private accounts and has assets
under management of approximately $12 billion as of April
30, 1995.
As Adviser to the Fund, LBGAM manages the Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio managers and securities analysts who
provide research services to the Fund. For its services
LBGAM is entitled to receive a monthly fee from 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 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 Fund, including making
investment selections. Mr. Hartman is assisted by Andrew J.
Stenwall, a Senior Vice President of LBGAM, and Timothy
Neumann, a Vice President of LBGAM.
Administrator and Transfer Agent - 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 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 Fund. This duty to recommend
expires on May 21, 2000.
Custodian - 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.
Service Organizations
Under a Plan of Distribution (the "Plan") adopted
pursuant to Rule 12b-1 under the 1940 Act, Select Shares
bear fees ("Rule 12b-1 fees") payable by the 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 Fund and
holders of Select Shares. Lehman Brothers may retain all
the payments made to it under the Plan or may enter into
agreements with and make payments of up to .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 Fund -- Service Organizations," include aggregating and
processing purchase and redemption requests from
shareholders and placing net purchase and redemption orders
with Lehman Brothers; processing dividend payments from the
Fund on behalf of shareholders; providing information
periodically to shareholders showing their positions in
shares; arranging for bank wires; responding to shareholder
inquiries relating to the services provided by Lehman
Brothers or the Service Organization and handling
correspondence; and acting as shareholder of record and
nominee. The Plan 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
Select Shares.
Expenses
The Fund bears all its own expenses. The Fund's
expenses include taxes, interest, fees and salaries of the
Trust's trustees and officers who are not directors,
officers or employees of the Fund's service contractors,
Securities and Exchange Commission fees, state securities
qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to
investors, advisory and administration fees, charges of the
custodian, 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. 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 level no greater than .35%. 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.
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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
shareholders, the "total return" and "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.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by
annualizing the most recent distribution of net investment
income for a monthly, quarterly or other relevant period and
dividing this amount by the ending net asset value for the
period for which the distribution rates are being
calculated.
The Fund's performance may be compared to that of other
mutual funds with similar objectives, to stock or other
relevant indices, or to rankings prepared by independent
services or other financial or industry publications that
monitor the performance of mutual funds. For example, such
data are reported in national financial publications such as
Morningstar, Inc., Barron's, IBC/Donoghue's Inc. Bond Fund
Report, The Wall Street Journal and The New York Times,
reports prepared by Lipper Analytical Services, Inc. and
publications of a local or regional nature. The Fund's
Lipper ranking in the "U.S. Mortgage Fund" or "ARM Fund"
categories may also be quoted from time to time in
advertising and sales literature.
The Fund's total return and yield figures for a class
of shares represent past performance, will fluctuate and
should not be considered as representative of future
results. The performance of any investment is generally a
function of portfolio quality and maturity, type of
investment and operating expenses. Any fees charged by
institutional investors directly to their customers in
connection with investments in Fund shares are not reflected
in the Fund's expenses, total return or yields; and, such
fees, if charged, would reduce the actual return received by
customers on their investments. The methods used to compute
the Fund's total return and yields are described in more
detail in the Statement of Additional Information. Investors
may call 1-800-238-2560 (Select Shares Code: 212) to obtain
current performance information.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established
on November 25, 1992. The Trust's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest
in the Trust and to classify or reclassify any unissued
shares into one or more additional classes of shares. The
Trust is an open-end management investment company, which
currently offers ten 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. 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 Fund 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."
Floating Rate U.S. Government Fund
Select Shares
PROSPECTUS
May 30, 1995
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
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
_________
LEHMAN BROTHERS
No person has been authorized to give any information or to
make any representations not contained in this Prospectus,
or in the Fund's Statement of Additional Information
incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given or made, such
information or representations must not be relied upon as
having been authorized by the Trust or its distributors.
This Prospectus does not constitute an offering by the Trust
or by the distributors in any jurisdiction in which such
offering may not lawfully be made.
LEHMAN BROTHERS INSTITUTIONAL FUNDS
Client Service Center 800-851-3134
(8:30 am to 5:00 p.m. Eastern time): fax: 617-261-4330
or 617-261-4340
Dividend factors and yields: 800-238-2560
Administration/Sales/Marketing: 800-368-5556
To place a purchase or redemption order: 800-851-
3134
To change account information: 800-851-3134
Additional Prospectuses: 800-368-5556
Information on Service Agreements: 800-851-3134
LEX Help Desk 800-5565LEX
LEHMAN BROTHERS
LBP-204E5
<PAGE>
LEHMAN BROTHERS
FLOATING RATE U.S. GOVERNMENT FUND
Prospectus begins on page one May 30, 1995
No person has been authorized to give any information or to
make any representations not contained in this Prospectus,
or in the 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 Fund or its Distributor. 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
PAGE
Benefits to Investors 2
Background and Expense Information 2
Financial Highlights 3
Investment Objective and Policies 3
Purchase of Shares
9
Redemption of Shares 10
Exchange Privilege 11
Valuation of Shares 12
Management of the Fund 12
Dividends 14
Taxes 15
The Fund's Performance 16
Additional Information 17
This Prospectus and the Statement of Additional Information
incorporated
herein relate primarily to the Fund and describe only the
investment objective and policies, operations, contracts and
other matters relating to the Fund. Investors wishing to
obtain similar information regarding the Trust's other
portfolios may obtain separate prospectuses describing them
by contacting Lehman Brothers at 1-800-861-4171.
<PAGE>
PROSPECTUS
MAY 30, 1995
FLOATING RATE U.S. GOVERNMENT FUND
AN INVESTMENT PORTFOLIO OF LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
This Prospectus describes the FLOATING RATE 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.
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests primarily in a portfolio
consisting of U.S. Government and agency securities,
including floating rate and adjustable rate mortgage
securities and repurchase agreements collateralized by such
obligations.
LEHMAN BROTHERS INC. ("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
30, 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 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.
___________
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 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 1-800861-4171 or
through Lehman Brothers ExpressNET, an automated order entry
system designed specifically for the Trust ("LEX").
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.
<TABLE>
<CAPTION>
EXPENSE SUMMARY
<S>
<C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after waivers)
.00%
Rule 12b-1 fees (after waivers)
*
.25%
Other Expenses - including Administration Fees
(after waivers)
.23%
Total Fund Operating Expenses
(after waivers or expense reimbursement) **
.48%
<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% average net assets.
- 2 <PAGE>
**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.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the
end of each time period with respect to the Retail Shares:
<TABLE>
<CAPTION>
1 Year 3 Years
- ------ -------
<S> <C>
<C>
$4 $13
</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.
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.
FINANCIAL HIGHLIGHTS
Financial information is not provided in connection with
Retail Shares of the Fund because such shares had not
commenced operations during the Trust's fiscal year ended
January 31, 1995. Financial information in connection with
other shares of the Fund is included in their prospectuses
and the Trust's Annual Report dated January 31, 1995, which
are available upon request.
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 pursues its investment objective by investing
primarily in a professionally managed portfolio of
adjustable rate or floating rate U.S. government and agency
securities which are issued or guaranteed as to payment of
principal and interest by the U.S. government, its agencies
or instrumentalities. As a mutual fund with "Floating Rate
U.S. Government" in its name, under normal market
conditions, the Fund must invest at least 65% of its
portfolio in such instruments.
DURATION
Under normal interest rate conditions, the Fund's average
portfolio duration will be between that of a six-month and a
one-year U.S. Treasury Bill (approximately six months to one
year). This means that the
- 3 <PAGE>
Fund's net asset value fluctuation is expected to be similar
to the price fluctuation of a six-month to a one-year U.S.
Treasury Bill. The Fund's average portfolio duration is not
expected to exceed that of a two-year U.S. Treasury Note
(approximately 1.9 years). In computing the average
duration of its portfolio, the Fund will estimate the
duration of obligations that are subject to prepayment or
redemption by the issuer, taking into account the influence
of interest rates on prepayments and coupon flows.
Maturity, in contrast to duration, measures only the time
until final payment is due on an investment; it does not
take into account the pattern of a security's cash flow over
time, including how cash flow is affected by prepayments and
by changes in interest rates.
ACCEPTABLE INVESTMENTS
The types of U.S. government mortgage securities in which
the Fund may invest include the following:
- - adjustable rate mortgage securities;
- - collateralized mortgage obligations;
- - real estate mortgage investment conduits;
and
- - other securities collateralized by or
representing interests in real estate
mortgages whose interest rates reset at
periodic intervals and are issued or
guaranteed by the U.S. government, its
agencies or
instrumentalities.
In addition to the securities described above, the Fund may
also invest in direct obligations of the U.S. Treasury, such
as U.S. Treasury bills, notes, and bonds, as well as
obligations of U.S. government agencies or instrumentalities
which are not collateralized by or represent interests in
real estate mortgages.
The Fund may also invest in mortgage-related securities
which are issued by private entities such as investment
banking firms and companies related to the construction
industry. The privately issued mortgage-related securities
in which the Fund may invest include:
- - privately issued securities which are
collateralized by pools of mortgages in
which each mortgage is guaranteed as to
payment of principal and interest by an
agency or instrumentality of the U.S.
government;
- - privately issued securities which are
collateralized by pools of mortgages in
which payment of principal and interest are
guaranteed by the issuer and such guarantee
is collateralized by U.S. government
securities; and
- - other privately issued securities in which
the proceeds of the issuance are invested
in mortgage-backed securities and payment
of the principal and interest are supported
by the credit of any agency or
instrumentality of the U.S. government.
The privately issued mortgage-related securities provide for
a periodic payment consisting of both interest and
principal. The interest portion of these payments will be
distributed by the Fund as income, and the capital portion
will be reinvested.
- 4 <PAGE>
DESCRIPTION OF ACCEPTABLE INVESTMENTS
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are
pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Fund invests
are issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Corporation ("FHLMC") and are actively
traded. The underlying mortgages which collateralize ARMS
issued by GNMA are fully guaranteed by the Federal Housing
Administration ("FHA") or Veterans Administration ("VA"),
while those collateralizing ARMS issued by FHLMC or FNMA are
typically conventional residential mortgages conforming to
strict underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the
life of the ARMS rather than at maturity. Thus, a holder of
the ARMS, such as the Fund, would receive monthly scheduled
payments of principal and interest and may receive
unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of
principal that it receives, the holder may receive a rate of
interest paid on the existing ARMS. As a consequence, ARMS
may be a less effective means of "locking in" long-term
interest rates than other types of U.S. government
securities.
Not unlike other U.S. government securities, the market
value of ARMS will generally vary inversely with changes in
market interest rates. Thus, the market value of ARMS
generally declines when interest rates rise and generally
rises when interest rates decline.
While ARMS generally entail less risk of a decline during
periods of rapidly rising rates, ARMS may also have less
potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases
that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and
unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium
paid. Conversely, if ARMS are purchased at a discount, both
a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total
returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are
bonds issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government
agencies, investment banks or companies related to the
construction industry. CMOs purchased by the Fund may be:
- - collateralized by pools of mortgages in
which each mortgage is guaranteed as to
payment of principal and interest by an
agency or instrumentality of the U.S.
government;
- - collateralized by pools of mortgages in
which payment of principal and interest is
guaranteed by the issuer and such guarantee
is collateralized by U.S. government
securities; or
- - securities in which the proceeds of the
issuance are invested in mortgage
securities and payment of the principal and
interest are supported by the credit of an
agency or instrumentality of the U.S.
government.
- 5 <PAGE>
All CMOs purchased by the Fund are investment grade, as
rated by a nationally recognized statistical rating
organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs
are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs
may take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of
mortgages. Once REMIC status is elected and obtained, the
entity is not subject to federal income taxation. Instead,
income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates (the
type in which the Fund primarily invests), and a single
class of "residual interests". To qualify as a REMIC,
substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real
property.
OTHER INVESTMENTS AND PRACTICES
RESETS. The interest rates paid on the ARMS, CMOs and
REMICs in which the Fund invests generally are readjusted or
reset at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such
as a cost of funds index or a moving average of mortgage
rates. Commonly utilized indices include the one-year and
five-year Constant Maturity Treasury (CMT) rates, the three-
month Treasury Bill rate, the 180-day Treasury Bill rate,
rates on longer-term Treasury securities, the National
Median Cost of Funds (COFI), the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices,
such as the one-year CMT rate, closely mirror changes in
market interest rate levels. Others tend to lag changes in
market rate levels and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which
collateralize the ARMS, CMOs and REMICs in which the Fund
invests may have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower
may change up or down: (1) per reset or adjustment interval
and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest
payments rather than limiting interest rate changes. These
payment caps may result in negative amortization.
The value of mortgage securities in which the Fund invests
may be affected if market interest rates rise or fall faster
and farther than the allowable caps or floors on the
underlying residential mortgage loans. An example of the
effect of caps and floors on a residential mortgage loan may
be found in the Statement of Additional Information.
Additionally, even though the interest rates on the
underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the
Fund invests to be shorter than the maturities stated in the
underlying mortgages.
REPURCHASE AGREEMENTS. 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 would, however, expose the
Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying
obligations.
- - 6 -
<PAGE>
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
"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
- - 7 -
<PAGE>
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.
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,
- - 8 -
<PAGE>
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 onethird 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 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).
2. Purchase any securities which would cause 25% or more
of the value of its total assets at the time of purchase to
be invested in the securities of issuers conducting their
principal business activities in the same industry, provided
that there is no limitation with respect to investments in
U.S. government obligations.
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.
- - 9 -
<PAGE>
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 charge
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 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 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
- - 10 -
<PAGE>
shareholder who pays for Fund shares by personal check will
be credited with the proceeds of a redemption of those
shares only after the purchase check has been collected,
which may take up to 15 days or more. A shareholder who
anticipates the need for more immediate access to his or her
investment should purchase shares with federal funds by bank
wire or with a certified or cashier's check.
A Fund account that is reduced by a shareholder to a value
of $1,000 or less ($500 for IRAs and Self-Employed
Retirement Plans) may be subject to redemption by that Fund,
but only after the shareholder has been given at least 60
days in which to increase the account balance to more than
$1,000 ($500 for IRAs and Self-Employed Retirement Plans).
In addition, the Fund may redeem shares involuntarily or
suspend the right of redemption as permitted under the 1940
Act, as described in the Statement of Additional Information
under "Additional Purchase and Redemption Information."
Fund shares may be redeemed in one of the following ways:
REDEMPTION THROUGH LEHMAN BROTHERS OR AN INTRODUCING BROKER
Redemption requests may be made through Lehman Brothers or
an Introducing Broker.
REDEMPTION BY MAIL
Shares 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 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.
- - 11 -
<PAGE>
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.
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 $12 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
- - 12 -
<PAGE>
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 3 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.
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 Deposit and Trust Company ("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 3 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. 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
- - 13 -
<PAGE>
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, 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.
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 .48%
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.
- - 14 -
<PAGE>
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
The Fund intends to qualify each year as a "regulated
investment company" under the Internal Revenue Code of 1986,
as amended (the "Code"). A regulated investment company is
exempt from federal income tax on amounts distributed to its
shareholders.
Qualification as a regulated investment company under the
Code for a taxable year requires, among other things, that
the Fund distribute to its investors at least 90% of its
exempt-interest income net of certain deductions and 90% of
its investment company taxable income for such year. 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 longterm 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 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
- - 15 -
<PAGE>
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.
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
From time to time, in advertisements or in reports to
investors, the "total return," "yields" and "effective
yields" for shares may be quoted. Total return and yield
quotations are computed separately for each class of shares.
"Total return" for a particular class of shares represents
the change, over a specified period of time, in the value of
an investment in the shares after reinvesting all income and
capital gain distributions. It is calculated by dividing
that change by the initial investment and is expressed as a
percentage. The "yield" quoted in advertisements for a
particular class of shares refers to the income generated by
an investment in such shares over a specified period (such
as a 30-day period) identified in the advertisement. This
income is then "annualized;" that is, the amount of income
generated by the investment during that period is assumed to
be generated each such period over a 52-week or one-year
period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when
annualized, the income earned by an investment in a
particular class is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of
the compounding effect of this assumed reinvestment.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by
annualizing the most recent distribution of net investment
income for a monthly, quarterly or other relevant period and
dividing this amount by the ending net asset value for the
period for which the distribution rates are being
calculated.
- - 16 -
<PAGE>
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.
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
- - 17 -
<PAGE>
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.
- - 18 -
Lehman Brothers
Short Duration U.S. Government Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Premier Shares") of the Short Duration
U.S. Government Fund (the "Fund"), a diversified investment
portfolio of the Trust. Fund shares may not be purchased by
individuals directly, but institutional investors may
purchase shares for accounts maintained by individuals.
The Fund's investment objective is to provide a high
level of current income consistent with minimal fluctuation
of net asset value. The Fund invests primarily in a
portfolio consisting of short duration adjustable rate,
floating rate and fixed rate U.S. Government and agency
securities, and repurchase agreements collateralized by such
obligations.
Lehman Brothers Inc. ("Lehman Brothers" or the
"Distributor") sponsors the Fund and acts as Distributor of
its shares. Lehman Brothers Global Asset Management Inc.
("LBGAM" or 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;
for yield information call 1-800-238-2560; for other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information
about the Fund that investors should know before investing.
Investors are advised to read this Prospectus and retain it
for future reference. Additional information about the Fund,
contained in a Statement of Additional Information dated May
30, 1995, as amended or supplemented from time to time, has
been filed with the Securities and Exchange Commission (the
"SEC") and is available to investors without charge by
calling the Fund's Distributor at 1-800-368-5556. The
Statement of Additional Information is incorporated in its
entirety by reference into this Prospectus.
Shares of the Fund are not deposits or obligations of,
or guaranteed or endorsed by, any bank, and such shares are
not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other
government agency. Shares of the Fund involve certain
investment risks, including the possible loss of principal.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________
LEHMAN BROTHERS
May 30, 1995
TABLE OF CONTENTS
P
a
g
e
Background and Expense Information
3
Financial Highlights
3
Investment Objective and Policies
5
Purchase, Redemption and Exchange
of Shares
1
1
Dividends
1
3
Taxes
1
4
Management of the Fund
1
5
Performance Information
1
7
Description of Shares
1
8
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.
BACKGROUND AND EXPENSE INFORMATION
The Fund consists of three separate classes of shares,
only one of which, Premier Shares, is offered by this
Prospectus. Each class represents an equal, pro rata
interest in the Fund. The Fund's other classes of shares
have different sales charges and expenses than Premier
Shares which would affect the performance of these classes
of shares. Investors may obtain information concerning the
Fund's other classes of shares by calling Lehman Brothers at
1-800-368-5556.
The purpose of the following table is to assist an
investor in understanding the various costs and expenses
that an investor in the Fund would bear directly or
indirectly. For more complete descriptions of the various
costs and expenses, see "Management of the Fund" in this
Prospectus and the Statement of Additional Information.
Expense Summary
Annual Fund Operating
Expenses
(as a percentage of average
net assets)
Advisory Fees (net of
applicable fee waivers)
.
0
0
%
Rule 12b-1 fees
n
o
n
e
Other Expenses - including
Administration Fees (net
of applicable fee waivers)
.
1
0
%
Total Fund Operating
Expenses (after fee
waivers and expense
reimbursement)
.
1
0
%
_______________________________
In order to maintain a competitive expense ratio, the
Adviser and Administrator have voluntarily agreed to waive
fees and reimburse expenses to the extent necessary to
maintain an annualized expense ratio at a level no greater
than .10% of the average daily net assets of the Fund. The
voluntary fee waiver and expense reimbursement arrangements
described above will not be changed unless shareholders are
provided at least 60 days' advance notice. Absent waivers
or reimbursement of expenses, Advisory Fees with respect to
Premier Shares were .30% annually, Other Expenses were .41%
annually and the Total Fund Operating Expenses were .71% of
the Fund's average daily net assets.
Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to
the Premier Shares:
1
Y
e
a
r
3
Y
e
a
r
s
5
Y
e
a
r
s
1
0
Y
e
a
r
s
$
1
$
3
$
6
$
1
3
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year
ended January 31, 1995, are derived from the Fund's
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.
S
h
o
r
t
D
u
r
a
t
i
o
n
U
.
S
.
G
o
v
e
r
n
m
e
n
t
F
u
n
d
1
/
3
1
/
9
5
*
Net
asse
t
valu
e,
begi
nnin
g of
peri
od
$
1
0
.
0
0
Net
inve
stme
nt
inco
me
(1)
0
.
4
6
Net
real
ized
and
unre
aliz
ed
loss
on
inve
stme
nts
(
0
.
1
2
)
Net
incr
ease
in
net
asse
ts
resu
ltin
g
from
inve
stme
nt
oper
atio
ns
0
.
3
4
Divi
dend
s
from
net
inve
stme
nt
inco
me
(
0
.
4
5
)
Net
asse
t
valu
e,
end
of
peri
od
$
9
.
8
9
Tota
l
retu
rn
(2)
3
.
5
4
%
Rati
os
to
aver
age
net
asse
ts/s
uppl
emen
tal
data
:
Net
asse
ts,
end
of
peri
od
(in
000'
s)
$
3
1
,
1
6
2
Rati
o of
net
inve
stme
nt
inco
me
to
aver
age
net
asse
ts
5
.
4
3
%
(
3
)
Rati
o of
oper
atin
g
expe
nses
to
aver
age
net
asse
ts
(4)
0
.
1
0
%
(
3
)
Port
foli
o
turn
over
rate
1
1
2
%
* The Premier Shares commenced operations on March 28, 1994.
(1) Net investment income before waiver of fees by the
Investment
Adviser, Administrator and Custodian and expenses reimbursed by
the Investment Adviser for the Premier Shares was $0.40.
(2) Total return represents aggregate total return for the
period
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the
Investment
Adviser, Administrator and Custodian and expenses reimbursed by
the Investment Adviser for Premier Shares was 0.71%.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a
high level of current income consistent with minimal
fluctuation of net asset value. Current income includes, in
general, discount earned on U.S. Treasury bills and agency
discount notes, interest earned on mortgage-related
securities and other U.S. Government and agency securities,
and short-term capital gains. While there can be no
assurance that the Fund will be able to maintain minimal
fluctuation of net asset value or that it will achieve its
investment objective, the Fund endeavors to do so by
following the investment policies described in this
Prospectus. The Fund is not a money market fund and its net
asset value will fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of
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.
There is no assurance that the Fund will meet its
investment objective.
Duration
Under normal interest rate conditions, the Fund's
average portfolio duration will be approximately the same as
a one-year U.S. Treasury bill (approximately one year). This
means that the Fund's net asset value fluctuation is
expected to be similar to the price fluctuation of a
one-year U.S. Treasury bill. The Fund's average portfolio
duration is not expected to exceed that of a two-year
U.S. Treasury note (approximately 1.9 years). 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).
Acceptable Investments
The types of U.S. Government securities in which the
Fund may invest include direct obligations of the U.S.
Treasury, such as U.S. Treasury bills, notes, and bonds, as
well as obligations of U.S. Government agencies or
instrumentalities. The Fund may invest in U.S. Government
securities which are collateralized by or represent
interests in real estate mortgages. The types of mortgage
securities in which the Fund may invest include the
following: (i) adjustable rate mortgage securities;
(ii) collateralized mortgage obligations; (iii) real estate
mortgage investment conduits; and (iv) other securities
collateralized by or representing interests in real estate
mortgages whose interest rates reset at periodic intervals
and are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
The Fund may also invest in mortgage-related securities
which are issued by private entities such as investment
banking firms and companies related to the construction
industry. The privately issued mortgage-related securities
in which the Fund may invest include: (i) privately issued
securities which are collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S.
Government; (ii) privately issued securities which are
collateralized by pools of mortgages in which payment of
principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. Government securities;
and (iii) other privately issued securities in which the
proceeds of the issuance are invested in mortgage-backed
securities and payment of the principal and interest are
supported by the credit of any agency or instrumentality of
the U.S. Government.
The privately issued mortgage-related securities
provide for periodic payments consisting of both interest
and principal. The interest portion of these payments will
be distributed by the Fund as income, and the capital
portion will be reinvested.
U.S. Government Securities. Securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which
differ in interest rates, maturities and times of issuance.
U.S. Treasury bills have initial maturities of one year or
less; U.S. Treasury notes have initial maturities of one to
ten years; and U.S. 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 Corporation ("FHLMC") and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA
are fully guaranteed by the Federal Housing Administration
("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically
conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over
the life of the ARMS rather than at maturity. Thus, a holder
of the ARMS, such as the Fund, would receive monthly
scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of
principal that it receives, the holder may receive a rate of
interest paid on the existing ARMS. As a consequence, ARMS
may be a less effective means of "locking in" long-term
interest rates than other types of U.S. Government
securities.
Not unlike other U.S. Government securities, the market
value of ARMS will generally vary inversely with changes in
market interest rates. Thus, the market value of ARMS
generally declines when interest rates rise and generally
rises when interest rates decline.
While ARMS generally entail less risk of a decline
during periods of rapidly rising rates, ARMS may also have
less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases
that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and
unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium
paid. Conversely, if ARMS are purchased at a discount, both
a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total
returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
Collateralized Mortgage Obligations ("CMOs"). CMOs are
bonds issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government
agencies, investment banks, or companies related to the
construction industry. CMOs purchased by the Fund may be:
* collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of
the U.S. Government;
* collateralized by pools of mortgages in which
payment of principal and interest is guaranteed by
the issuer and such guarantee is collateralized by
U.S. Government securities; or
* securities in which the proceeds of the issuance
are invested in mortgage securities and payment of
the principal and interest are supported by the
credit of an agency or instrumentality of the U.S.
Government.
All CMOs purchased by the Fund are investment grade, as
rated by a nationally recognized statistical rating
organization.
Real Estate Mortgage Investment Conduits
("REMICs"). REMICs are offerings of multiple class real
estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as
trusts, partnerships, corporations, associations or a
segregated pool of mortgages. Once REMIC status is elected
and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and
is taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes
of "regular interests," some of which may offer adjustable
rates (the type in which the Fund primarily invests), and a
single class of "residual interests". To qualify as a REMIC,
substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real
property.
Stripped Mortgage-Backed Securities ("SMBS"). The Fund may
invest up to 10% of its total assets in SMBS, which are
derivative multiclass mortgage securities. The Fund may only
invest in SMBS issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. SMBS are usually
structured with two classes that receive different
proportions of the interest and principal distributions from
a pool of mortgage assets, which may consist of mortgage
loans or guaranteed mortgage pass-through certificates. A
common type of SMBS will have one class receiving all or a
portion of the interest from the mortgage assets, while the
other class will receive all of the principal. Moreover, in
some instances, one class will receive some of the interest
and most of the principal while the other class will receive
most of the interest and the remainder of the principal. If
the underlying mortgage assets experience greater than
anticipated prepayments of principal, there may no longer be
interest paid on some of the underlying mortgage loans and
the Fund, as a result, may fail to fully recoup its initial
investment in these securities. Although the market for such
securities is increasingly liquid, certain SMBS may not be
readily marketable and will be considered illiquid for
purposes of the Fund's limitation on investments in illiquid
securities. The market value of the class consisting
entirely of principal payments generally is unusually
sensitive to changes in interest rates. The market value of
the class consisting entirely of interest payments is
extremely sensitive not only to changes in interest rates
but also to the rate of principal payments, including
prepayments, on the related underlying mortgage assets. The
yields on a class of SMBS that receives all or most of the
interest from mortgage assets are generally higher than
prevailing market yields on other mortgage-backed securities
because their cash flow patterns are more variable and there
is a greater risk that the initial investment will not be
fully recouped. The Investment Adviser will seek to manage
these risks (and potential benefits) by investing in a
variety of such securities and by using certain hedging
techniques.
Other Investments and Practices
Resets. The interest rates paid on the ARMS, CMOs and
REMICs in which the Fund invests generally are readjusted or
reset at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such
as a cost of funds index or a moving average of mortgage
rates. Commonly utilized indices include the one-year and
five-year Constant Maturity Treasury (CMT) rates, the
three-month Treasury bill rate, the 180-day Treasury bill
rate, rates on longer term Treasury securities, the National
Median Cost of Funds (COFI), the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices, such
as the one-year CMT rate, closely mirror changes in market
interest rate levels. Others tend to lag changes in market
rate levels and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages which
collateralize the ARMS, CMOs and REMICs in which the Fund
invests may have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower
may change up or down: (1) per reset or adjustment interval
and (2) over the life of the loan. Some residential mortgage
loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment
caps may result in negative amortization.
The value of mortgage securities in which the Fund
invests may be affected if market interest rates rise or
fall faster and farther than the allowable caps or floors on
the underlying residential mortgage loans. An example of the
effect of caps and floors on a residential mortgage loan may
be found in the Statement of Additional Information.
Additionally, even though the interest rates on the
underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the
Fund invests to be shorter than the maturities stated in the
underlying mortgages.
Repurchase Agreements. 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 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
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).
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.
When-Issued Securities. The Fund may purchase securities on
a "when-issued" basis. When-issued securities are
securities purchased for delivery beyond the normal
settlement date at a stated price and yield. The Fund will
generally not pay for such securities or start earning
interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset
and are subject to changes in value based upon changes in
the general level of interest rates. The Fund expects that
commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual
market conditions. The Fund does not intend to purchase
when-issued securities for speculative purposes but only in
furtherance of its investment objectives.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net assets in
illiquid securities, including time deposits and repurchase
agreements having maturities longer than seven days.
Securities that have readily available market quotations are
not deemed illiquid for purposes of this limitation
(irrespective of any legal or contractual restrictions on
resale). The Fund may invest in commercial obligations
issued in reliance on the so-called "private placement"
exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended ("Section 4(2) paper").
The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended, but
which can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A
securities"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally
is sold to institutional investors such as the Fund who
agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2)
paper is normally resold to other institutional investors
like the Fund through or with the assistance of the issuer
or investment dealers who make a market in the Section 4(2)
paper, thus providing liquidity. Rule 144A securities
generally must be sold to other qualified institutional
buyers. If a particular investment in Section 4(2) paper or
Rule 144A securities is not determined to be liquid, that
investment will be included within the percentage limitation
on investment in illiquid securities.
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 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.
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
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.
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
Standard & Poor's Corporation or P-1 by Moody's Investors
Service, Inc. and, in the case of commercial paper, rated in
one of the two highest rating categories by at least two
nationally recognized statistical rating organizations.
Portfolio Turnover. The Fund's historical portfolio
turnover rate is listed under "Financial Highlights."
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. High turnover in the Fund's portfolio
will result in the payment by the Fund of above average
amounts of taxes on realized investment gains.
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 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).
2. Purchase any securities which would cause 25% or
more of the value of its total assets at the time of
purchase to be invested in the securities of issuers
conducting their principal business activities in the same
industry, provided that there is no limitation with respect
to investments in U.S. Government obligations.
The Fund may, in the future, seek to achieve its
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.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
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.
Purchase Procedures
Shares of the Fund are sold at the net asset value per
share of the Fund next determined after receipt of a
purchase order by Lehman Brothers, the Distributor of the
Fund's shares. Purchase orders for shares are accepted only
on days on which both Lehman Brothers and the Federal
Reserve Bank of Boston are open for business and must be
transmitted to Lehman Brothers by telephone at
1-800-851-3134 or through Lehman Brothers ExpressNET, an
automated order entry system designed specifically for the
Trust ("LEX") before 4:00 p.m., Eastern time. Payment in
federal funds immediately available to the Custodian, Boston
Safe Deposit & Trust Company ("Boston Safe"), must be
received before 3:00 p.m., Eastern time on the next business
day following the order. The Fund may in its discretion
reject any order for shares. (Payment for orders which are
not received or accepted by Lehman Brothers will be returned
after prompt inquiry to the sending institution.) Any person
entitled to receive compensation for selling or servicing
shares of the Fund may receive different compensation for
selling or servicing one class of shares over another class.
The minimum aggregate initial investment by an
institution in the investment portfolios that comprise the
Trust is $1 million (with not less than $25,000 invested in
any one investment portfolio offered by the Trust); however,
broker-dealers and other institutional investors may set a
higher minimum for their customers. To reach the minimum
Trust-wide initial investment, purchases of shares may be
aggregated over a period of six months. There is no minimum
subsequent investment.
Subaccounting Services. Institutions are encouraged to
open single master accounts. However, certain institutions
may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of
subaccounting services rendered. Institutions holding Fund
shares in a fiduciary, agency, custodial or similar capacity
may charge or pass through subaccounting fees as part of or
in addition to normal trust or agency account fees. They may
also charge fees for other services provided which may be
related to the ownership of Fund shares. This Prospectus
should, therefore, be read together with any agreement
between the customer and the institution with regard to the
services provided, the fees charged for those services and
any restrictions and limitations imposed.
Redemption Procedures
Redemption orders must be transmitted to Lehman
Brothers by telephone at 1-800-851-3134 or through LEX.
Shares are redeemed at the net asset value per share next
determined after Lehman Brothers' receipt of the redemption
order. The proceeds paid to a shareholder upon redemption
may be more or less than the amount invested depending upon
a share's net asset value at the time of redemption.
Subject to the foregoing, payment for redeemed shares
for which a redemption order is received by Lehman Brothers
before 4:00 p.m., Eastern time, on a day that both Lehman
Brothers and the Federal Reserve Bank of Boston are open for
business is normally made in federal funds wired to the
redeeming shareholder on the next business day following the
redemption order. The Fund reserves the right to wire
redemption proceeds within seven days after receiving the
redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Fund.
The Fund shall have the right to redeem involuntarily
shares in any account at their net asset value if the value
of the account is less than $10,000 after 60 days' prior
written notice to the shareholder. Any such redemption shall
be effected at the net asset value per share next determined
after the redemption order is entered. If during the 60 day
period the shareholder increases the value of its account to
$10,000 or more, no such redemption shall take place. In
addition, the Fund may redeem shares involuntarily or
suspend the right of redemption as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"),
or under certain special circumstances described in the
Statement of Additional Information under "Additional
Purchase and Redemption Information."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is
automatically established on a shareholder's account.
However, the Fund reserves the right to refuse a redemption
order transmitted by telephone if it is believed advisable
to do so. Procedures for redeeming fund shares by telephone
may be modified or terminated at any time by the Fund or
Lehman Brothers. In addition, neither the Fund, Lehman
Brothers nor the Transfer Agent will be responsible for the
authenticity of telephone instructions for the purchase,
redemption or exchange of shares where the instructions are
reasonably believed to be genuine. Accordingly, the investor
will bear the risk of loss. The Fund will attempt to confirm
that telephone instructions are genuine and will use such
procedures as are considered reasonable, including the
recording of telephone instructions. To the extent that the
Fund fails to use reasonable procedures to verify the
genuineness of telephone instructions, it or its service
providers may be liable for such instructions that prove to
be fraudulent or unauthorized.
Exchange Procedures
The Exchange Privilege enables a shareholder to
exchange shares of the Fund without charge for shares of
other funds of the Trust which have different investment
objectives that may be of interest to shareholders. To use
the Exchange Privilege, exchange instructions must be given
to Lehman Brothers by telephone or through LEX. See
"Redemption Procedures." In exchanging shares, a shareholder
must meet the minimum initial investment requirement of the
other fund and the shares involved must be legally available
for sale in the state where the shareholder resides. Before
any exchange, the shareholder must also obtain and should
review a copy of the prospectus of the fund into which the
exchange is being made. Prospectuses may be obtained from
Lehman Brothers by calling 1-800-368-5556. Shares will be
exchanged at the net asset value next determined after
receipt of an exchange request in proper form. The exchange
of shares of one fund for shares of another fund is treated
for Federal Income Tax purposes as a sale of the shares
given in exchange by the shareholder and, therefore, a
shareholder may realize a taxable gain or loss. The Fund
reserves the right to reject any exchange request in whole
or in part. The Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
Valuation of Shares - Net Asset Value
The Fund's net asset value per share for purposes of
pricing purchase and redemption orders is determined by the
Fund's Administrator as of 4:00 p.m., Eastern time, on each
weekday, with the exception of those holidays on which
either the New York Stock Exchange or the Federal Reserve
Bank of Boston is closed. Currently, one or both of these
institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas Day. The net
asset value per share of Fund shares is calculated by adding
the value of all securities and other assets of the Fund,
subtracting liabilities, and dividing the result by the
total number of the Fund's outstanding shares (irrespective
of class or sub-class). The Fund's net asset value per share
for purposes of pricing purchase and redemption orders is
determined independently of the net asset value of the
Trust's other investment portfolios.
Other Matters
Fund shares are sold and redeemed without charge by the
Fund. Institutional investors purchasing or holding Fund
shares for their customer accounts may charge customers fees
for cash management and other services provided in
connection with their accounts. A customer should,
therefore, consider the terms of its account with an
institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to Lehman
Brothers in accordance with its customer agreements.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and
distributions arising only from the net investment income
and capital gains, if any, earned on investments held by the
Fund. The Fund's net investment income is declared daily as
a dividend to shares held of record at the close of business
on the day of declaration. Shares begin accruing dividends
on the next business day following receipt of the purchase
order and continue to accrue dividends up to and including
the day that such shares are redeemed. Dividends are paid
monthly within five business days after the end of the month
or within five business days after a redemption of all of a
shareholder's shares of a particular class. Net capital
gains distributions, if any, will be made annually.
Dividends are determined in the same manner and are
paid in the same amount for each Fund share, except that
shares of the other classes bear all the expenses associated
with a specific class.
Institutional shareholders may elect to have their
dividends reinvested in additional full and fractional
shares of the same class of shares with respect to which
such dividends are declared at the net asset value of such
shares on the payment date. Reinvested dividends receive the
same tax treatment as dividends paid in cash. Such election,
or any revocation thereof, must be made in writing to The
Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation and the Fund's transfer agent, at
P.O. Box 9690, Providence, Rhode Island 02940-9690, and will
become effective after its receipt by TSSG, with respect to
dividends paid.
TSSG, as transfer agent, will send each Fund
shareholder or its authorized representative an annual
statement designating the amount, if any, of any dividends
and distributions made during each year and their federal
tax qualification.
TAXES
The Fund qualified in its last taxable year and intends
to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the
"Code"). A regulated investment company is exempt from
federal income tax on amounts distributed to its
shareholders.
Qualification as a regulated investment company under
the Code for a taxable year requires, among other things,
that the Fund distribute to its shareholders at least 90% of
its investment company taxable income for such year. In
general, the Fund's investment company taxable income will
be its taxable income (including dividends and short-term
capital gains, if any) subject to certain adjustments and
excluding the excess of any net long-term capital gains for
the taxable year over the net short-term capital loss, if
any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income
each year. Such distributions will be taxable as ordinary
income to Fund shareholders who are not currently exempt
from federal income taxes, whether such income is received
in cash or reinvested in additional shares. (Federal income
taxes for distributions to an IRA or a qualified retirement
plan are deferred under the Code.) It is anticipated that
none of the Fund's distributions will be eligible for the
dividends received deduction for corporations.
Dividends declared in October, November or December of
any year payable to shareholders of record on a specified
date in such months will be deemed to have been received by
the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during
January of the following year. Shareholders will be advised
at least annually as to the federal income tax status of
distributions made to them each year.
Distributions of net investment income may be taxable
to shareholders as dividend income under state or local law
even though a substantial portion of such distributions may
be derived from interest on U.S. Government obligations,
which, if realized directly, would be exempt from such
income taxes. The Fund will provide investors annually with
information about the portion of dividends from the Fund
derived from U.S. Treasury and U.S. Government and agency
obligations. Investors should be aware of the application of
their state and local tax laws to investments in the Fund.
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 their
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 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 Fund will provide investors annually with
information about federal income tax consequences of
distributions made each year. Investors should be aware of
the application of their state and local tax laws to
investments in the Fund.
The foregoing discussion is only a brief summary of
some of the important federal tax considerations generally
affecting the Fund and its 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.
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 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 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.
The Trust has adopted a Plan of Distribution with
respect to Premier Shares of the Fund pursuant to Rule 12b-1
under the 1940 Act. The Plan of Distribution does not
provide for the payment by the Fund of any Rule 12b-1 fees
for distribution or shareholder services for Premier Shares
but provides that Lehman Brothers may make payments to
assist in the distribution of Premier Shares out of the
other fees received by it or its affiliates from the Fund,
its past profits or any other sources available to it.
Investment Adviser - Lehman Brothers Global Asset Management
Inc.
LBGAM, located at 3 World Financial Center, New York,
New York 10285, serves as the Fund's Investment Adviser.
LBGAM is a wholly owned subsidiary of Holdings. LBGAM,
together with other Lehman Brothers investment advisory
affiliates, serves as investment adviser to investment
companies and private accounts and has assets under
management of approximately $12 billion as of April 30,
1995.
As Adviser to the Fund, LBGAM manages the Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio managers and securities analysts who
provide research services to the Fund. For its services
LBGAM is entitled to receive a monthly fee from 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 and Trustee of the Trust. Mr. Hartman
joined LBGAM's Mortgage Department in 1987 and was Senior
Vice President of Mortgage Finance, responsible for
Resolution Trust Corporation, 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 making investment selections. Mr. Hartman
is assisted by Andrew J. Stenwall, a Senior Vice President
of LBGAM, and Timothy Neumann, a Vice President of LBGAM.
Administrator and Transfer Agent - 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 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 Fund. This duty to recommend
expires on May 21, 2000.
Custodian - 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.
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, 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,
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. 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 level
no greater than .10%. 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. Any fees
charged by institutional investors to their customers in
connection with investments in Fund shares are not reflected
in the Fund's expenses.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
shareholders, the "total return" and "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.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by
annualizing the most recent distribution of net investment
income for a monthly, quarterly or other relevant period and
dividing this amount by the ending net asset value for the
period for which the distribution rates are being
calculated.
The Fund's performance may be compared to that of other
mutual funds with similar objectives, to stock or other
relevant indices, or to rankings prepared by independent
services or other financial or industry publications that
monitor the performance of mutual funds. For example, such
data are reported in national financial publications such as
Morningstar, Inc., Barron's, IBC/Donoghue's Inc. Bond Fund
Report, The Wall Street Journal and The New York Times,
reports prepared by Lipper Analytical Services, Inc. and
publications of a local or regional nature. The Fund's
Lipper ranking in the "Short (1-5 Years) U.S. Government
Funds" or "General U.S. Government Funds" categories may
also be quoted from time to time in advertising and sales
literature.
The Fund's total return and yield figures for a class of
shares represent past performance, will fluctuate and should
not be considered as representative of future results. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and
operating expenses. Any fees charged by institutional
investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's
expenses, total return or yields; and, such fees, if
charged, would reduce the actual return received by
customers on their investments. The methods used to compute
the Fund's total return and yields are described in more
detail in the Statement of Additional Information. Investors
may call 1-800-238-2560 (Premier Shares Code: 013) to obtain
current performance information.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established
on November 25, 1992. The Trust's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest
in the Trust and to classify or reclassify any unissued
shares into one or more additional classes of shares. The
Trust is an open-end management investment company, which
currently offers ten 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. 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 Fund 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."
Short Duration U.S. Government Fund
Premier Shares
PROSPECTUS
May 30, 1995
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
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
_________
LEHMAN BROTHERS
No person has been authorized to give any information or to
make any representations not contained in this Prospectus,
or in the Fund's Statement of Additional Information
incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given or made, such
information or representations must not be relied upon as
having been authorized by the Trust or its distributors.
This Prospectus does not constitute an offering by the Trust
or by the distributors in any jurisdiction in which such
offering may not lawfully be made.
LEHMAN BROTHERS INSTITUTIONAL FUNDS
Client Service Center 800-851-3134
(8:30 am to 5:00 p.m. Eastern time): fax: 617-261-4330
or 617-261-4340
Dividend factors and yields: 800-238-2560
Administration/Sales/Marketing: 800-368-5556
To place a purchase or redemption order: 800-851-
3134
To change account information: 800-851-3134
Additional Prospectuses: 800-368-5556
LEX Help Desk 800-5565LEX
LEHMAN BROTHERS
LBP-207E5
Lehman Brothers
Short Duration U.S. Government Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Select Shares") of the Short Duration U.S.
Government Fund (the "Fund"), a diversified investment portfolio
of the Trust. Select Shares may not be purchased by individuals
directly, but institutional investors may purchase Select Shares
for accounts maintained by individuals.
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests primarily in a portfolio
consisting of short duration adjustable rate, floating rate and
fixed rate U.S. government and agency securities, and repurchase
agreements collateralized by such obligations.
Lehman Brothers Inc. ("Lehman Brothers" or the
"Distributor") sponsors the Fund and acts as Distributor of its
shares. Lehman Brothers Global Asset Management Inc. ("LBGAM" or
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; for
yield information call 1-800-238-2560; for other information
call 1-800-368-5556.
This Prospectus briefly sets forth certain information
about the Fund that investors should know before investing.
Investors are advised to read this Prospectus and retain it for
future reference. Additional information about the Fund,
contained in a Statement of Additional Information dated May 30,
1995, as amended or supplemented from time to time, has been
filed with the Securities and Exchange Commission (the "SEC")
and is available to investors without charge by calling the
Fund's Distributor at 1-800-368-5556. The Statement of
Additional Information is incorporated in its entirety by
reference into this Prospectus.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and such shares are not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency. Shares
of the Fund involve certain investment risks, including the
possible loss of principal. The Fund is not a money market fund
and its net asset value will fluctuate.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
LEHMAN BROTHERS
May 30, 1995
TABLE OF CONTENTS
P
a
g
e
Background and Expense Information
2
Financial
Highlights.........................
...................................
...................................
...................
4
Investment Objective and Policies
4
Purchase, Redemption and Exchange of
Shares
1
1
Dividends
1
4
Taxes
1
4
Management of the Fund
1
5
Performance Information
1
8
Description of Shares
1
8
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.
BACKGROUND AND EXPENSE INFORMATION
The Fund consists of three separate classes of shares,
only one of which, Select Shares, is offered by this Prospectus.
The Fund's other classes of shares have different sales charges
and expenses than Select Shares which would affect the
performance of these classes of shares. Investors may obtain
information concerning the Fund's other classes of shares by
calling Lehman Brothers at 1-800-368-5556.
The purpose of the following table is to assist an
investor in understanding the various costs and expenses that an
investor in the Fund would bear directly or indirectly. Certain
institutions also may charge their clients fees in connection
with investments in Select Shares, which fees are not reflected
in the table below. For more complete descriptions of the
various costs and expenses, see "Management of the Fund" in this
Prospectus and the Statement of Additional Information.
Expense Summary
Annual Fund Operating
Expenses
(as a percentage of average
net assets)
Advisory Fees (net of
applicable fee waivers)
.
0
0
%
Rule 12b-1 fees
.
2
5
%
Other Expenses - including
Administration Fees (net of
applicable fee waivers)
.
1
0
%
Total Fund Operating
Expenses (after fee waivers
and expense reimbursement)
.
3
5
%
_______________________________
In order to maintain a competitive expense ratio, the
Adviser and Administrator have voluntarily agreed to waive fees
and reimburse expenses to the extent necessary to maintain an
annualized expense ratio at a level no greater than .35% of the
average daily net assets of the Fund. The voluntary fee waiver
and expense reimbursement arrangements described above will not
be changed unless shareholders are provided at least 60 days'
advance notice. Absent waivers or reimbursement of expenses,
Advisory Fees with respect to Select Shares were .30% annually,
Other Expenses were .66% annually and the Total Fund Operating
Expenses were .96% of the Fund's average daily net assets.
Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to the
Select Shares:
1
Y
e
a
r
3
Y
e
a
r
s
5
Y
e
a
r
s
1
0
Y
e
a
r
s
$
4
$
1
1
$
2
0
$
4
4
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year
ended January 31, 1995, are derived from the Fund's 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.
S
h
o
r
t
D
u
r
a
t
i
o
n
U
.
S
.
G
o
v
e
r
n
m
e
n
t
F
u
n
d
1
/
3
1
/
9
5
*
Net
ass
et
val
ue,
beg
inn
ing
of
per
iod
$
9
.
9
4
Net
inv
est
men
t
inc
ome
(1)
0
.
3
0
Net
rea
liz
ed
and
unr
eal
ize
d
los
s
on
inv
est
men
ts
(
0
.
0
4
)
Net
inc
rea
se
in
net
ass
ets
res
ult
ing
fro
m
inv
est
men
t
ope
rat
ion
s
0
.
2
6
Div
ide
nds
fro
m
net
inv
est
men
t
inc
ome
(
0
.
3
1
)
Net
ass
et
val
ue,
end
of
per
iod
$
9
.
8
9
Tot
al
ret
urn
(2)
2
.
7
2
%
Rat
ios
to
ave
rag
e
net
ass
ets
/su
ppl
eme
nta
l
dat
a:
Net
ass
ets
,
end
of
per
iod
(in
000
's)
$
1
,
9
4
2
Rat
io
of
net
inv
est
men
t
inc
ome
to
ave
rag
e
net
ass
ets
5
.
1
8
%
(
3
)
Rat
io
of
ope
rat
ing
exp
ens
es
to
ave
rag
e
net
ass
ets
(4)
0
.
3
5
%
(
3
)
Por
tfo
lio
tur
nov
er
rat
e
1
1
2
%
* The Select Shares commenced operations on June 29, 1994.
(1) Net investment income before waiver of fees by the
Investment Adviser, Administrator and Custodian and
expenses reimbursed by the Investment Adviser for the
Select Shares was $0.27.
(2) Total return represents aggregate total return for the
period indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the
Investment Adviser, Administrator and Custodian and
expenses reimbursed by the Investment Adviser for Select
Shares was 0.96%.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high
level of current income consistent with minimal fluctuation of
net asset value. Current income includes, in general, discount
earned on U.S. Treasury bills and agency discount notes,
interest earned on mortgage-related securities and other U.S.
Government and agency securities, and short-term capital gains.
While there can be no assurance that the Fund will be able to
maintain minimal fluctuation of net asset value or that it will
achieve its investment objective, the Fund endeavors to do so by
following the investment policies described in this Prospectus.
The Fund is not a money market fund and its net asset value will
fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of 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.
There is no assurance that the Fund will meet its
investment objective.
Duration
Under normal interest rate conditions, the Fund's average
portfolio duration will be approximately the same as a one-year
U.S. Treasury bill (approximately one year). This means that the
Fund's net asset value fluctuation is expected to be similar to
the price fluctuation of a one-year U.S. Treasury bill. The
Fund's average portfolio duration is not expected to exceed that
of a two-year U.S. Treasury note (approximately 1.9 years).
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).
Acceptable Investments
The types of U.S. Government securities in which the
Fund may invest include direct obligations of the U.S. Treasury,
such as U.S. Treasury bills, notes, and bonds, as well as
obligations of U.S. Government agencies or instrumentalities.
The Fund may invest in U.S. Government securities which are
collateralized by or represent interests in real estate
mortgages. The types of mortgage securities in which the
Fund may invest include the following: (i) adjustable rate
mortgage securities; (ii) collateralized mortgage obligations;
(iii) real estate mortgage investment conduits; and (iv) other
securities collateralized by or representing interests in real
estate mortgages whose interest rates reset at periodic
intervals and are issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
The Fund may also invest in mortgage-related securities
which are issued by private entities such as investment banking
firms and companies related to the construction industry. The
privately issued mortgage-related securities in which the Fund
may invest include: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency
or instrumentality of the U.S. Government; (ii) privately issued
securities which are collateralized by pools of mortgages in
which payment of principal and interest are guaranteed by the
issuer and such guarantee is collateralized by U.S. Government
securities; and (iii) other privately issued securities in which
the proceeds of the issuance are invested in mortgage-backed
securities and payment of the principal and interest are
supported by the credit of any agency or instrumentality of the
U.S. Government.
The privately issued mortgage-related securities provide
for periodic payments consisting of both interest and principal.
The interest portion of these payments will be distributed by
the Fund as income, and the capital portion will be reinvested.
U.S. Government Securities. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which differ in interest rates,
maturities and times of issuance. U.S. Treasury bills have
initial maturities of one year or less; U.S. Treasury notes have
initial maturities of one to ten years; and U.S. 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 Corporation ("FHLMC") and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA are
fully guaranteed by the Federal Housing Administration ("FHA")
or Veterans Administration ("VA"), while those collateralizing
ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and
maturity constraints.
Unlike conventional bonds, ARMS pay back principal over
the life of the ARMS rather than at maturity. Thus, a holder of
the ARMS, such as the Fund, would receive monthly scheduled
payments of principal and interest and may receive unscheduled
principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the
payments and any unscheduled prepayments of principal that it
receives, the holder may receive a rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective
means of "locking in" long-term interest rates than other types
of U.S. Government securities.
Not unlike other U.S. Government securities, the market
value of ARMS will generally vary inversely with changes in
market interest rates. Thus, the market value of ARMS generally
declines when interest rates rise and generally rises when
interest rates decline.
While ARMS generally entail less risk of a decline during
periods of rapidly rising rates, ARMS may also have less
potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases
that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled
principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid.
Conversely, if ARMS are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of
principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs"). CMOs are bonds
issued by single-purpose, stand-alone finance subsidiaries or
trusts of financial institutions, government agencies,
investment banks, or companies related to the construction
industry. CMOs purchased by the Fund may be:
* collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S.
Government;
* collateralized by pools of mortgages in which payment
of principal and interest is guaranteed by the issuer
and such guarantee is collateralized by U.S.
Government securities; or
* securities in which the proceeds of the issuance are
invested in mortgage securities and payment of the
principal and interest are supported by the credit of
an agency or instrumentality of the U.S. Government.
All CMOs purchased by the Fund are investment grade, as
rated by a nationally recognized statistical rating
organization.
Real Estate Mortgage Investment Conduits ("REMICs"). REMICs
are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs may
take several forms, such as trusts, partnerships, corporations,
associations or a segregated pool of mortgages. Once REMIC
status is elected and obtained, the entity is not subject to
federal income taxation. Instead, income is passed through the
entity and is taxed to the person or persons who hold interests
in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer
adjustable rates (the type in which the Fund primarily invests),
and a single class of "residual interests". To qualify as a
REMIC, substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real
property.
Stripped Mortgage-Backed Securities ("SMBS"). The Fund may
invest up to 10% of its total assets in SMBS, which are
derivative multiclass mortgage securities. The Fund may only
invest in SMBS issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. SMBS are usually structured with
two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets,
which may consist of mortgage loans or guaranteed mortgage
pass-through certificates. A common type of SMBS will have one
class receiving all or a portion of the interest from the
mortgage assets, while the other class will receive all of the
principal. Moreover, in some instances, one class will receive
some of the interest and most of the principal while the other
class will receive most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, there may no longer
be interest paid on some of the underlying mortgage loans and
the Fund, as a result, may fail to fully recoup its initial
investment in these securities. Although the market for such
securities is increasingly liquid, certain SMBS may not be
readily marketable and will be considered illiquid for purposes
of the Fund's limitation on investments in illiquid securities.
The market value of the class consisting entirely of principal
payments generally is unusually sensitive to changes in interest
rates. The market value of the class consisting entirely of
interest payments is extremely sensitive not only to changes in
interest rates but also to the rate of principal payments,
including prepayments, on the related underlying mortgage
assets. The yields on a class of SMBS that receives all or most
of the interest from mortgage assets are generally higher than
prevailing market yields on other mortgage-backed securities
because their cash flow patterns are more variable and there is
a greater risk that the initial investment will not be fully
recouped. The Investment Adviser will seek to manage these risks
(and potential benefits) by investing in a variety of such
securities and by using certain hedging techniques.
Other Investments and Practices
Resets. The interest rates paid on the ARMS, CMOs and REMICs
in which the Fund invests generally are readjusted or reset at
intervals of one year or less to an increment over some
predetermined interest rate index. There are two main categories
of indices: those based on U.S. Treasury securities and those
derived from a calculated measure, such as a cost of funds index
or a moving average of mortgage rates. Commonly utilized indices
include the one-year and five-year Constant Maturity Treasury
(CMT) rates, the three-month Treasury bill rate, the 180-day
Treasury bill rate, rates on longer term Treasury securities,
the National Median Cost of Funds (COFI), the one-month or
three-month London Interbank Offered Rate (LIBOR), the prime
rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year CMT rate, closely mirror changes
in market interest rate levels. Others tend to lag changes in
market rate levels and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages which collateralize
the ARMS, CMOs and REMICs in which the Fund invests may have
caps and floors which limit the maximum amount by which the loan
rate to the residential borrower may change up or down: (1) per
reset or adjustment interval and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by
limiting changes in the borrower's monthly principal and
interest payments rather than limiting interest rate changes.
These payment caps may result in negative amortization.
The value of mortgage securities in which the Fund invests
may be affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying
residential mortgage loans. An example of the effect of caps and
floors on a residential mortgage loan may be found in the
Statement of Additional Information. Additionally, even though
the interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in
which the Fund invests to be shorter than the maturities stated
in the underlying mortgages.
Repurchase Agreements. 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
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 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).
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.
When-Issued Securities. The Fund may purchase securities on a
"when-issued" basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a
stated price and yield. The Fund will generally not pay for
such securities or start earning interest on them until they are
received. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based
upon changes in the general level of interest rates. The Fund
expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual
market conditions. The Fund does not intend to purchase when-
issued securities for speculative purposes but only in
furtherance of its investment objectives.
Illiquid Securities. The Fund will not knowingly invest more
than 15% of the value of its total net assets in illiquid
securities, including time deposits and repurchase agreements
having maturities longer than seven days. Securities that have
readily available market quotations are not deemed illiquid for
purposes of this limitation (irrespective of any legal or
contractual restrictions on resale). The Fund may invest in
commercial obligations issued in reliance on the so-called
"private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended ("Section
4(2) paper"). The Fund may also purchase securities that are
not registered under the Securities Act of 1933, as amended, but
which can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A
securities"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally is
sold to institutional investors such as the Fund who agree that
they are purchasing the paper for investment and not with a view
to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) paper is normally resold to
other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market
in the Section 4(2) paper, thus providing liquidity. Rule 144A
securities generally must be sold to other qualified
institutional buyers. If a particular investment in Section
4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the percentage
limitation on investment in illiquid securities.
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 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.
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 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.
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 Standard &
Poor's Corporation or P-1 by Moody's Investors Service, Inc.
and, in the case of commercial paper, rated in one of the two
highest rating categories by at least two nationally recognized
statistical rating organizations.
Portfolio Turnover. The Fund's historical portfolio turnover
rate is listed under "Financial Highlights." 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. High turnover in
the Fund's portfolio will result in the payment by the Fund of
above average amounts of taxes on realized investment gains.
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 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).
2. Purchase any securities which would cause 25% or more
of the value of its total assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry, provided that there is
no limitation with respect to investments in U.S. Government
obligations.
The Fund may, in the future, seek to achieve its
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.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
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.
Purchase Procedures
Shares of the Fund are sold at the net asset value per
share of the Fund next determined after receipt of a purchase
order by Lehman Brothers, the Distributor of the Fund's shares.
Purchase orders for shares are accepted only on days on which
both Lehman Brothers and the Federal Reserve Bank of Boston are
open for business and must be transmitted to Lehman Brothers by
telephone at 1-800-851-3134 or through Lehman Brothers
ExpressNET, an automated order entry system designed
specifically for the Trust ("LEX") before 4:00 p.m., Eastern
time. Payment in federal funds immediately available to the
Custodian, Boston Safe Deposit & Trust Company ("Boston Safe"),
must be received before 3:00 p.m., Eastern time on the next
business day following the order. The Fund may in its discretion
reject any order for shares. (Payment for orders which are not
received or accepted by Lehman Brothers will be returned after
prompt inquiry to the sending institution.) Any person entitled
to receive compensation for selling or servicing shares of the
Fund may receive different compensation for selling or servicing
one class of shares over another class.
The minimum aggregate initial investment by an institution
in the investment portfolios that comprise the Trust is $1
million (with not less than $25,000 invested in any one
investment portfolio offered by the Trust); however,
broker-dealers and other institutional investors may set a
higher minimum for their customers. To reach the minimum
Trust-wide initial investment, purchases of shares may be
aggregated over a period of six months. There is no minimum
subsequent investment.
Conflict of interest restrictions may apply to an
institution's receipt of compensation paid by the Fund in
connection with the investment of fiduciary funds in Select
Shares. See also "Management of the Fund - Service
Organizations." Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other
money managers subject to the jurisdiction of the SEC, the
Department of Labor or state securities commissions, are urged
to consult their legal advisers before investing fiduciary funds
in Select Shares.
Subaccounting Services. Institutions are encouraged to open
single master accounts. However, certain institutions may wish
to use the transfer agent's subaccounting system to minimize
their internal recordkeeping requirements. The transfer agent
charges a fee based on the level of subaccounting services
rendered. Institutions holding Fund shares in a fiduciary,
agency, custodial or similar capacity may charge or pass through
subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund
shares. This Prospectus should, therefore, be read together with
any agreement between the customer and the institution with
regard to the services provided, the fees charged for those
services and any restrictions and limitations imposed.
Redemption Procedures
Redemption orders must be transmitted to Lehman Brothers
by telephone at 1-800-851-3134 or through LEX. Shares are
redeemed at the net asset value per share next determined after
Lehman Brothers' receipt of the redemption order. The proceeds
paid to a shareholder upon redemption may be more or less than
the amount invested depending upon a share's net asset value at
the time of redemption.
Subject to the foregoing, payment for redeemed shares for
which a redemption order is received by Lehman Brothers before
4:00 p.m., Eastern time, on a day that both Lehman Brothers and
the Federal Reserve Bank of Boston are open for business is
normally made in federal funds wired to the redeeming
shareholder on the next business day following the redemption
order. The Fund reserves the right to wire redemption proceeds
within seven days after receiving the redemption order if, in
the judgment of the Adviser, an earlier payment could adversely
affect the Fund.
The Fund shall have the right to redeem involuntarily
shares in any account at their net asset value if the value of
the account is less than $10,000 after 60 days' prior written
notice to the shareholder. Any such redemption shall be effected
at the net asset value per share next determined after the
redemption order is entered. If during the 60 day period the
shareholder increases the value of its account to $10,000 or
more, no such redemption shall take place. In addition, the Fund
may redeem shares involuntarily or suspend the right of
redemption as permitted under the Investment Company Act of
1940, as amended (the "1940 Act"), or under certain special
circumstances described in the Statement of Additional
Information under "Additional Purchase and Redemption
Information."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is automatically
established on a shareholder's account. However, the Fund
reserves the right to refuse a redemption order transmitted by
telephone if it is believed advisable to do so. Procedures for
redeeming fund shares by telephone may be modified or terminated
at any time by the Fund or Lehman Brothers. In addition, neither
the Fund, Lehman Brothers nor the Transfer Agent will be
responsible for the authenticity of telephone instructions for
the purchase, redemption or exchange of shares where the
instructions are reasonably believed to be genuine. Accordingly,
the investor will bear the risk of loss. The Fund will attempt
to confirm that telephone instructions are genuine and will use
such procedures as are considered reasonable, including the
recording of telephone instructions. To the extent that the Fund
fails to use reasonable procedures to verify the genuineness of
telephone instructions, it or its service providers may be
liable for such instructions that prove to be fraudulent or
unauthorized.
Exchange Procedures
The Exchange Privilege enables a shareholder to exchange
shares of the Fund without charge for shares of other funds of
the Trust which have different investment objectives that may be
of interest to shareholders. To use the Exchange Privilege,
exchange instructions must be given to Lehman Brothers by
telephone or through LEX. See "Redemption Procedures." In
exchanging shares, a shareholder must meet the minimum initial
investment requirement of the other fund and the shares involved
must be legally available for sale in the state where the
shareholder resides. Before any exchange, the shareholder must
also obtain and should review a copy of the prospectus of the
fund into which the exchange is being made. Prospectuses may be
obtained from Lehman Brothers by calling 1-800-368-5556. Shares
will be exchanged at the net asset value next determined after
receipt of an exchange request in proper form. The exchange of
shares of one fund for shares of another fund is treated for
Federal Income Tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, a shareholder may
realize a taxable gain or loss. The Fund reserves the right to
reject any exchange request in whole or in part. The Exchange
Privilege may be modified or terminated at any time upon notice
to shareholders.
Valuation of Shares - Net Asset Value
The Fund's net asset value per share for purposes of
pricing purchase and redemption orders is determined by the
Fund's Administrator as of 4:00 p.m., Eastern time, on each
weekday, with the exception of those holidays on which either
the New York Stock Exchange or the Federal Reserve Bank of
Boston is closed. Currently, one or both of these institutions
are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day (observed),
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day. The net asset value per share of Fund shares is
calculated by adding the value of all securities and other
assets of the Fund, subtracting liabilities, and dividing the
result by the total number of the Fund's outstanding shares
(irrespective of class or sub-class). The Fund's net asset value
per share for purposes of pricing purchase and redemption orders
is determined independently of the net asset value of the
Trust's other investment portfolios.
Other Matters
Fund shares are sold and redeemed without charge by the
Fund. Institutional investors purchasing or holding Fund shares
for their customer accounts may charge customers fees for cash
management and other services provided in connection with their
accounts. A customer should, therefore, consider the terms of
its account with an institution before purchasing Fund shares.
An institution purchasing or redeeming Fund shares on behalf of
its customers is responsible for transmitting orders to Lehman
Brothers in accordance with its customer agreements.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and
distributions arising only from the net investment income and
capital gains, if any, earned on investments held by the Fund.
The Fund's net investment income is declared daily as a dividend
to shares held of record at the close of business on the day of
declaration. Shares begin accruing dividends on the next
business day following receipt of the purchase order and
continue to accrue dividends up to and including the day that
such shares are redeemed. Dividends are paid monthly within five
business days after the end of the month or within five business
days after a redemption of all of a shareholder's shares of a
particular class. Net capital gains distributions, if any, will
be made annually.
Dividends are determined in the same manner and are paid
in the same amount for each Fund share, except that shares of
the other classes bear all the expenses associated with a
specific class.
Institutional shareholders may elect to have their
dividends reinvested in additional full and fractional shares of
the same class of shares with respect to which such dividends
are declared at the net asset value of such shares on the
payment date. Reinvested dividends receive the same tax
treatment as dividends paid in cash. Such election, or any
revocation thereof, must be made in writing to the Fund's
Distributor at 260 Franklin Street, 18th Floor, Boston,
Massachusetts 02110 and will become effective after its receipt
by the Distributor, with respect to dividends paid.
The Fund's Transfer Agent will send each Fund shareholder
or its authorized representative an annual statement designating
the amount, if any, of any dividends and distributions made
during each year and their federal tax qualification.
TAXES
The Fund qualified in its last taxable year and intends to
qualify each year as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company is exempt from federal income tax
on amounts distributed to its shareholders.
Qualification as a regulated investment company under the
Code for a taxable year requires, among other things, that the
Fund distribute to its shareholders at least 90% of its
investment company taxable income for such year. In general, the
Fund's investment company taxable income will be its taxable
income (including dividends and short-term capital gains, if
any) subject to certain adjustments and excluding the excess of
any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund intends
to distribute substantially all of its investment company
taxable income each year. Such distributions will be taxable as
ordinary income to Fund shareholders who are not currently
exempt from federal income taxes, whether such income is
received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) It is anticipated
that none of the Fund's distributions will be eligible for the
dividends received deduction for corporations.
Dividends declared in October, November or December of any
year payable to shareholders of record on a specified date in
such months will be deemed to have been received by the
shareholders and paid by the Fund on December 31 of such year in
the event such dividends are actually paid during January of the
following year. Shareholders will be advised at least annually
as to the federal income tax status of distributions made to
them each year.
Distributions of net investment income may be taxable to
shareholders as dividend income under state or local law even
though a substantial portion of such distributions may be
derived from interest on U.S. government obligations, which, if
realized directly, would be exempt from such income taxes. The
Fund will provide investors annually with information about the
portion of dividends from the Fund derived from U.S. Treasury
and U.S. government and agency obligations. Investors should be
aware of the application of their state and local tax laws to
investments in the Fund.
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 their 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 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 Fund will provide
investors annually with information about federal income tax
consequences of distributions made each year. Investors should
be aware of the application of their state and local tax laws to
investments in the Fund.
The foregoing discussion is only a brief summary of some
of the important federal tax considerations generally affecting
the Fund and its shareholders. As noted above, IRAs receive
special tax treatment. No attempt is made to present a detailed
explanation of the federal, state or local income tax treatment
of the Fund or its shareholders, and this discussion is not
intended as a substitute for careful tax planning. Accordingly,
potential investors in the Fund should consult their tax
advisors with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of the Trust's Board of Trustees. The Trustees
approve all significant agreements between the Trust and the
persons or companies that furnish services to the Fund,
including agreements with its 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 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.
LBGAM, located at 3 World Financial Center, New York, New
York 10285, serves as the Fund's Investment Adviser. LBGAM is a
wholly owned subsidiary of Holdings. LBGAM, together with other
Lehman Brothers investment advisory affiliates, serves as
investment adviser to investment companies and private accounts
and has assets under management of approximately $12 billion as
of April 30, 1995.
As Adviser to the Fund, LBGAM manages the Fund's portfolio
in accordance with its investment objective and policies, makes
investment decisions for the Fund, places orders to purchase and
sell securities and employs professional portfolio managers and
securities analysts who provide research services to the Fund.
For its services LBGAM is entitled to receive a monthly fee from
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 and Trustee of the Trust. Mr. Hartman joined
LBGAM's Mortgage Department in 1987 and was Senior Vice
President of Mortgage Finance, responsible for Resolutions Trust
Corporation, 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 making investment
selections. Mr. Hartman is assisted by Andrew J. Stenwall, a
Senior Vice President of LBGAM, and Timothy Neumann, a Vice
President of LBGAM.
Administrator and Transfer Agent - 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 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
Fund. This duty to recommend expires on May 21, 2000.
Custodian - 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.
Service Organizations
Under a Plan of Distribution (the "Plan") adopted pursuant
to Rule 12b-1 under the 1940 Act, Select Shares bear fees ("Rule
12b-1 fees") payable by the 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 Fund and holders of Select Shares. Lehman
Brothers may retain all the payments made to it under the Plan
or may enter into agreements with and make payments of up to
.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 Fund --
Service Organizations," include aggregating and processing
purchase and redemption requests from shareholders and placing
net purchase and redemption orders with Lehman Brothers;
processing dividend payments from the Fund on behalf of
shareholders; providing information periodically to shareholders
showing their positions in shares; arranging for bank wires;
responding to shareholder inquiries relating to the services
provided by Lehman Brothers or the Service Organization and
handling correspondence; and acting as shareholder of record and
nominee. The Plan 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 Select Shares.
Expenses
The Fund bears all its own expenses. The Fund's expenses
include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or
employees of the Fund's service contractors, 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, 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.
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 level no greater than .35%. 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. 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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
shareholders, the "total return" and "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. 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.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by annualizing
the most recent distribution of net investment income for a
monthly, quarterly or other relevant period and dividing this
amount by the ending net asset value for the period for which
the distribution rates are being calculated.
The Fund's performance may be compared to that of other
mutual funds with similar objectives, to stock or other relevant
indices, or to rankings prepared by independent services or
other financial or industry publications that monitor the
performance of mutual funds. For example, such data are reported
in national financial publications such as Morningstar, Inc.,
Barron's, IBC/Donoghue's Inc. Bond Fund Report, The Wall Street
Journal and The New York Times, reports prepared by Lipper
Analytical Services, Inc. and publications of a local or
regional nature. The Fund's Lipper ranking in the "Short (1-5
Years) U.S. Government Funds" or "General U.S. Government Funds"
categories may also be quoted from time to time in advertising
and sales literature.
The Fund's total return and yield figures for a class of
shares represent past performance, will fluctuate and should not
be considered as representative of future results. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and operating
expenses. Any fees charged by institutional investors directly
to their customers in connection with investments in Fund shares
are not reflected in the Fund's expenses, total return or
yields; and, such fees, if charged, would reduce the actual
return received by customers on their investments. The methods
used to compute the Fund's total return and yields are described
in more detail in the Statement of Additional Information.
Investors may call 1-800-238-2560 (Select Shares Code: 213) to
obtain current performance information.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established on
November 25, 1992. The Trust's Declaration of Trust authorizes
the Board of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest in the Trust and to
classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end
management investment company, which currently offers ten
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. 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 Fund 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."
Short Duration U.S. Government Fund
Select Shares
PROSPECTUS
May 30, 1995
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
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
_________
LEHMAN BROTHERS
No person has been authorized to give any information or to make
any representations not contained in this Prospectus, or in the
Fund's Statement of Additional Information incorporated herein
by reference, in connection with the offering made by this
Prospectus and, if given or made, such information or
representations must not be relied upon as having been
authorized by the Trust or its distributors. This Prospectus
does not constitute an offering by the Trust or by the
distributors in any jurisdiction in which such offering may not
lawfully be made.
LEHMAN BROTHERS INSTITUTIONAL FUNDS
Client Service Center 800-851-3134
(8:30 am to 5:00 p.m. Eastern time): fax: 617-261-4330
or 617-261-4340
Dividend factors and yields: 800-238-2560
Administration/Sales/Marketing: 800-368-5556
To place a purchase or redemption order: 800-851-
3134
To change account information: 800-851-3134
Additional Prospectuses: 800-368-5556
Information on Service Agreements: 800-851-3134
LEX Help Desk 800-5565LEX
LEHMAN BROTHERS
LBP-206E5
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST LEHMAN BROTHERS SHORT DURATION U.S.
GOVERNMENT FUND
Prospectus begins on page one.
DATED MAY 30, 1995
<PAGE>
LEHMAN BROTHERS SHORT DURATION U.S. GOVERNMENT FUND
Prospectus May 30, 1995
AN INVESTMENT PORTFOLIO OFFERED BY LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST
This Prospectus 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
30, 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, 1-800861-4171. 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.
- ---------------
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 -
<PAGE>
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.
- -----------
TABLE OF CONTENTS
P
a
g
e
Background and Expense Information
3
Investment Objective and Policies
5
Purchase, Redemption and Exchange of Shares
11
Valuation of Shares Net Asset Value
16
Management of the Fund
17
Dividends
19
Taxes
19
Performance Information
21
Description of Shares
22
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.
- - 2 -
<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 1-800-861-4171 or
through Lehman Brothers ExpressNet, an automated order entry
system designed specifically for the Trust ("LEX").
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). . . . . . . . . . .
. . . . . . . . . . . . ..00%
RULE 12B-1 FEES (AFTER WAIVERS)**. . . . . . . . . . . . . .
. . . . . . . ..25%
OTHER EXPENSES-INCLUDING ADMINISTRATION FEES (ESTIMATED,
AFTER WAIVERS). . ..23%
- - 3 -
<PAGE>
TOTAL FUND OPERATING EXPENSES (ESTIMATED AFTER WAIVERS OR
EXPENSE
REIMBURSEMENTS)***. . . . . . . . . . . . . . . . . . . . .
. . . . . . . ..48%
<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.
** 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% 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.
</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
YEAR YEARS
- ---- -----
<S> <C>
$4
$13
</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.
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
- - 4 -
<PAGE>
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
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.
- - 5 -
<PAGE>
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.
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.
- - 6 -
<PAGE>
While ARMS generally entail less risk of a decline during
periods of rapidly rising rates, ARMS may also have less
potential for capital appreciation than other similar
investments (E.G., investments with comparable maturities)
because, as interest rates decline, the likelihood increases
that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and
unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium
paid. Conversely, if ARMS are purchased at a discount, both
a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total
returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are
bonds issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government
agencies, investment banks, or companies related to the
construction industry. CMOs purchased by the Fund may be:
- - collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of
the U.S. Government;
- - collateralized by pools of mortgages in which
payment of principal and interest is guaranteed by
the issuer and such guarantee is
collateralized by U.S. Government securities; or
- - securities in which the proceeds of the issuance
are invested in mortgage securities and payment of
the principal and interest are supported by the
credit of an agency or instrumentality of the U.S.
Government.
All CMOs purchased by the Fund are investment grade, as
rated by a nationally recognized statistical rating
organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs
are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs
may take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of
mortgages. Once REMIC status is elected and obtained, the
entity is not subject to federal income taxation. Instead,
income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates (the
type in which the Fund primarily invests), and a single
class of "residual interests." To qualify as a REMIC,
substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real
property.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). The Fund may
invest up to 10% of its total assets in SMBS, which are
derivative multiclass mortgage securities. The Fund may only
invest in SMBS issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. SMBS are usually
structured with two classes that receive different
proportions of the interest and principal distributions from
a pool of mortgage assets, which may consist of mortgage
loans or guaranteed mortgage pass-through certificates. A
common type of SMBS will have one class receiving all or a
portion of the interest from the mortgage assets, while the
other class will receive all of the principal. Moreover, in
some instances, one class will receive some of the interest
and most of the principal while the other class will receive
most of the interest and the remainder of the principal. If
the underlying mortgage assets experience greater than
anticipated prepayments of principal, there may no longer be
interest paid on some of the underlying mortgage loans
- - 7 -
<PAGE>
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'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:
- - 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.
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.
OTHER INVESTMENTS AND INVESTMENT PRACTICES
- - 8 -
<PAGE>
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 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).
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
- - 9 -
<PAGE>
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 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
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.
- - 10 -
<PAGE>
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund may lend portfolio securities up
to one-third of the value of its total assets to
broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements
with broker/dealers, banks, or other institutions which the
Investment Adviser has determined are creditworthy under
guidelines established by the Fund's Board of Trustees and
will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of
the securities loaned.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary
defensive position, the Fund may invest its assets, without
limit, in commercial paper and other short-term corporate
obligations. The Fund's investment in commercial paper or
corporate obligations will be limited to securities with one
year or less remaining to maturity and rated A-1 by 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
- - 11 -
<PAGE>
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 SelfEmployed 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 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 % OF OFFERING
SALES CHARGE AS %
AMOUNT OF INVESTMENT 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%
- ------------------------------------------------------------
- -------------------
- - 12 -
<PAGE>
<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>
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
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
- - 13 -
<PAGE>
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
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
- - 14 -
<PAGE>
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) 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,
- - 15 -
<PAGE>
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.
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.
- - 16 -
<PAGE>
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 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 $12 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. 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.
LBGAM is located at 3 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
- - 17 -
<PAGE>
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.
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 Deposit and Trust
Company ("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 3 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. 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.
- - 18 -
<PAGE>
CUSTODIAN-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.
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 .48% 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
- - 19 -
<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
"markto-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
- - 20 -
<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 noncorporate 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 tenyear 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
- - 21 -
<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.
THE FUND'S TOTAL RETURN AND YIELD FIGURES FOR A CLASS OF
SHARES REPRESENT PAST PERFORMANCE, WILL FLUCTUATE AND SHOULD
NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE RESULTS. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and
operating expenses. The methods used to compute the Fund's
total return and yields are described in more detail in the
Statement of Additional Information. Current performance
information may be obtained through a Lehman Brothers
Investment Representative or by calling 1-800-861-4171.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established on
November 25, 1992. The Trust's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest
in the Trust and to classify or reclassify any unissued
shares into one or more additional classes of shares. The
Trust is an open-end management investment company which
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.
- - 22 -
<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.
- ---------
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.
- - 23 -
<PAGE>
SHORT DURATION U.S.
GOVERNMENT FUND
PROSPECTUS
MAY 30, 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
Member SIPC
AMERICAN EXPRESS TOWER, WORLD FINANCIAL CENTER, NEW
YORK, NEW YORK 10285
- - 24 -
Lehman Brothers
Short Duration Municipal Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Premier Shares") of the Short Duration
Municipal Fund (the "Fund"), a diversified investment portfolio
of the Trust. Fund shares may not be purchased by individuals
directly, but institutional investors may purchase shares for
accounts maintained by individuals.
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
short-term tax-exempt obligations issued by state and local
governments. 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.
The address of the Fund is One Exchange Place, Boston,
Massachusetts 02109. The Fund can be contacted as follows: for
purchase and redemption orders only call 1-800-851-3134; for
yield information call 1-800-238-2560; for other information
call 1-800-368-5556.
This Prospectus briefly sets forth certain information
about the Fund that investors should know before investing.
Investors are advised to read this Prospectus and retain it for
future reference. Additional information about the Fund,
contained in a Statement of Additional Information dated May 30,
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 Federal Reserve Board or any other government agency. Shares
of the Fund involve certain investment risks, including the
possible loss of principal. The Fund is not a money market Fund
and its net asset value will fluctuate.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________
LEHMAN BROTHERS
May 30, 1995
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three separate classes of
shares, only one of which, Premier Shares, is offered by this
Prospectus. The Fund's other classes of shares have different
sales charges and expenses than Premier Shares which would
affect the performance of these classes of shares. Investors
may obtain information concerning the Fund's other classes of
shares by calling Lehman Brothers at 1-800-368-5556.
The purpose of the following table is to assist an
investor in understanding the various costs and expenses that an
investor in the Fund would bear directly or indirectly. For more
complete descriptions of the various costs and expenses, see
"Management of the Fund" in this Prospectus and the Statement of
Additional Information.
Expense Summary
Annual Fund Operating Expenses
(as a percentage of average net assets)
Advisory Fees (net of applicable fee waivers)
.00%
Rule 12b-1 fees none
Other Expenses including Administration Fees (net of
applicable fee waivers) .10%
Total Fund Operating Expenses (after fee waivers and
expense
reimbursement) .10%
*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
the 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
and reimburse expenses to the extent necessary to maintain an
annualized expense ratio at a level no greater than .10% of the
average daily net assets of the Fund. The voluntary fee waiver
and expense reimbursement arrangements described above will not
be changed unless shareholders are provided at least 60 days'
advance notice. Absent waivers or reimbursement of expenses,
Advisory Fees with respect to Premier Shares would be .30%
annually, Other Expenses would be .36% annually and the Total
Fund Operating Expenses would .66% of the Fund's average daily
net assets.
FINANCIAL HIGHLIGHTS
Financial information is not provided for the Fund because
it has not commenced operations as of the date of this
Prospectus.
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets
in tax-exempt obligations issued by state and local governments.
The Fund is not a money market fund and its net asset value will
fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of fixed income
securities issued by or on behalf of states, territories and
possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from regular
federal income tax ("Municipal Obligations"). Under normal
market conditions, the Fund will invest at least 80% of its net
assets in Municipal Obligations. Although the Fund is not
expected to do so, the Fund may invest as much as 20% of its net
assets in taxable investments, which are obligations issued or
guaranteed by the U.S. government, its agencies and
instrumentalities and repurchase agreements collateralized by
U.S. government securities ("Taxable Investments"). This
activity may generate taxable interest. See "Taxation."
There is no assurance that the Fund will not achieve its
objective.
Ratings on Municipal Obligations
The Fund's investments in Municipal Obligations will at
the time of investment be rated within the three highest rating
categories for municipal securities by Standard & Poor's
Corporation ("Standard & Poor's") (AAA, AA, or A) or by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or any other
comparable nationally recognized rating agency, or their
equivalent ratings or, if unrated, determined by the Investment
Adviser to be of comparable credit quality. The credit rating
assigned to Municipal Obligations by these rating agencies may
reflect the existence of guarantees, letters of credit or other
credit enhancement features available to the issuers or holders
of such Municipal Obligations.
Duration
Generally, the Fund's average portfolio duration will be
no more than three years. The individual Municipal Obligations
in which the Fund invests will have effective maturities not
exceeding five years. Unlike maturity, which indicates when the
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., the duration).
Municipal Obligations and Other Investments
Municipal Obligations. Municipal Obligations include
bonds, notes and other instruments issued by or on behalf of
states, territories and possessions of the United States
(including the District of Columbia) and their political
subdivisions, agencies or instrumentalities, the interest on
which is, in the opinion of bond counsel for the issuers or
counsel selected by the Investment Adviser, exempt from regular
federal income tax (i.e., the issuers or counsel selected by the
Investment Adviser, exempt from regular federal income tax
(i.e., excluded from gross income for federal income tax
purposes but no necessarily exempt from the federal alternative
minimum tax or from the personal income taxes of any state). In
addition, Municipal Obligations include participation interests
in such securities the interest on which is, in the opinion of
bond counsel for the issuers or counsel selected by the
Investment Adviser, exempt from regular federal income tax. The
definition of Municipal Obligations includes other types of
securities that currently exist or may be developed in the
future and that are, or will be, in the opinion of counsel, as
described above, exempt from regular federal income tax,
provided that investing in such securities is consistent with
the Fund's investment objective and policies.
The two principal classifications of Municipal Obligations
which may be held by the Fund are "general obligation"
securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of
facilities, or in some cases, from the proceeds of a special
excise tax or other specific revenue source such as the user of
the facility being financed. Revenue securities include private
activity bonds which are not payable from the unrestricted
revenues of the issuer. While some private activity bonds are
general obligation securities, the vast majority are revenue
bonds. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Each of the Municipal
Obligations described below may take the form of either general
obligation or revenue securities.
Municipal Obligations are often issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and
sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and
facilities. Municipal Obligations also include "private
activity" or industrial development bonds, which are issued by
or on behalf of public authorities to obtain funds for
privately-operated housing facilities, airport, mass transit or
port facilities, sewage disposal, solid waste disposal or
hazardous waste treatment or disposal facilities and certain
local facilities for water supply, gas or electricity. In
addition, proceeds of certain industrial development bonds are
used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities. The
interest income from private activity bonds may subject certain
investors to the federal alternative minimum tax.
Municipal Leases, Certificates of Participation and Other
Participation Interests. The Fund may invest in municipal
leases and certificates of participation in municipal leases. A
municipal lease is an obligation in the form of a lease or
installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from
such obligations is generally exempt from state and local taxes
in the state of issuance. Municipal leases frequently involve
special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property
and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt issuance
limitations are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation
to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. In addition, such
leases or contracts may be subject to the temporary abatement of
payments in the event the issuer is prevented from maintaining
occupancy of the leased premises or utilizing the leased
equipment. Although the obligation may be secured by the leased
equipment or facilities, the disposition of the property in the
event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in an unsatisfactory or
delayed recoupment of the Fund's original investment.
Certificates of participation represent undivided
interests in municipal leases, installment purchase agreements
or other instruments. The certificates are typically issued by
a trust or other entity which has received an assignment of the
payments to be made by the state or political subdivision under
such leases or installment purchase agreements.
Certain municipal lease obligations and certificates of
participation may be deemed illiquid for the purpose of the
Fund's 15% limitation on investments in illiquid securities.
Other municipal lease obligations and certificates of
participation acquired by the Fund may be determined by the
Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Trust, to be liquid securities for the purpose
of such limitation. In determining the liquidity of municipal
lease obligations and certificates of participation, the
Investment Adviser will consider a variety of factors including:
(1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and
the number of other potential buyers; (3) the frequency of
trades or quotes for the obligation; and (4) the nature of
marketplace trades. In addition, the Investment Adviser will
consider factors unique to particular lease obligations and
certificates of participation affecting the marketability
thereof. These include the general creditworthiness of the
issuer, the importance of the property covered by the lease to
the issuer and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation
is held by the Fund.
The Fund may also purchase participations in Municipal
Obligations held by a commercial bank or other financial
institution. Such participations provide the Fund with the
right to a pro rata undivided interest in the underlying
Municipal Obligations. In addition, such participations
generally provide the Fund with the right to demand payment, on
not more than seven days notice, of all or any part of the
Fund's participation interest in the underlying Municipal
Obligation, plus accrued interest. These demand features will
be taken into consideration in determining the effective
maturity of such participations and the average portfolio
duration of the Fund. The Fund will only invest in such
participations if, in the opinion of bond counsel for the
issuers or counsel selected by the Investment Adviser, the
interest from such participations is exempt from regular federal
income tax.
Municipal Notes. Municipal Obligations purchased by the
Fund may include fixed rate notes or variable rate demand notes.
Such notes may not be rated by credit rating agencies, but
unrated notes purchased by the Fund will be determined by the
Investment Adviser to be of comparable quality at the time of
purchase to rated instruments purchasable by the Fund. Where
necessary to determine that a note is an Eligible Security, the
Fund will require the issuer's obligation to pay the principal
of the note be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable
rate demand note purchased by the Fund, the Fund may, upon
notice specified in the note, demand payment of the principal of
the note at any time or during specified periods not exceeding
thirteen months, depending upon the instrument involved, and may
resell the note at any time to a third party. The absence of
such an active secondary market, however, could make it
difficult for the Fund to dispose of a variable rate demand note
if the issuer were to default on its payment obligation or
during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for this or other reasons,
suffer a loss to the extent of the default.
Tax-Exempt Commercial Paper. Issues of commercial paper
typically represent short-term, unsecured, negotiable promissory
notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs
of municipalities or to provide interim construction financing
and are paid from general or specific revenues of municipalities
or are refinanced with long-term debt. In some cases, tax-
exempt commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
arrangements offered by banks or other institutions. The Fund
will invest only in tax-exempt commercial paper rated at least
Prime-2 by Moody's or A-2 by Standard & Poor's.
Pre-Refunded Municipal Obligations. The Fund may invest
in pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer
paid from the original revenue source for the Municipal
Obligations. Instead, the source of such payments is typically
an escrow fund consisting of obligations issued or guaranteed by
the U.S. government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer
as the pre-refunded Municipal Obligations, but usually on terms
more favorable to the issuer. Issuers of Municipal Obligations
use this advance refunding technique to obtain more favorable
terms with respect to Municipal Obligations which are not yet
subject to call or redemption by the issuer. For example,
advance refunding enables an issuer to refinance debt at lower
market interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.
Variable and Floating Rate Securities. The interest rates
payable on certain securities in which the Fund may invest,
which will generally be revenue obligations, are not fixed and
may fluctuate based upon changes in market rates. A variable
rate obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation
is adjusted whenever there is a change in the market rate of
interest on which the interest rate payable is based. Variable
or floating rate obligations generally permit the holders of
such obligations to demand payment of principal from the issuer
or a third party at any time or at stated intervals. Variable
and floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Nevertheless such
obligations may fluctuate in value in response to interest rate
changes if there is a delay between changes in market interest
rates and the interest reset date for the obligation. The Fund
will take demand features into consideration in determining the
average portfolio duration of the Fund and the effective
maturity of individual Municipal Obligations. In addition, the
absence of an unconditional demand feature exercisable within
seven days will, and the failure of the issuer or a third party
to honor its obligations under a demand or put feature might,
require a variable or floating rate obligation to be treated as
illiquid for purposes of the Fund 15% limitation on illiquid
investments.
Tender Option Bonds. The Fund may purchase tender option
bonds. A tender option bond is a municipal obligation
(generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate
substantially higher than prevailing short-term tax-exempt
rates, that has been coupled with the agreement of a third
party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender
their securities to the institution and receive the face value
thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the
difference between the municipal obligation's fixed coupon rate
and the rate, as determined by a remarketing or similar agent at
or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at or near
par on the date of such determination. Thus, after payment of
this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax
exempt rate. The Investment Adviser will consider on an ongoing
basis the creditworthiness of the issuer of the underlying
municipal obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for
certain tender option bonds, the option may be terminable in the
event of a default in payment of principal or interest on the
underlying municipal obligations and for other reasons.
Additionally, the above description of tender option bonds is
meant only to provide an example of one possible structure of
such obligations, and the Fund may purchase tender option bonds
with different types of ownership, payment, credit and/or
liquidity arrangements.
Auction Rate Municipal Obligations. The Municipal
Obligations in which the Fund may invest include auction rate
securities. Provided that the auction mechanism is successful,
auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals.
The interest rate is reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The interest
rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process
is designed to permit auction rate securities to be traded at
par value, there is the risk that the auction will fail due to
insufficient demand for the securities. The Fund will take the
next schedules auction date of auction rate securities into
consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual auction rate
securities.
Zero Coupon and Capital Appreciation Bonds. The Fund may
invest in zero coupon and capital appreciation bonds, which are
debt securities issued or sold at a discount from their face
value and which do not entitle the holder to any periodic
payment of interest prior to maturity or a specified redemption
date (or cash payment date). The amount of the discount varies
depending on the time remaining until maturity or cash payment
date, prevailing interest rates, the liquidity of the security
and the perceived credit quality of the issuer. These
securities may also take the form of debt securities that have
been stripped of their unmatured interest coupons, the coupons
themselves or receipts or certificates representing interest in
such stripped debt obligations or coupons. Discount with
respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of capital appreciation bonds
generally are more volatile than the market prices of interest-
bearing securities and are likely to respond to a greater degree
to changes in interest rates than interest-bearing securities
having similar maturity and credit quality.
Inverse Floating Rate Instruments. The Fund may invest in
"leveraged" inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in
the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly the duration of
an inverse floater may exceed its stated final maturity.
Other Investments and Practices
U.S. Government Obligations. Each Fund (other than Tax-
Free Money Market Fund and Municipal 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
bonds 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.
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
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 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).
When-Issued Securities. The Fund may purchase securities
on a "when-issued" basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a
stated price and yield. The Fund will generally not pay for
such securities or start earning interest on them until they are
received. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based
upon changes in the general level of interest rates. The Fund
expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual
market conditions. The Fund does not intend to purchase when-
issued securities for speculative purposes but only in
furtherance of their investment objectives.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net assets in illiquid
securities, including time deposits and repurchase agreements
having maturities longer than seven days. Securities that have
readily available market quotations are not deemed illiquid for
purposes of this limitation (irrespective of any legal or
contractual restrictions on resale). The Fund may invest in
commercial obligations issued in reliance on the so-called
"private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended ("Section
4(2) paper"). The Fund may also purchase securities that are
not registered under the Securities Act of 1933, as amended, but
which can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A
securities"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally is
sold to institutional investors such as the Fund who agree that
they are purchasing the paper for investment and not with a view
to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) paper is normally resold to
other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market
in the Section 4(2) paper, thus providing liquidity. Rule 144A
securities generally must be sold to other qualified
institutional buyers. If a particular investment in Section
4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the percentage
limitation on investment in illiquid securities.
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 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.
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 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 they hold. 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.
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.
Investment Limitations
The Fund's investment objective and policies described
above are not fundamental and may be changed by the Trust's
Board of Trustees without a vote of shareholders. If there is a
change in the investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's
investment limitation described below may not be changed without
the affirmative vote of the holders of a majority of its
outstanding shares. There can be no assurance that the Fund
will achieve its investment objective. (A complete list of the
investment limitations that cannot be changed without a vote of
shareholders is contained in the Statement of Additional
Information under "Investment Objective and Policies.")
The Fund may not:
1. Borrow money, except that the Fund may (i) borrow
money from banks from temporary or emergency purposes (not for
leveraging or investment) and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings).
2. Purchase any securities which would cause 25% or more
of the value of its total assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry, provided that there is
no limitation with respect to investments in U.S. government
securities. For the purposes of this restriction, state and
municipal governments and their agencies and instrumentalities
are not deemed to be industries.
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.
* * * * *
While there can be no assurance that the Fund will be able
to maintain minimal fluctuations of net asset value or that it
will achieve its investment objective, the Fund endeavors to do
so by following the investment policies described in this
Prospectus.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
** 1 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.
Purchase Procedures
Shares of the Fund are sold at the net asset value per
share of the Fund next determined after receipt of a purchase
order by Lehman Brothers, the Distributor of the Fund's shares.
Purchase orders for shares are accepted only on days on which
both Lehman Brothers and the Federal Reserve Bank of Boston are
open for business and must be transmitted to Lehman Brothers by
telephone at 1-800-851-3134 or through Lehman Brothers
ExpressNet, an automated order entry system designed
specifically for the Trust ("LEX") prior to 4:00 p.m., Eastern
time. Payment in federal funds immediately available to the
Custodian, Boston Safe Deposit & Trust Company ("Boston Safe"),
must be received before 3:00 p.m., Eastern time on the next
business day following the order. The Fund may in its discretion
reject any order for shares. (Payment for orders which are not
received or accepted by Lehman Brothers will be returned after
prompt inquiry to the sending institution.) Any person entitled
to receive compensation for selling or servicing shares of the
Fund may receive different compensation for selling or servicing
one Class of shares over another Class.
The minimum aggregate initial investment by an institution
in the investment portfolios that comprise the Trust is $1
million (with not less than $25,000 invested in any one
investment portfolio offered by the Trust); however, broker-
dealers and other institutional investors may set a higher
minimum for their customers. To reach the minimum Trust-wide
initial investment, purchases of shares may be aggregated over a
period of six months. There is no minimum subsequent investment.
Subaccounting Services. Institutions are encouraged to
open single master accounts. However, certain institutions may
wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer
Agent charges a fee based on the level of subaccounting services
rendered. Institutions holding Fund shares in a fiduciary,
agency, custodial or similar capacity may charge or pass through
subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund
shares. This Prospectus should, therefore, be read together with
any agreement between the customer and the institution with
regard to the services provided, the fees charged for those
services and any restrictions and limitations imposed.
Redemption Procedures
Redemption orders must be transmitted to Lehman Brothers
at 1-800-851-3134 or through LEX. Shares are redeemed at the
net asset value per share next determined after Lehman Brothers'
receipt of the redemption order. The proceeds paid to an
investor upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of
redemption.
Subject to the foregoing, payment for redeemed shares for
which a redemption order is received by Lehman Brothers prior to
4:00 p.m., Eastern time, on a day that both Lehman Brothers and
the Federal Reserve Bank of Boston are open for business is
normally made in federal funds wired to the redeeming
shareholder on the next business day following the redemption
order. The Fund reserves the right to wire redemption proceeds
within seven days after receiving the redemption order if, in
the judgment of the Investment Adviser, an earlier payment could
adversely affect the Fund.
The Fund shall have the right to redeem involuntarily
shares in any account at their net asset value if the value of
the account is less than $10,000 after 60 days' prior written
notice to the investor. Any such redemption shall be effected at
the net asset value per share next determined after the
redemption order is entered. If during the 60 day period the
investor increases the value of its account to $10,000 or more,
no such redemption shall take place. In addition, the Fund may
redeem shares involuntarily or suspend the right of redemption
as permitted under the Investment Company Act of 1940, as
amended (the "1940 Act"), or under certain special circumstances
described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is automatically
established on an investor's account. However, the Fund reserves
the right to refuse a redemption order transmitted by telephone
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Lehman Brothers. In addition, neither the
Fund, Lehman Brothers nor the Transfer Agent will be responsible
for the authenticity of telephone instructions for the purchase,
redemption or exchange of shares where the instructions are
reasonably believed to be genuine. Accordingly, the investor
will bear the risk of loss. The Fund will attempt to confirm
that telephone instructions are genuine and will use such
procedures as are considered reasonable, including the recording
of telephone instructions. To the extent that the Fund fails to
use reasonable procedures to verify the genuineness of telephone
instructions, it or its service providers may be liable for such
instructions that prove to be fraudulent or unauthorized.
Exchange Procedures
The Exchange Privilege enables a shareholder to exchange
shares of the Fund without charge for shares of other funds of
the Trust which have different investment objectives that may be
of interest to shareholders. To use the Exchange Privilege,
exchange instructions must be given to Lehman Brothers by
telephone or through LEX. See "Redemption Procedures." In
exchanging shares, a shareholder must meet the minimum initial
investment requirement of the other fund and the shares involved
must be legally available for sale in the state where the
shareholder resides. Before any exchange, the shareholder must
also obtain and should review a copy of the prospectus of the
fund into which the exchange is being made. Prospectuses may be
obtained from Lehman Brothers by calling 1-800-368-5556. Shares
will be exchanged at the net asset value next determined after
receipt of an exchange request in proper form. The exchange of
shares of one fund for shares of another fund is treated for
federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, a shareholder may
realize a taxable gain or loss. The Fund reserves the right to
reject any exchange request in whole or in part. The Exchange
Privilege may be modified or terminated at any time upon notice
to shareholders.
Valuation of Shares - Net Asset Value
The Fund's net asset value per share for purposes of
pricing purchase and redemption orders is determined by the
Fund's Administrator as of 4:00 p.m., Eastern time, on each
weekday, with the exception of those holidays on which either
the New York Stock Exchange or the Federal Reserve Bank of
Boston is closed. Currently, one or both of these institutions
are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Birthday (observed),
Presidents' Day, Good Friday, Memorial Day Independence Day
(observed), Labor Day, Columbus Day, (observed) Veterans Day,
Thanksgiving Day and Christmas Day. The net asset value per
share of Fund shares is calculated by adding the value of all
securities and other assets of the Fund, subtracting
liabilities, and dividing the result by the total number of the
Fund's outstanding shares (irrespective of class or sub-class).
The Fund's net asset value per share for purposes of pricing
purchase and redemption orders is determined independently of
the net asset value of the Trust's other investment portfolios.
Other Matters
Fund shares are sold and redeemed without charge by the
Fund. Institutional investors purchasing or holding Fund shares
for their customer accounts may charge customers fees for cash
management and other services provided in connection with their
accounts. A customer should, therefore, consider the terms of
its account with an institution before purchasing Fund shares.
An institution purchasing or redeeming Fund shares on behalf of
its customers is responsible for transmitting orders to Lehman
Brothers in accordance with its customer agreements.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and
distributions arising only from the net investment income and
capital gains, if any, earned on investments held by the Fund.
The Fund's net investment income is declared daily as a dividend
to shares held of record at the close of business on the day of
declaration. Shares begin accruing dividends on the next
business day following receipt of the purchase order and
continue to accrue dividends up to and including the day that
such shares are redeemed. Dividends are paid monthly by wire
transfer within five business days after the end of the month or
within five business days after a redemption of all of a
shareholder's shares of a particular class. Net capital gains
distributions, if any, will be made annually.
Dividends are determined in the same manner and are paid
in the same amount for each Fund share, except that shares of
the other classes bear all the expense associated with a
specific class.
Institutional shareholders may elect to have their
dividends reinvested in additional full and fractional shares of
the same class of shares with respect to which such dividends
are declared at the net asset value of such shares on the
payment date. Reinvested dividends receive the same tax
treatment as dividends paid in cash. Such election, or any
revocation thereof, must be made in writing to The Shareholder
Services Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation and the Fund's transfer agent, at P.O. Box 9690,
Providence, Rhode Island 02940-9690, and will become effective
after its receipt by TSSG, with respect to dividends paid.
TSSG, as transfer agent, will send each investor or its
authorized representative an annual statement designating the
amount of any dividends and capital gains distributions, if any,
made during each year and their federal tax qualification.
TAXES
The Fund qualified in its last taxable year and intends to
qualify each year as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company is exempt from federal income tax
on amounts distributed to its shareholders.
Qualification as a regulated investment company under the
Code for a taxable year requires, among other things, that the
Fund distribute to its investors at least 90% of its exempt-
interest income net of certain deductions and 90% of its
investment company taxable income for such year. The Fund
intends to distribute substantially all of its investment
company taxable income each year. Such distributions will be
taxable as ordinary income to Fund shareholders who are not
currently exempt from federal income taxes, whether such income
is received in cash or reinvested in additional shares.
(Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) It is anticipated
that none of the Fund's distributions will be eligible for the
dividends received deduction for corporations.
Dividends derived from exempt-interest income may be
treated by the Fund's investors as items of interest excludable
from their gross income under Section 103(a) of the Code, unless
under the circumstances applicable to the particular investor
the exclusion would be disallowed.
The Fund may hold without limit certain private activity
bonds issued after August 7, 1986. Investors must include, as
an item of tax preference, the portion of dividends paid by the
Fund that is attributable to interest on such bonds in their
federal alternative minimum taxable income for purposes of
determining liability (if any) for the 24% alternative minimum
tax applicable to individuals and the 20% alternative minimum
tax and the environmental tax applicable to corporations.
Corporate investors must also take all exempt-interest dividends
into account in determining certain adjustments for federal
alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the
rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000. Investors
receiving Social Security benefits should note that all exempt-
interest dividends will be taken into account in determining the
taxability of such benefits.
To the extent, if any, dividends paid to investors are
derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from federal
income tax, whether such dividends are paid in the form of cash
or additional shares, and may also be subject to state and local
taxes. Under state or local law, the Fund's distributions of
net investment income may be taxable to investors as dividend
income even though a substantial portion of such distributions
may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
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. Investors will be advised at least annually as to the
federal income tax status of distributions made to them each
year.
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 be limited by the 30% limitation discussed above. The
Fund intends to monitor their 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 foregoing discussion is only a brief summary of some
of the important federal tax considerations generally affecting
the Fund and its investors. No attempt is made to present a
detailed explanation of the federal, state or local income tax
treatment of the Fund or its investors, and this discussion is
not intended as a substitute for careful tax planning.
Accordingly, potential investors in the Fund should consult
their tax advisers with specific reference to their own tax
situation. See the Statement of Additional Information for a
further discussion of tax consequences of investing in shares of
the Fund.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of the Trust's Board of Trustees. The Trustees approve
all significant agreements between the Trust and the persons or
companies that furnish services to the Fund, including
agreements with its Distributor, Investment Adviser,
Administrator and Transfer Agent, and Custodian. The day-to-day
operations of the Fund are delegated to the Fund's Investment
Adviser and Administrator. The Statement of Additional
Information relating to the Fund contains general background
information regarding each Trustee and executive officer of the
Trust.
Distributor
Lehman Brothers Inc., located at Three World Financial
Center, New York, New York 10285, is the Distributor of the
Fund. Lehman Brothers is a wholly-owned subsidiary of Lehman
Brothers Holdings, Inc. ("Holdings"). 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.
The Trust has adopted a Plan of Distribution with respect
to Premier Shares of the Fund pursuant to Rule 12b-1 under the
1940 Act. The Plan of Distribution does not provide for the
payment by the Fund of any Rule 12b-1 fees for distribution or
shareholder services for Premier Shares but provides that Lehman
Brothers may make payments to assist in the distribution of
Premier Shares out of the other fees received by it or its
affiliates from the Fund, its past profits or any other sources
available to it.
Investment Adviser - Lehman Brothers Global Asset Management
Inc.
Lehman Brothers Global Asset Management Inc., located at
Three World Financial Center, New York, New York 10285, serves
as the Fund's Investment Adviser. LBGAM is a wholly-owned
subsidiary of Holdings. Lehman Brothers is one of the leading
full-time investment firms serving the U.S. and foreign
securities and commodities markets. Lehman Brothers Global
Asset Management, Inc. ("LBGAM"), together with other Lehman
Brothers investment advisory affiliates, serves as investment
adivser to investment companies and private accounts and has
assets under management of approximately $12 billion as of 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
services to the Fund. For its services 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 Trust, is the portfolio 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 tax-free
investment strategy and the management of the Vista Tax-Exempt
Money Market Funds, as well as the management of separately
managed accounts. Mr. Rabiecki is the portfolio manager
primarily responsible for managing the day-to-day operations of
the Fund, including the making of investment selections. Mr.
Rabiecki will manage the Fund as of commencement of operations.
Administrator and Transfer Agent - The Shareholder Services
Group, Inc.
The Shareholder Services Group, Inc. ("TSSG"), located at
One Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's Administrator and Transfer Agent. TSSG is a wholly owned
subsidiary of First Data Corporation. As Administrator, TSSG
calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration
and operation. As compensation for its services as
Administrator, TSSG is entitled to a monthly fee at the annual
rate of .10% of the value of the Fund's average daily net
assets. TSSG is also entitled to receive a fee from the Fund
for its services as Transfer Agent. TSSG pays Boston Safe, the
Fund's custodian, a portion of its monthly administration fee
for custody services rendered to the Fund.
Custodian - Boston Safe Deposit and Trust Company
Boston Safe, a wholly owned subsidiary of The Boston
Company Inc., located at One Boston Place, Boston, Massachusetts
02108, serves as the Fund's Custodian.
Expenses
The Fund bears all its own expenses. The Fund's expenses
include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or
employees of the Fund's service contractors, Securities and
Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory
purposes and for distribution to investors, advisory and
administration fees, charges of the custodian, administrator,
transfer agent 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 Fund also pays for
brokerage fees and commissions (if any) in connection with the
purchase and sale of portfolio securities. In order to maintain
a competitive expense ratio, LBGAM has agreed voluntarily to
waive its fee or to reimburse the Fund if and to the extent that
the Fund's total operating expenses exceed. 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 .10%. 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. 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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
investors, the "total return," "yields" and "tax-equivalent
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 "tax-equivalent yield"
demonstrates the level of taxable yield necessary to produce an
after-tax equivalent to the Fund's tax-free yield for each class
of shares. It is calculated by increasing the yield (calculated
as above) by the amount necessary to reflect the payment of
federal taxes at a stated rate. The "tax-equivalent yield" will
always be higher than the "yield." Distribution rates may also
be quoted for the Fund. Quotations of distribution rates are
calculated by annualizing the most recent distribution of net
investment income for a monthly, quarterly or other relevant
period and dividing this amount by the ending net asset value
for the period for which the distribution rates are being
calculated.
The Fund's performance may be compared to that of other
mutual funds with similar objectives, to stock or other relevant
indices, or to rankings prepared by independent services or
other financial or industry publications that monitor the
performance of mutual funds. For example, such data are reported
in national financial publications such as Morningstar, Inc.,
Barron's, IBC/Donoghue's Inc. Bond Fund Report, The Wall Street
Journal and The New York Times, reports prepared by Lipper
Analytical Services, Inc. and publications of a local or
regional nature. The Fund's Lipper ranking in the "Short
Municipal Debt" category may also be quoted from time to time in
advertising and sales literature.
The Fund's total return and yield figures for a class of
shares represent past performance, will fluctuate and should not
be considered as representative of future results. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and operating
expenses. Since the shares of other classes bear all service
fees for distribution or shareholder services, the total return
and net yield of such shares can be expected at any given time
to be lower than the total return and net yield of Premier
Shares. Any fees charged by institutional investors directly to
their customers in connection with investments in Fund shares
are not reflected in the Fund's expenses, total return or
yields; and, such fees, if charged, would reduce the actual
return received by customers on their investments. The methods
used to compute the Fund's total return and yields are described
in more detail in the Statement of Additional Information.
Investors may call 1-800-238-2560 (Premier Shares Code: ___) to
obtain current performance information.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established on
November 25, 1992. The Trust's Declaration of Trust authorizes
the Board of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest in the Trust and to
classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end
management investment company, which currently offers ten
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 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. 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 be voted upon affects only the shareholders of a
particular class. Further, shareholders of the Fund 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."
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
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
_________
No person has been authorized to give any information or to make
any representations not contained in this Prospectus, or in the
Fund's Statement of Additional Information incorporated herein
by reference, in connection with the offering made by this
Prospectus and, if given or made, such information or
representations must not be relied upon as having been
authorized by the Trust or its distributors. This Prospectus
does not constitute an offering by the Trust or by the
distributors in any jurisdiction in which such offering may not
lawfully be made.
TABLE OF CONTENTS
Page
Background and Expense Information 2
Financial Highlights 2
Investment Objective and Policies 3
Purchase, Redemption and Exchange of Shares 12
Dividends 14
Taxes 15
Management of the Fund 16
Performance Information 18
Description of Shares 19
Short Duration Municipal Fund
PROSPECTUS
May 30, 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.
Lehman Brothers
Short Duration Municipal Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Select Shares") of the Short Duration
Municipal Fund (the "Fund"), a diversified investment portfolio
of the Trust. Fund shares may not be purchased by individuals
directly, but institutional investors may purchase shares for
accounts maintained by individuals.
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets
in tax-exempt obligations issued by state and local governments,
territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies
and instrumentalities. All or a portion of the Fund's dividends
may be a specific preference item for purposes of federal
individual and corporate alternative minimum taxes.
Lehman Brothers Inc. ("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. The Fund can be contacted as follows: for
purchase and redemption orders only call 1-800-851-3134; for
yield information call 1-800-238-2560; for other information
call 1-800-368-5556.
This Prospectus briefly sets forth certain information
about the Fund that investors should know before investing.
Investors are advised to read this Prospectus and retain it for
future reference. Additional information about the Fund,
contained in a Statement of Additional Information dated May 30,
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
Inc. ("Lehman Brothers"), the Fund's Distributor, at
1-800-368-5556. The Statement of Additional Information is
incorporated in its entirety by reference into this Prospectus.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and such shares are not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
Shares of the Fund involve certain investment risks, including
the possible loss of principal. The Fund is not a money market
Fund and its net asset value will fluctuate.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________
LEHMAN BROTHERS
May 30, 1995
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three separate classes of
shares, only one of which, Select Shares, is offered by this
Prospectus. The Fund's other classes of shares have different
sales charges and expenses than Select Shares which would affect
the performance of these classes of shares. Investors may
obtain information concerning the Fund's other classes of shares
by calling Lehman Brothers at 1-800-368-5556.
The purpose of the following table is to assist an
investor in understanding the various costs and expenses that an
investor in the Fund would bear directly or indirectly. Certain
institutions may also charge their clients fees in connection
with investments in Select Shares, which fees are not reflected
in the table below. For more complete descriptions of the
various costs and expenses, see "Management of the Fund" in this
Prospectus and the Statement of Additional Information.
Expense Summary
Annual Fund Operating Expenses
(as a percentage of average net assets)
Advisory Fees (net of applicable fee waivers)
.00%
Rule 12b-1 fees .25%
Other Expenses including Administration Fees (net of
applicable fee waivers) .10%
Total Fund Operating - Expenses (after fee waivers and
expense
reimbursement) .35%
*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
the 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
and reimburse expenses to the extent necessary to maintain an
annualized expense ratio at a level no greater than .35% of the
average daily net assets of the Fund. The voluntary fee waiver
and expense reimbursement arrangements described above will not
be changed unless shareholders are provided at least 60 days'
advance notice. Absent waivers or reimbursement of expenses,
Advisory Fees with respect to Select Shares would be .30%
annually, Other Expenses would be .25% annually and the Total
Fund Operating Expenses would .80% of the Fund's average daily
net assets.
FINANCIAL HIGHLIGHTS
Financial information is not provided for the Fund because
it has not commenced operations as of the date of this
Prospectus.
Example
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of
each time period with respect to the following shares:
1 Year 3 Years
$4 $11
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR LESS
THAN THOSE SHOWN.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets
in tax-exempt obligations issued by state and local governments.
The Fund is not a money market fund and its net asset value will
fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of fixed income
securities issued by or on behalf of states, territories and
possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from regular
federal income tax ("Municipal Obligations"). Under normal
market conditions, the Fund will invest at least 80% of its net
assets in Municipal Obligations. Although the Fund is not
expected to do so, the Fund may invest as much as 20% of its net
assets in taxable investments, which are obligations issued or
guaranteed by the U.S. government, its agencies and
instrumentalities and repurchase agreements collateralized by
U.S. government securities ("Taxable Investments"). This
activity may generate taxable interest. See "Taxation."
There is no assurance that the Fund will not achieve its
objective.
Ratings on Municipal Obligations
The Fund's investments in Municipal Obligations will at
the time of investment be rated within the three highest rating
categories for municipal securities by Standard & Poor's
Corporation ("Standard & Poor's") (AAA, AA, or A) or by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or any other
comparable nationally recognized rating agency, or their
equivalent ratings or, if unrated, determined by the Investment
Adviser to be of comparable credit quality. The credit rating
assigned to Municipal Obligations by these rating agencies may
reflect the existence of guarantees, letters of credit or other
credit enhancement features available to the issuers or holders
of such Municipal Obligations.
Duration
Generally, the Fund's average portfolio duration will be
no more than three years. The individual Municipal Obligations
in which the Fund invests will have effective maturities not
exceeding five years. Unlike maturity, which indicates when the
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., the duration).
Municipal Obligations and Other Investments
Municipal Obligations. Municipal Obligations include
bonds, notes and other instruments issued by or on behalf of
states, territories and possessions of the United States
(including the District of Columbia) and their political
subdivisions, agencies or instrumentalities, the interest on
which is, in the opinion of bond counsel for the issuers or
counsel selected by the Investment Adviser, exempt from regular
federal income tax (i.e., the issuers or counsel selected by the
Investment Adviser, exempt from regular federal income tax
(i.e., excluded from gross income for federal income tax
purposes but no necessarily exempt from the federal alternative
minimum tax or from the personal income taxes of any state). In
addition, Municipal Obligations include participation interests
in such securities the interest on which is, in the opinion of
bond counsel for the issuers or counsel selected by the
Investment Adviser, exempt from regular federal income tax. The
definition of Municipal Obligations includes other types of
securities that currently exist or may be developed in the
future and that are, or will be, in the opinion of counsel, as
described above, exempt from regular federal income tax,
provided that investing in such securities is consistent with
the Fund's investment objective and policies.
The two principal classifications of Municipal Obligations
which may be held by the Fund are "general obligation"
securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of
facilities, or in some cases, from the proceeds of a special
excise tax or other specific revenue source such as the user of
the facility being financed. Revenue securities include private
activity bonds which are not payable from the unrestricted
revenues of the issuer. While some private activity bonds are
general obligation securities, the vast majority are revenue
bonds. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Each of the Municipal
Obligations described below may take the form of either general
obligation or revenue securities.
Municipal Obligations are often issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and
sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and
facilities. Municipal Obligations also include "private
activity" or industrial development bonds, which are issued by
or on behalf of public authorities to obtain funds for
privately-operated housing facilities, airport, mass transit or
port facilities, sewage disposal, solid waste disposal or
hazardous waste treatment or disposal facilities and certain
local facilities for water supply, gas or electricity. In
addition, proceeds of certain industrial development bonds are
used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities. The
interest income from private activity bonds may subject certain
investors to the federal alternative minimum tax.
Municipal Leases, Certificates of Participation and Other
Participation Interests. The Fund may invest in municipal
leases and certificates of participation in municipal leases. A
municipal lease is an obligation in the form of a lease or
installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from
such obligations is generally exempt from state and local taxes
in the state of issuance. Municipal leases frequently involve
special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property
and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt issuance
limitations are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation
to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. In addition, such
leases or contracts may be subject to the temporary abatement of
payments in the event the issuer is prevented from maintaining
occupancy of the leased premises or utilizing the leased
equipment. Although the obligation may be secured by the leased
equipment or facilities, the disposition of the property in the
event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in an unsatisfactory or
delayed recoupment of the Fund's original investment.
Certificates of participation represent undivided
interests in municipal leases, installment purchase agreements
or other instruments. The certificates are typically issued by
a trust or other entity which has received an assignment of the
payments to be made by the state or political subdivision under
such leases or installment purchase agreements.
Certain municipal lease obligations and certificates of
participation may be deemed illiquid for the purpose of the
Fund's 15% limitation on investments in illiquid securities.
Other municipal lease obligations and certificates of
participation acquired by the Fund may be determined by the
Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Trust, to be liquid securities for the purpose
of such limitation. In determining the liquidity of municipal
lease obligations and certificates of participation, the
Investment Adviser will consider a variety of factors including:
(1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and
the number of other potential buyers; (3) the frequency of
trades or quotes for the obligation; and (4) the nature of
marketplace trades. In addition, the Investment Adviser will
consider factors unique to particular lease obligations and
certificates of participation affecting the marketability
thereof. These include the general creditworthiness of the
issuer, the importance of the property covered by the lease to
the issuer and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation
is held by the Fund.
The Fund may also purchase participations in Municipal
Obligations held by a commercial bank or other financial
institution. Such participations provide the Fund with the
right to a pro rata undivided interest in the underlying
Municipal Obligations. In addition, such participations
generally provide the Fund with the right to demand payment, on
not more than seven days notice, of all or any part of the
Fund's participation interest in the underlying Municipal
Obligation, plus accrued interest. These demand features will
be taken into consideration in determining the effective
maturity of such participations and the average portfolio
duration of the Fund. The Fund will only invest in such
participations if, in the opinion of bond counsel for the
issuers or counsel selected by the Investment Adviser, the
interest from such participations is exempt from regular federal
income tax.
Municipal Notes. Municipal Obligations purchased by the
Fund may include fixed rate notes or variable rate demand notes.
Such notes may not be rated by credit rating agencies, but
unrated notes purchased by the Fund will be determined by the
Investment Adviser to be of comparable quality at the time of
purchase to rated instruments purchasable by the Fund. Where
necessary to determine that a note is an Eligible Security, the
Fund will require the issuer's obligation to pay the principal
of the note be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable
rate demand note purchased by the Fund, the Fund may, upon
notice specified in the note, demand payment of the principal of
the note at any time or during specified periods not exceeding
thirteen months, depending upon the instrument involved, and may
resell the note at any time to a third party. The absence of
such an active secondary market, however, could make it
difficult for the Fund to dispose of a variable rate demand note
if the issuer were to default on its payment obligation or
during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for this or other reasons,
suffer a loss to the extent of the default.
Tax-Exempt Commercial Paper. Issues of commercial paper
typically represent short-term, unsecured, negotiable promissory
notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs
of municipalities or to provide interim construction financing
and are paid from general or specific revenues of municipalities
or are refinanced with long-term debt. In some cases, tax-
exempt commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
arrangements offered by banks or other institutions. The Fund
will invest only in tax-exempt commercial paper rated at least
Prime-2 by Moody's or A-2 by Standard & Poor's.
Pre-Refunded Municipal Obligations. The Fund may invest
in pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer
paid from the original revenue source for the Municipal
Obligations. Instead, the source of such payments is typically
an escrow fund consisting of obligations issued or guaranteed by
the U.S. government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer
as the pre-refunded Municipal Obligations, but usually on terms
more favorable to the issuer. Issuers of Municipal Obligations
use this advance refunding technique to obtain more favorable
terms with respect to Municipal Obligations which are not yet
subject to call or redemption by the issuer. For example,
advance refunding enables an issuer to refinance debt at lower
market interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.
Variable and Floating Rate Securities. The interest rates
payable on certain securities in which the Fund may invest,
which will generally be revenue obligations, are not fixed and
may fluctuate based upon changes in market rates. A variable
rate obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation
is adjusted whenever there is a change in the market rate of
interest on which the interest rate payable is based. Variable
or floating rate obligations generally permit the holders of
such obligations to demand payment of principal from the issuer
or a third party at any time or at stated intervals. Variable
and floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Nevertheless such
obligations may fluctuate in value in response to interest rate
changes if there is a delay between changes in market interest
rates and the interest reset date for the obligation. The Fund
will take demand features into consideration in determining the
average portfolio duration of the Fund and the effective
maturity of individual Municipal Obligations. In addition, the
absence of an unconditional demand feature exercisable within
seven days will, and the failure of the issuer or a third party
to honor its obligations under a demand or put feature might,
require a variable or floating rate obligation to be treated as
illiquid for purposes of the Fund 15% limitation on illiquid
investments.
Tender Option Bonds. The Fund may purchase tender option
bonds. A tender option bond is a municipal obligation
(generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate
substantially higher than prevailing short-term tax-exempt
rates, that has been coupled with the agreement of a third
party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender
their securities to the institution and receive the face value
thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the
difference between the municipal obligation's fixed coupon rate
and the rate, as determined by a remarketing or similar agent at
or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at or near
par on the date of such determination. Thus, after payment of
this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax
exempt rate. The Investment Adviser will consider on an ongoing
basis the creditworthiness of the issuer of the underlying
municipal obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for
certain tender option bonds, the option may be terminable in the
event of a default in payment of principal or interest on the
underlying municipal obligations and for other reasons.
Additionally, the above description of tender option bonds is
meant only to provide an example of one possible structure of
such obligations, and the Fund may purchase tender option bonds
with different types of ownership, payment, credit and/or
liquidity arrangements.
Auction Rate Municipal Obligations. The Municipal
Obligations in which the Fund may invest include auction rate
securities. Provided that the auction mechanism is successful,
auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals.
The interest rate is reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The interest
rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process
is designed to permit auction rate securities to be traded at
par value, there is the risk that the auction will fail due to
insufficient demand for the securities. The Fund will take the
next schedules auction date of auction rate securities into
consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual auction rate
securities.
Zero Coupon and Capital Appreciation Bonds. The Fund may
invest in zero coupon and capital appreciation bonds, which are
debt securities issued or sold at a discount from their face
value and which do not entitle the holder to any periodic
payment of interest prior to maturity or a specified redemption
date (or cash payment date). The amount of the discount varies
depending on the time remaining until maturity or cash payment
date, prevailing interest rates, the liquidity of the security
and the perceived credit quality of the issuer. These
securities may also take the form of debt securities that have
been stripped of their unmatured interest coupons, the coupons
themselves or receipts or certificates representing interest in
such stripped debt obligations or coupons. Discount with
respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of capital appreciation bonds
generally are more volatile than the market prices of interest-
bearing securities and are likely to respond to a greater degree
to changes in interest rates than interest-bearing securities
having similar maturity and credit quality.
Inverse Floating Rate Instruments. The Fund may invest in
"leveraged" inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in
the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly the duration of
an inverse floater may exceed its stated final maturity.
Other Investments and Practices
U.S. Government Obligations. Each Fund (other than Tax-
Free Money Market Fund and Municipal 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
bonds 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.
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
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 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).
When-Issued Securities. The Fund may purchase securities
on a "when-issued" basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a
stated price and yield. The Fund will generally not pay for
such securities or start earning interest on them until they are
received. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based
upon changes in the general level of interest rates. The Fund
expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual
market conditions. The Fund does not intend to purchase when-
issued securities for speculative purposes but only in
furtherance of their investment objectives.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net assets in illiquid
securities, including time deposits and repurchase agreements
having maturities longer than seven days. Securities that have
readily available market quotations are not deemed illiquid for
purposes of this limitation (irrespective of any legal or
contractual restrictions on resale). The Fund may invest in
commercial obligations issued in reliance on the so-called
"private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended ("Section
4(2) paper"). The Fund may also purchase securities that are
not registered under the Securities Act of 1933, as amended, but
which can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A
securities"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally is
sold to institutional investors such as the Fund who agree that
they are purchasing the paper for investment and not with a view
to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) paper is normally resold to
other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market
in the Section 4(2) paper, thus providing liquidity. Rule 144A
securities generally must be sold to other qualified
institutional buyers. If a particular investment in Section
4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the percentage
limitation on investment in illiquid securities.
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 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.
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 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 they hold. 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.
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.
Investment Limitations
The Fund's investment objective and policies described
above are not fundamental and may be changed by the Trust's
Board of Trustees without a vote of shareholders. If there is a
change in the investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's
investment limitation described below may not be changed without
the affirmative vote of the holders of a majority of its
outstanding shares. There can be no assurance that the Fund
will achieve its investment objective. (A complete list of the
investment limitations that cannot be changed without a vote of
shareholders is contained in the Statement of Additional
Information under "Investment Objective and Policies.")
The Fund may not:
1. Borrow money, except that the Fund may (i) borrow
money from banks from temporary or emergency purposes (not for
leveraging or investment) and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings).
2. Purchase any securities which would cause 25% or more
of the value of its total assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry, provided that there is
no limitation with respect to investments in U.S. government
securities. For the purposes of this restriction, state and
municipal governments and their agencies and instrumentalities
are not deemed to be industries.
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.
* * * * *
While there can be no assurance that the Fund will be able
to maintain minimal fluctuations of net asset value or that it
will achieve its investment objective, the Fund endeavors to do
so by following the investment policies described in this
Prospectus.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
To allow the Adviser to manage the Fund effectively,
investors are strongly urged to initiate all investments or
redemptions of Fund shares as early in the day as possible and
to notify Lehman Brothers at least one day in advance of
transactions in excess of $5 million.
Purchase Procedures
Shares of the Fund are sold at the net asset value per
share of the Fund next determined after receipt of a purchase
order by Lehman Brothers, 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 Lehman Brothers
ExpressNet, an automated order entry system designed
specifically for the Trust ("LEX") prior to 4:00 p.m., Eastern
time. Payment in federal funds immediately available to the
Custodian, Boston Safe Deposit & Trust Company ("Boston Safe"),
must be received before 3:00 p.m., Eastern time, on the next
business day following the order. The Fund may in its discretion
reject any order for shares. (Payment for orders which are not
received or accepted by Lehman Brothers will be returned after
prompt inquiry to the sending institution.) Any person entitled
to receive compensation for selling or servicing shares of the
Fund may receive different compensation for selling or servicing
one Class of shares over another Class.
The minimum aggregate initial investment by an institution
in the investment portfolios that comprise the Trust is $1
million (with not less than $25,000 invested in any one
investment portfolio offered by the Trust); however, broker-
dealers and other institutional investors may set a higher
minimum for their customers. To reach the minimum Trust-wide
initial investment, purchases of shares may be aggregated over a
period of six months. There is no minimum subsequent investment.
Conflict of interest restrictions may apply to an
institution's receipt of compensation paid by the Fund in
connection with the investment of fiduciary funds in Select
Shares. See also "Management of the Fund-Service
Organizations". Institutions, including banks regulated by the
Comptroller of the Currency and investment adviser and other
money managers subject to the jurisdiction of the Securities and
Exchange Commission, the Department of Labor or state
commissions, are urged to consult their legal advisers before
investing fiduciary funds in Select Shares.
Subaccounting Services. Institutions are encouraged to
open single master accounts. However, certain institutions may
wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer
Agent charges a fee based on the level of subaccounting services
rendered. Institutions holding Fund shares in a fiduciary,
agency, custodial or similar capacity may charge or pass through
subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund
shares. This Prospectus should, therefore, be read together with
any agreement between the customer and the institution with
regard to the services provided, the fees charged for those
services and any restrictions and limitations imposed.
Redemption Procedures
Redemption orders must be transmitted to Lehman Brothers
at 1-800-851-3134 or through LEX. Shares are redeemed at the
net asset value per share next determined after Lehman Brothers'
receipt of the redemption order. The proceeds paid to an
investor upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of
redemption.
Subject to the foregoing, payment for redeemed shares for
which a redemption order is received by Lehman Brothers prior to
4:00 p.m., Eastern time, on a day that both Lehman Brothers and
the Federal Reserve Bank of Boston are open for business is
normally made in federal funds wired to the redeeming
shareholder on the next business day following the redemption
order. The Fund reserves the right to wire redemption proceeds
within seven days after receiving the redemption order if, in
the judgment of the Investment Adviser, an earlier payment could
adversely affect the Fund.
The Fund shall have the right to redeem involuntarily
shares in any account at their net asset value if the value of
the account is less than $10,000 after 60 days' prior written
notice to the investor. Any such redemption shall be effected at
the net asset value per share next determined after the
redemption order is entered. If during the 60 day period the
investor increases the value of its account to $10,000 or more,
no such redemption shall take place. In addition, the Fund may
redeem shares involuntarily or suspend the right of redemption
as permitted under the Investment Company Act of 1940, as
amended (the "1940 Act"), or under certain special circumstances
described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is automatically
established on an investor's account. However, the Fund reserves
the right to refuse a redemption order transmitted by telephone
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Lehman Brothers. In addition, neither the
Fund, Lehman Brothers nor the Transfer Agent will be responsible
for the authenticity of telephone instructions for the purchase,
redemption or exchange of shares where the instructions are
reasonably believed to be genuine. Accordingly, the investor
will bear the risk of loss. The Fund will attempt to confirm
that telephone instructions are genuine and will use such
procedures as are considered reasonable, including the recording
of telephone instructions. To the extent that the Fund fails to
use reasonable procedures to verify the genuineness of telephone
instructions, it or its service providers may be liable for such
instructions that prove to be fraudulent or unauthorized.
Exchange Privilege
The Exchange Privilege enables a shareholder to exchange
shares of the Fund without charge for shares of other funds of
the Trust which have different investment objectives that may be
of interest to shareholders. To use the Exchange Privilege,
exchange instructions must be given to Lehman Brothers by
telephone or through LEX. See "Redemption Procedures." In
exchanging shares, must meet the minimum initial investment
requirement of the other fund and the shares involved must be
legally available for sale in the state where the shareholder
resides. Before any exchange, the shareholder must also obtain
and should review a copy of the prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained
from Lehman Brothers by calling 1-800-368-5556. Shares will be
exchanged at the net asset value next determined after receipt
of an exchange request in proper form. The exchange of shares of
one fund for shares of another fund is treated for federal
income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, a shareholder may realize a
taxable gain or loss. The Fund reserves the right to reject any
exchange request in whole or in part. The Exchange Privilege may
be modified or terminated at any time upon notice to
shareholders.
Valuation of Shares - Net Asset Value
The Fund's net asset value per share for each class for
purposes of pricing purchase and redemption orders is determined
by the Fund's Administrator as of 4:00 p.m., Eastern time, on
each weekday, with the exception of those holidays on which
either the New York Stock Exchange or the Federal Reserve Bank
of Boston is closed. Currently, one or both of these
institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr's. Birthday
(observed), Presidents' Day (Washington's Birthday), Good
Friday, Memorial Day (observed), Independence Day (observed),
Labor Day, Columbus Day (observed), Veterans Day, Thanksgiving
Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday,
respectively. The net asset value per share of Fund shares is
calculated by adding the value of all securities and other
assets of the particular class of the Fund, subtracting
liabilities, and dividing the result by the total number of the
Fund's outstanding shares (irrespective of class or sub-class).
The Fund's net asset value per share for purposes of pricing
purchase and redemption orders is determined independently of
the net asset value of the Trust's other investment portfolios.
Other Matters
Select Shares are sold and redeemed without charge by the
Fund. Institutional investors purchasing or holding Fund shares
for their customer accounts may charge customers fees for cash
management and other services provided in connection with their
accounts. A customer should, therefore, consider the terms of
its account with an institution before purchasing Fund shares.
An institution purchasing or redeeming Fund shares on behalf of
its customers is responsible for transmitting orders to Lehman
Brothers in accordance with its customer agreements.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and
distributions arising only from the net investment income and
capital gains, if any, earned on investments held by the Fund.
The Fund's net investment income is declared daily as a dividend
to shares held of record at the close of business on the day of
declaration and paid monthly. Shares begin accruing dividends on
the next business day following receipt of the purchase order
and continue to accrue dividends up to and including the day
that such shares are redeemed. Dividends are paid monthly by
wire transfer within five business days after the end of the
month or within five business days after a redemption of all of
a shareholder's shares of a particular class. Net capital gains
distributions, if any, will be made annually.
Dividends are determined in the same manner and are paid
in the same amount for each Fund share, except that shares of
the other classes bear all the expenses associated with a
specific class.
Institutional shareholders may elect to have their
dividends reinvested in additional full and fractional shares of
the same class of shares with respect to which such dividends
are declared at the net asset value of such shares on the
payment date. Reinvested dividends receive the same tax
treatment as dividends paid in cash. Such election, or any
revocation thereof, must be made in writing to The Shareholder
Services Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation and the Fund's transfer agent, at P.O. Box 9690,
Providence, Rhode Island 02940-9690, and will become effective
after its receipt by TSSG, with respect to dividends paid.
TSSG, as transfer agent, will send each Fund shareholder
or its authorized representative an annual statement designating
the amount of any dividends and capital gains distributions, if
any, made during each year and their federal tax qualification.
TAXES
The Fund qualified in its last taxable year and intends to
qualify each year as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company is exempt from federal income tax
on amounts distributed to its shareholders.
Qualification as a regulated investment company under the
Code for a taxable year requires, among other things, that the
Fund distribute to its investors at least 90% of its exempt-
interest income net of certain deductions and 90% of its
investment company taxable income for such year. The Fund
intends to distribute substantially all of its investment
company taxable income each year. Such distributions will be
taxable as ordinary income to Fund shareholders who are not
currently exempt from federal income taxes, whether such income
is received in cash or reinvested in additional shares.
(Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) It is anticipated
that none of the Fund's distributions will be eligible for the
dividends received deduction for corporations.
Dividends derived from exempt-interest income may be
treated by the Fund's investors as items of interest excludable
from their gross income under Section 103(a) of the Code, unless
under the circumstances applicable to the particular investor
the exclusion would be disallowed.
The Fund may hold without limit certain private activity
bonds issued after August 7, 1986. Investors must include, as
an item of tax preference, the portion of dividends paid by the
Fund that is attributable to interest on such bonds in their
federal alternative minimum taxable income for purposes of
determining liability (if any) for the 24% alternative minimum
tax applicable to individuals and the 20% alternative minimum
tax and the environmental tax applicable to corporations.
Corporate investors must also take all exempt-interest dividends
into account in determining certain adjustments for federal
alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the
rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000. Investors
receiving Social Security benefits should note that all exempt-
interest dividends will be taken into account in determining the
taxability of such benefits.
To the extent, if any, dividends paid to investors are
derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from federal
income tax, whether such dividends are paid in the form of cash
or additional shares, and may also be subject to state and local
taxes. Under state or local law, the Fund's distributions of
net investment income may be taxable to investors as dividend
income even though a substantial portion of such distributions
may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
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. Investors will be advised at least annually as to the
federal income tax status of distributions made to them each
year.
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 be limited by the 30% limitation discussed above. The
Fund intends to monitor their 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 foregoing discussion is only a brief summary of some
of the important federal tax considerations generally affecting
the Fund and its investors. No attempt is made to present a
detailed explanation of the federal, state or local income tax
treatment of the Fund or its investors, and this discussion is
not intended as a substitute for careful tax planning.
Accordingly, potential investors in the Fund should consult
their tax advisers with specific reference to their own tax
situation. See the Statement of Additional Information for a
further discussion of tax consequences of investing in shares of
the Fund.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of the Trust's Board of Trustees. The Trustees approve
all significant agreements between the Trust and the persons or
companies that furnish services to the Fund, including
agreements with its Distributor, Investment Adviser,
Administrator and Transfer Agent, and Custodian. The day-to-day
operations of the Fund are delegated to the Fund's Investment
Adviser and Administrator. The Statement of Additional
Information relating to the Fund contains general background
information regarding each Trustee and Executive Officer of the
Trust.
Distributor
Lehman Brothers Inc., located at 3 World Financial Center,
New York, New York 10285, is the Distributor of the Fund. Lehman
Brothers is a wholly-owned subsidiary of Lehman Brothers
Holdings, Inc. ("Holdings"). 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., located at 3
World Financial Center, New York, New York 10285, serves as the
Fund's Investment Adviser. LBGAM is a wholly owned subsidiary of
Holdings. Lehman Brothers is one of the leading full-line
investment firms serving the U.S. and foreign securities and
commodities markets. Lehman Brothers Global Asset Management,
Inc. ("LBGAM"), together with other Lehman Brothers investment
advisory affiliates, serves as investment adviser to investment
companies and private accounts and has assets under management
of approximately $12 billion as of 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
services to the Fund. For its services 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 Trust, 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 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.
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.
Custodian - Boston Safe Deposit and Trust Company
Boston Safe, a wholly-owned subsidiary of The Boston
Company Inc., located at One Boston Place, Boston, Massachusetts
02108, serves as the Fund's Custodian.
Service Organizations
Under a Plan of Distribution (the "Plan") adopted pursuant
to Rule 12b-1 under the 1940 Act, Select Shares bear fees ("Rule
12b-1 fees") payable by the Fund at the aggregate rate of up to
.25% (on an annualized basis) of the average daily net asset
value of such shares to Lehman Brothers for providing certain
services to the Fund and holders of Select Shares. Lehman
Brothers may retain all the payments made to it under the Plan
or may enter into agreements with and make payments of up to
.25% to investors such as banks, savings and loan associations
and other financial institutions ("Service Organizations") for
the provision of a portion of such services. These services,
which are described more fully in the Statement of Additional
Information under "Management of the Fund-Service
Organizations," include aggregating and processing purchase and
redemption requests from shareholders showing their positions in
shares; arranging for bank wires; responding to shareholder
inquiries relating to the services provided by Lehman Brothers
or the Service Organization and handling correspondence; and
acting as shareholder of record and nominee. The Plan 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
change shareholders in connection with their investments in
Select Shares.
Expenses
The Fund bears all its own expenses. The Fund's expenses
include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or
employees of the Fund's service contractors, Securities and
Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory
purposes and for distribution to investors, advisory and
administration fees, charges of the custodian, administrator,
transfer agent 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 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
.35%. 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. 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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
investors, the "total return," "yields" and "tax-equivalent
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. 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 "tax-equivalent yield"
demonstrates the level of taxable yield necessary to produce an
after-tax equivalent to the Fund's tax-free yield for each class
of shares. It is calculated by increasing the yield (calculated
as above) by the amount necessary to reflect the payment of
federal taxes at a stated rate. The "tax-equivalent yield" will
always be higher than the "yield."
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by annualizing
the most recent distribution of net investment income for a
monthly, quarterly or other relevant period and dividing this
amount by the ending net asset value for the period for which
the distribution rates are being calculated.
The Fund's performance may be compared to that of other
mutual funds with similar objectives, to stock or other relevant
indices, or to rankings prepared by independent services or
other financial or industry publications that monitor the
performance of mutual funds. For example, such data are reported
in national financial publications such as Morningstar, Inc.,
Barron's, IBC/Donoghue's Inc. Bond Fund Report, The Wall Street
Journal and The New York Times, reports prepared by Lipper
Analytical Services, Inc. and publications of a local or
regional nature. The Fund's Lipper ranking in the "Short
Municipal Debt" category may also be quoted from time to time in
advertising and sales literature.
The Fund's total return and yield figures for a class of
shares represent past performance, will fluctuate and should not
be considered as representative of future results. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and operating
expenses. Since the shares of other classes bear all service
fees for distribution or shareholder services, the total return
and net yield of such shares can be expected at any given time
to be lower than the total return and net yield of Premier
Shares. Any fees charged by institutional investors directly to
their customers in connection with investments in Fund shares
are not reflected in the Fund's expenses, total return or
yields; and, such fees, if charged, would reduce the actual
return received by customers on their investments. The methods
used to compute the Fund's total return and yields are described
in more detail in the Statement of Additional Information.
Investors may call 1-800-238-2560 (Select Shares Code: ____) to
obtain current performance information.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established on
November 25, 1992. The Trust's Declaration of Trust authorizes
the Board of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest in the Trust and to
classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end
management investment company, which currently offers ten
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 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. 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 be voted upon affects only the shareholders of a
particular class. Further, shareholders of the Fund 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."
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
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
No person has been authorized to give any information or to make
any representations not contained in this Prospectus, or in the
Fund's Statement of Additional Information incorporated herein
by reference, in connection with the offering made by this
Prospectus and, if given or made, such information or
representations must not be relied upon as having been
authorized by the Trust or its distributors. This Prospectus
does not constitute an offering by the Trust or by the
distributors in any jurisdiction in which such offering may not
lawfully be made.
TABLE OF CONTENTS
Page
Background and Expense Information 3
Financial Highlights 4
Investment Objective and Policies 4
Purchase, Redemption and Exchange of Shares 12
Dividends 15
Taxes 15
Management of the Fund 17
Performance Information 19
Description of Shares 20
Short Duration Municipal Fund
PROSPECTUS
May 30, 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.
<PAGE>
LEHMAN BROTHERS SHORT DURATION MUNICIPAL FUND
Prospectus begins on page one May 30, 1995
No person has been authorized to give any information or to make
any representations not contained in this Prospectus,
or in the 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 Fund or its Distributor. 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 PAGE
- ----
Benefits to Investors 2
Background and Expense Information 2 Financial
Highlights 3
Investment Objective and Policies 3
Purchase of Shares 10
Redemption of Shares 11
Exchange Privilege 12
Valuation of Shares 13
Management of the Fund 13
Dividends 16
Taxes 16
The Fund's Performance 17
Additional Information 18
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO
OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS
MAY OBTAIN SEPARATE
PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS AT 1-
800-861-4171.
<PAGE>
PROSPECTUS
MAY 30, 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. ("LBGAM" or 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 30, 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 1-800861-4171. 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.
___________
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 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 1-800-861-4171 OR THROUGH LEHMAN BROTHERS
EXPRESSNET, AN AUTOMATED ORDER ENTRY SYSTEM DESIGNED SPECIFICALLY
FOR THE TRUST ("LEX).
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.
<TABLE>
<CAPTION>
EXPENSE SUMMARY
<S>
<C> ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets) Advisory Fees (after waivers)
0%
Rule 12b-1 fees (after waivers)*
.25%
Other Expenses - including Administration Fees (after waivers)
.23%
TOTAL FUND OPERATING EXPENSES (after waivers or expense
reimbursement)** .48%
- - 2 -
<PAGE>
<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.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the
end of each time period with respect to the Retail Shares:
<TABLE>
1 Year 3 Years ------ ------<S>
<C> <C> $4
$13
</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.
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.
FINANCIAL HIGHLIGHTS
Financial information is not provided for the Fund because it has
not commenced operations as of the date of this
Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level of
current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
tax-exempt obligations issued by state and local
governments. The Fund is not a money market fund and its net
asset value will fluctuate.
The Fund pursues its investment objective by investing primarily
in a professionally managed portfolio of 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.
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."
THERE IS NO AASURANCE THAT THE FUND WILL ACHIEVE IT INVESTMENT
OBJECTIVE.
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 nationallyrecognized
rating agency, or their equivalent ratings or, if unrated,
determined
by the Adviser to be of comparable credit quality.
- 3 <PAGE>
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.
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.
- 4 <PAGE>
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.
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
- 5 <PAGE>
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 prerefunded Municipal Obligations are no longer paid
from the original revenue source for the Municipal
Obligations. Instead, the source of such payments is typically an
escrow fund consisting of obligations issued or
guaranteed by the U.S. Government. The assets in the escrow fund
are derived from the proceeds of refunding bonds
issued by the same issuer as the pre-refunded Municipal
Obligations, but usually on terms more favorable to the issuer.
Issuers of Municipal Obligations use this advance refunding
technique to obtain more favorable terms with respect to
Municipal Obligations which are not yet subject to call or
redemption by the issuer. For example, advance refunding
enables an issuer to refinance debt at lower market interest
rates, restructure debt to improve cash flow or eliminate
restrictive covenants in the indenture or other governing
instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The
effective maturity of pre-refunded Municipal Obligations will be
the redemption date if the issuer has assumed an
obligation or indicated its intention to redeem such obligations
on the redemption date. Pre-refunded Municipal
Obligations are often purchased at a price which represents a
premium over their face value.
VARIABLE AND FLOATING RATE SECURITIES. The interest rates payable
on certain securities in which the Fund may invest, which
will
generally be revenue obligations, are not fixed and may fluctuate
based upon changes in market rates. A variable rate
obligation has an interest rate which is adjusted at predesignated
periods. Interest on a floating rate obligation is
adjusted whenever there is a change in the market rate of interest
on which the interest rate payable is based. Variable or
floating rate obligations generally permit the holders of such
obligations to demand payment of principal from the issuer or
a third party at any time or at stated intervals. Variable and
floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. 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.
- 6 <PAGE>
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 scheduled auction date of auction rate securities into
consideration in determining the average portfolio duration of the
Fund and the effective maturity of individual auction rate
securities.
ZERO COUPON AND CAPITAL APPRECIATION BONDS. The Fund may invest
in zero coupon and capital appreciation bonds, which are
debt
securities issued or sold at a discount from their face value and
which do not entitle the holder to any periodic payment of
interest prior to maturity or a specified redemption date (or cash
payment date). The amount of the discount varies
depending on the time remaining until maturity or cash payment
date, prevailing interest rates, the liquidity of the security
and the perceived credit quality of the issuer. These securities
may also take the form of debt securities that have been
stripped of their unmatured interest coupons, the coupons
themselves or receipts or certificates representing interest in
such stripped debt obligations or coupons. Discounts 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
U.S. GOVERNMENT OBLIGATIONS. Each Fund (other than Tax-Free Money
Market Fund and Municipal 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.
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
- 7 <PAGE>
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).
WHEN-ISSUED SECURITIES. The Fund may also purchase securities on
a "whenissued" 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 whenissued
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.
ILLIQUID SECURITIES. The Fund will not knowingly invest more than
15% of the value of its total net assets in illiquid
securities, including time deposits and repurchase agreements
having maturities longer than seven days. Securities that have
readily available market quotations are not deemed illiquid for
purposes of this limitation (irrespective of any legal or
contractual restrictions on resale). The Fund may invest in
commercial obligations issued in reliance on the so-called
"private
placement" exemption from registration afforded by Section 4(2) of
the Securities Act of 1933, as amended ("Section 4(2) paper").
The Fund may also purchase securities that are not registered
under the Securities Act of 1933, as amended, but which can be
sold
to qualified institutional buyers in accordance with Rule 144A
under that Act ("Rule 144A securities"). Section 4(2) paper is
restricted as to disposition under the federal securities laws,
and generally is sold to institutional investors such as the Fund
who agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors like the Fund
through or with the assistance of the issuer or investment dealers
who make a market in the Section 4(2) paper, thus providing
liquidity. Rule 144A securities generally must be sold to other
qualified institutional buyers. If a particular investment in
Section 4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the 15%
limitation on investment in illiquid securities.
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.
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.
- 8 <PAGE>
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.
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, Boston Safe Deposit and Trust Company ("Boston Safe"),
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.
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.
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 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:
- 9 <PAGE>
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;
provided that (i) and (ii) in combination do not exceed one-third
of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings).
2. Purchase any securities which would cause 25% or
more of the value
of its total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business
activities in the same industry, provided that there is no
limitation with respect to investments in U.S. Government
securities. For the purposes of this restriction, state and
municipal governments and their agencies and instrumentalities
are not deemed to be industries.
The Fund may, in the future, seek to achieve its 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.
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.
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
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
- 10 <PAGE>
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 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 Short Duration Municipal 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 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.
- 11 <PAGE>
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.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center,
New York, New York 10285, is the Distributor of the Fund.
Lehman Brothers
is a wholly-owned subsidiary of Lehman Brothers Holdings, Inc.
("Holdings"). 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.
The Trust has adopted a Plan of Distribution with respect to
Premier
Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. The
Plan of Distribution does not provide for the payment by
the Fund of any Rule 12b-1 fees for distribution or shareholder
services for Premier Shares but provides that Lehman Brothers
may make payments to assist in the distribution of Premier Shares
out of the other fees received by it or its affiliates from
the Fund, its past profits or any other sources available to it.
- 12 <PAGE>
INVESTMENT ADVISER - LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
LBGAM, located at 3 World Financial Center, New York, New York
10285,
serves as the Fund's Investment Adviser. LBGAM is a wholly-owned
subsidiary of Holdings. Lehman Brothers is one of
the leading full-time investment firms serving the U.S. and
foreign securities and commodities markets. LBGAM,
together with other Lehman Brothers investment advisory
affiliates, serves as investment adivser to investment
companies and private accounts and has assets under management of
approximately $12 billion as of April 30, 1995.
As Adviser to the Fund, LBGAM manages the Fund's portfolio in
accordance
with its investment objective and policies, makes investment
decisions for the Fund, places orders to purchase and sell
securities and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For
its services LBGAM is entitled to receive a monthly fee payable by
the Fund at the annual rate of .30% of the value of the
Fund's average daily net assets.
Nicholas Rabiecki, III, a Vice President and Investment Officer of
the
Trust, is the portfolio 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 FixedIncome
Portfolio Manager with Chase Private Banking where he was
responsible for the short and intermediate tax-free investment
strategy and the management of the Vista TaxExempt Money Market
Funds, as well as the management of separately managed
accounts. Mr. Rabiecki is the portfolio manager primarily
responsible for managing the day-to-day operations of the Fund,
including the making of investment selections. Mr. Rabiecki will
manage the Fund as of commencement of operations.
ADMINISTRATOR AND TRANSFER AGENT - THE SHAREHOLDER SERVICES GROUP,
INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, Boston, Massachusetts 02109, serves as the Fund's
Administrator and Transfer Agent. TSSG is a wholly owned
subsidiary
of First Data Corporation. As Administrator, TSSG calculates the
net asset value of the Fund's shares and generally assists
in all aspects of the Fund's administration and operation. As
compensation for its services as Administrator, TSSG is
entitled to a monthly fee at the annual rate of .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 whollyowned subsidiary of Mallon 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 services 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.
- 13 <PAGE>
CUSTODIAN - BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company Inc.,
located at One Boston Place, Boston, Massachusetts 02108, serves
as
the Fund's Custodian.
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.
- 14 <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, SEC 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 .48% 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
The Fund intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code of 1986, as
amended (the "Code"). A regulated investment company is exempt
from federal income tax on amounts distributed to its
shareholders.
Qualification as a regulated investment company under the Code for
a taxable year requires, among other things, that the
Fund distribute to its investors at least 90% of its exempt-
interest income net of certain deductions and 90% of its
investment company taxable income for such year. 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
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.
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 exemptinterest dividends
into account in determining certain adjustments for federal
alternative minimum and environmental tax purposes. The
- 15 <PAGE>
environmental tax applicable to corporations is imposed at the
rate of .12% on the excess of the corporation's modified
federal alternative minimum taxable income over $2,000,000.
Investors receiving Social Security benefits should note
that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits.
To the extent, if any, dividends paid to investors are derived
from taxable income or from long-term or short-term capital
gains, such dividends will not be exempt from federal income tax,
whether such dividends are paid in the form of cash or
additional shares, and may also be subject to state and local
taxes.
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.
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
From time to time, in advertisements or in reports to investors,
the "total return," "yields" and "tax-equivalent 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
- 16 <PAGE>
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 oneyear period and is shown as a percentage of the investment.
The "tax-equivalent yield" demonstrates the level of taxable
yield necessary to produce an after-tax equivalent to the Fund's
tax-free yield for each class of shares. It is calculated by
increasing the yield (calculated as above) by the amount necessary
to reflect the payment of federal taxes at a stated rate. The
"tax-equivalent yield" will always be higher than the "yield."
Distribution rates may also be quoted for the Fund. Quotations of
distribution rates are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or
other relevant period and dividing this amount by the ending net
asset value for the period for which the distribution rates are
being calculated.
The Fund's performance may be compared to that of other mutual
funds with similar objectives, to bond or other relevant indices,
or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual
funds. For example, such data are reported in national financial
publications such as MORNINGSTAR, INC., BARRON'S, IBC/DONOGHUE'S
INC. BOND FUND REPORT,
USA TODAY, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
BUSINESS WEEK, FORBES, FORTUNE, INSTITUTIONAL INVESTOR,
INVESTORS DAILY, MONEY, reports prepared by Lipper Analytical
Services, Inc. and publications of a local or regional nature. The
Fund's Lipper ranking in the "Short Municipal Debt" category may
also be quoted from time to time in advertising and sales
literature.
The Fund's total return and yield figures for a class of shares
represent past performance, will fluctuate and should not be
considered as representative of future results. The performance of
any investment is generally a function of portfolio quality and
maturity, type of investment and operating expenses. Since the
shares of other classes bear all service fees for distribution or
shareholder services and, in certain classes, class related
expenses, the total return and net yield of such shares can be
expected at any given time to be lower than the total return and
net yield of 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.
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
- 17 <PAGE>
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.
- - 18 -
<PAGE>
PROSPECTUS
May 30, 1995
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 four 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 1800-238-2560 (Class A shares code: 011;
Class B shares code: 211; Class C shares code: 311; Class E
shares code 411); 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 30, 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 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
<PAGE>
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
BACKGROUND AND EXPENSE INFORMATION
The purpose of the following table is to assist an
investor in
understanding the various costs and expenses (estimated)
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
<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.. . . . . . . . . . . . . . . . . . . . . . . .10%
.10% .10% .10%
Rule 12b-1 fees . . . . . . . . . . . . . . . . . . . . . . none
.25% .35% .15%
Other Expenses - including Administration Fees. . . . . . . .08%
.08% .08% .08%
Total Fund Operating Expenses (after expense
reimbursement)(*) . . . . . . . . . . . . . . . . . . . . . .18%
.43% .53% .33%
____________________
<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 ratios at levels no
greater than .18%, .43%, .53% and .33% of the average daily net
assets with respect to Class A, Class B, Class C and Class E
Shares of the Fund, respectively. 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 Shares would be .28%, .53%, .63% and .43%, respectively,
of the Fund's average daily net assets. The foregoing table has
not been audited by the Fund's independent auditors.
-2<PAGE>
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: $1.84
$5.80
Class B shares: $4.40
$13.81
Class C shares: $5.42
$16.99
Class E shares: $3.38
$10.61
</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.
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.
-3<PAGE>
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.
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
-4<PAGE>
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 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 achieve its 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.
-5<PAGE>
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,
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
-6-
<PAGE>
fails to pay principal and/or interest when due, the Fund may be
subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct
obligation of the issuer. In addition, in the event that the
trust or custodial account in which the underlying security has
been deposited is determined to be an association taxable as a
corporation instead of a non-taxable entity, the yield on the
underlying security would be reduced in recognition of any taxes
paid.
The Fund may purchase from financial institutions tax-
exempt participation interests in Municipal Obligations. A
participation interest gives the Fund an undivided interest in the
Municipal Obligation in the proportion that the Fund's
participation interest bears to the total amount of the Municipal
Obligation. These instruments may have floating or variable
rates of interest. If the participation interest is unrated, it
will be backed by an irrevocable letter of credit or guarantee of
a bank that the Trust's Board of Trustees has determined meets
certain quality standards or the payment obligation otherwise will
be collateralized by obligations of the U.S. Government and its
agencies and instrumentalities. The Fund will have the right, with
respect to certain participation interests, to demand payment, on
a specified number of days' notice, for all or any part of the
Fund's interest in the Municipal Obligation, plus accrued
interest. The Fund will invest no more than 5% of its total assets
in
participation interests.
The Fund will not knowingly invest more than 10% of
the value of its total net assets in illiquid securities,
including 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 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.
The Fund's ability to achieve its investment objective is
dependent upon
the ability of the issuers of New York Municipal Obligations to
meet their continuing obligations for the payment of principal and
interest. New
-7-
<PAGE>
York State and New York City face long-term economic problems that
could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial
obligations.
Certain substantial issuers of New York Municipal Obligations
(including
issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These
difficulties have at times jeopardized the credit standing and
impaired the borrowing abilities of all New York issuers and have
generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt
obligations. In
recent years, several different issues of municipal securities of
New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's. On the other
hand, strong demand for New York Municipal Obligations has at
times had the effect of permitting New York Municipal Obligations
to be issued with yields relatively lower, and after issuance,
to trade in the market at prices relatively higher, than
comparably rated municipal obligations issued by other
jurisdictions. A
recurrence of the financial difficulties previously experienced by
certain issuers of New York Municipal Obligations could result
in defaults or declines in the market values of those issuers'
existing obligations and, possibly, in the obligations of other
issuers of New York Municipal Obligations. Although as of the
date of this Prospectus, no issuers of New York Municipal
Obligations are in default with respect to the payment of their
municipal obligations, the occurrence of any such default could
affect adversely the market values and marketability of all New
York Municipal Obligations and, consequently, the net asset value
of the Fund's portfolio.
Other considerations affecting the Fund's investments
in New York Municipal Obligations are summarized in the Statement
of
Additional Information.
The value of the Fund's portfolio securities can be
expected to vary inversely with changes in prevailing interest
rates.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per
share of the Fund next determined after receipt of a purchase
order by
Lehman Brothers, the Distributor of the Fund's shares. Purchase
orders for shares are accepted by the Fund only on a day on which
both Lehman Brothers and the Federal Reserve Bank of Boston are
open for business and must be transmitted to Lehman Brothers, by
telephone at 1-800-851-3134 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.
-8<PAGE>
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 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 1800-851-3134 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 as of
noon and 4:00 P.M., Eastern time, on each weekday, with the
exception of those holidays on which either Lehman Brothers or the
Federal Reserve Bank of Boston is closed. Currently, one or
both of these institutions are closed on New Year's Day, Martin
Luther King, Jr.'s Birthday (observed), Presidents' Day
(Washington's Birthday), Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day (observed), Veterans Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of
the Fund is calculated by adding the value of all securities
and other assets belonging to the Fund, subtracting liabilities
and dividing the result by the number of the Fund's outstanding
shares. Portfolio securities are valued on the basis of amortized
cost. Under this method, the Fund values a portfolio security at
cost on the
-9-
<PAGE>
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 Lehman Brothers as the Fund's Distributor, 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.
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,
-10-
<PAGE>
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 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 should 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 exemptinterest
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 advisers with specific reference to
their own tax situations.
-11<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under
the direction of the Trust's Board of Trustees. The Trustees
approve
all significant agreements between the Trust and the persons or
companies that furnish services to the Fund, including agreements
with its Distributor, 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 whollyowned 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 $12 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
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.
-12<PAGE>
CUSTODIAN - 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 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 annualized expense
ratios at levels no greater than .18%, .43%, .53% and .33% of the
average daily net assets with respect to Class A, Class B, Class
C and Class E Shares of the Fund, respectively. 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.
-13<PAGE>
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
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: 411) 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 ten 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 II,
Tax-Free Money Market Fund, Floating Rate U.S. Government Fund and
Short Duration U.S. Government 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.
-14<PAGE>
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 when the Board of Trustees determines that the
matter to be voted upon affects only the interests of the
shareholders of a particular portfolio. (See the Statement of
Additional Information under "Additional Description Concerning
Fund Shares" for examples where the 1940 Act requires voting by
portfolio.) Shareholders of the Trust are entitled to one vote for
each full share held (irrespective of class or portfolio) and
fractional votes for fractional shares held. Voting rights are not
cumulative, and, accordingly, the holders of more than 50% of the
aggregate shares of the Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible restrictions on their transferability, see "Purchase and
Redemption of Shares."
-15<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market
Fund
Cash Management Fund
Treasury Instruments Money Market
Fund II
100% Treasury Instruments Money Market
Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
New York Municipal Money Market Fund
______
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
_________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE
FUND'S STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE
TRUST OR ITS DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE TRUST OR BY THE DISTRIBUTORS IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
- ----
Background and Expense Information . . . . . . . . . . . . . . . .
. . . 2
Investment Objective and Policies. . . . . . . . . . . . . . . . .
. . . 3
Purchase and Redemption of Shares. . . . . . . . . . . . . . . . .
. . . 8
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 10 Taxes. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 11 Management of the Fund . . . . . . . .
. . . . . . . . . . . . . . . . . 12 Yields . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 15 Description
of Shares and Miscellaneous. . . . . . . . . . . . . . . . .
15
NEW YORK MUNICIPAL MONEY MARKET FUND
__________
PROSPECTUS
May 30, 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
-16-
<PAGE>
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY
CONTACTING LEHMAN BROTHERS AT 1-800-368-5556.
-17
- - 1 -
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\PROSPECT\FRUSPR.DOC
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\PROSPECT\FRUSPRDOC
- - 21 -
lehman/institut/peas/pea10/prospect/sdmunip.doc
- - 20 -
lehman/nstitut/peas/pea10/prospect/sdmunis.doc
100% Treasury Instruments Money Market Fund
Investment Portfolios Offered By Lehman Brothers
Institutional Funds Group Trust
Statement of Additional Information
May 30, 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
30, 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 Prospectus.
TABLE OF CONTENTS
Page
The Trust 2
Investment Objective and Policies 2
Additional Purchase and Redemption Information 5
Management of the Fund 6
Additional Information Concerning Taxes 14
Dividends 15
Additional Yield Information 15
Additional Description Concerning Shares 17
Counsel 17
Independent Auditors 17
Financial Statements 17
Miscellaneous 18
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 agreements and its yields normally will differ due
to its
differing cash
flows and differences in the specific portfolio securities held.
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 THOSE PORTFOLIOS BY
CONTACTING
LEHMAN BROTHERS AT 1-800-368-5556 OR THROUGH
LEHMAN
BROTHERS EXPRESSNET, AN AUTOMATED ORDER ENTRY
SYSTEM
DESIGNED
SPECIFICALLY FOR THE TRUST ("LEX").
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.
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.
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 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 or
emergency
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.
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.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that
funds held in a fiduciary capacity by a national bank approved by the
Comptroller to exercise
fiduciary powers must be invested in accordance with the instrument
establishing the fiduciary
relationship and local law. The Trust believes that the purchase of Fund
shares
by such
national banks acting on behalf of their fiduciary accounts is not contrary
to
applicable
regulations if consistent with the particular account and proper under the
law
governing the
administration of the account.
Conflict of interest restrictions may apply to an institution's
receipt of
compensation
paid by the Fund on fiduciary funds that are invested in 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 of shares, must maintain a
separate
Master
Account for the Fund's class of shares. 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 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
Fund.
Assets belonging
to the Fund are charged with the direct liabilities of the Fund and with a
share
of the general
liabilities of the Trust allocated in proportion to the relative net assets of
the
Fund and the
Trust's other portfolios. Determinations made in good faith and in
accordance
with generally
accepted accounting principles by the Board of Trustees as to the
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:
Name and Address
Position with the
Trust
Principal Occupations During
Past 5
Years and Other Affiliations
ANDREW GORDON
(1)
3 World Financial
Center
New York, NY 10285
Age: 41
Co-Chairman of the
Board, Trustee and
President
Managing Director, Lehman
Brothers.
KIRK HARTMAN (1)
3 World Financial
Center
New York, NY 10285
Age: 40
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer
Managing Director, Lehman
Brothers.
CHARLES F. BARBER
(2)(3)
66 Glenwood Drive
Greenwich, CT 06830
Age: 78
Trustee
Consultant; formerly Chairman
of the Board, ASARCO
Incorporated.
BURT N.
DORSETT (2)(3)
201 East 62nd Street
New York, NY 10022
Age: 64
Trustee
Managing Partner, Dorsett
McCabe Capital Management,
Inc., an investment counseling
firm; Director, Research
Corporation Technologies, a
non-profit patent-clearing and
licensing operation; formerly
President, Westinghouse Pension
Investments Corporation;
formerly Executive Vice
President and Trustee, College
Retirement Equities Fund, Inc.,
a variable annuity fund; and
formerly Investment Officer,
University of Rochester.
EDWARD J.
KAIER (2)(3)
1100 One Penn Center
Philadelphia, PA 19103
Age: 49
Trustee
Partner with the law firm of
Hepburn Willcox Hamilton &
Putnam.
S. DONALD
WILEY (2)(3)
USX Tower
Pittsburgh, PA 15219
Age: 68
Trustee
Vice-Chairman and Trustee, H.J.
Heinz Company Foundation;
prior to October 1990, Senior
Vice President, General Counsel
and Secretary, H.J. Heinz
Company.
JOHN M. WINTERS
3 World Financial
Center
New York, NY 10285
Age: 46
Vice President and
Investment Officer
Senior Vice President and Senior
Money Market Manager,
Lehman Brothers, Global Asset
Management, Inc.; formerly
Product Manager with Lehman
Brothers Capital Markets Group.
NICHOLAS
RABIECKI, III
3 World Financial
Center
New York, NY 10285
Age: 37
Vice President and
Investment Officer
Vice President and Senior
Portfolio Manager, Lehman
Brothers Global Asset
Management, Inc.; formerly
Senior Fixed-Income Portfolio
Manager with Chase Private
Banking.
MICHAEL C.
KARDOK
One Exchange Place
Boston, MA 02109
Age: 35
Treasurer
Vice President, The Shareholder
Services Group, Inc.; prior to
May 1994, Vice President, The
Boston Company Advisors, Inc.
PATRICIA L.
BICKIMER
One Exchange Place
Boston, MA 02109
Age: 42
Secretary
Vice President and Associate
General Counsel, The
Shareholder Services Group,
Inc.; prior to May 1994, Vice
President and Associate General
Counsel, The Boston Company
Advisors, Inc.
_______________________
1. Considered by the Trust to be "interested persons" of the Trust as
defined in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
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 and $104,841 for the Trust in the aggregate. As of
April
28, 1995,
Trustees and Officers of the Trust as a group beneficially owned less
than 1% of
the
outstanding shares of the Fund.
By virtue of the responsibilities assumed by Lehman Brothers, 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
Name of
Person
and
Position
Aggregate
Compensa
tion
from the
Trust
Pension or
Retirement
Benefits
Accrued as Part
of Trust
Expenses
Estimated
Annual
Benefits
Upon
Retiremen
t
Total
Compensati
on From
the Trust
and Fund
Complex
Paid to
Trustees*
Andrew
Gordon
Co-
Chairman
of the
Board,
Trustee
and
President
$0
$0
N/A
$0 (2)
Kirk
Hartman
Co-
Chairman
of the
Board,
Trustee,
Executive
Vice
President
and
Investmen
t Officer
$0
$0
N/A
$0 (3)
Charles
Barber,
Trustee
$25,000
$0
N/A
$25,000(1)
Burt N.
Dorsett,
Trustee
$25,000
$0
N/A
$52,500(2)
Edward J.
Kaier,
Trustee
$25,000
$0
N/A
$25,000(1)
S. Donald
Wiley,
Trustee
$25,000
$0
N/A
$25,000(1)
__________________________________
* 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.
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.
Lehman Brothers is comprised of several major operating
business units.
Lehman
Brothers Institutional Funds Group is the business group within Lehman
Brothers that is
primarily responsible for the distribution and client service requirements
of the
Trust and its
investors. Lehman Brothers Institutional Funds Group has been serving
institutional clients'
investment needs exclusively for more than 20 years, emphasizing high
quality
individualized
service to clients.
Investment Adviser
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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).
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 $70,084 and
$75,538,
respectively, 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 $70,084
and $128,972, 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 April 28, 1995, principal holders of Class A
Shares of
the Fund
were as follows: Firstrust Co., The National City Bank of Evansville,
P.O. Box
868,
Evansville, IN 47705, 72.69% shares held of record; American
Ambassador
Casualty
Company, 1501 Woodfield Road, Schaumburg, IL 60173, 10.59%
shares held
of record and
Boyer & Company, P.O. Box 1796, Walla Walla, WA 99362, 8.00%
shares
held of record.
As of April 28, 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
Deposit and Trust Company ("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, 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.
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, 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
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 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, 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 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 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
(2.5%) of
the first $30
million of a Fund's average net assets, two percent (2%) of the next $70
million
of the average
net assets and one and one-half percent (1.5%) of the remaining average
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 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.
The foregoing discussion is based on federal tax laws and
regulations
which are in
effect on the date of this Statement of Additional Information; such laws
and
regulations may
be changed by legislative or administrative action.
DIVIDENDS
Net income of 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.
Based on the fiscal year ended January 31, 1995, the yields,
effective
yields and tax-
equivalent yields for the Fund were as follows:
7
- -
d
a
y
Y
i
e
l
d
7
- -
d
a
y
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
7-
da
y
Ta
x-
Eq
ui
va
le
nt
Yi
el
d
Class A Shares
5
.
5
1
%
5
.
6
5
%
7.
98
%
Class B Shares
5
.
2
6
%
5
.
3
9
%
7.
62
%
Class C Shares
5
.
1
6
%
5
.
2
8
%
7.
48
%
Class E Shares
5
.
3
6
%
5
.
4
9
%
7.
77
%
Class A Shares*
5
.
2
1
%
5
.
3
4
%
7.
55
%
Class B Shares*
4
.
9
6
%
5
.
0
7
%
7.
19
%
Class C Shares*
4
.
8
6
%
4
.
9
7
%
7.
04
%
Class E Shares*
5
.
0
6
%
5
.
1
8
%
7.
33
%
<
/R
>
*estimated yield without fee waivers and/or expense
reimbursements
Note: Tax-equivalent yields assume a maximum Federal Tax Rate of
31%.
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.
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 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
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 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 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 serves as counsel to Lehman
Brothers.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, serve as
independent
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 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 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.
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.
Municipal Money Market Fund
Tax-Free Money Market Fund
Investment Portfolios Offered By
Lehman Brothers Institutional Funds Group Trust
Statement of Additional Information
May 30, 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 30, 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
P
a
g
e
The Trust
2
Investment Objective and Policies
2
Municipal Obligations
8
Additional Purchase and Redemption Information
1
0
Management of the Funds
1
2
Additional Information Concerning Taxes
1
9
Dividends
2
1
Additional Yield Information
2
2
Additional Description Concerning Shares
2
3
Counsel
2
4
Independent Auditors
2
4
Financial Statements
2
4
Miscellaneous
2
4
Appendix
A
- -
1
<
/
R
>
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 1-800-368-5556
OR
THROUGH
LEHMAN BROTHERS EXPRESSNET, AN AUTOMATED ORDER
ENTRY
SYSTEM
DESIGNED SPECIFICALLY FOR THE TRUST ("LEX").
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Funds' Prospectuses, the investment objective of
each
Fund is to
provide as high a level of current income exempt from federal income
tax as is
consistent with
relative stability of principal. The following policies supplement the
description
of each Fund's
investment objective and policies as contained in the applicable
Prospectus.
The Funds are managed to provide stability of capital while
achieving
competitive
yields. The 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.
Transactions in the over-the-counter market are generally
principal
transactions with
dealers, and the costs of such transactions involve dealer spreads rather
than
brokerage
commissions. With respect to over-the-counter transactions, the Funds,
where
possible, will
deal directly with the dealers who make a market in the securities
involved
except in those
circumstances where better prices and execution are available elsewhere.
Investment decisions for each Fund are made independently from
those
for the Trust's
other portfolios or other investment company portfolios or accounts
managed by
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 Prospectuses, "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 seek profits through short-term trading. Each
Fund's
annual portfolio
turnover will be relatively high, but a Fund's portfolio turnover is not
expected
to have a
material effect on its net income. Each Fund's portfolio turnover rate is
expected to be zero for
regulatory reporting purposes.
Additional Information on Investment Practices
Variable and Floating Rate Instruments. Municipal Obligations
purchased by the
Funds may include variable and floating rate instruments, which provide
for
adjustments in the
interest rate on certain reset dates or whenever a specified interest rate
index
changes,
respectively. Variable and floating rate instruments are subject to the
credit
quality standards
described in the Prospectuses. In some cases the Funds may require that
the
obligation to pay
the principal of the instrument be backed by a letter or line of credit or
guarantee. Such
instruments may carry stated maturities in excess of 397 days provided
that the
maturity-shortening provisions stated in Rule 2a-7 under the 1940 Act
are
satisfied. Although a
particular variable or floating rate demand instrument may not be
actively traded
in a
secondary market, in some cases, the Funds may be entitled to principal
on
demand and may
be able to resell such notes in the dealer market.
Variable and floating rate demand instruments held by a Fund
may have
maturities of
more than thirteen months provided: (i) the Fund is entitled to the
payment of
principal at any
time, or during specified intervals not exceeding 13 months, upon giving
the
prescribed notice
(which may not exceed 30 days), and (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.
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 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 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 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
The Funds' Prospectuses summarize certain investment
limitations that
may not be
changed without the affirmative vote of the holders of a majority of a
Fund's
outstanding
shares (as defined below under "Miscellaneous"). Investment limitations
numbered 1 through 7
may not be changed without such a vote of shareholders; investment
limitations
8 through 13
may be changed by a vote of the Trust's Board of Trustees at any time.
A Fund may not:
1. Purchase the securities of any issuer if as a result more
than 5%
of the value of
the Fund's assets would be invested in the securities of such issuer
except that
up to 25% of
the value of the Fund's assets may be invested without regard to this 5%
limitation and
provided that there is no limitation with respect to investments in U.S.
Government
securities.
2. Borrow money, except from banks for temporary or
emergency
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.
13. Invest in warrants.
In addition, without the affirmative vote of the holders of a
majority of a
Fund's
outstanding shares, such Fund may not change its policy of investing at
least
80% of its total
assets (except during temporary defensive periods) in Municipal
Obligations in
the case of
Municipal Money Market Fund, and in obligations the interest on which
is
exempt from
federal income tax in the case of the Tax-Free Money Market Fund.
In order to permit the sale of Fund shares in certain states, the
Funds
may make
commitments more restrictive than the investment policies and
limitations
above. Should a
Fund determine that any such commitments are no longer in its best
interests, it
will revoke the
commitment by terminating sales of its shares in the state involved.
MUNICIPAL OBLIGATIONS
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.
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.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that
funds held in a fiduciary capacity by a national bank approved by the
Comptroller to exercise
fiduciary powers must be invested in accordance with the instrument
establishing the fiduciary
relationship and local law. The Trust believes that the purchase of
Municipal
Money Market
Fund or Tax-Free Money Market Fund shares by such national banks
acting on
behalf of their
fiduciary accounts is not contrary to applicable regulations if consistent
with the
particular
account and proper under the law governing the administration of the
account.
Conflict of interest restrictions may apply to an institution's
receipt of
compensation
paid by a Fund on fiduciary funds that are invested in a Fund's Class B,
or
Class C 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
Fund.
Assets belonging
to a Fund are charged with the direct liabilities of that Fund and with a
share of
the general
liabilities of the Trust allocated on a daily basis in proportion to the
relative net
assets of that
Fund and the Trust's other portfolios. Determinations made in good faith
and in
accordance
with generally accepted accounting principles by the Trust's Board of
Trustees
as to the
allocation of any assets or liabilities with respect to a Fund are
conclusive.
As stated in the applicable Prospectus, in computing the net asset
value
of its shares for
purposes of sales and redemptions, each Fund uses the amortized cost
method of
valuation.
Under this method, a Fund values each of its portfolio securities at cost
on the
date of purchase
and thereafter assumes a constant proportionate amortization of any
discount or
premium until
maturity of the security. As a result, the value of a portfolio security for
purposes of
determining net asset value normally does not change in response to
fluctuating
interest rates.
While the amortized cost method provides certainty in portfolio
valuation, it
may result in
valuations of a Fund's securities which are higher or lower than the
market
value of such
securities.
In connection with its use of amortized cost valuation, each Fund
limits
the
dollar-weighted average maturity of its portfolio to not more than 90
days and
does not
purchase any instrument with a remaining maturity of more than 13
months
(397 days) (with
certain exceptions). The Trust's Board of Trustees has also established,
pursuant
to rules
promulgated by the SEC, procedures that are intended to stabilize each
Fund's
net asset value
per share for purposes of sales and redemptions at $1.00. Such
procedures
include the
determination at such intervals as the Board deems appropriate, of the
extent, if
any, to which
a Fund's net asset value per share calculated by using available market
quotations deviates
from $1.00 per share. In the event such deviation exceeds 1/2 of 1%, the
Board
will promptly
consider what action, if any, should be initiated. If the Board believes
that the
amount of any
deviation from a Fund's $1.00 amortized cost price per share may result
in
material dilution or
other unfair results to investors or existing shareholders, it will take such
steps
as its considers
appropriate to eliminate or reduce to the extent reasonably practicable
any such
dilution or
unfair results. These steps may include selling portfolio instruments prior
to
maturity to realize
capital gains or losses or to shorten a Fund's average portfolio maturity,
redeeming shares in
kind, reducing or withholding dividends, or utilizing a net asset value
per share
determined by
using available market quotations.
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
ANDREW GORDON
(1)
3 World Financial
Center
New York, NY 10285
Age: 41
Co-Chairman of the
Board, Trustee and
President
Managing Director,
Lehman Brothers.
KIRK HARTMAN (1)
3 World Financial
Center
New York, NY 10285
Age: 40
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer
Managing Director,
Lehman Brothers.
CHARLES F.
BARBER (2)(3)
66 Glenwood Drive
Greenwich, CT 06830
Age: 78
Trustee
Consultant; formerly
Chairman of the
Board, ASARCO
Incorporated.
BURT N.
DORSETT (2)(3)
201 East 62nd Street
New York, NY 10022
Age: 64
Trustee
Managing Partner,
Dorsett McCabe
Capital
Management, Inc.,
an investment
counseling firm;
Director, Research
Corporation
Technologies, a
non-profit
patent-clearing and
licensing operation;
formerly President,
Westinghouse
Pension Investments
Corporation;
formerly Executive
Vice President and
Trustee, College
Retirement Equities
Fund, Inc., a
variable annuity
fund; and formerly
Investment Officer,
University of
Rochester.
EDWARD J.
KAIER (2)(3)
1100 One Penn Center
Philadelphia, PA 19103
Age: 49
Trustee
Partner with the law
firm of Hepburn
Willcox Hamilton &
Putnam.
S. DONALD
WILEY (2)(3)
USX Tower
Pittsburgh, PA 15219
Age: 68
Trustee
Vice Chairman and
Trustee, H.J. Heinz
Company
Foundation; prior to
October 1990,
Senior Vice
President, General
Counsel and
Secretary,
H.J. Heinz
Company.
JOHN M. WINTERS
3 World Financial
Center
New York, NY 10285
Age: 46
Vice President and
Investment Officer
Senior Vice
President and Senior
Money Market
Portfolio Manager,
Lehman Brothers
Global Asset
Management, Inc.;
formerly Product
Manager with
Lehman Brothers
Capital Markets
Group.
NICHOLAS
RABIECKI, III
3 World Financial
Center
New York, NY 10285
Age: 37
Vice President and
Investment Officer
Vice President and
Senior Portfolio
Manager, Lehman
Brothers Global
Asset Management,
Inc.; formerly
Senior Fixed Income
Portfolio Manager
with Chase Private
Banking.
MICHAEL C.
KARDOK
One Exchange Place
Boston, MA 02109
Age: 35
Treasurer
Vice President, The
Shareholder Services
Group, Inc.; prior to
May 1994, Vice
President, The
Boston Company
Advisors, Inc.
PATRICIA L.
BICKIMER
One Exchange Place
Boston, MA 02109
Age: 42
Secretary
Vice President and
Associate General
Counsel, The
Shareholder Services
Group, Inc.; prior to
May 1994, Vice
President and
Associate General
Counsel, The Boston
Company Advisors,
Inc.
________________
1. Considered by the Trust to be "interested persons" of the Trust as
defined in
the
1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
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 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 April 28, 1995,
Trustees
and Officers
of the Trust as a group beneficially owned less than 1% of the
outstanding
shares of each
Fund.
By virtue of the responsibilities assumed by Lehman Brothers, 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
7
Name
of
Person
and
Positio
n
Aggr
egate
Com
pensa
tion
from
the
Trust
Pensi
on or
Retir
emen
t
Benef
its
Accr
ued
as
Part
of
Trust
Expe
nses
Es
ti
m
at
ed
A
nn
ua
l
B
en
efi
ts
U
po
n
R
eti
re
m
en
t
Total
Com
pensa
tion
From
the
Trust
and
Fund
Com
plex
Paid
to
Trust
ees*
Andrew
Gordon
Co-
Chairman of
the Board,
Trustee and
President
$0
$0
N
/A
$0 (2)
Kirk
Hartman
Co-
Chairman of
the Board,
Trustee,
Executive
Vice
President
and
Investment
Officer
$0
$0
N
/A
$0 (3)
Charles
Barber,
Trustee
$25,0
00
$0
N
/A
$25,000(1)
Burt N.
Dorsett,
Trustee
$25,0
00
$0
N
/A
$52,500(2)
Edward J.
Kaier,
Trustee
$25,0
00
$0
N
/A
$25,000(1)
S. Donald
Wiley,
Trustee
$25,0
00
$0
N
/A
$25,000(1)
__________________________________
* 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.
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.
Lehman Brothers is comprised of several major operating
business units.
Lehman
Brothers Institutional Funds Group is the business group within Lehman
Brothers that is
primarily responsible for the distribution and client service requirements
of the
Trust and its
investors. Lehman Brothers Institutional Funds Group has been serving
institutional clients'
investment needs exclusively for more than 20 years, emphasizing high
quality
individualized
service to clients.
Investment Adviser
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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 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 April 28, 1995, the principal holders of Class A Shares
of
Municipal Money
Market Fund were as follows: Employers Reinsurance Corporation,
P.O. Box
2991, Overland
Park, KS 66201, 21.87% shares held of record; Asyst Technologies,
Inc., 1745
McCandless
Drive, Milpitas, CA 95035, 17.24% shares held of record; Society Asset
Management, Inc.,
127 Public Square, Cleveland, OH 44114, 13.23% shares held of
record;
National Data Corp.,
One National Data Plaza, Atlanta, GA 30329, 6.89% shares held of
record;
Deposit Guaranty
National Bank, P.O. Box 23100, Jackson, MS 39225, 6.78% shares held
of
record; Publix
Super Market, P.O. Box 407, Lakeland, FL 33802, 6.63% shares held
of
record; Egghead,
Inc., P.O. Box 7004, Issuquah, WA 98027, 6.32% shares held of record
and
River Oaks Trust
Company, P.O. Box 4886, Houston, TX 77210, 5.05% shares held of
record.
Principal
holders of Class A Shares of Tax-Free Money Market Fund as of April
28,
1995, were as
follows: Bank of Boston, 150 Royal Street, Canton, MA 02021, 37.05%
shares
held of record;
Trulin & Co., P.O. Box 1412, Rochester, NY 14603, 22.21% shares
held of
record; Oster &
Co., P.O. Box 1338, Victoria, TX 77902, 11.06% shares held of
record;
EDRAYCO, P.O.
Box 937, Gainsville, GA 30503, 7.30% shares held of record and The
Interpublic Group of
Companies, 750 Third Avenue, New York, NY 12181, 7.10% shares
held of
record. At April
28, 1995, the principal holder of Class C Shares of Municipal Money
Market
Fund was FNB
Nominee Company, 614 Philadelphia Street, P.O. Box 400, Indiana, PA
15701, with 99.99%
shares held of record.
As of April 28, 1995, there were no investors in the Class
B or
Class E Shares
of Municipal Money Market Fund and Class B, Class C or Class E
Shares of
Tax-Free Money
Market 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 a Fund,
such
investor may be
deemed to be a "control person" of that Fund for purposes of the 1940
Act.
Administrator and Transfer Agent
TSSG, a subsidiary of First Data Corporation, is located at One
Exchange Place,
Boston, Massachusetts 02109, and serves as the Trust's Administrator
and
Transfer Agent. As
the Trust's Administrator, TSSG has agreed to provide the following
services:
(i) assist
generally in supervising a Fund's operations, providing and supervising
the
operation of an
automated data processing system to process purchase and redemption
orders,
providing
information concerning a Fund to its 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
Deposit and Trust
Company ("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 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 1995 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,
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, 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 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 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-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
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").
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 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 net assets, two
percent (2%)
of the next
$70 million of the average annual net and one and one-half percent (1
1/2%) of
the remaining
average 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.
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.
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 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 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
- -
d
a
y
Y
i
e
l
d
7
- -
d
a
y
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
7-
d
a
y
T
a
x-
E
q
ui
v
al
e
nt
Y
ie
ld
Municipal Money Market
Fund
Class A Shares
3
.
8
5
%
3
.
9
2
%
5.
5
8
%
Class B Shares
3
.
6
0
%
3
.
6
6
%
5.
2
2
%
Class C Shares
3
.
5
0
%
3
.
5
6
%
5.
0
7
%
Class E Shares
3
.
7
0
%
3
.
7
6
%
5.
3
6
%
Class A Shares*
3
.
7
5
%
3
.
8
2
%
5.
4
3
%
Class B Shares*
3
.
5
0
%
3
.
5
6
%
5.
0
7
%
Class C Shares*
3
.
4
0
%
3
.
4
5
%
4.
9
3
%
Class E Shares*
3
.
6
0
%
3
.
6
6
%
5.
2
2
%
Tax-Free Money Market Fund
Class A Shares
3
.
6
5
%
3
.
7
1
%
5.
2
9
%
Class B Shares
3
.
4
0
%
3
.
4
5
%
4.
9
3
%
Class C Shares
3
.
3
0
%
3
.
3
5
%
4.
7
8
%
Class E Shares
3
.
5
0
%
3
.
5
6
%
5.
0
7
%
Class A Shares*
3
.
3
7
%
3
.
4
2
%
4.
8
8
%
Class B Shares*
3
.
1
2
%
3
.
1
7
%
4.
5
2
%
Class C Shares*
3
.
0
2
%
3
.
0
6
%
4.
3
8
%
Class E Shares*
3
.
2
2
%
3
.
2
7
%
4.
6
7
%
*estimated yield without fee waivers and/or expense reimbursements
Note: Tax-equivalent yields assume a maximum Federal Tax Rate of
31%.
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 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.
Yields will fluctuate, and any quotation of yield should not be
considered as
representative of the future performance of a Fund. Since yields
fluctuate, yield
data for a
Fund cannot necessarily be used to compare an investment in that Fund's
shares
with bank
deposits, savings accounts and similar investment alternatives which
often
provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should
remember that
performance and yield are generally functions of the kind and quality of
the
investments held in
a portfolio, portfolio maturity, operating expenses and market
conditions. Any
fees charged by
banks with respect to customer accounts investing in shares of a Fund
will not
be included in
yield calculations; such fees, if charged, would reduce the actual yield
from that
quoted.
ADDITIONAL DESCRIPTION CONCERNING SHARES
The Trust does not presently intend to hold annual meetings of
shareholders except as
required by the 1940 Act or other applicable law. The law under certain
circumstances
provides shareholders with the right to call for a meeting of shareholders
to
consider the
removal of one or more Trustees. To the extent required by law, the
Trust will
assist in
shareholder communication in such matters.
As stated in the Funds' Prospectuses, holders of shares in a Fund
will
vote in the
aggregate and not by class or series on all matters, except where
otherwise
required by law and
except that only a Fund's Class B, 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
voting securities
of such portfolio. However, the Rule also provides that the ratification
of the
selection of
independent certified public accountants, the approval of principal
underwriting
contracts and
the election of trustees are not subject to the separate voting
requirements and
may be
effectively acted upon by shareholders of the investment company voting
without regard to
portfolio.
COUNSEL
Willkie Farr & Gallagher, One Citicorp Center, New York, New
York
10022, serves
as counsel to the Trust and will pass upon the legality of the shares
offered
hereby. Willkie
Farr & Gallagher also serves as counsel to Lehman Brothers.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent independent auditors,
serve as
auditors to
each Fund and render an opinion on each 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 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 of a Fund of any shareholder of the Fund held
personally
liable solely by
reason of being or having been a shareholder and not because of any acts
or
omissions or some
other reason. The Declaration of Trust also provides that the Trust shall,
upon
request, assume
the defense of any claim made against any shareholder for any act or
obligation
of the Trust
and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring
financial loss
beyond the amount invested in a Fund on account of shareholder liability
is
limited to
circumstances in which the Fund itself would be unable to meet its
obligations.
The Trust's Declaration of Trust provides further that no Trustee
of the
Trust shall be
personally liable for or on account of any contract, debt, tort, claim,
damage,
judgment or
decree arising out of or connected with the administration or
preservation of the
trust estate or
the conduct of any business of the Trust, nor shall any Trustee be
personally
liable to any
person for any action or failure to act except by reason of bad faith,
willful
misfeasance, gross
negligence in performing duties, or by reason of reckless disregard for
the
obligations and
duties as Trustee. It also provides that all persons having any claim
against the
Trustees or the
Trust shall look solely to the trust property for payment. With the
exceptions
stated, the
Declaration of Trust provides that a Trustee is entitled to be indemnified
against
all liabilities
and expenses reasonably incurred in connection with the defense or
disposition
of any
proceeding in which the Trustee may be involved or may be threatened
with by
reason of being
or having been a Trustee, and that the Trustees have the power, but not
the
duty, to indemnify
officers and employees of the Trust unless such persons would not be
entitled to
indemnification if they were in the position of Trustee.
APPENDIX
DESCRIPTION OF MUNICIPAL OBLIGATION RATINGS
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the
likelihood of timely payment of debt considered short-term in the
relevant
market. 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 short-term debt ratings are opinions of the ability
of
issuers to repay
punctually senior debt obligations which have an original maturity not
exceeding
one year. 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 ability for repayment of senior short-term debt 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 ability for repayment of senior short-term debt 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 "D-1" and "D-2." Duff & Phelps employs three
designations, "D-1+,"
"D-1" and "D-1-," within the highest rating category. The following
summarizes the two
highest rating categories used by Duff & Phelps for commercial paper:
"D-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.
"D-1" - Debt possesses very high certainty of
timely
payment. Liquidity
factors are excellent and supported by good fundamental protection
factors. Risk
factors are
minor.
"D-1-" - Debt possesses high certainty of timely
payment. Liquidity
factors are strong and supported by good fundamental protection factors.
Risk
factors are very
small.
"D-2" - Debt possesses good certainty of timely
payment.
Liquidity
factors and company fundamentals are sound. Although ongoing funding
needs
may enlarge
total financing requirements, access to capital markets is good. Risk
factors are
small.
Fitch short-term ratings apply to debt obligations that are
payable
on demand or
have original maturities of generally 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
some
of 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.
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 short-term ratings assess the
likelihood of
an untimely
payment of principal or interest of debt having a maturity of one year or
less.
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.
Where issues possess a particularly strong credit feature a rating of
"A1+" is
assigned.
"A2" - Obligations are supported by a good capacity for
timely
repayment.
Municipal Long-Term Debt Ratings
The following summarizes the 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 the highest rated 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 as having predominantly speculative characteristics with respect
to
capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and
"CCC" 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 payment default. This rating is also used
upon
the filing of a
bankruptcy petition if debt service payments are jeopardized.
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 ratings used by Moody's
for
municipal long-term
debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the
smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments
are protected by
a large or by an exceptionally stable margin and principal is secure.
While the
various
protective elements are likely to change, such changes as can be
visualized are
most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together
with the
"Aaa" group they comprise what are generally known as high grade
bonds.
They are rated
lower than the best bonds because margins of protection may not be as
large as
in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or
there may be
other elements present which make the long-term risks appear somewhat
larger
than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes
and are
to be
considered as upper medium grade obligations. Factors giving security
to
principal and
interest are considered adequate but elements may be present which
suggest a
susceptibility to
impairment sometime in the future.
"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. (---) - Municipal 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 generic
classification of
"Aa" in its corporate bond rating system. The modifier 1 indicates that
the
company 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 company ranks at the lower end of its
generic
rating category.
Those municipal bonds in the "Aa" to "B" groups which
Moody's
believes
posses the strongest investment attributes are designated by the symbols
"Aa1,"
"A1," "Baa1,"
"Ba1," and "B1."
The following summarizes the 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.
"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 rating categories.
The following summarizes the ratings used by Fitch for
municipal
bonds:
"AAA" - Bonds considered to be investment grade and of the
highest
credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is
unlikely to be affected by reasonably foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit
quality. The
obligor's ability to pay interest and repay principal is very strong,
although not
quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA"
categories
are not
significantly vulnerable to foreseeable future developments, short-term
debt of
these issuers is
generally rated "F-1+."
"A" - Bonds considered to be investment grade and of
high credit
quality. The
obligor's ability to pay interest and repay principal is considered to be
strong,
but may be more
vulnerable to adverse changes in economic conditions and circumstances
than
bonds with
higher ratings.
"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 that bonds should be
valued
on the basis of
the ultimate recovery value in liquidation or reorganization of the
obligor.
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.
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.
"A" - This designation indicates the ability to repay
principal and
interest is
strong. Issues rated "A" could be more vulnerable to adverse
developments
(both interal and
external) than obligations with higher ratings.
PLUS (+) or MINUS (-) - The ratings may include a plus or
minus sign
designation
which indicates where within the respective category the issue is placed.
IBCA assesses the investment quality of unsecured debt with an
original
maturity of
more than one year which is issued by bank holding companies and their
principal bank
subsidiaries. The following summarizes the two highest rating categories
used
by IBCA for
long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk.
Capacity for timely repayment of principal and interest is substantial
such that
adverse changes
in business, economic or financial conditions are unlikely to increase
investment
risk
significantly.
"AA" - Obligations for which there is a very low expectation of
investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse
changes in
business, economic or financial conditions may increase investment risk
albeit
not very
significantly.
"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 factors
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
strong
capacity to pay
principal and interest. Those issues determined to possess a very strong
capacity
to pay are
given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory
capacity to
pay principal and interest, with some vulnerability to adverse financial
and
economic changes
over the term of the notes.
Moody's ratings for state and municipal notes and other
short-
term loans are
designated Moody's Investment Grade ("MIG"). Such ratings recognize
the
differences
between short-term credit risk and long-term risk. A short-term rating
may also
be assigned on
an issue having a demand feature. Such ratings will be designated as
"VMIG."
The following
summarizes the two highest ratings used by Moody's Investors Service,
Inc. for
short-term
notes:
"MIG-1"/"VMIG-1" - This designation denotes best
quality.
There is strong
protection by established cash flows, superior liquidity support or
demonstrated
broad-based
access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high
quality.
Margins of
protection are ample although not so large as in the preceding group.
Duff & Phelps and Fitch use the short-term ratings described
under
Commercial Paper
Ratings for municipal notes.
Lehman Brothers Institutional Funds Group Trust
Floating Rate U.S. Government Fund
Statement of Additional Information
May 30, 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
30,
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
P
a
g
e
The Trust
2
Investment Objective and Policies
2
Additional Purchase and Redemption Information
1
4
Management of the Fund
1
5
Additional Information Concerning Taxes
2
2
Dividends
2
4
Additional Performance Information
2
4
Additional Description Concerning Shares
2
6
Counsel
2
6
Independent Auditors
2
7
Financial Statements
2
7
Miscellaneous
2
7
Appendix
A
- -
1
<
/
R
>
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
Select Shares bear fees payable
by the
Fund to
Lehman Brothers or institutional investors for services they provide to
the
beneficial owners of
such shares and Retail Shares bear fees payable by the Fund to Lehman
Brothers
for services it
provides to the beneficial owners of such shares.
THIS STATEMENT OF ADDITIONAL INFORMATION AND
THE
FUND'S
PROSPECTUSES RELATE PRIMARILY TO THE FUND AND
DESCRIBE
ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS
AND
OTHER MATTERS RELATING TO THE FUND. INVESTORS
WISHING
TO OBTAIN
SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY
OBTAIN INFORMATION DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556 OR THROUGH LEHMAN
BROTHERS
EXPRESSNET, AN AUTOMATED ORDER ENTRY SYSTEM
DEIGNED
SPECIFICALLY FOR THE TRUST ("LEX").
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.
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 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 Select 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.
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
Eleventh
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 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.
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 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
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, Export-Import Bank
of the
United States,
Government 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 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
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. 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.
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 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 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 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.
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.
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.
The SEC has adopted Rule 144A under the Securities Act of
1933, as
amended (the
"1933 Act") which allows for a broader institutional trading market for
securities otherwise
subject to restriction on resale to the general public. Rule 144A
establishes a
"safe harbor"
from the registration requirements of the 1933 Act for resales of certain
securities to qualified
institutional buyers. The Fund's investment Adviser anticipates that the
market
for certain
restricted securities will expand further as a result of this regulation and
the
development of
automated systems for the trading, clearance and settlement of
unregistered
securities of
domestic and foreign issuers, such as the PORTAL system sponsored by
the
National
Association of Securities Dealers.
The 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. The Fund's portfolio turnover rate was
164% for
the fiscal
period ended January 31, 1995.
U.S. Treasury STRIPS. The Fund may invest in
separately traded
principal and interest components of securities backed by the full faith
and
credit of the U.S. Treasury. The principal and interest components of
U.S.
Treasury bonds with remaining maturities of longer than ten years are
eligible to
be traded independently under the Separate Trading of Registered
Interest and
Principal of Securities ("STRIPS") program. Under the STRIPS
program, the
principal and interest components are separately issued by the U.S.
Treasury at
the request of depository financial institutions, which then trade the
component
parts separately. Under the stripped bond rules of the Internal Revenue
Code of
1986, as amended (the "Code"), investments by the Fund in STRIPS
will result
in the accrual of interest income on such investments in advance of the
receipt
of the cash corresponding to such income. The interest component of
STRIPS
may be more volatile than that of U.S. Treasury bills with comparable
maturities. The Fund will not actively trade in STRIPS. The Fund will
limit
investments in STRIPS to 20% of its total assets.
Investment Limitations
The Prospectuses summarize certain investment limitations that
may not
be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares (as
defined below under "Miscellaneous"). Investment limitations numbered
1
through 7 may not
be changed without such a vote of shareholders; investment limitations 8
through 13 may be
changed by a vote of the Trust's Board of Trustees at any time.
The Fund may not:
1. Purchase securities of any one issuer, other than
obligations
issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if
as a
result more than
5% of the value of the Fund's assets would be invested in the securities
of such
issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without
regard to such
5% limitation and (b) such 5% limitation shall not apply to repurchase
agreements
collateralized by obligations of the U.S. Government, its agencies or
instrumentalities.
2. Borrow money, except that the Fund may (i) borrow
money from
banks for temporary or emergency purposes (not for leveraging or
investment)
and (ii) engage
in reverse repurchase agreements or dollar roll transactions; provided
that (i)
and (ii) in
combination do not exceed one-third of the value of the Fund's total
assets
(including the
amount borrowed) less liabilities (other than borrowings). For purposes
of this
investment
restriction, short sales, swap transactions, options, futures contracts and
options
on futures
contracts, and forward commitment transactions shall not constitute
borrowings.
3. Make loans except that the Fund may purchase or hold
debt
obligations
in accordance with its investment objective and policies, may enter into
repurchase agreements
for securities and may lend portfolio securities.
4. Act as an underwriter, except insofar as the Fund may be
deemed
an
underwriter under applicable securities laws in selling portfolio
securities.
5. Purchase or sell real estate or real estate limited
partnerships
except
that the Fund may invest in securities secured by real estate or interests
therein.
6. Purchase or sell commodities or commodity contracts, or
invest
in oil,
gas or mineral exploration or development programs or in mineral
leases.
7. Purchase any securities which would cause 25% or more
of the
value
of its total assets at the time of purchase to be invested in the securities
of
issuers conducting
their principal business activities in the same industry, provided that
there is no
limitation with
respect to investments in U.S. Government securities.
8. Purchase securities on margin, except for such short-term
credits
as are
necessary for the clearance of transactions, but the Fund may make
margin
deposits in
connection with transactions in options, futures and options on futures.
9. Knowingly invest more than 15% of the value of the
Fund's
assets in
securities that may be illiquid because of legal or contractual restrictions
on
resale or securities
for which there are no readily available market quotations.
10. Write or sell puts, calls, straddles, spreads or
combinations
thereof in
excess of 5% of its total assets.
11. Invest in securities if as a result the Fund would then have
more
than
5% of its total assets in securities of companies (including predecessors)
with
less than three
years of continuous operation.
12. Purchase securities of other investment companies in
excess of
5% of
its total assets, except as permitted under the 1940 Act or in connection
with a
merger,
consolidation, acquisition or reorganization.
13. Invest in warrants.
In order to permit the sale of Fund shares in certain states, the
Fund may
make
commitments more restrictive than the investment policies and
limitations
above. Should the
Fund determine that any such commitments are no longer in its best
interests, it
will revoke the
commitment by terminating sales of its shares in the state involved.
ADDITIONAL PURCHASE 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 Select
Shares. Institutions, including banks regulated by the Comptroller of the
Currency and
investment advisers and other money managers subject to the jurisdiction
of the
SEC, the
Department of Labor or state securities commissions, should consult
their legal
advisers before
investing fiduciary funds in the Fund's Select Shares.
Under the 1940 Act, the Fund may suspend the right of
redemption or
postpone the
date of payment upon redemption for any period during which the New
York
Stock Exchange
("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 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.
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
Fund.
Assets belonging to the Fund are charged with the direct liabilities of the
Fund
and with a
share of the general liabilities of the Trust allocated 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:
Name and Address
Position with
the Trust
Principal Occupations During
Past 5
Years and Other Affiliations
ANDREW GORDON
(1)
3 World Financial
Center
New York, NY 10285
Age: 41
Co-
Chairman
of the
Board,
Trustee and
President
Managing Director,
Lehman Brothers.
KIRK HARTMAN (1)
3 World Financial
Center
New York, NY 10285
Age: 40
Co-
Chairman
of the
Board,
Trustee,
Executive
Vice
President
and
Investment
Officer
Managing Director,
Lehman Brothers.
CHARLES F. BARBER
(2)(3)
66 Glenwood Drive
Greenwich, CT 06830
Age: 78
Trustee
Consultant; formerly
Chairman of the Board,
ASARCO Incorporated.
BURT N.
DORSETT (2)(3)
201 East 62nd Street
New York, NY 10022
Age: 64
Trustee
Managing Partner, Dorsett
McCabe Capital
Management, Inc., an
investment counseling
firm; Director, Research
Corporation Technologies,
a non-profit
patent-clearing and
licensing operation;
formerly President,
Westinghouse Pension
Investments Corporation;
formerly Executive Vice
President and Trustee,
College Retirement
Equities Fund, Inc., a
variable annuity fund; and
formerly Investment
Officer, University of
Rochester.
EDWARD J.
KAIER (2)(3)
1100 One Penn Center
Philadelphia, PA 19103
Age: 49
Trustee
Partner with the law firm
of Hepburn Willcox
Hamilton & Putnam.
S. DONALD
WILEY (2)(3)
USX Tower
Pittsburgh, PA 15219
Age: 68
Trustee
Vice-Chairman and
Trustee, H.J. Heinz
Company Foundation;
prior to October 1990,
Senior Vice President,
General Counsel and
Secretary, H.J. Heinz
Company.
JOHN M. WINTERS
3 World Financial
Center
New York, NY 10285
Age: 46
Vice
President
and
Investment
Officer
Senior Vice President and
Senior Money Market
Manager, Lehman
Brothers, Global Asset
Management, Inc.;
formerly Product Manager
with Lehman Brothers
Capital Markets Group.
NICHOLAS
RABIECKI, III
3 World Financial
Center
New York, NY 10285
Age: 37
Vice
President
and
Investment
Officer
Vice President and Senior
Portfolio Manager,
Lehman Brothers Global
Asset Management, Inc.;
formerly Senior Fixed-
Income Portfolio Manager
with Chase Private
Banking.
MICHAEL C.
KARDOK
One Exchange Place
Boston, MA 02109
Age: 35
Treasurer
Vice President, The
Shareholder Services
Group, Inc.; prior to May
1994, Vice President, The
Boston Company
Advisors, Inc.
PATRICIA L.
BICKIMER
One Exchange Place
Boston, MA 02109
Age: 42
Secretary
Vice President and
Associate General
Counsel, The Shareholder
Services Group, Inc.;
prior to May 1994, Vice
President and Associate
General Counsel, The
Boston Company
Advisors, Inc.
__________________
1. Considered by the Trust to be "interested persons" of the Trust as
defined in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
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 April
28,
1995, Trustees and
Officers of the Trust as a group beneficially owned less than 1% of the
outstanding shares of
the Fund.
By virtue of the responsibilities assumed by Lehman Brothers, 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
Name of
Person
and
Position
Aggregate
Compensa
tion
from the
Trust
Pens
ion
or
Retir
eme
nt
Bene
fits
Accr
ued
as
Part
of
Trus
t
Expe
nses
Esti
mate
d
Ann
ual
Ben
efits
Upo
n
Reti
rem
ent
Total
Compe
nsation
From
the
Trust
and
Fund
Compl
ex
Paid to
Truste
es*
Andrew
Gordon
Co-
Chairma
n of the
Board,
Trustee
and
Presiden
t
$0
$0
N/A
$0
(2)
Kirk
Hartman
Co-
Chairma
n of the
Board,
Trustee,
Executiv
e Vice
Presiden
t and
Investme
nt
Officer
$0
$0
N/A
$0
(3)
Charles
Barber,
Trustee
$25,000
$0
N/A
$25,00
0(1)
Burt N.
Dorsett,
Trustee
$25,000
$0
N/A
$52,50
0(2)
Edward
J. Kaier,
Trustee
$25,000
$0
N/A
$25,00
0(1)
S.
Donald
Wiley,
Trustee
$25,000
$0
N/A
$25,00
0(1)
__________________________________
* 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.
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.
Lehman Brothers is comprised of several major operating
business units.
Lehman
Brothers Institutional Funds Group is the business group within Lehman
Brothers that is
primarily responsible for the distribution and client service requirements
of the
Trust and its
investors. Lehman Brothers Institutional Funds Group has been serving
institutional clients'
investment needs exclusively for more than 20 years, emphasizing high
quality
individualized
service to clients.
Investment Adviser
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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 April 28, 1995, the principal holder of Premier Shares
of the
Fund was
Lehman Brothers Inc., 3 World Financial Center, New York, NY
10285, with
92.29% shares
held of record.
As of April 28, 1995, there were no investors in the
Select or
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
Deposit and Trust Company ("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.
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.
Plan of Distribution
The Fund is currently authorized to offer Premier Shares,
Select
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 Premier Shares, Select
Shares
and Retail Shares
of the Fund pursuant to Rule 12b-1 under the 1940 Act.
Premier Shares are sold to institutional investors that have
not
entered into
servicing or other agreements with the Fund in connection with their
investments and pay no
Rule 12b-1 distribution or shareholder service fee. However, the Plan
provides
that Lehman
Brothers may make payments to assist in the distribution of Premier
Shares out
of the other
fees received by it or its affiliates from the Fund, its past profits or any
other
sources available
to it. Pursuant to the Plan of Distribution Select Shares are sold to
institutional
investors and,
in addition to the Fund's other operating expenses, bear Rule 12b-1 fees
payable
at an annual
rate not exceeding .25% of the average daily net asset value of the shares
beneficially owned
by such investors in return for certain administrative and shareholder
services
provided by
Lehman Brothers or those institutional investors. These services may
include
processing
purchase, exchange and redemption requests from customers and placing
orders
with the
Transfer Agent; processing dividend and distribution payments from the
Fund
on behalf of
customers; providing information periodically to customers showing
their
positions in shares;
responding to inquiries from customers concerning their investment in
shares;
arranging for
bank wires; and providing such other similar services as may be
reasonably
requested. In
addition, the Plan of Distribution provides that Lehman Brothers may
retain all
or a portion of
the payments made to it pursuant to the Plan and may make payments to
third
parties that
provide assistance in selling Select Shares, or to institutions that provide
certain
shareholder
support services to investors. These services may include: (i)
aggregating and
processing purchase and redemption requests from customers and placing
net
purchase and
redemption orders with the Fund's distributor; (ii) processing dividend
payments from the
Fund on behalf of customers; (iii) providing information periodically to
customers showing
their positions in a Fund's shares; (iv) arranging for bank wires; (v)
responding
to customer
inquiries relating to the services performed by the Institution and
handling
correspondence;
(vi) forwarding shareholder communications from a Fund (such as
proxies,
shareholder
reports, annual and semi-annual financial statements, and dividend,
distribution
and tax
notices) to customers; (vii) acting as shareholder of record or nominee;
and
(viii) other similar
account administrative services. Lehman Brothers is also authorized to
offer
Retail Shares
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
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 expense limitations in effect on the date of this
Statement of
Additional Information, none is more restrictive than two and one-half
percent
(21/2%) of the
first $30 million of a Fund's average net assets, two percent (2%) of the
next
$70 million of
the average net assets and one and one-half percent (11/2%) of the
remaining
average net
assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally
affecting the
Fund and its shareholders that are not described in the Prospectuses. No
attempt
is made to
present a detailed explanation of the tax treatment of the Fund or its
shareholders or possible
legislative changes, and the discussion here and in the Prospectuses is
not
intended as a
substitute for careful tax planning. Investors should consult their tax
Advisers
with specific
reference to their own tax situation.
As stated in the Prospectuses, the Fund is treated as a separate
corporate
entity under
the Code and intends to qualify as a regulated investment company under
the
Code. In order to
so qualify for a taxable year, the Fund must satisfy the distribution
requirement
described in
the Prospectuses, derive at least 90% of its gross income for the year
from
certain qualifying
sources, comply with certain diversification requirements and derive less
than
30% of its gross
income for the year from the sale or other disposition of securities and
certain
other
investments held for less than three months. Interest (including original
issue
discount and,
with respect to taxable debt securities, accrued market discount) received
by a
Fund at maturity
or disposition of a security held for less than three months will not be
treated as
gross income
derived from the sale or other disposition of such security within the
meaning of
the 30%
requirement. However, any other income which is attributable to
realized
market appreciation
will be treated as gross income from the sale or other disposition of
securities
for this purpose.
A 4% nondeductible excise tax is imposed on regulated
investment
companies that fail
to distribute currently an amount equal to specified percentages of their
ordinary
taxable
income and capital gain net income (excess of capital gains over capital
losses).
The Fund
intends to make sufficient distributions or deemed distributions of any
ordinary
taxable income
and any capital gain net income prior to the end of each calendar year to
avoid
liability for
this excise tax.
If for any taxable year the Fund does not qualify for tax
treatment as a
regulated
investment company, all of the Fund's taxable income will be subject to
tax at
regular
corporate rates without any deduction for distributions to Fund
shareholders. In
such event,
dividend distributions to shareholders would be taxable to shareholders
to the
extent of the
Fund's earnings and profits, and would be eligible for the dividends
received
deduction for
corporations.
The Fund will be required in certain cases to withhold and remit
to the
U.S. Treasury
31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to
its shareholders
who have failed to provide a correct tax identification number in the
manner
required, or who
are subject to withholding by the Internal Revenue Service for failure
properly
to include on
their return payments of taxable interest or dividends, or who have failed
to
certify to 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.
* * * * * * * * * * * * * * * * * * * * * * * *
The foregoing discussion is based on federal tax laws and
regulations
which are in
effect on the date of this Statement of Additional Information; such laws
and
regulations may
be changed by legislative or administrative action.
DIVIDENDS
The Fund's net investment income for dividend purposes consists
of (i)
interest accrued
and discount earned on the Fund's assets, (ii) plus the amortization of
market
discount,
(iii) less amortization of market premium on such assets, (iv) less
accrued
expenses directly
attributable to the Fund, and the general expenses (e.g., legal,
accounting and
trustees' fees) of
the Trust prorated to the Fund on the basis of its relative net assets.
Realized
and unrealized
gains and losses on portfolio securities are reflected in net asset value.
In addition,
Institutional and Select Shares bear exclusively the expense of fees paid
to
Lehman Brothers or
other institutions with respect to the relevant Class of shares. See
"Management
of the Fund-
Plan of Distribution".
ADDITIONAL PERFORMANCE INFORMATION
The "total return", "yields" 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 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:
3
0
- -
d
a
y
Y
i
e
l
d
Ag
gre
gat
e
Tot
al
Ret
ur
n*
*
Premier Shares
5
.
6
7
%
2.9
6%
Premier
Shares*
5
.
0
3
%
2.5
5%
</
R
>
*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
*No performance information was available for Select Shares as
of
January 31,
1995.
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 stock or other relevant indices. For
example, the
yields of the
Fund may be compared to various independent sources, including, but
not
limited to, Lipper
Analytical Services, Inc., Morningstar, Inc., Barron's, The Wall Street
Journal,
Weisenberger
Investment Companies Service, IBC/Donoghue's Inc. Bond Fund
Report,
Business Week,
Financial World, Fortune, Money and Forbes. In addition, the Fund's
performance as
compared to certain indices and benchmark investments may include: (a)
the
Lehman Brothers
Government/Corporate (Total) Index, (b) Lehman Brothers Government
Index,
(c) Merrill
Lynch 1-3 Year Treasury Index, (d) Merrill Lynch 2-Year Treasury
Curve
Index, (e) the
Salomon Brothers Treasury Yield Curve Rate of Return Index, (f) the
Payden &
Rygel 2 year
Treasury Note Index, (g) 1 through 3 year U.S. Treasury Notes, (h)
constant
maturity U.S.
Treasury yield indices, (i) the Consumer Price Index, (j) the London
Interbank
Offered Rate,
(k) other taxable investments such as certificates of deposit, money
market
deposit accounts,
checking accounts, savings accounts, money market mutual funds,
repurchase
agreements,
commercial paper, and (1) historical data concerning the performance of
adjustable and fixed-
rate mortgage loans.
The composition of the securities in such indices and the
characteristics
of such
benchmark investments are not identical to, and in some cases are very
different
from, those of
the Fund's portfolios. These indices and averages are generally
unmanaged and
the items
included in the calculations of such indices and averages may not be
identical to
the formulas
used by the Fund to calculate its performance figures.
From time to time, advertisements or communications to
shareholders
may summarize
the substance of information contained in shareholder reports (including
the
investment
composition of the Fund), as well as the views of Lehman Brothers as to
current
market,
economic, trade and interest rate trends, legislative, regulatory and
monetary
developments,
investment strategies and related matters believed to be of relevance to
the Fund
(such as the
supply and demand of mortgage-related securities and the relative
performance
of different
types of mortgage loans and mortgage-related securities as affected by
prepayment rates and
other factors).
The Fund may from time to time summarize the substance of
discussions
contained in
shareholder reports in advertisements and publish the 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
S&P.
ADDITIONAL DESCRIPTION CONCERNING SHARES
The Trust does not presently intend to hold annual meetings of
shareholders except as
required by the 1940 Act or other applicable law. The law under certain
circumstances
provides shareholders with the right to call for a meeting of shareholders
to
consider the
removal of one or more trustees. To the extent required by law, the
Trust will
assist in
shareholder communication in such matters.
Fund shares represent an equal, proportionate interest in assets
belonging
to the Fund.
Each share, which has a par value of $.001, has no preemptive or
conversion
rights. When
issued for payment as described in the Prospectuses, Fund shares will be
fully
paid and
non-assessable. As stated in the Prospectuses, holders of shares in the
Fund
will vote in the
aggregate and not by class or series on all matters, except where
otherwise
required by law.
(See "Management of the Fund-Plan of Distribution.") Further,
shareholders of
all of the
Trust's portfolios will vote in the aggregate and not by portfolio except
as
otherwise required
by law or when the Board of Trustees determines that the matter to be
voted
upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2
under the
1940 Act
provides that any matter required to be submitted by the provisions of
such Act
or applicable
state law, or otherwise, to the holders of the outstanding securities of an
investment company
such as the Trust shall not be deemed to have been effectively acted
upon unless
approved by
the holders of a majority of the outstanding shares of each portfolio
affected by
the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be
affected by a
matter unless it
is clear that the interests of each portfolio in the matter are identical or
that the
matter does not
affect any interest of the portfolio. Under the Rule the approval of an
Investment Advisory
agreement or any change in a fundamental investment policy would be
effectively acted upon
with respect to a portfolio only if approved by the holders of a majority
of the
outstanding
voting securities of such portfolio. However, the Rule also provides that
the
ratification of the
selection of independent certified public accountants, the approval of
principal
underwriting
contracts and the election of trustees are not subject to the separate
voting
requirements and
may be effectively acted upon by shareholders of the investment
company
voting without
regard to portfolio.
Voting rights are not cumulative; and, accordingly, the holders of
more
than 50% of
the aggregate shares of the Trust may elect all of the trustees.
COUNSEL
Willkie Farr & Gallagher, 153 East 53rd Street,
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.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston,
Massachusetts 02116-5072
serves as independent auditors of the Trust and 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
As used in this Statement of Additional Information and the
Fund's
Prospectuses, a
"majority of the outstanding shares" of the Fund or of any other
portfolio means
the lesser of
(1) 67% of shares (irrespective of class) or of the portfolio represented at
a
meeting at which
the holders of more than 50% of the outstanding shares of the Fund or
such
portfolio are
present in person or by proxy, or (2) more than 50% of the outstanding
shares
of the Fund
(irrespective of class) or of the portfolio.
Shareholder and Trustee Liability
The Trust is organized as a trust under the laws of the
Commonwealth of
Massachusetts. Shareholders of such a trust may, under certain
circumstances,
be held
personally liable (as if they were partners) for the obligations of the
trust. The
Declaration of
Trust of the Trust provides that shareholders shall not be subject to any
personal
liability for
the acts or obligations of the Trust and that every note, bond, contract,
order or
other
undertaking made by the Trust shall contain a provision to the effect that
the
shareholders are
not personally liable thereunder. The Declaration of Trust provides for
indemnification out of
the trust property of a Fund of any shareholder of the Fund held
personally
liable solely by
reason of being or having been a shareholder and not because of any acts
or
omissions or some
other reason. The Declaration of Trust also provides that the Trust shall,
upon
request, assume
the defense of any claim made against any shareholder for any act or
obligation
of the Trust
and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring
financial loss
beyond the amount invested in a Fund on account of shareholder liability
is
limited to
circumstances in which the Fund itself would be unable to meet its
obligations.
The Trust's Declaration of Trust provides further that no trustee
of the
Trust shall be
personally liable for or on account of any contract, debt, tort, claim,
damage,
judgment or
decree arising out of or connected with the administration or
preservation of the
trust estate or
the conduct of any business of the Trust, nor shall any trustee be
personally
liable to any
person for any action or failure to act except by reason of bad faith,
willful
misfeasance, gross
negligence in performing duties, or by reason of reckless disregard for
the
obligations and
duties as trustee. It also provides that all persons having any claim
against the
trustees or the
Trust shall look solely to the trust property for payment. With the
exceptions
stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against
all liabilities
and expenses reasonably incurred in connection with the defense or
disposition
of any
proceeding in which the trustee may be involved or may be threatened
with by
reason of being
or having been a trustee, and that the trustees have the power, but not
the duty,
to indemnify
officers and employees of the Trust unless such persons would not be
entitled to
indemnification if they were in the position of trustee.
APPENDIX
DESCRIPTION OF RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the
likelihood of timely payment of debt considered short-term in the
relevant
market. 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."
"A-3" - Issue has an adequate capacity for timely
payment. It is,
however,
more vulnerable to the adverse effects of changes in circumstances than
an
obligation carrying
a higher designation.
Moody's short-term debt ratings are opinions of the ability
of
issuers to repay
punctually senior debt obligations which have an original maturity not
exceeding
one year. 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 ability for repayment of senior short-term debt obligations.
Principal
repayment
capacity will normally be evidenced by many of 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 ability for repayment of senior short-term debt 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 ability
for repayment of senior short-term debt obligations. The effects of
industry
characteristics and
market composition may be more pronounced. Variability in earnings
and
profitability may
result in changes in the level of debt protection measurements and may
require
relatively high
financial leverage. Adequate alternate liquidity maintained.
The following summarizes the ratings used by Standard &
Poors
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 the higher rated issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and
repay principal
although such issues are somewhat more susceptible to the adverse
effects of
changes in
circumstances and economic conditions than debt in higher-rated
categories.
PLUS (+) OR MINUS (-) - The ratings from "AA" to "CCC"
may be
modified by the
addition of a plus or minus sign to show relative standing within the
major
rating categories.
The following summarizes the ratings used by Moody's for
corporate
and municipal
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the
smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments
are protected by
a large or by an exceptionally stable margin and principal is secure.
While the
various
protective elements are likely to change, such changes as can be
visualized are
most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together
with the "Aaa"
group they comprise what are generally known as high grade bonds.
They are
rated lower
than the best bonds because margins of protection may not be as large as
in
"Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be
other elements
present which make the long-term risks appear somewhat larger than in
"Aaa"
securities.
"A" - 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.
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 30, 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
30,
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
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 17
Additional Yield Information 17
Additional Description Concerning Shares 19
Counsel 20
Independent Auditors 20
Financial Statements 20
Miscellaneous 20
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 1-800-368-5556 OR THROUGH LEHMAN
BROTHERS
EXPRESSNET, AN AUTOMATED ORDER ENTRY SYSTEM
DESIGNED
SPECIFICALLY FOR THE TRUST ("LEX").
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
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 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 Funds will
not give
preference to
Service Organizations with which a Fund enters into agreements.
(See
the
Prospectuses, "Management of the Fund-Service Organizations").
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 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.
The Government Obligations Money Market Fund and
Cash
Management Fund
may invest in mortgage backed securities issued by U.S. Government
agencies
or
instrumentalities consisting of mortgage pass-through securities or
collateralized
mortgage
obligations ("CMOs"). Mortgage pass-through securities in which the
Government Obligations
Money Market Fund and Cash Management Fund may invest represent a
partial
ownership
interest in a pool of residential mortgage loans and are issued or
guaranteed by
the Government
National Mortgage Association ("GNMA"), the Federal National
Mortgage
Association
("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC").
CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities
(collateral
collectively referred to as "Mortgage Assets"). CMOs in which the
Government Obligations
Money Market Fund and Cash Management Fund may invest are issued
by
GNMA, FNMA
and FHLMC. In a CMO, a series of bonds or certificates are usually
issued in
multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued
at a
specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments
on the Mortgage Assets may cause the CMOs to be retired substantially
earlier
than their stated
maturities or final distribution dates, resulting in a loss of all or part of
the
premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a
monthly,
quarterly or
semiannual basis. The Fund expects that mortgage backed securities will
only
be purchased in
connection with repurchase transactions.
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 or emergency 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 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.
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.
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
Fund.
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.
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
ANDREW
GORDON (1)
3 World Financial
Center
New York, NY
10285
Age: 41
Co-
Chair
man
of the
Board
,
Trust
ee
and
Presid
ent
Managing Director, Lehman
Brothers.
KIRK HARTMAN
(1)
3 World Financial
Center
New York, NY
10285
Age: 40
Co-
Chair
man
of the
Board
,
Trust
ee,
Execu
tive
Vice
Presid
ent
and
Invest
ment
Office
r
Managing Director, Lehman
Brothers.
CHARLES F.
BARBER (2)(3)
66 Glenwood
Drive
Greenwich, CT
06830
Age: 78
Trust
ee
Consultant; formerly
Chairman of the Board,
ASARCO Incorporated.
BURT N.
DORSETT (2)(3)
201 East 62nd
Street
New York, NY
10022
Age: 64
Trust
ee
Managing Partner, Dorsett
McCabe Capital
Management, Inc., an
investment counseling firm;
Director, Research
Corporation Technologies, a
non-profit patent-clearing and
licensing operation; formerly
President, Westinghouse
Pension Investments
Corporation; formerly
Executive Vice President and
Trustee, College Retirement
Equities Fund, Inc., a
variable annuity fund; and
formerly Investment Officer,
University of Rochester.
EDWARD J.
KAIER (2)(3)
1100 One Penn
Center
Philadelphia, PA
19103
Age: 49
Trust
ee
Partner with the law firm of
Hepburn Willcox Hamilton &
Putnam.
S. DONALD
WILEY (2)(3)
USX Tower
Pittsburgh, PA
15219
Age: 68
Trust
ee
Vice-Chairman and Trustee,
H.J. Heinz Company
Foundation; prior to
October 1990, Senior Vice
President, General Counsel
and Secretary, H.J. Heinz
Company.
JOHN M.
WINTERS
3 World Financial
Center
New York, NY
10285
Age: 46
Vice
Presid
ent
and
Invest
ment
Office
r
Senior Vice President and
Senior Money Market
Manager, Lehman Brothers
Global Asset Management,
Inc.; formerly Product
Manager with Lehman
Brothers Capital Markets
Group.
NICHOLAS
RABIECKI, III
3 World Financial
Center
New York, NY
10285
Age: 37
Vice
Presid
ent
and
Invest
ment
Office
r
Vice President and Senior
Portfolio Manager, Lehman
Brothers Global Asset
Management, Inc.; formerly
Senior Fixed-Income
Portfolio Manager with
Chase Private Banking.
MICHAEL C.
KARDOK
One Exchange
Place
Boston, MA 02109
Age: 35
Treas
urer
Vice President, The
Shareholder Services Group,
Inc.; prior to May 1994, Vice
President, The Boston
Company Advisors, Inc.
PATRICIA L.
BICKIMER
One Exchange
Place
Boston, MA 02109
Age: 42
Secret
ary
Vice President and Associate
General Counsel, The
Shareholder Services Group,
Inc.; prior to May 1994, Vice
President and Associate
General Counsel, The Boston
Company Advisors, Inc.
_______________
1. Considered by the Trust to be "interested persons" of the Trust as
defined in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
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 $1,851
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 April 28, 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
Name of
Person
and
Position
Aggregate
Compensa
tion
from the
Trust
Pen
sion
or
Reti
rem
ent
Ben
efits
Acc
rue
d as
Part
of
Tru
st
Exp
ens
es
Es
ti
m
at
ed
A
nn
ua
l
B
en
efi
ts
U
po
n
R
eti
re
m
en
t
Total
Compe
nsation
From
the
Trust
and
Fund
Compl
ex Paid
to
Trustee
s*
Andrew
Gordon
Co-
Chairman
of the
Board,
Trustee
and
President
$0
$0
N
/A
$0
(2)
Kirk
Hartman
Co-
Chairman
of the
Board,
Trustee,
Executive
Vice
President
and
Investmen
t Officer
$0
$0
N
/A
$0
(3)
Charles
Barber,
Trustee
$25,000
$0
N
/A
$25,00
0(1)
Burt N.
Dorsett,
Trustee
$25,000
$0
N
/A
$52,50
0(2)
Edward J.
Kaier,
Trustee
$25,000
$0
N
/A
$25,00
0(1)
S. Donald
Wiley,
Trustee
$25,000
$0
N
/A
$25,00
0(1)</
R>
__________________________________
* 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.
Distributor
Lehman Brothers acts as the Distributor of each 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 a
Fund's
shares) and of
preparing, printing and distributing all sales literature. No compensation
is
payable by the
Funds to Lehman Brothers for its distribution services.
Lehman Brothers is comprised of several major operating
business units.
Lehman
Brothers Institutional Funds Group is the business group within Lehman
Brothers that is
primarily responsible for the distribution and client service requirements
of the
Trust and its
investors. Lehman Brothers Institutional Funds Group has been serving
institutional clients'
investment needs exclusively for more than 20 years, emphasizing high
quality
individualized
service to clients.
Investment Adviser
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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
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 and $130,650, respectively, for the
fiscal
year ended
January 31, 1994, and $11,931 and $45,500, 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 April 28, 1995, the principal holders of Class A Shares
of
Government
Obligations Money Market Fund were as follows: New United Motor
Manufacturing, Inc.,
45500 Fremont Boulevard, Fremont, CA 94538, 28.93% shares held of
record;
Oster & Co.,
P.O. Box 1338, Victoria, TX 97902, 20.47% shares held of record;
Securities
Lending/State
Street Bank & Trust, Two International Place, Boston, MA 02110,
15.75%
shares held of
record and Old Kent Bank & Trust Company, 111 Lyon N.W., Grand
Rapids,
MI 49503,
14.15% shares held of record. Hare & Co., One Wall Street, New
York, NY
10286, 91.60%
shares held of record and Key Benefit Administrators, Inc., 9000
Keystone
Crossing,
Indianapolis, IN 46240, 8.39% shares held of record were the principal
holders
of Class B
Shares of Government Obligations Money Market Fund as of April 28,
1995.
At April 28,
1995, the principal holder of Class C Shares of Government Obligations
Money
Market Fund
was FNB Nominee Company, 614 Philadelphia Street, P.O. Box 400,
Indiana,
PA 15701, with
99.98% shares held of record.
Principal holders of Class A Shares of Treasury
Instruments
Money Market
Fund II as of April 28, 1995, were as follows: USNAB & Co., P.O.
Box 179,
Galveston, TX
77553, 45.17% shares held of record; Health Care Service Corporation,
233 N.
Michigan
Avenue, Chicago, IL 60601, 12.00% shares held of record; Western
Digital
Corp., 8105
Irvine Center Drive, Irvine, CA 92718, 9.62% shares held of record;
State
Street/Securities
Lending/Reinvested Earnings, Two International Place, Boston MA
02110,
9.53% shares held
of record and Twinstar Semiconductor Incorporated, P.O. Box 650311,
Mail
Station 325,
Dallas, TX 75265, 5.93% shares held of record. As of April 28, 1995,
the
principal holders
of Class B Shares of Treasury Instruments Money Market Fund II were
as
follows:
Perusahaan Petambangan Minyak Dan Gas Bumi Negara (Pertamina),
350 Park
Avenue, New
York, NY 10022, 63.10% shares held of record; HCA/Federal
Settlement
Escrow Account, 77
Water Street, New York, NY 10005, 24.10% shares held of record and
World
Color Press,
Inc., 77 Water Street, New York, NY 10005, 7.31% shares held of
record. At
April 28,
1995, the principal holder of Class A Shares of Cash Management Fund
was
Lehman Brothers
Inc., 3 World Financial Center, New York, NY 10285, with 99.99%
shares
held of record.
As of April 28, 1995, there were no investors in the Class
E
Shares of
Government Obligations Money Market Fund, the Class C or Class E
Shares of
Treasury
Instruments Money Market Fund II and the Class B, Class C or Class E
Shares
of Cash
Management 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 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
Deposit and Trust Company ("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 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
$9,110 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 have agreed 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, 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 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 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, 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 $35,867 in service fees with respect to its Class B
Shares;
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.
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 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 net assets, two percent (2%) of the next $70 million of the
average net
assets and one
and one-half percent (1 1/2%) of the remaining average 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 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.
The foregoing discussion is based on federal tax laws and
regulations
which are in
effect on the date of this Statement of Additional Information; such laws
and
regulations may
be changed by legislative or administrative action.
DIVIDENDS
Net income of each of the Funds for dividend purposes consists
of (i)
interest accrued
and original issue discount earned on the Fund's assets, (ii) plus the
amortization of market
discount and minus the amortization of market premium on such assets,
(iii) less
accrued
expenses directly attributable to the Fund and the general expenses (e.g.,
legal,
accounting and
trustees' fees) of the Trust prorated to the Fund on the basis of its
relative net
assets. In
addition, Class B, 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
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-
d
a
y
Y
ie
ld
7-
da
y
Eff
ect
ive
Yi
eld
Government Obligations Money
Market Fund
Class A Shares
5.
6
2
%
5.7
7%
Class B Shares
5.
3
7
%
5.5
0%
Class C Shares
5.
2
7
%
5.4
0%
Class E Shares
5.
4
7
%
5.6
1%
Class A Shares*
5.
4
3
%
5.5
7%
Class B Shares*
5.
1
8
%
5.3
0%
Class C Shares*
5.
0
8
%
5.2
0%
Class E Shares*
5.
2
8
%
5.4
1%
Cash Management Fund
Class A Shares
5.
5
6
%
5.7
0%
Class B Shares
5.
3
1
%
5.4
4%
Class C Shares
5.
2
1
%
5.3
4%
Class E Shares
5.
4
1
%
5.5
5%
Class A Shares*
0
%
0%
Class B Shares*
0
%
0%
Class C Shares*
0
%
0%
Class E Shares*
0
%
0%
Treasury Instruments Money Market
Fund II
Class A Shares
5.
42
%
5.5
6%
Class B Shares
5.
17
%
5.2
9%
Class C Shares
5.
07
%
5.1
9%
Class E Shares
5.
27
%
5.4
0%
7-
d
a
y
Y
ie
ld
7-
da
y
Eff
ect
ive
Yi
eld
Class A Shares*
5.
34
%
5.4
7%
Class B Shares*
5.
09
%
5.2
1%
Class C Shares*
4.
99
%
5.1
1%
Class E Shares*
5.
19
%
5.3
2%
**estimated yield without fee waivers and/or expense reimbursements
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 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"). 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 serves as counsel
to
Lehman Brothers.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, serve as
independent
auditors to the
Fund and render an opinion on each 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,
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
Prospectuses
for the
Funds, a "majority of the outstanding shares" of a Fund or of any other
portfolio means the
lesser of (1) 67% of the shares of such Fund (irrespective of class) or of
the
portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of
such Fund or portfolio are present in person or by proxy or (2) more
than 50%
of the
outstanding shares of such Fund (irrespective of class) or of the
portfolio.
Shareholder and Trustee Liability
The Trust is organized as a "business trust" under the laws of the
Commonwealth of
Massachusetts. Shareholders of such a trust may, under certain
circumstances,
be held
personally liable (as if they were partners) for the obligations of the
trust. The
Declaration of
Trust of the Trust provides that shareholders of the Funds shall not be
subject to
any personal
liability for the acts or obligations of the Trust and that every note,
bond,
contract, order or
other undertaking made by the Trust shall contain a provision to the
effect that
the shareholders
are not personally liable thereunder. The Declaration of Trust provides
for
indemnification out
of the trust property of a Fund of any shareholder of the Fund held
personally
liable solely by
reason of his being or having been a shareholder and not because of his
acts or
omissions or
some other reason. The Declaration of Trust also provides that the Trust
shall,
upon request,
assume the defense of any claim made against any shareholder for any
act or
obligation of the
Trust and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss
beyond its investment in a Fund on account of shareholder liability is
limited to
circumstances
in which the Fund itself would be unable to meet its obligations.
The Trust's Declaration of Trust provides further that no Trustee,
Officer or agent of
the Trust shall be personally liable for or on account of any contract,
debt, tort,
claim,
damage, judgment or decree arising out of or connected with the
administration
or preservation
of the trust estate or the conduct of any business of the Trust, nor shall
any
Trustee be
personally liable to any person for any action or failure to act except by
reason
of his own bad
faith, willful misfeasance, gross negligence in the performance of his
duties or
by reason of
reckless disregard of his obligations and duties as Trustee. It also
provides that
all persons
having any claim against the Trustees or the Trust shall look solely to the
trust
property for
payment. With the exceptions stated, the Declaration of Trust provides
that a
Trustee is
entitled to be indemnified against all liabilities and expenses reasonably
incurred
by him in
connection with the defense or disposition of any proceeding in which he
may
be involved or
with which he may be threatened by reason of his being or having been a
Trustee, and that the
Trustees have the power, but not the duty, to indemnify officers and
employees
of the Trust
unless such person would not be entitled to indemnification had he been
a
Trustee.
New York Municipal Money Market Fund
Investment Portfolios Offered By
Lehman Brothers Institutional Funds Group Trust
Statement of Additional Information
May 30, 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 30,
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
The Trust 2
Investment Objective and Policies 2
Municipal Obligations 7
Additional Purchase and Redemption Information 18
Management of the Fund 20
Additional Information Concerning Taxes 26
Dividends 28
Additional Yield Information 29
Additional Description Concerning Shares 29
Counsel 30
Independent Auditors 30
Financial Statements 30
Miscellaneous 30
Appendix A-1
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 1-800-368-5556
OR THROUGH LEHMAN
BROTHERS
EXPRESSNET, AN AUTOMATED ORDER ENTRY SYSTEM
DESIGNED
SPECIFICALLY FOR THE TRUST ("LEX").
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 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 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 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.
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 or
emergency
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 exploration or development programs or in mineral leases.
6. Purchase any securities which would cause 25% or more of
the value
of its total
assets at the time of purchase to be invested in the securities of issuers
conducting their
principal business activities in the same industry, provided that there is
no
limitation with
respect to investments in U.S. Government securities.
7. Knowingly invest more than 10% of the value of the Fund's
assets in
securities that
may be illiquid because of legal or contractual restrictions on resale or
securities
for which
there are no readily available market quotations.
8. Purchase securities on margin, make short sales of securities
or
maintain a short
position.
9. Write or sell puts, calls, straddles, spreads or combinations
thereof.
10. Invest in securities if as a result the Fund would then have
more
than 5% of its
total assets in securities of companies (including predecessors) with less
than
three years of
continuous operation.
11. Purchase securities of other investment companies except as
permitted under the
1940 Act or in connection with a merger, consolidation, acquisition or
reorganization.
12. Invest in warrants.
In addition, without the affirmative vote of the holders of a
majority of a
Fund's
outstanding shares, such Fund may not change its policy of investing at
least
80% of its total
assets (except during temporary defensive periods) in Municipal
Obligations.
MUNICIPAL OBLIGATIONS
In General
Municipal Obligations include debt obligations issued by
governmental
entities to
obtain funds for various public purposes, including the construction of a
wide
range of public
facilities, the refunding of outstanding obligations, the payment of
general
operating expenses
and the extension of loans to public institutions and facilities. Private
activity
bonds that are
issued by or on behalf of public authorities to finance various privately-
operated
facilities are
included within the term Municipal Obligations if the interest paid
thereon is
(subject to the
federal alternative minimum tax) exempt from regular federal income
tax.
Opinions relating to
the validity of Municipal Obligations and to the exemption of interest
thereon
from federal
income taxes are rendered by counsel to the issuers or bond counsel to
the
respective issuing
authorities at the time of issuance. Neither the Fund nor the Adviser
will
review independently
the underlying proceedings relating to the issuance of Municipal
Obligations or
the bases for
such opinions.
The Fund may hold tax-exempt derivatives which may be in the
form of
tender option
bonds, participations, beneficial interests in a trust, partnership interests
or other
forms. A
number of different structures have been used. For example, interests in
long-
term fixed-rate
Municipal Obligations, held by a bank as trustee or custodian, are
coupled with
tender option,
demand and other features when the tax-exempt derivatives are created.
Together, these
features entitle the holder of the interest to tender (or put) the underlying
Municipal Obligation
to a third party at periodic intervals and to receive the principal amount
thereof.
In some
cases, Municipal Obligations are represented by custodial receipts
evidencing
rights to receive
specific future interest payments, principal payments, or both, on the
underlying
municipal
securities held by the custodian. Under such arrangements, the holder of
the
custodial receipt
has the option to tender the underlying municipal securities at its face
value to
the sponsor
(usually a bank or broker/dealer or other financial institution), which is
paid
periodic fees
equal to the difference between the bond's fixed coupon rate and the rate
that
would cause the
bond, coupled with the tender option, to trade at par on the date of a rate
adjustment. The
Fund may hold tax-exempt derivatives, such as participation interests
and
custodial receipts,
for Municipal Obligations which give the holder the right to receive
payment of
principal
subject to the conditions described above. The Internal Revenue Service
has not
ruled on
whether the interest received on tax-exempt derivatives in the form of
participation interests or
custodial receipts is tax-exempt, and accordingly, purchases of any such
interests or receipts
are based on the opinion of counsel to the sponsors of such derivative
securities.
Neither the
Fund nor the 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.
Special Considerations Relating to New York Municipal Obligations
Some of the significant financial considerations
relating to
the Fund's
investment in New York Municipal Obligations are summarized below.
This
summary
information is not intended to be a complete description and is
principally
derived from official
statements relating to issues of New York Municipal Obligations that
were
available prior to
the date of this Statement of Additional Information. The accuracy and
completeness of the
information contained in those official statements have not been
independently
verified.
State Economy. New York 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 very 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.
The State has historically been one of the
wealthiest states
in the nation.
For decades, however, the State has grown more slowly than the nation
as a
whole, gradually
eroding its relative economic position. The recession has been more
severe in
the State, owing
to a significant retrenchment in the financial services industry, cutbacks
in
defense spending,
and an overbuilt real estate market. There can be no assurance that the
State
economy will not
experience worse-than-predicted results in the 1994-95 fiscal year, with
corresponding material
and adverse effects on the State's projections of receipts and
disbursements.
The unemployment rate in the State dipped below
the
national rate in
the second half of 1981 and remained lower until 1991. It stood at
7.7% in
1993. The total
employment growth rate in the State has been below the national average
since
1984 and is
expected to slow to less than 0.5% in 1995. State per capita personal
income
remains above
the national average. State per capita income for 1993 was $24,623,
which is
18.3% above the
1993 national average of $20,817. During the past ten years, total
personal
income in the State
rose slightly faster than the national average only in 1986 through 1989.
State Budget. The State Constitution requires the Governor to submit to
the
Legislature a
balanced Executive Budget which contains a complete plan of
expenditures for
the ensuing
fiscal year and all moneys and revenues estimated to be available
therefor,
accompanied by
bills containing all proposed appropriations or reappropriations and any
new or
modified
revenue measures to be enacted in connection with the Executive Budget.
The
entire plan
constitutes the proposed State financial plan for that fiscal year.
The
Governor is
required to submit to the Legislature quarterly budget updates which
include a
revised
cash-basis state financial plan, and an explanation of any changes from
the
previous state
financial plan.
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 State issued its third quarterly update to the
cash basis
1994-95
State Financial Plan on February 1, 1995. The update projects a
potential
deficit of $259
million for the 1994-95 fiscal year. The Governor has proposed to close
this
deficit through a
hiring freeze, a review of pending contracts and spending cuts in certain
programs that were
started or expanded in the 1994-95 budget.
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.
On February 1, 1995, the Governor presented his
1995-96
Executive
Budget (the "Executive Budget") to the Legislature, as required by the
State
Constitution. It
proposes actual reductions in the year-over-year dollar levels of State
spending
from the
General Fund with a proposed cut of 3.4%. Proposed spending on State
operations is
projected to drop even more sharply, by 7.7%. There can be no
assurance that
the Legislature
will enact the proposed Executive Budget into law, or that actual results
will not
differ
materially and adversely from the projections set forth above. In
addition, there
is no
assurance that the tax and spending cuts proposed in the Executive
Budget will
be enacted, or
if enacted, will be upheld in the face of potential legal challenges. The
comptroller has
indicated his intention to challenge the proposed use of certain pension
reserves
in the
Executive Budget.
Recent Financial Results. The General Fund is the general
operating
fund of the State
and is used to account for all financial transactions, except those required
to be
accounted for
in another fund. It is the State's largest fund and receives almost all
State taxes
and other
resources not dedicated to particular purposes. In the State's 1994-95
fiscal
year, the General
Fund is expected to account for approximately 52% of total
governmental-fund
receipts and
51% of total governmental-fund disbursements.
The General Fund is projected to be balanced on a
cash
basis for the
1994-95 fiscal year. Total receipts are projected to be $34.321 billion,
an
increase of $2.092
billion over total receipts in the prior fiscal year. Total General Fund
disbursements 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 on a GAAP
(generally
accepted
accounting principles) basis as of March 31, 1993 included an 1991-92
accumulated deficit in
its combined governmental funds of $681 million. Liabilities totalled
$12.864
billion and
assets of $12.183 billion were available to liquidate these liabilities.
The State's financial operations have improved
during
recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred
General
Fund operating
deficits that were closed with receipts from the issuance of tax and
revenue
anticipation notes.
The national recession and then the lingering economic slowdown in the
New
York and
regional economy, resulted in repeated shortfall in receipts and three
budget
deficits. For its
1992-93 and 1993-94 fiscal years, however, the State recorded balanced
budgets
on a cash
basis, with substantial fund balances in each year.
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 employs additional long-term financing
mechanisms,
lease-purchase and contractual-obligation financings, which involve
obligations
of public
authorities or municipalities that are State-supported but are not general
obligations of the
State. Under these financing arrangements, certain public authorities
and
municipalities have
issued obligations to finance the construction and rehabilitation of
facilities or
the acquisition
of equipment, and expect to meet their debt service requirements through
the
receipt of rental
or other contractual payments made by the State. Although these
financing
arrangements
involve a contractual agreement by the State to make payments to a
public
authority,
municipality or other entity, the State's obligation to make such
payments is
generally
expressly made subject to appropriation by the Legislature and the actual
availability of money
to the State for making the payments. The State has also entered into a
contractual-obligation
financing arrangement with the Local Government Assistance
Corporation
("LGAC") in an
effort to restructure the way the State makes certain local aid payments.
In 1990, as part of a State fiscal reform program,
legislation was
enacted creating 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 these long-term
obligations, which are
to be amortized over no more than 30 years, was expected to eliminate
the need
for continued
short-term seasonal borrowing. The legislation also 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 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 December 1994, LGAC
had
issued 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. The
impact of this borrowing, together with the availability of certain cash
reserves,
is that, for the
first time in nearly 35 years, the 1994-95 State Financial Plan includes
no short-
term seasonal
borrowing.
In April 1993, legislation was enacted proposing
significant
constitutional changes to 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 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 ratings 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 purposes 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.
Principal and interest payments on general
obligation
bonds and interest
payments 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
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 (1) the
validity
of agreements
and treaties by which various Indian tribes transferred title to New York
State of
certain land
in central and upstate New York; (2) certain aspects of New York State's
Medicaid policies,
including its rates, regulations and procedures; (3) contamination in the
Love
Canal area of
Niagara Falls; (4) action against New York State and New York City
officials
alleging
inadequate shelter allowances to maintain proper housing; (5) challenges
to the
practice of
reimbursing certain Office of Mental Health patient care expenses from
the
client's Social
Security benefits; (6) alleged responsibility of New York State officials
to assist
in remedying
racial segregation in the City of Yonkers; (7) 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;
(8)
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; (9) 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, (10) challenges to certain aspects of petroleum business
taxes, and
(11) action
alleging damages resulting from the failure by the State's Department of
Environmental
Conservation to timely provide certain data.
A number of cases have also been instituted against the
State
challenging the
constitutionality of various public authority financing programs.
In a proceeding commenced on August 6, 1991 (Schulz,
et al. v.
State of New
York, et al., Supreme Court, Albany County), petitioners challenge the
constitutionality of two
bonding programs of the New York State Thruway Authority authorized
by
Chapters 166 and
410 of the Laws of 1991. In addition, petitioners challenge the fiscal
year
1991-92 judiciary
budget as having been enacted in violation of Sections 1 and 2 of Article
VII of
the State
Constitution. The defendants' motion to dismiss the action on
procedural
grounds was denied
by order of the Supreme Court dated January 2, 1992. By order dated
November 5, 1992, the
Appellate Division, Third Department, reversed the order of the
Supreme Court
and granted
defendants' motion to dismiss on grounds of standing and mootness. By
order
dated
September 16, 1993, on motion to reconsider, the Appellate Division,
Third
Department, ruled
that plaintiffs have standing to challenge the bonding program authorized
by
Chapter 166 of the
laws of 1991. The proceeding is presently pending in Supreme Court,
Albany
County.
In Schulz, et al. v. State of New York, et al., commenced
May
24, 1993,
Supreme Court, Albany County, petitioners challenge, among other
things, the
constitutionality of, and seek to enjoin, certain highway, bridge and
mass
transportation
bonding programs of the New York State Thruway Authority and the
Metropolitan
Transportation Authority authorized by Chapter 56 of the Laws of 1993.
Petitioners contend
that the application of State tax receipts held in dedicated transportation
funds to
pay debt
service on bonds of the Thruway Authority and of the Metropolitan
Transportation Authority
violates Sections 8 and 11 of Article VII and Section 5 of Article X of
the State
Constitution
and due process provisions of the State and Federal Constitutions. By
order
dated July 27,
1993, the Supreme Court granted defendants' motions for summary
judgment,
dismissed the
complaint, and vacated the temporary restraining order previously
issued. By
decision dated
October 21, 1993, the Appellate Division, Third Department, affirmed
the
judgment of the
Supreme Court. On June 30, 1994, the Court of Appeals
unanimously
affirmed the
rulings of the trail court and the Appellate Division in favor of the State.
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 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 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 the case of State of Delaware v. State of New York, on
January 21,
1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed
in connection with the action, the State is required to make aggregate
payments
of $351.4
million, of which $90.3 million have been made. Annual payments to
the
various parties will
continue through the State's 2002-03 fiscal year in amounts which will
not
exceed $48.4
million in any fiscal year subsequent to 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 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 fiscal year
ended March 31, 1994, the State reported its estimated liability for
awarded and
anticipated
unfavorable judgments to be $675 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, in
part, 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. The State's access to the public credit markets could be
impaired, and the
market price of its outstanding debt may be materially and adversely
affected, if
any of the
Authorities were to default on their respective obligations, particularly
with
respect to debt that
are State-supported or State-related. 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 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.
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. 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 may
also be impacted by 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
Ba1, in
November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A
and
again in February
1991 to Baa1. On January 17, 1995, Standard and Poor's placed
the
City's general
obligation bonds on its CreditWatch list citing its concern over the City's
refunding plans.
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 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.
The staffs of OSDC and the Control Board issued
periodic
reports on
the City's financial plans, as modified, analyzing forecasts of revenues
and
expenditures, cash
flow, and debt service requirements, as well as compliance with the
financial
plan, as
modified, by the City and its Covered Organizations (i.e., those which
receive
or may receive
monies from the City directly, indirectly or contingently). OSDC staff
reports
issued during
the mid-1980's noted that the City's budgets benefited from a rapid rise
in the
City's economy,
which boosted the City's collection of property, business and income
taxes.
These resources
were used to increase the City's workforce and the scope of discretionary
and
mandated City
services. Subsequent OSDC staff reports examined the 1987 stock
market crash
and the
1989-92 recession, which affected the City's region more severely than
the
nation, and
attributed an erosion of City revenues and increasing strain on City
expenditures
to that
recession. According to a recent OSDC staff report, the City's economy
is now
slowly
recovering, but the scope of that recovery is uncertain and unlikely, in
the
foreseeable future,
to match the expansion of the mid-1980's. Also, staff reports of OSDC
and the
Control Board
have indicated that the City's recent balanced budgets have been
accomplished,
in part, through
the use of non-recurring resources, tax increases and additional State
assistance;
that the City
has not yet brought its long-term expenditures in line with recurring
revenues;
and that the
City is therefore likely to continue to face future projected budget gaps
requiring the City to
increase revenues and/or reduce expenditures. According to the most
recent
staff reports of
OSDC and the Control Board, during the four-year period covered by
the
current financial
plan, the City is relying on obtaining substantial resources from
initiatives
needing approval
and cooperation of its municipal labor unions, Covered Organizations
and City
Council, as
well as the state and federal governments, among others.
On February 14, 1995, the Mayor released the
preliminary
budget for the
City's 1996 fiscal year, which addresses a projected $2.7 billion budget
gap.
Most of the gap-
closing initiatives may be implemented only with the cooperation of the
City's
municipal
unions, or the State or Federal governments.
Although the City has balanced its budget since
1981,
estimates
of the City's revenues and expenditures, which are based on numerous
assumptions, are subject
to various uncertainties. If expected federal or 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 fiscal year 1994. 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 totalling $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
1994-95 fiscal
year and thereafter. The potential impact on the State of such requests
by
localities is not
included in the projections of the State's receipts and disbursements in
the
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
the $35.2
billion of 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.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that
funds held in a fiduciary capacity by a national bank approved by the
Comptroller to exercise
fiduciary powers must be invested in accordance with the instrument
establishing the fiduciary
relationship and local law. The Trust believes that the purchase of Fund
shares
by such
national banks acting on behalf of their fiduciary accounts is not contrary
to
applicable
regulations if consistent with the particular account and proper under the
law
governing the
administration of the account.
Conflict of interest restrictions may apply to an institution's
receipt of
compensation
paid by the Fund on fiduciary funds that are invested in the Fund's Class
B,
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.
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
Fund. Assets belonging to the Fund are charged with the
direct
liabilities of the
Fund and with a share of the general liabilities of the Trust allocated on
a daily
basis in
proportion to the relative net assets of the Fund and the Trust's other
portfolios.
Determinations made in good faith and in accordance with generally
accepted
accounting
principles of the Trust's Board of Trustees as to the allocation of any
assets or
liabilities with
respect to the Fund are conclusive.
As stated in the Prospectus, in computing the net asset value of
its shares
for purposes
of sales and redemptions, the Fund uses the amortized cost method of
valuation.
Under this
method, the Fund values each of its portfolio securities at cost on the
date of
purchase and
thereafter assumes a constant proportionate amortization of any discount
or
premium until
maturity of the security. As a result, the value of a portfolio security for
purposes of
determining net asset value normally does not change in response to
fluctuating
interest rates.
While the amortized cost method provides certainty in portfolio
valuation, it
may result in
valuations of the Fund's securities which are higher or lower than the
market
value of such
securities.
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:
Position Principal Occupations
with During Past 5 Years
Name and Address the Trust and Other Affiliations
Andrew Gordon (1) Co-Chairman Managing Director, Lehman
Brothers.
3 World Financial Center of the Board
New York, NY 10285 Trustee and
Age: 41 President
Kirk Hartman (1) Co-Chairman Managing Director, Lehman
Brothers.
3 World Financial Center of the Board
New York, NY 10285 Trustee,
Age: 40 Executive Vice
President and
Investment
Charles F. Barber(2)(3) Trustee Consultant; formerly
Chairman of
the
Board,
66 Glenwood Drive ASARCO Incorporated.
Greenwich, CT 06830
Age: 78
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: 64 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: 49
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: 68 Counsel and Secretary, H.J. Heinz
Company.
John M. Winters Vice Senior Vice President and Senior
Money Market
3 World Financial Center President Portfolio Manager, Lehman
Brothers
New York, NY 10285 and Global Asset Management, Inc.;
formerly
Age: 46 Investment Product Manager with
Lehman
Brothers
Officer Capital Markets Group.
Nicholas Rabiecki, III Vice President Vice President and Senior
Portfolio
Manager, Lehman
3 World Financial Center and Investment Brothers Global Asset
Management,
Inc.; formerly
New York, NY 10285 Officer Senior Fixed-Income Portfolio
Manager
with Chase
Age: 37 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: 35
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: 42 Counsel, The Boston Company
Advisors, Inc.
_________________________
1 Considered by the Trust to be "interested persons" of the Trust as
defined in the
1940 Act.
2 Audit Committee Member.
3 Nominating Committee Member.
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.
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
Name of
Person
and
Position
Aggr
egate
Com
pensa
tion
from
the
Trust
Pensi
on or
Retir
emen
t
Bene
fits
Accr
ued
as
Part
of
Trust
Expe
nses
Estimated
Annual
Benefits
Upon
Retireme
nt
Total
Compens
ation
From the
Trust
and
Fund
Complex
Paid to
Trustees
*
Andrew
Gordon,
Co-
Chairman
of the
Board,
Trustee
and
President
$0
$0
N/A
$0 (2)
Kirk
Hartman,
Co-
Chairman
of the
Board,
Trustee,
Executive
Vice
President
and
Investmen
t Officer
$0
$0
N/A
$0 (3)
Charles
Barber,
Trustee
<R
>
$25,0
00
$0
N/A
$25,000(
1)
Burt N.
Dorsett,
Trustee
$25,0
00
$0
N/A
$52,500(
2)
Edward J.
Kaier,
Trustee
$25,0
00
$0
N/A
$25,000(
1)
S. Donald
Wiley,
Trustee
$25,0
00
$0
N/A
$25,000(
1)
___________________
* 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.
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.
Lehman Brothers is comprised of several major operating
business units.
Lehman
Brothers Institutional Funds Group is the business group within Lehman
Brothers that is
primarily responsible for the distribution and client service requirements
of the
Trust and its
investors. Lehman Brothers Institutional Funds Group has been serving
institutional clients'
investment needs exclusively for
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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.
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
Deposit and Trust
Company ("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, 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
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 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 net
assets, 2% of
the next $70 million of the average net assets and 1-1/2% of the
remaining
average 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.
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 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 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.
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* 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 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.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, serve as
independent
auditors to the
Fund and will 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 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 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.
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 considered short-term in the
relevant
market. 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, more vulnerable to the adverse effects of changes in
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 short-term debt ratings are opinions of
the ability
of issuers to
repay punctually senior debt obligations which have an original maturity
not
exceeding one
year. 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 ability for repayment of senior short-term debt
obligations.
Principal
repayment capacity will normally be evidenced by many of 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 ability for repayment of senior short-term debt 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
ability for repayment of senior short-term debt obligations. The effects
of
industry
characteristics and market composition may be more pronounced.
Variability in
earnings and
profitability may result in changes in the level of debt protection
measurements
and may
require 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 "D-1," "D-2" and "D-3." Duff & Phelps employs
three
designations,
"D-1+," "D-1" and "D-1-," within the highest rating category. The
following
summarizes the
rating categories used by Duff & Phelps for commercial paper:
"D-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.
"D-1" - Debt possesses very high certainty
of
timely payment.
Liquidity factors are excellent and supported by good fundamental
protection
factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of
timely
payment.
Liquidity factors are strong and supported by good fundamental
protection
factors. Risk
factors are very small.
"D-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.
"D-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.
"D-4" - Debt possesses speculative
investment
characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating
factors and
market access may be subject to a high degree of variation.
"D-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 generally up to three years.
The
following
summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality.
Issues assigned
this rating are regarded as having the strongest degree of assurance for
timely
payment.
"F-1" - Securities possess very strong credit quality.
Issues
assigned this rating
reflect an assurance of timely payment only slightly less in degree than
issues
rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
carrying
this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is
not as great as
the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this
rating have
characteristics suggesting that the degree of assurance for timely
payment is
adequate;
however, near-term adverse changes could cause those securities to be
rated
below investment
grade.
"F-S" - Securities possess weak credit quality. Issues
assigned
this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and
are vulnerable
to near-term adverse changes in financial and economic conditions.
"D" - Securities are in actual or imminent payment
default.
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 the higher rated 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 as having predominantly speculative characteristics
with
respect to capacity
to pay interest and repay principal. "BB" indicates the least degree of
speculation and "CCC"
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 payment default. This rating is
also used
upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" to
"CCC"
may be modified
by the addition of a plus or minus sign to show relative standing within
the
major rating
categories.
The following summarizes the ratings used by Moody's
for
corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry
the smallest
degree of investment risk and are generally referred to as "gilt edge."
Interest
payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the
various protective elements are likely to change, such changes as can be
visualized are most
unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards.
Together with
the "Aaa" group they comprise what are generally known as high grade
bonds.
They are rated
lower than the best bonds because margins of protection may not be as
large as
in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or
there may be
other elements present which make the long-term risks appear somewhat
larger
than in "Aaa"
securities.
"A" - 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 corporate bond rating system. The
modifier 1 indicates
that the company 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 company
ranks at the
lower end of
its generic rating category.
Those municipal bonds in the Aa, A, Baa, Ba and
B
groups which
Moody's believes possess the strongest investment attributes are
designated by
the symbols
Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the ratings used by Duff &
Phelps for
corporate and
municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality.
The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury
debt.
"AA" - Debt is considered of high credit quality.
Protection
factors are strong.
Risk is modest but may vary slightly from time to time because of
economic
conditions.
"A" - Debt possesses protection factors which are average
but
adequate.
However, risk factors are more variable and greater in periods of
economic
stress.
"BBB" - Debt possesses below average Protection factors
but
such protection
factors are still considered sufficient for prudent investment.
Considerable
variability in risk is
present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that
possesses one
of these ratings
is considered to be below investment grade. Although below investment
grade,
debt rated
"BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses
the risk that
obligations will not be met when due. Debt rated "CCC" is well below
investment grade and
has considerable uncertainty as to timely payment of principal, interest
or
preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP"
represents
preferred stock
with dividend arrearages.
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 that bonds should be
valued
on the basis of
the ultimate recovery value in liquidation or reorganization of the
obligor.
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
factors
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
strong capacity to
pay principal and interest. Those issues determined to possess a very
strong
capacity to pay are
given a plus (+) designation.
"SP-2" - The issuers of these municipal notes
exhibit
satisfactory capacity
to pay principal and interest, with some vulnerability to adverse financial
and
economic
changes over the term of the notes.
"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"). Such ratings
recognize the
differences
between short-term credit risk and long-term risk. A short-term rating
may also
be assigned on
an issue having a demand feature. Such ratings will be designated as
"VMIG."
The following
summarizes the ratings by Moody's Investors Service, Inc. for short-
term notes:
"MIG-1"/"VMIG-1" - This designation denotes
best
quality. There is
strong protection by established cash flows, superior liquidity support or
demonstrated
broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" -This designation denotes
high
quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes
favorable
quality. All
security elements are accounted for but there is 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" - This designation denotes
adequate
quality.
Protection commonly regarded as required of an investment security is
present
and although
not distinctly or predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative
quality. Debt
instruments in
this category lack margins of protection.
Fitch uses the short-term ratings described under
Commercial
Paper Ratings for
municipal notes.
Prime Money Market Fund
Prime Value Money Market Fund
Investment Portfolios Offered By
Lehman Brothers Institutional Funds Group Trust
Statement of Additional Information
May 30, 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 30 , 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
Pa
ge
The Trust
2
Investment Objective and Policies
2
Additional Purchase and Redemption Information
7
Management of the
Funds
9
Additional Information Concerning Taxes
17
Dividends
18
Additional Yield Information
18
Additional Description Concerning Shares
20
Counsel
20
Independent Auditors
21
Financial Statements
21
Miscellaneous
21
Appendix
A-
1<
/R
>
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 1-800-368-5556
OR
THROUGH
LEHMAN BROTHERS EXPRESSNET, AN AUTOMATED ORDER
ENTRY
SYSTEM
DESIGNED SPECIFICALLY FOR THE TRUST ("LEX").
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.
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 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 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 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 Funds will
not give
preference to
Service Organizations with which a Fund enters into agreements.
(See
the
Prospectuses, "Management of the Fund - Service
Organizations").
The Funds may seek profits through short-term trading. Each
Fund's
annual portfolio
turnover will be relatively high, but 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 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 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 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).
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.
The Funds may invest in mortgage backed securities
issued by
U.S.
Government agencies or instrumentalities consisting of mortgage pass-
through
securities or
collateralized mortgage obligations ("CMOs"). Mortgage pass-through
securities in which the
Funds may invest represent a partial ownership interest in a pool of
residential
mortgage loans
and are issued or guaranteed by the Government National Mortgage
Association
("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal
Home
Loan Mortgage
Corporation ("FHLMC"). CMOs are debt obligations collateralized by
mortgage loans or
mortgage pass-through securities (collateral collectively referred to as
"Mortgage Assets").
CMOs in which the Funds may invest are issued by GNMA, FNMA and
FHLMC. In a CMO,
a series of bonds or certificates are usually issued in multiple classes.
Each
class of CMOs,
often referred to as a "tranche," is issued at a specific fixed or floating
coupon
rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may
cause the CMOs to be retired substantially earlier than their stated
maturities or
final
distribution dates, resulting in a loss of all or part of the premium if any
has
been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or
semiannual
basis. The Fund expects that mortgage backed securities will only be
purchased
in connection
with repurchase transactions.
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
or
emergency
purposes and then in amounts not exceeding 10% of the value of
a
Fund's total
assets at the time of such borrowing; or mortgage, pledge or hypothecate
any
assets
except in connection with any such borrowing and in amounts not in
excess of
the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total
assets at
the time of such borrowing. Additional investments will not be made
when
borrowings
exceed 5% of the Fund's assets.
3. Purchase any securities which would cause 25% or more
of the
value
of its total assets at the time of such purchase to be invested in the
securities of
one or
more issuers conducting their principal business activities in the same
industry,
except
that Prime Value Money Market Fund will invest 25% or more of the
value of
its total
assets in obligations of issuers in the banking industry or in obligations,
such as
repurchase agreements, secured by such obligations (unless the Fund is
in a
temporary
defensive position); provided that there is no limitation with respect to
investments in
U.S. Government securities or, in the case of Prime
Money
Market
Fund, in bank instruments issued by domestic banks.
4. Make loans, except that the Fund may purchase or hold
debt
instruments in accordance with its investment objective and policies, and
may
enter
into repurchase agreements with respect to portfolio securities.
5. Act as an underwriter of securities, except insofar as the
Fund
may be
deemed an underwriter under applicable securities laws in selling
portfolio
securities.
6. Purchase or sell real estate or real estate limited
partnerships,
provided
that the Fund may purchase securities of issuers which invest in real
estate or
interests
therein.
7. Purchase or sell commodities contracts, or invest in oil,
gas or
mineral
exploration or development programs or in mineral leases.
8. Knowingly invest more than 10% of the value of the
Fund's
assets in
securities that may be illiquid because of legal or contractual restrictions
on
resale or
securities for which there are no readily available market quotations.
9. Purchase securities on margin, make short sales of
securities or
maintain a short position.
10. Write or sell puts, calls, straddles, spreads or
combinations
thereof.
11. Invest in securities if as a result the Fund would then have
more
than
5% of its total assets in securities of companies (including predecessors)
with
less than
three years of continuous operation.
12. Purchase securities of other investment companies except
as
permitted
under the 1940 Act or in connection with a merger, consolidation,
acquisition or
reorganization.
13. Invest in warrants.
In order to permit the sale of Fund shares in certain states, the
Funds
may make
commitments more restrictive than the investment policies and
limitations
above. Should a
Fund determine that any such commitments are no longer in its best
interests, it
will revoke the
commitment by terminating sales of its shares in the state involved.
Further,
with respect to the
above-stated third limitation, each Fund will consider wholly owned
finance
companies to be in
the industries of their parents, if their activities are primarily related to
financing the activities
of their parents, and will divide utility companies according to their
services;
for example, gas,
gas transmission, electric and gas, electric and telephone will each be
considered a separate
industry.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
In General
Information on how to purchase and redeem each Fund's shares
is
included in the
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. 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 of shares,
must
maintain a separate
Master Account for each Fund's 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 Fund . Assets
belonging
to a Fund are
charged with the direct liabilities of that Fund and with a share of the
general
liabilities of the
Trust allocated on a daily basis in proportion to the relative net assets of
such
Fund and the
Trust's other portfolios. Determinations made in good faith and in
accordance
with generally
accepted accounting principles by the Trust's Board of Trustees as to the
allocation of any
assets or liabilities with respect to a Fund are conclusive.
As stated in the applicable Prospectuses, in computing the net
asset value
of its shares
for purposes of sales and redemptions, each Fund uses the amortized
cost
method of valuation.
Under this method, a Fund values each of its portfolio securities at cost
on the
date of purchase
and thereafter assumes a constant proportionate amortization of any
discount or
premium until
maturity of the security. As a result, the value of the portfolio security
for
purposes of
determining net asset value normally does not change in response to
fluctuating
interest rates.
While the amortized cost method seems to provide certainty in portfolio
valuation, it may
result in valuations of a Fund's securities which are higher or lower than
the
market value of
such securities.
In connection with its use of amortized cost valuation, each Fund
limits
the
dollar-weighted average maturity of its portfolio to not more than 90
days and
does not
purchase any instrument with a remaining maturity of more than thirteen
months
(397 days)
(with certain exceptions). The Trust's Board of Trustees has also
established
procedures,
pursuant to rules promulgated by the SEC, that are intended to stabilize
each
Fund's net asset
value per share for purposes of sales and redemptions at $1.00. Such
procedures
include the
determination, at such intervals as the Board deems appropriate, of the
extent, if
any, to which
a Fund's net asset value per share calculated by using available market
quotations deviates
from $1.00 per share. In the event such deviation exceeds 1/2 of 1%, the
Board
will promptly
consider what action, if any, should be initiated. If the Board believes
that the
amount of any
deviation from a Fund's $1.00 amortized cost price per share may result
in
material dilution or
other unfair results to investors, it will take such steps as it considers
appropriate to eliminate
or reduce to the extent reasonably practicable any such dilution or unfair
results.
These steps
may include selling portfolio instruments prior to maturity to realize
capital
gains or losses or
to shorten a Fund's average portfolio maturity, redeeming shares in
kind,
reducing or
withholding dividends, or utilizing a net asset value per share determined
by
using available
market quotations.
MANAGEMENT OF THE FUNDS
Trustees and Officers
The Trust's Trustees and Executive Officers, their addresses,
principal
occupations
during the past five years and other affiliations are as follows:
Name and
Address
Position
with the
Trust
Principal Occupations
During Past 5
Years and Other
Affiliations
ANDREW
GORDON (1)
3 World
Financial Center
New York, NY
10285
Age: 41<R/>
Co-
Chairma
n of the
Board,
Trustee
and
President
Managing Director, Lehman
Brothers.
KIRK
HARTMAN (1)
3 World
Financial Center
New York, NY
10285
Age:
40
Co-
Chairma
n of the
Board,
Trustee,
Executiv
e Vice
President
and
Investme
nt
Officer
Managing Director, Lehman
Brothers.
CHARLES
BARBER (2)(3)
66 Glenwood
Drive
Greenwich, CT
06830
Age: 78
Trustee
Consultant; formerly
Chairman of the Board,
ASARCO Incorporated.
BURT N.
DORSETT (2)(3
)
201 East 62nd
Street
New York, NY
10022
Age:
64
Trustee
Managing Partner, Dorsett
McCabe Capital
Management, Inc., an
investment
counseling firm;
Director, Research
Corporation Technologies, a
non-profit patent-clearing
and licensing operation;
formerly President,
Westinghouse Pension
Investments Corporation;
formerly Executive Vice
President and Trustee,
College Retirement Equities
Fund, Inc., a variable
annuity fund; and formerly
Investment Officer,
University of Rochester.
EDWARD J.
KAIER (2)(3)
1100 One Penn
Center
Philadelphia, PA
19103
Age:
49
Trustee
Partner with the law firm of
Hepburn Willcox Hamilton
& Putnam.
S. DONALD
WILEY (2)(3)
USX Tower
Pittsburgh, PA
15219
Age:
68
Trustee
Vice Chairman and Trustee,
H.J. Heinz Company
Foundation; prior to
October 1990, Senior Vice
President, General Counsel
and Secretary, H.J. Heinz
Company.
JOHN M.
WINTERS
3 World
Financial Center
New York, NY
10285
Age:
46
Vice
President
and
Investme
nt
Officer
Senior Vice President and
Senior Money Market
Portfolio Manager, Lehman
Brothers Global Asset
Management, Inc.; formerly
Product Manager with
Lehman Brothers Capital
Markets Group.
NICHOLAS
RABIECKI, III
3 World
Financial Center
New York, NY
10285
Age:
37
Vice
President
and
Investme
nt
Officer
Vice President and Senior
Portfolio Manager, Lehman
Brothers Global Asset
Management, Inc.; formerly
Senior Fixed-Income
Portfolio Manager with
Chase Private Banking.
MICHAEL C.
KARDOK
One Exchange
Place
Boston, MA
02109
Age:
35
Treasure
r
Vice President, The
Shareholder Services Group,
Inc.; prior to May 1994,
Vice President, The Boston
Company Advisors, Inc.
PATRICIA L.
BICKIMER
One Exchange
Place
Boston, MA
02109
Age:
42
Secretary
Vice President and
Associate General Counsel,
The Shareholder Services
Group, Inc.; prior to May
1994, Vice President and
Associate General Counsel,
The Boston Company
Advisors, Inc.
___________________________
1. Considered by the Trust to be "interested persons" of the Trust as
defined in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
Messrs. Gordon, Hartman and Dorsett serves as Trustees or
Directors of
other
investment companies for which Lehman Brothers, 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 totaled
$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 April 28,
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,
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
Name
of
Perso
n and
Positi
on
A
gg
re
ga
te
Co
m
pe
ns
ati
on
fro
m
th
e
Tr
ust
Pe
nsi
on
or
Re
tir
em
ent
Be
nef
its
Ac
cr
ue
d
as
Pa
rt
of
Tr
ust
Ex
pe
ns
es
Estimate
d
Annual
Benefits
Upon
Retireme
nt
Total
Compensati
on
From the
Trust
and Fund
Complex
Paid to
Trustees*
Andre
w
Gordo
n,
Co-
Chair
man
of the
Board
,
Truste
e and
Presid
ent
$0
$0
N/A
$0 (2)
Kirk
Hartm
an,
Co-
Chair
man
of the
Board
,
Truste
e,
Execu
tive
Vice
Presid
ent
and
Invest
ment
Office
r
$0
$0
N/A
$0 (3)
Charl
es
Barbe
r,
Truste
e
$2
5,
00
0
$0
N/A
$25,000 (1)
Burt
N.
Dorse
tt,
Truste
e
$2
5,
00
0
$0
N/A
$52,500(2)
Edwar
d J.
Kaier,
Truste
e
$2
5,
00
0
$0
N/A
$25,000 (1)
S.
Donal
d
Wiley
,
Truste
e
$2
5,
00
0
$0
N/A
$25,000
(1)
_____________
* 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.
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.
Lehman Brothers is comprised of several major operating
business units.
Lehman
Brothers Institutional Funds Group is the business group within Lehman
Brothers that is
primarily responsible for the distribution and client service requirements
of the
Trust and its
investors. Lehman Brothers Institutional Funds Group has been serving
institutional clients'
investment needs exclusively for more than 20 years, emphasizing high
quality
individualized
service to clients.
Investment Adviser
Lehman Brothers Global Asset Management Inc. serves as the
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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
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 April 28, 1995, the principal holders of Class A Shares
of
Prime Money
Market Fund were as follows: Wells Fargo Institutional Trust Co., 45
Fremont
Street, San
Francisco, CA 94101, 7.48% shares held of record; MCI
Telecommunications
Corporation,
1801 Pennsylvania Avenue NW, Washington, DC 20006, 5.68% shares
held of
record; Bank
of New York, Securities Lending, 101 Barclay Street, New York, NY
10286,
5.56% shares
held of record and Republic National Bank of New York, 452 Fifth
Avenue,
New York, NY
10018, 5.04% shares held of record. Principal holders of Class B
Shares of
Prime Money
Market Fund as of April 28, 1995 were as follows: Harris Trust and
Savings
Bank, 200 West
Monroe Street, Chicago, IL 60606, 63.89% shares held of record and
Hare &
Co., One Wall
Street, New York, NY 10286, 35.53% shares held of record. Principal
holders
of Class C
Shares of Prime Money Market Fund as of April 28, 1995 were as
follows:
FNB Nominee
Company, 614 Philadelphia Street, P.O. Box 400, Indiana, PA 15701,
87.50%
shares held of
record and Hare & Co., One Wall Street, New York, NY 10286, 6.89%
shares
held of record.
Principal holder of Class E Shares of Prime Money Market Fund as of
April 28,
1995, was
Heart Special Trust Account, 120 Wall Street, New York, NY 10043,
with
99.99% shares
held of record.
Principal holders of Class A Shares of Prime Value
Money
Market Fund as of
April 28, 1995, were as follows: Continental Bank, 231 South Lasalle
Street,
Chicago, IL
60697, 12.45 % shares held of record; Bank of New York, Securities
Lending,
101 Barclay
Street, New York, NY 10286, 7.19% shares held of record; Time
Warner
Entertainment Co.,
LP, 75 Rockefeller Plaza, New York, NY 10019, 5.63% shares held of
record
and Trulin &
Co., P.O. Box 1412, Rochester, NY 14603, 5.32% shares held of
record. At
April 28, 1995,
the principal holder of Class B Shares of Prime Value Money Market
Fund was
Hare & Co.,
One Wall Street, New York, NY 10286, with 95.35% shares held of
record.
As of April 28, 1995, there were no investors in the Class
C or E
Shares of
Prime Value Money Market 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 a Fund,
such
investor may be
deemed to be a "control person" of that Fund for purposes of the 1940
Act.
Administrator and Transfer Agent
TSSG, a subsidiary of First Data Corporation, is located at One
Exchange Place,
Boston, Massachusetts 02109, and serves as the Trust's Administrator
and
Transfer Agent. As
the Trust's Administrator, TSSG has agreed to provide the following
services:
(i) assist
generally in supervising a Fund's operations, providing and supervising
the
operation of an
automated data processing system to process purchase and redemption
orders,
providing
information concerning a Fund to its shareholders of record, handling
investor
problems,
supervising the services of employees and monitoring the arrangements
pertaining to the
Funds' agreements with Service Organizations; (ii) prepare reports to a
Fund's
investors and
prepare tax returns and reports to and filings with the SEC; (iii) compute
the
respective net
asset value per share of each Fund; (iv) provide the services of certain
persons
who may be
elected as trustees or appointed as officers of the Trust by the Board of
Trustees; and
(v) maintain the registration or qualification of a Fund's shares for sale
under
state securities
laws. TSSG is entitled to receive, as compensation for its services
rendered
under an
administration agreement, an administrative fee, computed daily and
paid
monthly, at the
annual rate of .10% of the average daily net assets of each Fund. TSSG
pays
Boston Safe
Deposit and Trust Company ("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 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 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 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, 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 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 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. 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 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.
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
(2.5%) of the
first $30 million of a Fund's average net assets, two percent (2%) of the
next
$70 million of
the average net assets and one and one-half percent (1.5%) of the
remaining
average net
assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally
affecting a
Fund and its investors that are not described in the Funds' Prospectuses.
No
attempt is made to
present a detailed explanation of the tax treatment of a Fund or its
investors or
possible
legislative changes, and the discussion here and in the applicable
Prospectuses is
not intended
as a substitute for careful tax planning. Investors should consult their
tax
advisers with
specific reference to their own tax situation.
As stated in each Prospectus, each Fund is treated as a separate
corporate
entity under
the Code and qualified as a regulated investment company under the
Code and
intends to so
qualify in future years. In order to so qualify under the Code for a
taxable year,
a Fund must
satisfy the distribution requirement described in the Prospectuses, derive
at least
90% of its
gross income for the year from certain qualifying sources, comply with
certain
diversification
tests and derive less than 30% of its gross income for the year from the
sale or
other
disposition of securities and certain other investments held for less than
three
months. Interest
(including original issue plus accrued market discount) received by a
Fund at
maturity or
disposition of a security held for less than three months will not be
treated as
gross income
derived from the sale or other disposition of such security within the
meaning of
the 30%
requirement. However, any income in excess of such interest will be
treated as
gross income
from the sale or other disposition of securities for this purpose.
A 4% non-deductible excise tax is imposed on regulated
investment
companies that fail
currently to distribute an amount equal to specified percentages of their
ordinary
taxable
income and capital gain net income (excess of capital gains over capital
losses).
Each Fund
intends to make sufficient distributions or deemed distributions of its
ordinary
taxable income
and any capital gain net income prior to the end of each calendar year to
avoid
liability for this
excise tax.
If for any taxable year a Fund does not qualify for tax treatment
as a
regulated
investment company, all of that Fund's taxable income will be subject to
tax at
regular
corporate rates without any deduction for distributions to Fund investors.
In
such event,
dividend distributions to investors would be taxable as ordinary income
to the
extent of that
Fund's earnings and profits, and would be eligible for the dividends
received
deduction in the
case of corporate shareholders.
Each Fund will be required in certain cases to withhold and remit
to the
U.S. Treasury
31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to
its investors
who have failed to provide a correct tax identification number in the
manner
required, or who
are subject to withholding by the Internal Revenue Service for failure
properly
to include on
their return payments of taxable interest or dividends, or who have failed
to
certify to a Fund
that they are not subject to backup withholding when required to do so
or that
they are
"exempt recipients."
Although each Fund expects to qualify each year as a "regulated
investment company"
and to be relieved of all or substantially all federal income tax,
depending upon
the extent of
its activities in states and localities in which its offices are maintained, in
which
its agents or
independent contractors are located or in which it is otherwise deemed to
be
conducting
business, a Fund may be subject to the tax laws of such states or
localities. In
addition, in
those states and localities which have income tax laws, the treatment of
the
Fund and its
investors under such laws may differ from the treatment under federal
income
tax laws.
Investors are advised to consult their tax advisers concerning the
application of
state and local
taxes.
DIVIDENDS
Each Fund's net investment income for dividend purposes
consists of (i)
interest
accrued and original issue discount earned on that Fund's assets, (ii) plus
the
amortization of
market discount and minus the amortization of market premium on such
assets,
(iii) less
accrued expenses directly attributable to that Fund and the general
expenses
(e.g., legal,
accounting and trustees' fees) of the Trust prorated to such Fund on the
basis of
its relative net
assets. Any realized short-term capital gains may also be distributed as
dividends to Fund
investors. In addition, a Fund's Class B, 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
The "yields" and "effective yields" are calculated separately for
each
class of shares of
each Fund and in accordance with the formulas prescribed by the SEC.
The
seven-day yield
for each class of shares in a Fund is calculated by determining the net
change in
the value of a
hypothetical preexisting account in a Fund having a balance of one share
of the
class involved
at the beginning of the period, dividing the net change by the value of
the
account at the
beginning of the period to obtain the base period return, and multiplying
the
base period return
by 365/7. The net change in the value of an account in a Fund includes
the
value of additional
shares purchased with dividends from the original share and dividends
declared
on the original
share and any such additional shares, net of all fees charged to all
shareholder
accounts in
proportion to the length of the base period and the Fund's average
account size,
but does not
include gains and losses or unrealized appreciation and depreciation. In
addition, the effective
annualized yield may be computed on a compounded basis (calculated as
described above) with
respect to each class of a Fund's shares by adding 1 to the base period
return,
raising the sum
to a power equal to 365/7, and subtracting 1 from the result. Similarly,
based
on the
calculations described above, 30-day (or one-month) yields and effective
yields
may also be
calculated.
Based on the fiscal year ended January 31, 1995, the yields and
effective
yields for
each of the Funds were as follows:
7
- -
d
a
y
Y
i
e
l
d
7
- -
d
a
y
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
Prime Money Market Fund
Class A Shares
5
.
7
5
%
5
.
9
0
%
Class B Shares
5
.
5
0
%
5
.
6
4
%
Class C Shares
5
.
4
0
%
5
.
5
4
%
Class E Shares
5
.
6
0
%
5
.
7
5
%
Class A Shares*
5
.
6
5
%
5
.
8
0
%
Class B Shares*
5
.
4
0
%
5
.
5
4
%
Class C Shares*
5
.
3
0
%
5
.
4
3
%
Class E Shares*
5
.
5
0
%
5
.
6
4
%
Prime Value Money Market
Fund
Class A Shares
5
.
7
7
%
5
.
9
3
%
Class B Shares
5
.
5
2
%
5
.
6
6
%
Class C Shares
5
.
4
2
%
5
.
5
6
%
Class E Shares
5
.
6
2
%
5
.
7
7
%
7
- -
d
a
y
Y
i
e
l
d
7
- -
d
a
y
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
Class A Shares*
5
.
6
9
%
5
.
8
4
%
Class B Shares*
5
.
4
4
%
5
.
5
8
%
Class C Shares*
5
.
3
4
%
5
.
4
7
%
Class E Shares*
5
.
5
4
%
5
.
6
8
%
*estimated yield without fee waivers and/or expense
reimbursements
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 of Holliston, MA 01746, a
widely
recognized
independent publication that monitors the performance of money market
funds,
or to the
average yields reported by the Bank Rate Monitor from money market
deposit
accounts offered
by the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical
areas.
The Funds' yields will fluctuate, and any quotation of yield
should not
be considered
as representative of the future performance of the Funds. Since yields
fluctuate,
yield data
cannot necessarily be used to compare an investment in a Fund's shares
with
bank deposits,
savings accounts and similar investment alternatives which often provide
an
agreed or
guaranteed fixed yield for a stated period of time. Investors should
remember
that performance
and yield are generally functions of the kind and quality of the
investments held
in a portfolio,
portfolio maturity, operating expenses and market conditions. Any fees
charged
by banks with
respect to Customer accounts investing in shares of a Fund will not be
included
in yield
calculations; such fees, if charged, would reduce the actual yield from
that
quoted.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Trust does not presently intend to hold annual meetings of
shareholders except as
required by the 1940 Act or other applicable law. The law under certain
circumstances
provides shareholders with the right to call for a meeting of shareholders
to
consider the
removal of one or more Trustees. To the extent required by law, the
Trust will
assist in
shareholder communication in such matters.
As stated in the Funds' Prospectuses, holders of shares in a Fund
in the
Trust will vote
in the aggregate and not by class on all matters, except where otherwise
required by law and
except that only a Fund's Class B, 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 serves as counsel to Lehman
Brothers.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, serve as
independent
auditors
to each Fund and render an opinion on each
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 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.
The Trust's Declaration of Trust provides further that no Trustee
of the
Trust shall be
personally liable for or on account of any contract, debt, tort, claim,
damage,
judgment or
decree arising out of or connected with the administration or
preservation of the
trust estate or
the conduct of any business of the Trust, nor shall any Trustee be
personally
liable to any
person for any action or failure to act except by reason of bad faith,
willful
misfeasance, gross
negligence in performing duties, or by reason of reckless disregard for
the
obligations and
duties as Trustee. It also provides that all persons having any claim
against the
Trustees or the
Trust shall look solely to the trust property for payment. With the
exceptions
stated, the
Declaration of Trust provides that a Trustee is entitled to be indemnified
against
all liabilities
and expenses reasonably incurred in connection with the defense or
disposition
of any
proceeding in which the Trustee may be involved or may be threatened
with by
reason of being
or having been a Trustee, and that the Trustees have the power, but not
the
duty, to indemnify
officers and employees of the Trust unless such persons would not be
entitled to
indemnification if they were in the position of Trustee.
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of
the likelihood
of timely payment of debt considered short-term in the relevant market.
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 short-term debt ratings are opinions of the ability of
issuers to
repay
punctually senior debt obligations which have an original maturity not
exceeding
one year. 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
ability for repayment of senior short-term debt 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
ability for repayment of senior short-term debt 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 "D-1" and "D-2." Duff & Phelps employs three designations,
"D-
1+," "D-1" and
"D-1-," within the highest rating category. The following summarizes
the two
highest rating
categories used by Duff & Phelps for commercial paper:
"D-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.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity
factors are
excellent and supported by good fundamental protection factors. Risk
factors are
minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity
factors are strong
and supported by good fundamental protection factors. Risk factors are
very
small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity
factors and
company fundamentals are sound. Although ongoing funding needs may
enlarge
total financing
requirements, access to capital markets is good. Risk factors are small.
Fitch short-term ratings apply to debt obligations that are payable
on
demand or have
original maturities of generally 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
some of
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.
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 short-term ratings assess the likelihood of
an
untimely payment
of principal or interest of debt having a maturity of one year or less.
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. Where
issues possess a particularly strong credit feature a rating of "A1+" is
assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's
for
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 the highest rated 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 as having predominantly speculative characteristics with respect
to
capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and
"CCC" 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 payment default. This rating is also used upon
the
filing of a
bankruptcy petition if debt service payments are jeopardized.
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 ratings used by Moody's for long-
term
debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the
smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments
are protected by
a large or by an exceptionally stable margin and principal is secure.
While the
various
protective elements are likely to change, such changes as can be
visualized are
most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together
with the
"Aaa" group they comprise what are generally known as high grade
bonds.
They are rated
lower than the best bonds because margins of protection may not be as
large as
in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or
there may be
other elements present which make the long-term risks appear somewhat
larger
than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are
to be
considered as
upper medium grade obligations. Factors giving security to principal
and
interest are
considered adequate but elements may be present which suggest a
susceptibility
to impairment
sometime in the future.
"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. (---) - Municipal 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 generic
classification
of "Aa" in its
corporate bond rating system. The modifier 1 indicates that the company
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 company ranks at the lower end of its
generic
rating category.
Those municipal bonds in the "Aa" to "B" groups which
Moody's
believes posses the
strongest investment attributes are designated by the symbols "Aa1,"
"A1,"
"Baa1," "Ba1,"
and "B1."
The following summarizes the ratings used by Duff & Phelps for
long-
term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk
factors are
negligible, being only slightly more than for risk-free U.S. Treasury
debt.
"AA" - Debt is considered of high credit quality. Protection
factors are
strong. Risk is
modest but may vary slightly from time to time because of economic
conditions.
"A" - Debt possesses protection factors which are average but
adequate.
However,
risk factors are more variable and greater in periods of economic stress.
"BBB" - Debt possesses below average Protection factors but
such
protection factors
are still considered sufficient for prudent investment. Considerable
variability
in risk is
present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one
of these
ratings is
considered to be below investment grade. Although below investment
grade,
debt rated "BB"
is deemed likely to meet obligations when due. Debt rated "B"
possesses the
risk that
obligations will not be met when due. Debt rated "CCC" is well below
investment grade and
has considerable uncertainty as to timely payment of principal, interest
or
preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP"
represents
preferred stock
with dividend arrearages.
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 rating categories.
The following summarizes the ratings used by Fitch for 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 that bonds should be valued
on the
basis of the
ultimate recovery value in liquidation or reorganization of the obligor.
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.
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.
"A" - This designation indicates the ability to repay principal and
interest
is strong.
Issues rated "A" could be more vulnerable to adverse developments
(both
internal and external)
than obligations with higher ratings.
PLUS (+) or MINUS (-) - The ratings may include a plus or
minus sign
designation
which indicates where within the respective category the issue is placed.
IBCA assesses the investment quality of unsecured debt with an
original
maturity of
more than one year which is issued by bank holding companies and their
principal bank
subsidiaries. The following summarizes the two highest rating categories
used
by IBCA for
long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk.
Capacity for timely repayment of principal and interest is substantial
such that
adverse changes
in business, economic or financial conditions are unlikely to increase
investment
risk
significantly.
"AA" - Obligations for which there is a very low expectation of
investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse
changes in
business, economic or financial conditions may increase investment risk
albeit
not very
significantly.
"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 factors 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 strong
capacity to
pay principal
and interest. Those issues determined to possess a very strong capacity to
pay
are given a plus
(+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay
principal and interest, with some vulnerability to adverse financial and
economic
changes over
the term of the notes.
Moody's ratings for state and municipal notes and other short-
term loans
are
designated Moody's Investment Grade ("MIG"). Such ratings recognize
the
differences
between short-term credit risk and long-term risk. A short-term rating
may also
be assigned on
an issue having a demand feature. Such ratings will be designated as
"VMIG."
The following
summarizes the two highest ratings used by Moody's Investors Service,
Inc. for
short-term
notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is
strong
protection by established cash flows, superior liquidity support or
demonstrated
broad-based
access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality.
Margins
of protection
are ample although not so large as in the preceding group.
Duff & Phelps and Fitch use the short-term ratings described
under
Commercial Paper
Ratings for municipal notes.
Lehman Brothers Institutional Funds Group Trust
Short Duration Municipal Fund
Statement of Additional Information
May 30, 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
30, 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
P
a
g
e
The Trust
2
Investment Objective and Policies
2
Additional Purchase, Redemption and Exchange
Information
1
1
Management of the Fund
1
3
Additional Information Concerning Taxes
2
0
Dividends
2
2
Additional Performance Information
2
2
Additional Description Concerning Shares
2
4
Counsel
2
4
Independent Auditors
2
4
Miscellaneous
2
4
Appendix
A
- -
1
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 Select Shares bear fees payable by the Fund to Lehman Brothers or
institutional investors
for services they provide to the beneficial owners of such shares and
Retail
Shares 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 1-800-368-5556 OR THROUGH LEHMAN
BROTHERS
EXPRESSNET, AN AUTOMATED ORDER ENTRY SYSTEM
DESIGNED
SPECIFICALLY FOR THE TRUST ("LEX").
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.
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 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 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.
When-Issued Transactions. As stated in the Fund's Prospectuses,
the
Fund may
purchase securities on a "when-issued" or "delayed delivery" basis (i.e.,
for
delivery beyond
the normal settlement date at a stated price and yield). When the Fund
agrees to
purchase
when-issued securities, the Custodian will set aside cash or liquid
portfolio
securities equal to
the amount of the commitment in a separate account. Normally, the
Custodian
will set aside
portfolio securities to satisfy a purchase commitment, and in such a case
the
Fund may be
required subsequently to place additional assets in the separate account in
order
to ensure that
the value of the account remains equal to the amount of the Fund's
commitment. It may be
expected that the Fund's net assets will fluctuate to a greater degree
when it sets
aside portfolio
securities to cover such purchase commitments than when it sets aside
cash.
Because the Fund
will set aside cash or liquid assets to satisfy its purchase commitments in
the
manner described,
the Fund's liquidity and ability to manage its portfolio might be affected
in the
event its
commitments to purchase when-issued securities exceed 25% of the
value of its
assets. When
the Fund engages in when-issued transactions, it relies on the seller to
consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an
opportunity to obtain a price considered to be advantageous. The Fund
does not
intend to
purchase when-issued securities for speculative purposes but only in
furtherance
of its
investment objective. The Fund reserves the right to sell the securities
before
the settlement
date if it is deemed advisable.
Lending of Portfolio Securities. The Fund has the ability to lend
securities in an
amount up to one-third of the value of their respective total assets from
their
respective
portfolios to brokers, dealers and other financial organizations. The
Fund may
not lend its
portfolio securities to Lehman Brothers or its affiliates without specific
authorization from the
SEC. Loans of portfolio securities by the Fund will be collateralized by
cash,
letters of credit
or securities issued or guaranteed by the U.S. Government or its
agencies which
will be
maintained at all times in an amount equal to at least 100% of the
current
market value of the
loaned securities and will be marked to market daily. From time to time,
the
Fund may return
a part of the interest earned from the investment of collateral received
for
securities loaned to
the borrower and/or a third party, which is unaffiliated with the Fund or
with
Lehman
Brothers, and which is acting as a "finder." With respect to loans by the
Fund
of its portfolio
securities, the Fund would continue to accrue interest on loaned
securities and
would also earn
income on loans. Any cash collateral received by the Fund in connection
with
such loans
would be invested in short-term U.S. Government obligations.
Options Transactions. The Fund is authorized to engage in
transactions
involving put
and call options 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
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.
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 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.
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.
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 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.
2. Borrow money, except that the Fund may (i) borrow money
from
banks for
temporary or emergency purposes (not for leveraging or investment) and
(ii)
engage in reverse
repurchase agreements or dollar roll transactions; provided that (i) and
(ii) in
combination do
not exceed one-third of the value of the Fund's total assets (including the
amount borrowed)
less liabilities (other than borrowings). For purposes of this investment
restriction, short sales,
swap transactions, options, futures contracts and options on futures
contracts,
and forward
commitment transactions shall not constitute borrowings.
3. Make loans except that the Fund may purchase or hold debt
obligations in
accordance with its investment objective and policies, may enter into
repurchase
agreements
for securities and may lend portfolio securities.
4. Act as an underwriter, except insofar as the Fund may be
deemed an
underwriter
under applicable securities laws in selling portfolio securities.
5. Purchase or sell real estate or real estate limited partnerships
except
that the Fund
may invest in securities secured by real estate or interests therein.
6. Purchase or sell commodities or commodity contracts, or
invest in
oil, gas or
mineral exploration or development programs or in mineral leases.
7. Purchase any securities which would cause 25% or more of
the
value of its total
assets at the time of purchase to be invested in the securities of issuers
conducting their
principal business activities in the same industry, provided that there is
no
limitation with
respect to investments in U.S. Government securities.
8. Purchase securities on margin, except for such short-term
credits as
are necessary
for the clearance of transactions, but the Fund may make margin
deposits in
connection with
transactions in options, futures and options on futures.
9. Knowingly invest more than 15% of the value of the Fund's
assets
in securities
that may be illiquid because of legal or contractual restrictions on resale
or
securities for which
there are no readily available market quotations.
10. Write or sell puts, calls, straddles, spreads or combinations
thereof
in excess of
5% of its total assets.
11. Invest in securities if as a result the Fund would then have
more
than 5% of its
total assets in securities of companies (including predecessors) with less
than
three years of
continuous operation.
12. Purchase securities of other investment companies in excess
of 5%
of its total
assets, except as permitted under the 1940 Act or in connection with a
merger,
consolidation,
acquisition or reorganization.
13. Invest in warrants.
In order to permit the sale of Fund shares in certain states, the
Fund may
make
commitments more restrictive than the investment policies and
limitations
above. Should the
Fund determine that any such commitments are no longer in its best
interests, it
will revoke the
commitment by terminating sales of its shares in the state involved.
ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE
INFORMATION
In General
Information on how to purchase and redeem Fund shares is
included in
the
Prospectuses. The issuance of Fund shares is recorded on the Fund's
books, and
share
certificates are not issued.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that
funds held in a fiduciary capacity by a national bank approved by the
Comptroller to exercise
fiduciary powers must be invested in accordance with the instrument
establishing the fiduciary
relationship and local law. The Trust believes that the purchase of Fund
shares
by such
national banks acting on behalf of their fiduciary accounts is not contrary
to
applicable
regulations if consistent with the particular account and proper under the
law
governing the
administration of the account.
Conflict of interest restrictions may apply to an institution's
receipt of
compensation
paid by the Fund on fiduciary funds that are invested in the Fund's
Select
Shares. Institutions,
including banks regulated by the Comptroller and investment advisers
and other
money
managers subject to the jurisdiction of the SEC, the Department of
Labor or
state securities
commissions, should consult their legal advisers before investing
fiduciary funds
in the Fund's
Select Shares.
Under the 1940 Act, the Fund may suspend the right of
redemption or
postpone the
date of payment upon redemption for any period during which the New
York
Stock Exchange
("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. Sub-accounts may be established by name or number either
when the
Master
Account is opened or later.
The Fund normally transmits payment of redemption proceeds for
credit
to the
shareholder's account at Lehman Brothers or the Introducing Broker on
the
business day
following receipt of the redemption request but, in any event, payment
will be
made within
seven days thereafter.
The Prospectus describes special redemption procedures for
certain
shareholders who
engage in purchases of Retail Shares 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
Fund.
Assets belonging to the Fund are charged with the direct liabilities of the
Fund
and with a
share of the general liabilities of the Trust allocated 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:
Name and
Address
Position
with the
Trust
Principal Occupations
During Past 5 Years and
Other Affiliations
ANDREW
GORDON (
1)
3 World
Financial
Center
New York,
NY 10285
Age:
41
Co-
Chairman
of the
Board,
President
and
Trustee
Managing Director, Lehman
Brothers.
KIRK
HARTMAN
(1)
3 World
Financial
Center
New York,
NY 10285
Age:
40
Co-
Chairman
of the
Board,
Trustee,
Executive
Vice
President
and
Investme
nt Officer
Managing Director, Lehman
Brothers.
CHARLES
F.
BARBER (2
)(3)
66
Glenwood
Drive
Greenwich,
CT 06830
Age:
78
Trustee
Consultant; formerly
Chairman of the Board,
ASARCO Incorporated.
BURT N.
DORSETT (
2)(3)
201 East
62nd Street
New York,
NY 10022
Age:
64
Trustee
Managing Partner, Dorsett
McCabe Capital Management,
Inc., an investment counseling
firm; Director, Research
Corporation Technologies, a
non-profit patent-clearing and
licensing operation; formerly
President, Westinghouse
Pension Investments
Corporation; formerly
Executive Vice President and
Trustee, College Retirement
Equities Fund, Inc., a
variable annuity fund; and
formerly Investment Officer,
University of Rochester.
EDWARD
J.
KAIER (2)(
3)
1100 One
Penn Center
Philadelphia
, PA 19103
Age:
49
Trustee
Partner with the law firm of
Hepburn Willcox Hamilton &
Putnam.
S.
DONALD
WILEY (2)(
3)
USX Tower
Pittsburgh,
PA 15219
Age:
68
Trustee
Vice Chairman and Trustee,
H.J. Heinz Company
Foundation; prior to October
1990, Senior Vice President,
General Counsel and
Secretary, H.J. Heinz
Company.
JOHN M.
WINTERS
3 World
Financial
Center
New York,
NY 10285
Age:
46
Vice
President
and
Investme
nt Officer
Senior Vice President and
Senior Money Market
Portfolio Manager, Lehman
Brothers Global Asset
Management, Inc.; formerly
Product Manager with
Lehman Brothers Capital
Markets Group.
NICHOLAS
RABIECKI,
III
3 World
Financial
Center
New York,
NY 10285
Age:
37
Vice
President
and
Investme
nt Officer
Vice President and Senior
Portfolio Manager of Lehman
Brothers Global Asset
Management, Inc.; prior to
July 1993, Senior Fixed-
Income Portfolio Manager of
Chase Private Banking.
MICHAEL
C.
KARDOK
One
Exchange
Place
Boston, MA
02109
Age:
35
Treasurer
Vice President, The
Shareholder Services Group,
Inc.; prior to May 1994, Vice
President, The Boston
Company Advisors Inc.
PATRICIA
L.
BICKIMER
One
Exchange
Place
Boston, MA
02109
Age:
42
Secretary
Vice President and Associate
General Counsel, The
Shareholder Services Group
Inc.; prior to May 1994, Vice
President and Associate
General Counsel, The Boston
Company Advisors, Inc.
__________________________
1. Considered by the Trust to be an "interested person" of the Trust as
defined
in the
1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
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.
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
Nam
e of
Pers
on
and
Posit
ion
Aggre
gate
Compe
nsation
from
the
Trust
Pensi
on or
Retire
ment
Benef
its
Accru
ed as
Part
of
Trust
Expen
ses
Estim
ated
Annu
al
Benef
its
Upon
Retire
ment
Total
Compe
nsation
From
the
Trust
and
Fund
Compl
ex Paid
to
Trustee
s*
Andr
ew
Gord
on
Co-
Chai
rman
of
the
Boar
d,
Trust
ee
and
Presi
dent
$0
$0
N/A
$0
(2)
Kirk
Hart
man
Co-
Chai
rman
of
the
Boar
d,
Trust
ee,
Exec
utive
Vice
Presi
dent
and
Inves
tmen
t
Offic
er
$0
$0
N/A
$0
(3)
Char
les
Barb
er,
Trust
ee
$25,00
0
$0
N/A
$25,00
0(1)
Burt
N.
Dors
ett,
Trust
ee
$25,00
0
$0
N/A
$52,50
0(2)
Edw
ard
J.
Kaie
r,
Trust
ee
$25,00
0
$0
N/A
$25,00
0(1)
S.
Dona
ld
Wile
y,
Trust
ee
$25,00
0
$0
N/A
$25,00
0(1)
__________________________________
* 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.
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 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
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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
Deposit and Trust Company ("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 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 Premier Shares, Select
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 Select Shares and Retail Shares of
the
Fund pursuant to
Rule 12b-1 under the 1940 Act.
Premier Shares are sold to institutional investors that have not
entered
into servicing or
other agreements with the Fund in connection with their investments and
pay no
Rule 12b-1
distribution or shareholder service fee. However, the Plan provides that
Lehman Brothers may
make payments to assist in the distribution of Premier Shares out of the
other
fees received by
it or its affiliates from the Fund, its past profits or any other sources
available to
it. Pursuant
to the Plan of Distribution, Select Shares are sold to institutional
investors and,
in addition to
the Fund's other operating expenses, bear Rule 12b-1 fees payable at an
annual
rate not
exceeding .25% of the average daily net asset value of the shares
beneficially
owned by such
investors in return for certain administrative and shareholder services
provided
by Lehman
Brothers or those institutional investors. These services may include
processing
purchase,
exchange and redemption requests from customers and placing orders
with the
Transfer Agent;
processing dividend and distribution payments from the Fund on behalf
of
customers;
providing information periodically to customers showing their positions
in
shares; responding
to inquiries from customers concerning their investment in shares;
arranging for
bank wires;
and providing such other similar services as may be reasonably
requested. In
addition, the
Plan of Distribution provides that Lehman Brothers may retain all or a
portion
of the payments
made to it pursuant to the Plan and may make payments to third parties
that
provide assistance
in selling Select Shares, or to institutions that provide certain shareholder
support services to
investors. These services may include: (i) aggregating and processing
purchase
and
redemption requests from customers and placing net purchase and
redemption
orders with the
Fund's distributor; (ii) processing dividend payments from the Fund on
behalf
of customers;
(iii) providing information periodically to customers showing their
positions in a
Fund's
shares; (iv) arranging for bank wires; (v) responding to customer
inquiries
relating to the
services performed by the institution and handling correspondence; (vi)
forwarding shareholder
communications from a Fund (such as proxies, shareholder reports,
annual and
semi-annual
financial statements, and dividend, distribution and tax notices) to
customers;
(vii) acting as
shareholder of record or nominee; and (viii) other similar account
administrative
services.
Lehman Brothers is also authorized to offer Retail Shares 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, 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, 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
(2.5%) of the
first $30 million of a Fund's average net assets, two percent (2%) of the
next
$70 million of
the average net assets and one and one-half percent (1.5%) of the
remaining
average 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 whose gross revenues
derived with
respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by
all users of such facilities, or who occupies more than 5% of the usable
area of
such facilities
or for whom such facilities or a part thereof were specifically
constructed,
reconstructed or
acquired. "Related persons" include certain related natural persons,
affiliated
corporations, a
partnership and its partners and an S Corporation and its shareholders.
In order for the Fund to pay exempt-interest dividends for any
taxable
year, at the
close of each quarter of its taxable year at least 50% of the aggregate
value of
the Fund's assets
must consist of exempt-interest obligations. After the close of its taxable
year,
the Fund will
notify its investors of the portion of the dividends paid by the Fund
which
constitutes an
exempt-interest dividend with respect to such taxable year. However, the
aggregate amount of
dividends so designated by the Fund cannot exceed the excess of the
amount of
interest exempt
from tax under Section 103 of the Code received by the Fund for the
taxable
year over any
amounts disallowed as deductions under Sections 265 and 171(a)(2) of
the
Code. The
percentage of total dividends paid by the Fund with respect to any
taxable year
which qualifies
as federal exempt-interest dividends will be the same for all investors of
the
Fund receiving
dividends for such year.
Interest on indebtedness incurred by an investor to purchase or
carry the
Fund's shares
is not deductible for federal income tax purposes if the Fund distributes
exempt-
interest
dividends during the investor's taxable year.
While the Fund does not expect to realize long-term capital gains,
any
net realized
long-term capital gains will be distributed at least annually. The Fund
will
generally have no
tax liability with respect to such gains, and the distributions will be
taxable to
the Fund's
investors as long-term capital gains, regardless of how long a investor
has held
the Fund's
shares. Such distributions will be designated as a capital gain dividend in
a
written notice
mailed by the Fund to its investors not later than 60 days after the close
of the
Fund's taxable
year.
Similarly, while the Fund does not expect to earn any investment
company taxable
income, taxable income earned by the Fund will be distributed to its
investors.
In general, the
Fund's investment company taxable income will be its taxable income
(for
example, any
short-term capital gains) subject to certain adjustments and excluding the
excess
of any net
long-term capital gain for the taxable year over the net short-term capital
loss, if
any, for such
year. The Fund will be taxed on any undistributed investment company
taxable
income of the
Fund. To the extent such income is distributed by the Fund (whether in
cash or
additional
shares), it will be taxable to the Fund's investors as ordinary income.
A 4% nondeductible excise tax is imposed on regulated
investment
companies that fail
to distribute currently an amount equal to specified percentages of their
ordinary
taxable
income and capital gain net income (excess of capital gains over capital
losses).
The Fund
intends to make sufficient distributions or deemed distributions of any
ordinary
taxable income
and any capital gain net income prior to the end of each calendar year to
avoid
liability for
this excise tax.
If for any taxable year the Fund does not qualify for tax
treatment as a
regulated
investment company, all of the Fund's taxable income will be subject to
tax at
regular
corporate rates without any deduction for distributions to Fund
shareholders. In
such event,
dividend distributions to shareholders would be taxable to shareholders
to the
extent of the
Fund's earnings and profits, and would be eligible for the dividends
received
deduction for
corporations.
The Fund will be required in certain cases to withhold and remit
to the
U.S. Treasury
31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to
its shareholders
who have failed to provide a correct tax identification number in the
manner
required, or who
are subject to withholding by the Internal Revenue Service for failure
properly
to include on
their return payments of taxable interest or dividends, or who have failed
to
certify to a Fund
that they are not subject to backup withholding when required to do so
or that
they are
"exempt recipients."
Although the Fund expects to qualify as a "regulated investment
company" and to be
relieved of all or substantially all federal income taxes, depending upon
the
extent of its
activities in states and localities in which its offices are maintained, in
which its
agents or
independent contractors are located or in which they are otherwise
deemed to be
conducting
business, a Fund may be subject to the tax laws of such states or
localities. In
addition, in
those states and localities which have income tax laws, the treatment of
the
Fund and its
shareholders under such laws may differ from the treatment under
federal
income tax laws.
Shareholders are advised to consult their tax advisers concerning the
application
of state and
local taxes.
* * * * * * * * * * * * * * * * * * * * * * * *
The foregoing discussion is based on federal tax laws and
regulations
which are in
effect on the date of this Statement of Additional Information; such laws
and
regulations may
be changed by legislative or administrative action.
DIVIDENDS
The Fund's net investment income for dividend purposes consists
of (i)
interest accrued
and discount earned on the Fund's assets, (ii) plus the amortization of
market
discount,
(iii) less amortization of market premium on such assets, (iv) less
accrued
expenses directly
attributable to the Fund, and the general expenses (e.g., legal,
accounting and
trustees' fees) of
the Trust prorated to the Fund on the basis of its relative net assets.
Realized
and unrealized
gains and losses on portfolio securities are reflected in net asset value.
In
addition, Select
Shares 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," "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. A "tax
equivalent
yield" for each
Class of the Fund's shares is computed by dividing the portion of the
yield
(calculated as
described above) that is exempt from federal income tax by one minus a
stated
federal income
tax rate and adding that figure to that portion, if any, of the yield that is
not
exempt from
federal income tax. The distribution rate for a specified period is
calculated by
annualizing
distributions of net investment income for such period and dividing this
amount
by the ending
net asset value for such period.
From time to time, in advertisements or in reports to
shareholders, the
performance of
the Fund may be quoted and compared to that of other funds or accounts
with
similar
investment objectives and to stock or other relevant indices. For
example, the
yields of the
Fund may be compared to various independent sources, including, but
not
limited to, Lipper
Analytical Services, Inc., Morningstar, Inc., Barron's, The Wall Street
Journal,
Weisenberger
Investment Companies Service, IBC/Donoghue's Inc. Bond Fund
Report,
Business Week,
Financial World, Fortune, Money and Forbes. In addition, the Fund's
performance as
compared to certain indices and benchmark investments may include:
[(a) the
Lehman Brothers
Government/Corporate (Total) Index, (b) Lehman Brothers Government
Index,
(c) Merrill
Lynch 1-3 Year Treasury Index, (d) Merrill Lynch 2-Year Treasury
Curve
Index, (e) the
Salomon Brothers Treasury Yield Curve Rate of Return Index, (f) the
Payden &
Rygel 2 year
Treasury Note Index, (g) 1 through 3 year U.S. Treasury Notes, (h)
constant
maturity U.S.
Treasury yield indices, (i) the Consumer Price Index, (j) the London
Interbank
Offered Rate,
(k) other taxable investments such as certificates of deposit, money
market
deposit accounts,
checking accounts, savings accounts, money market mutual funds,
repurchase
agreements,
commercial paper, and (1) historical data concerning the performance of
adjustable and fixed-
rate mortgage loans. In addition, the Lehman Brothers' Fixed Income
Research
Department
was recognized by Institutional Investor's "A11-American Research
Team" poll
in 1993 as 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.
The Fund's total return and yield figures for a class of shares will
fluctuate, and any
quotation of total return or yield should not be considered as
representative of
the future
performance of the Fund. Since total return and yields fluctuate, yield
and total
return data for
the Fund cannot necessarily be used to compare an investment in Fund
shares
with bank
deposits, savings accounts and similar investment alternatives which
often
provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should
remember that
performance of any investment is generally a function of the kind and
quality of
the
investments held in a portfolio, portfolio maturity, operating expenses
and
market conditions.
Since holders of Select 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
Willkie Farr & Gallagher, 153 East 53rd Street,
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.
INDEPENDENT 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.
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.
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 considered short-term in the
relevant
market. 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 short-term debt ratings are opinions of the ability
of
issuers to repay
punctually senior debt obligations which have an original maturity not
exceeding
one year.
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 ability for repayment of senior short-term debt obligations.
Principal
repayment
capacity will normally be evidenced by many of 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 ability for repayment of senior short-term debt obligations.
This
will normally
be evidenced by many of the characteristics cited above but to a lesser
degree.
Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample
alternative liquidity is maintained.
Municipal Long-Term Debt Ratings
The following summarizes the three highest ratings used by
Standard &
Poor's for
municipal long-term debt:
"AAA" - This designation represents the highest rating assigned
by
Standard & Poor's
to a debt obligation and indicates an extremely strong capacity to pay
interest
and repay
principal.
"AA" - Debt is considered to have a very strong capacity
to pay
interest and
repay principal and differs from the higher rated issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay interest
and
repay principal
although such issues are somewhat more susceptible to the adverse
effects of
changes in
circumstances and economic conditions than debt in higher-rated
categories.
PLUS (+) or MINUS (-) - The rating of "AA" and "A" may be
modified by the
addition of a plus or minus sign to show relative standing within this
rating
category.
The following summarizes the three highest ratings used by
Moody's for
municipal
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the
smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments
are protected by
a large or by an exceptionally stable margin and principal is secure.
While the
various
protective elements are likely to change, such changes as can be
visualized are
most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together
with the
"Aaa" group they comprise what are generally known as high grade
bonds.
They are rated
lower than the best bonds because margins of protection may not be as
large as
in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or
there may be
other elements present which make the long-term risks appear somewhat
larger
than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are
to be
considered as
upper medium grade obligations. Factors giving security to principal
and
interest are
considered adequate but elements may be present which suggest a
susceptibility
to impairment
sometime in the future.
Moody's applies numerical modifiers 1, 2 and 3 in each
generic
classification of
"Aa" and "A" in its corporate bond rating system. The modifier 1
indicates that
the company
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 company ranks at the lower
end of
its generic
rating category.
Those municipal bonds in the "Aa" and "A" groups which
Moody's believes
possess the strongest investment attributes are designated by the symbols
"Aa1"
and "A1."
The following summarizes the three highest ratings used by Duff
&
Phelps for
municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk
factors are
negligible, being only slightly more than for risk-free U.S. Treasury
debt.
"AA" - Debt is considered of high credit quality. Protection
factors are
strong. Risk is
modest but may vary slightly from time to time because of economic
conditions.
"A" - Debt possesses protection factors which are average but
adequate.
However,
risk factors are more variable and greater in periods of economic stress.
To provide more detailed indications of credit quality, the "AA"
and
"A" rating may
be modified by the addition of a plus (+) or minus (-) sign to show
relative
standing within
this rating category.
Con. (---) - Municipal Bonds for which the security depends upon
the
completion of
some act or the fulfillment of some condition are rated conditionally.
These are
bonds secured
by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable
credit stature
upon completion of construction or elimination of basis of condition.
The following summarizes the three highest ratings used by Fitch
for
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest
credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is
unlikely to be affected by reasonably foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit
quality. The
obligor's ability to pay interest and repay principal is very strong,
although not
quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA"
categories
are not
significantly vulnerable to foreseeable future developments, short-term
debt of
these issuers is
generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The
obligor's ability to pay interest and repay principal is considered to be
strong,
but may be more
vulnerable to adverse changes in economic conditions and circumstances
than
bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
rating of
"AA" and
"A" may be modified by the addition of a plus (+) or minus (-) sign to
show
relative standing
within this rating category.
Thomson BankWatch assesses the likelihood of an untimely
repayment
of principal or
interest over the term to maturity of long-term debt and preferred stock
which
are issued by
United States commercial banks, thrifts and non-bank banks; non-United
States
banks; and
broker-dealers. The following summarizes the three highest rating
categories
used by Thomson
BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category
assigned by
Thomson
BankWatch to long-term debt and indicates that the ability to repay
principal
and interest on a
timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal
and interest on a
timely basis with limited incremental risk versus issues rated in the
highest
category.
"A" - This designation indicates the ability to repay principal and
interest
is strong.
Issues rated "A" could be more vulnerable to adverse developments
(both
internal and external)
than obligations with higher ratings.
PLUS (+) or MINUS (-) - The ratings may include a plus or
minus sign
designation
which indicates where within the respective category the issue is placed.
IBCA assesses the investment quality of unsecured debt with an
original
maturity of
more than one year which is issued by bank holding companies and their
principal bank
subsidiaries. The following summarizes the three highest rating
categories used
by IBCA for
long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk.
Capacity for timely repayment of principal and interest is substantial
such that
adverse changes
in business, economic or financial conditions are unlikely to increase
investment
risk
significantly.
"AA" - Obligations for which there is a very low expectation of
investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse
changes in
business, economic or financial conditions may increase investment risk
albeit
not very
significantly.
"A" - Obligations for which there is a low expectation of
investment
risk. Capacity for
timely repayment of principal and interest is strong, although adverse
changes in
business
economic or financial conditions may lead to increased investment risk.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote
relative status
within these rating categories.
Municipal Note Ratings
A Standard & Poor's rating reflects the liquidity factors
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
strong
capacity to pay
principal and interest. Those issues determined to possess a very strong
capacity
to pay are
given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory
capacity to
pay principal and interest, with some vulnerability to adverse financial
and
economic changes
over the term of the notes.
Moody's ratings for state and municipal notes and other
short-
term loans are
designated Moody's Investment Grade ("MIG"). Such ratings recognize
the
differences
between short-term credit risk and long-term risk. A short-term rating
may also
be assigned on
an issue having a demand feature. Such ratings will be designated as
"VMIG."
The following
summarizes the two highest ratings used by Moody's Investors Service,
Inc. for
short-term
notes:
"MIG-1"/"VMIG-1" - This designation denotes best
quality.
There is strong
protection by established cash flows, superior liquidity support or
demonstrated
broad-based
access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high
quality.
Margins of
protection are ample although not so large as in the preceding group.
Duff & Phelps and Fitch use the short-term ratings described
under
Commercial Paper
Ratings for municipal notes.
Lehman Brothers Institutional Funds Group Trust
Short Duration U.S. Government Fund
Statement of Additional Information
May 30, 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
30,
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
P
a
g
e
The Trust
2
Investment Objective and Policies
2
Additional Purchase and Redemption Information
1
3
Management of the Fund
1
4
Additional Information Concerning Taxes
2
1
Dividends
2
3
Additional Performance Information
2
3
Additional Description Concerning Shares
2
5
Counsel
2
5
Independent Auditors
2
5
Financial Statements
2
6
Miscellaneous
2
6
Appendix
A
- -
1
</R
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
Select Shares bear fees payable
by the
Fund to
Lehman Brothers or institutional investors for services they provide to
the
beneficial owners of
such shares and Retail Shares bear fees payable by the Fund to Lehman
Brothers
for services it
provides to the beneficial owners of such shares.
THIS STATEMENT OF ADDITIONAL INFORMATION AND
THE
FUND'S
PROSPECTUSES RELATE PRIMARILY TO THE FUND AND
DESCRIBE
ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS
AND
OTHER MATTERS RELATING TO THE FUND. INVESTORS
WISHING
TO OBTAIN
SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY
OBTAIN INFORMATION DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556 OR THROUGH LEHMAN
BROTHERS
EXPRESSNET, AN AUTOMATED ORDER ENTRY SYSTEM
DESIGNED
SPECIFICALLY FOR THE TRUST ("LEX").
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.
Examples of agencies and instrumentalities which may not always
receive financial
support from the U.S. Government are:
* Federal Farm Credit Banks;
* Federal Home Loan Banks;
* Federal National Mortgage Association;
* Student Loan Marketing Association; and
* Federal Home Loan Mortgage Corporation.
Mortgage Loans and Mortgage-Backed Securities
Indices Applicable to Adjustable Rate Mortgage Loans
("ARMS").
Commonly used
indices applicable to ARMS comprising a mortgage pool include the Six
Month
Treasury
Index, the One Year Treasury Index, the Three Year Treasury Index and
the
Eleventh
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 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.
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 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 servicer will not be required to advance such amounts, and any loss
in
respect thereof will
be borne by the holders of securities backed by such loans. In addition,
numerous federal and
state consumer protection laws impose penalties for failure to comply
with
specific
requirements in connection with origination and servicing of mortgage
loans.
Further, the
Bankruptcy Code provides priority to certain tax liens over the lien of a
mortgage loan.
4. "Due-on Sale" Provisions. Fixed-rate mortgage loans
may
contain a so-called
"due-on-sale" clause permitting acceleration of the maturity of the
mortgage
loan if the
borrower transfers the property. The Garn-St. Germain Depository
Institutions
Act of 1982
sets forth nine specific instances in which no mortgage lender covered by
that
Act may exercise
a "due-on sale" clause or the lack of such a clause on mortgage loan
documents
may result in a
mortgage loan being assumed by a purchaser of the property that bears
an
interest rate below
the current market rate.
5. Usury Laws. Some states prohibit charging interest on
mortgage
loans in
excess of statutory limits. If such limits are exceeded, substantial
penalties may
be incurred
and, in some cases, enforceability of the obligation to pay principal and
interest
may be
affected.
Interest Rate Swaps, Mortgage Swaps, Caps and Floors. The
Fund may
enter into
interest rate and mortgage swaps and interest rate caps and floors for
hedging
purposes and not
for speculation. 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.
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.
The Fund will not enter into any interest rate or mortgage swap
or
interest rate cap or
floor transaction unless the unsecured commercial paper, senior debt or
the
claims-paying
ability of the other party thereto is rated either AA or A-1 or Aa or P-1
or better
by either of
S&P or Moody's. If there is a default by the other party to such a
transaction,
the Fund will
have contractual remedies pursuant to the agreements related to the
transaction.
The swap
market has grown substantially in recent years with a large number of
banks and
investment
banking firms acting both as principals and as agents utilizing
standardized swap
documentation. As a result, the swap market has become relatively
liquid in
comparison with
the markets for other similar instruments which are traded in the
interbank
market. The staff
of the Securities and Exchange Commission (the "SEC") currently takes
the
position that
swaps, caps and floors are illiquid for purposes of the Fund's 15%
limitation on
illiquid
investments.
Privately Issued Mortgage-Related Securities. Privately issued
mortgage-related
securities generally represent an ownership interest in federal agency
mortgage
pass-through
securities, such as those issued by Government National Mortgage
Association.
The terms and
characteristics of the mortgage instruments may vary among pass-
through
mortgage loan pools.
The market for such mortgage related securities has expanded
considerably since
its inception.
The size of the primary issuance market and the active participation in
the
secondary market by
securities dealers 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.
Reverse Repurchase Agreements. The Fund may also enter into
reverse
repurchase
agreements. These transactions are similar to borrowing cash. In a
reverse
repurchase
agreement the Fund transfers possession of a portfolio instrument to
another
person, such as a
financial institution, broker or dealer, in return for a percentage of the
instrument's market
value in cash, and agrees that on a stipulated date in the future the Fund
will
repurchase the
portfolio instrument by remitting the original consideration plus interest
at an
agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling
portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but the
ability to enter
into reverse repurchase agreements does not ensure that the Fund will be
able to
avoid selling
portfolio instruments at a disadvantageous time. When effecting reverse
repurchase
agreements, liquid assets of the Fund, in a dollar amount sufficient to
make
payment for the
obligations to be purchased, are segregated at the trade date. These
assets are
marked to
market daily and are maintained until the transaction is settled.
When-Issued Transactions. As stated in the Fund's Prospectuses,
the
Fund may
purchase securities on a "when-issued" or "delayed delivery" basis (i.e.,
for
delivery beyond
the normal settlement date at a stated price and yield). When the Fund
agrees to
purchase
when-issued securities, the custodian will set aside cash or liquid
portfolio
securities equal to
the amount of the commitment in a separate account. Normally, the
custodian
will set aside
portfolio securities to satisfy a purchase commitment, and in such a case
the
Fund may be
required subsequently to place additional assets in the separate account in
order
to ensure that
the value of the account remains equal to the amount of the Fund's
commitment. It may be
expected that the Fund's net assets will fluctuate to a greater degree
when it sets
aside portfolio
securities to cover such purchase commitments than when it sets aside
cash.
Because the Fund
will set aside cash or liquid assets to satisfy its purchase commitments in
the
manner described,
the Fund's liquidity and ability to manage its portfolio might be affected
in the
event its
commitments to purchase when-issued securities exceed 25% of the
value of its
assets. When
the Fund engages in when-issued transactions, it relies on the seller to
consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an
opportunity to obtain a price considered to be advantageous. The Fund
does not
intend to
purchase when-issued securities for speculative purposes but only in
furtherance
of its
investment objective. The Fund reserves the right to sell the securities
before
the settlement
date if it is deemed advisable.
Lending of Portfolio Securities. The Fund has the ability to lend
securities in an
amount up to one-third of the value of their respective total assets from
their
respective
portfolios to brokers, dealers and other financial organizations. The
Fund may
not lend its
portfolio securities to Lehman Brothers or its affiliates without specific
authorization from the
SEC. Loans of portfolio securities by the Fund will be collateralized by
cash,
letters of credit
or securities issued or guaranteed by the U.S. Government or its
agencies which
will be
maintained at all times in an amount equal to at least 100% of the
current
market value of the
loaned securities. 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
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. 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.
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 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 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 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.
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.
Short Sales. The Fund may make short sales of securities. A
short sale
is a
transaction in which a Fund sells a security it does not own in
anticipation that
the market
price of that security will decline. The Fund expects to make short sales
as a
form of hedging
to offset potential declines in securities positions it holds.
To complete a short sale, a Fund must arrange through a broker
to
borrow the
securities to be delivered to the buyer. The proceeds received by the
Fund from
the short sale
are retained by the broker until the Fund replaces the borrowed
securities. In
borrowing the
securities to be delivered to the buyer, the Fund becomes obligated to
replace
the securities
borrowed at their market price at the time of replacement, whatever that
price
may be. The
Fund may have to pay a premium to borrow the securities and must pay
any
dividends or
interest payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in
connection
with a short
sale will be secured by collateral deposited with the broker, which
collateral
consists of cash or
U.S. Government securities. In addition, the Fund will place in a
segregated
account with the
Custodian an amount of cash, or U.S. Government securities or other
liquid
high grade debt
obligations equal to the difference, if any, between (a) the market value
of the
securities sold at
the time they were sold short and (b) any cash or U.S. Government
securities
deposited as
collateral with the broker in connection with the short sale (not including
the
proceeds of the
short sale). Until it replaces the borrowed securities, 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.
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.
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. The Fund's portfolio turnover rate was
112% for
the fiscal
period ended January 31, 1995.
U.S. Treasury STRIPS. The Fund may invest in
separately traded
principal and interest components of securities backed by the full faith
and
credit of the U.S. Treasury. The principal and interest components of
U.S.
Treasury bonds with remaining maturities of longer than ten years are
eligible to
be traded independently under the Separate Trading of Registered
Interest and
Principal of Securities ("STRIPS") program. Under the STRIPS
program, the
principal and interest components are separately issued by the U.S.
Treasury at
the request of depository financial institutions, which then trade the
component
parts separately. Under the stripped bond rules of the Internal Revenue
Code of
1986, as amended (the "Code"), investments by the Fund in STRIPS
will result
in the accrual of interest income on such investments in advance of the
receipt
of the cash corresponding to such income. The interest component of
STRIPS
may be more volatile than that of U.S. Treasury bills with comparable
maturities. The Fund will not actively trade in STRIPS. The Fund will
limit
investments in STRIPS to 20% of its total assets.
Investment Limitations
The Prospectuses summarize certain investment limitations that
may not
be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares (as
defined below under "Miscellaneous"). Investment limitations numbered
1
through 7 may not
be changed without such a vote of shareholders; investment limitations 8
through 13 may be
changed by a vote of the Trust's Board of Trustees at any time.
The Fund may not:
1. Purchase securities of any one issuer, other than
obligations
issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if
as a
result more than
5% of the value of the Fund's assets would be invested in the securities
of such
issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without
regard to such
5% limitation and (b) such 5% limitation shall not apply to repurchase
agreements
collateralized by obligations of the U.S. Government, its agencies or
instrumentalities.
2. Borrow money, except that the Fund may (i) borrow
money for
temporary or emergency purposes (not for leveraging or investment) and
(ii)
engage in reverse
repurchase agreements or dollar roll transactions for any purpose;
provided that
(i) and (ii) in
combination do not exceed one-third of the value of the Fund's total
assets
(including the
amount borrowed) less liabilities (other than borrowings). For purposes
of this
investment
restriction, short sales, swap transactions, options, futures contracts and
options
on futures
contracts, and forward commitment transactions shall not constitute
borrowings.
3. Make loans except that the Fund may purchase or hold
debt
obligations
in accordance with its investment objective and policies, may enter into
repurchase agreements
for securities and may lend portfolio securities.
4. Act as an underwriter, except insofar as the Fund may be
deemed
an
underwriter under applicable securities laws in selling portfolio
securities.
5. Purchase or sell real estate or real estate limited
partnerships
except
that the Fund may invest in securities secured by real estate or interests
therein.
6. Purchase or sell commodities or commodity contracts, or
invest
in oil,
gas or mineral exploration or development programs or in mineral
leases.
7. Purchase any securities which would cause 25% or more
of the
value
of its total assets at the time of purchase to be invested in the securities
of
issuers conducting
their principal business activities in the same industry, provided that
there is no
limitation with
respect to investments in U.S. Government securities.
8. Knowingly invest more than 15% of the value of the
Fund's
assets in
securities that may be illiquid because of legal or contractual restrictions
on
resale or securities
for which there are no readily available market quotations.
9. Write or sell puts, calls, straddles, spreads or
combinations
thereof in
excess of 5% of its total assets.
10. Invest in securities if as a result the Fund would then have
more
than
5% of its total assets in securities of companies (including predecessors)
with
less than three
years of continuous operation.
11. Purchase securities of other investment companies in
excess of
5% of
its total assets, except as permitted under the 1940 Act or in connection
with a
merger,
consolidation, acquisition or reorganization.
12. Invest in warrants.
In order to permit the sale of Fund shares in certain states, the
Fund may
make
commitments more restrictive than the investment policies and
limitations
above. Should the
Fund determine that any such commitments are no longer in its best
interests, it
will revoke the
commitment by terminating sales of its shares in the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
In General
Information on how to purchase and redeem Fund shares is
included in
the
Prospectuses. The issuance of Fund shares is recorded on the Fund's
books, and
share
certificates are not issued.
The regulations of the Comptroller of the Currency provide that
funds
held in a fiduciary
capacity by a national bank approved by the Comptroller to exercise
fiduciary
powers must be
invested in accordance with the instrument establishing the fiduciary
relationship
and local law.
The Trust believes that the purchase of Fund shares by such national
banks
acting on behalf of
their fiduciary accounts is not contrary to applicable regulations if
consistent
with the particular
account and proper under the law governing the administration of the
account.
Conflict of interest restrictions may apply to an institution's
receipt of
compensation
paid by the Fund on fiduciary funds that are invested in the Fund's
Select
Shares. Institutions,
including banks regulated by the Comptroller of the Currency and
investment
advisers and
other money managers subject to the jurisdiction of the SEC, the
Department of
Labor or state
securities commissions, should consult their legal advisers
before
investing
fiduciary funds in the Fund's Select Shares.
Under the 1940 Act, the Fund may suspend the right of
redemption or
postpone the
date of payment upon redemption for any period during which the New
York
Stock Exchange
("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.
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
Fund.
Assets belonging to the Fund are charged with the direct liabilities of the
Fund
and with a
share of the general liabilities of the Trust allocated 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
Positio
n with
the
Trust
Principal Occupations
During Past 5 Years and
Other Affiliations
ANDREW
GORDON (1)
3 World
Financial
Center
New York,
NY 10285
Age:
41
Co-
Chairm
an of
the
Board,
Trustee
and
Preside
nt
Managing Director,
Lehman Brothers.
KIRK
HARTMAN
(1)
3 World
Financial
Center
New York,
NY 10285
Age:
40
Co-
Chairm
an of
the
Board,
Trustee
,
Executi
ve Vice
Preside
nt and
Investm
ent
Officer
Managing Director,
Lehman Brothers.
CHARLES F.
BARBER (2)(
3)
66 Glenwood
Drive
Greenwich,
CT 06830
Age:
78
Trustee
Consultant; Director, The
Salomon Brothers Fund
Inc., The Emerging
Markets Income Fund Inc.,
Salomon Brothers High
Income Fund Inc. and
Municipal Partners Fund
Inc.; formerly Chairman of
the Board, ASARCO
Incorporated.
BURT N.
DORSETT (2
)(3)
201 East 62nd
Street
New York,
NY 10022
Age:
64
Trustee
Managing Partner, Dorsett
McCabe Capital
Management, Inc., an
investment counseling firm;
Director, Research
Corporation Technologies,
a non-profit patent-clearing
and licensing operation;
formerly President,
Westinghouse Pension
Investments Corporation;
formerly Executive Vice
President and Trustee,
College Retirement Equities
Fund, Inc., a variable
annuity fund; and formerly
Investment Officer,
University of Rochester
EDWARD J.
KAIER (2)(3)
1100 One
Penn Center
Philadelphia,
PA 19103
Age:
49
Trustee
Partner with the law firm of
Hepburn Willcox Hamilton
& Putnam
S. DONALD
WILEY (2)(3)
USX Tower
Pittsburgh,
PA 15219
Age:
68
Trustee
Vice Chairman and
Trustee, H.J. Heinz
Company Foundation; prior
to October 1990, Senior
Vice President, General
Counsel and Secretary,
H.J. Heinz Company
JOHN M.
WINTERS
3 World
Financial
Center
New York,
NY 10285
Age:
46
Vice
Preside
nt and
Investm
ent
Officer
Senior Vice President and
Senior Money Market
Manager, Global Asset
Management, Inc.;
formerly Product Manager
with Lehman Brothers
Capital Markets Group.
NICHOLAS
RABIECKI,
III
3 World
Financial
Center
New York,
NY 10285
Age:
37
Vice
Preside
nt and
Investm
ent
Officer
Vice President and Senior
Portfolio Manager, Lehman
Brothers Global Asset
Management, Inc.;
formerly Senior Fixed-
Income Portfolio Manager
with Chase Private
Banking.
MICHAEL
C. KARDOK
One
Exchange
Place
Boston, MA
02109
Age:
35
Treasur
er
Vice President, The
Shareholder Services
Group, Inc.; prior to May
1994, Vice President, The
Boston Company Advisors,
Inc.
PATRICIA L.
BICKIMER
One
Exchange
Place
Boston, MA
02109
Age:
42
Secretar
y
Vice President and
Associate General Counsel,
The Shareholder Services
Group, Inc., prior to May
1994. Vice President and
Associate General Counsel,
The Boston Company
Advisors, Inc.
_____________________
1. Considered by the Trust to be an "interested person" of the Trust as
defined
in the
1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
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
April 28,
1995, Trustees
and Officers of the Trust as a group beneficially owned less than 1% of
the
outstanding shares
for the 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
Name of
Person
and
Position
Aggr
egate
Com
pens
ation
from
the
Trus
t
Pensio
n or
Retire
ment
Benefit
s
Accrue
d as
Part of
Trust
Expens
es
Estimate
d
Annual
Benefits
Upon
Retireme
nt
Total
Compe
nsation
From
the
Trust
and
Fund
Compl
ex
Paid to
Truste
es*
Andrew
Gordon
Co-
Chairman
of the
Board,
Trustee
and
President
$0
$0
N/A
$0
(2)
Kirk
Hartman
Co-
Chairman
of the
Board,
Trustee,
Executive
Vice
President
and
Investmen
t Officer
$0
$0
N/A
$0
(3)
Charles
Barber,
Trustee
$25,
000
$0
N/A
$25,00
0(1)
Burt N.
Dorsett,
Trustee
$25,
000
$0
N/A
$52,50
0(2)
Edward J.
Kaier,
Trustee
$25,
000
$0
N/A
$25,00
0(1)
S. Donald
Wiley,
Trustee
$25,
000
$0
N/A
$25,00
0(1)
__________________________________
* 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.
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.
Lehman Brothers is comprised of several major operating
business units.
Lehman
Brothers Institutional Funds Group is the business group within Lehman
Brothers that is
primarily responsible for the distribution and client service requirements
of the
Trust and its
investors. Lehman Brothers Institutional Funds Group has been serving
institutional clients'
investment needs exclusively for more than 20 years, emphasizing high
quality
individualized
service to clients.
Investment Adviser
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.
Investment personnel of the Adviser may invest in
securities for
their own
account pursuant to a code of ethics that establishes procedures for
personal
investing and
restricts certain transactions.
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).
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 $81,388 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 $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 April 28, 1995, principal holders of Premier Shares of
the
Fund were as
follows: Lehman Brothers Inc., 3 World Financial Center, New York,
NY
10285, 93.85%
shares held of record and Reynolds Metal Co. Foundation, 6601 West
Broad
Street,
Richmond, VA, 23230, 6.15% shares held of record. At April 28,
1995, the
principal holder
of Select Shares of the Fund was Hare & Co., One Wall Street, New
York, NY
10285, with
99.99% shares of record held.
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
Deposit and Trust Company ("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.
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.
Plan of Distribution
The Fund currently offers Premier Shares, Select 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 Premier
Shares,
Select Shares
and Retail Shares of the Fund pursuant to Rule 12b-1 under the 1940
Act.
Premier Shares are sold to institutional investors that have not
entered
into servicing or
other agreements with the Fund in connection with their investments and
pay no
Rule 12b-1
distribution or shareholder service fee. However, the Plan provides that
Lehman Brothers may
make payments to assist in the distribution of Premier Shares out of the
other
fees received by
it or its affiliates from the Fund, its past profits or any other sources
available to
it. Pursuant
to the Plan of Distribution Select Shares 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.
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 period ended January 31, 1995, service fees equal
to
$2,840 were paid
by the Fund with respect to Select Shares.
Custodian
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 expense limitations in effect on the date of this
Statement of
Additional Information, none is more restrictive than two and one-half
percent
(21/2%) of the
first $30 million of a Fund's average net assets, two percent (2%) of the
next
$70 million of
the average net assets and one and one-half percent (11/2%) of the
remaining
average 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.
A 4% nondeductible excise tax is imposed on regulated
investment
companies that fail
to distribute currently an amount equal to specified percentages of their
ordinary
taxable
income and capital gain net income (excess of capital gains over capital
losses).
The Fund
intends to make sufficient distributions or deemed distributions of any
ordinary
taxable income
and any capital gain net income prior to the end of each calendar year to
avoid
liability for
this excise tax.
If for any taxable year the Fund does not qualify for tax
treatment as a
regulated
investment company, all of the Fund's taxable income will be subject to
tax at
regular
corporate rates without any deduction for distributions to Fund
shareholders. In
such event,
dividend distributions to shareholders would be taxable to shareholders
to the
extent of the
Fund's earnings and profits, and would be eligible for the dividends
received
deduction for
corporations.
The Fund will be required in certain cases to withhold and remit
to the
U.S. Treasury
31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to
its shareholders
who have failed to provide a correct tax identification number in the
manner
required, or who
are subject to withholding by the Internal Revenue Service for failure
properly
to include on
their return payments of taxable interest or dividends, or who have failed
to
certify to 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.
* * * * * * * * * * * * * * * * * * * * * * * *
The foregoing discussion is based on federal tax laws and
regulations
which are in
effect on the date of this Statement of Additional Information; such laws
and
regulations may
be changed by legislative or administrative action.
DIVIDENDS
The Fund's net investment income for dividend purposes consists
of (i)
interest accrued
and discount earned on the Fund's assets, (ii) plus the amortization of
market
discount,
(iii) less amortization of market premium on such assets, (iv) less
accrued
expenses directly
attributable to the Fund, and the general expenses (e.g., legal,
accounting and
trustees' fees) of
the Trust prorated to the Fund on the basis of its relative net assets.
Realized
and unrealized
gains and losses on portfolio securities are reflected in net asset value.
In addition,
Retail 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" 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
"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 and
total
returns for the
Fund were as follows:
30-day
Yield
Aggregate
Total
Return**
Premier
Shares
6.04%
3.54%
Select
Shares
5.79%
2.72%
Premier
Shares*
5.29%
2.92%
Select
Shares*
5.04%
2.41%
*estimated yield 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
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.
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.
ADDITIONAL DESCRIPTION CONCERNING SHARES
The Trust does not presently intend to hold annual meetings of
shareholders except as
required by the 1940 Act or other applicable law. The law under certain
circumstances
provides shareholders with the right to call for a meeting of shareholders
to
consider the
removal of one or more trustees. To the extent required by law, the
Trust will
assist in
shareholder communication in such matters.
Fund shares represent an equal, proportionate interest in assets
belonging
to the Fund.
Each share, which has a par value of $.001, has no preemptive or
conversion
rights. When
issued for payment as described in the Prospectuses, Fund shares will be
fully
paid and
non-assessable. As stated in the Prospectuses, holders of shares in the
Fund
will vote in the
aggregate and not by class or series on all matters, except where
otherwise
required by law.
(See "Management of the Fund-Plan of Distribution.") Further,
shareholders of
all of the
Trust's portfolios will vote in the aggregate and not by portfolio except
as
otherwise required
by law or when the Board of Trustees determines that the matter to be
voted
upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2
under the
1940 Act
provides that any matter required to be submitted by the provisions of
such Act
or applicable
state law, or otherwise, to the holders of the outstanding securities of an
investment company
such as the Trust shall not be deemed to have been effectively acted
upon unless
approved by
the holders of a majority of the outstanding shares of each portfolio
affected by
the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be
affected by a
matter unless it
is clear that the interests of each portfolio in the matter are identical or
that the
matter does not
affect any interest of the portfolio. Under the Rule the approval of an
Investment Advisory
agreement or any change in a fundamental investment policy would be
effectively acted upon
with respect to a portfolio only if approved by the holders of a majority
of the
outstanding
voting securities of such portfolio. However, the Rule also provides that
the
ratification of the
selection of independent certified public accountants, the approval of
principal
underwriting
contracts and the election of trustees are not subject to the separate
voting
requirements and
may be effectively acted upon by shareholders of the investment
company
voting without
regard to portfolio.
Voting rights are not cumulative; and, accordingly, the holders of
more
than 50% of
the aggregate shares of the Trust may elect all of the trustees.
COUNSEL
Willkie Farr & Gallagher, 153 East 53rd Street,
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.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston,
Massachusetts 02116-5072
serves as independent auditors of the Trust and 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
As used in this Statement of Additional Information and the
Fund's
Prospectuses, a
"majority of the outstanding shares" of the Fund or of any other
portfolio means
the lesser of
(1) 67% of shares (irrespective of class) or of the portfolio represented at
a
meeting at which
the holders of more than 50% of the outstanding shares of the Fund or
such
portfolio are
present in person or by proxy, or (2) more than 50% of the outstanding
shares
of the Fund
(irrespective of class) or of the portfolio.
Shareholder and Trustee Liability
The Trust is organized as a trust under the laws of the
Commonwealth of
Massachusetts. Shareholders of such a trust may, under certain
circumstances,
be held
personally liable (as if they were partners) for the obligations of the
trust. The
Declaration of
Trust of the Trust provides that shareholders shall not be subject to any
personal
liability for
the acts or obligations of the Trust and that every note, bond, contract,
order or
other
undertaking made by the Trust shall contain a provision to the effect that
the
shareholders are
not personally liable thereunder. The Declaration of Trust provides for
indemnification out of
the trust property of a Fund of any shareholder of the Fund held
personally
liable solely by
reason of being or having been a shareholder and not because of any acts
or
omissions or some
other reason. The Declaration of Trust also provides that the Trust shall,
upon
request, assume
the defense of any claim made against any shareholder for any act or
obligation
of the Trust
and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring
financial loss
beyond the amount invested in a Fund on account of shareholder liability
is
limited to
circumstances in which the Fund itself would be unable to meet its
obligations.
The Trust's Declaration of Trust provides further that no trustee
of the
Trust shall be
personally liable for or on account of any contract, debt, tort, claim,
damage,
judgment or
decree arising out of or connected with the administration or
preservation of the
trust estate or
the conduct of any business of the Trust, nor shall any trustee be
personally
liable to any
person for any action or failure to act except by reason of bad faith,
willful
misfeasance, gross
negligence in performing duties, or by reason of reckless disregard for
the
obligations and
duties as trustee. It also provides that all persons having any claim
against the
trustees or the
Trust shall look solely to the trust property for payment. With the
exceptions
stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against
all liabilities
and expenses reasonably incurred in connection with the defense or
disposition
of any
proceeding in which the trustee may be involved or may be threatened
with by
reason of being
or having been a trustee, and that the trustees have the power, but not
the duty,
to indemnify
officers and employees of the Trust unless such persons would not be
entitled to
indemnification if they were in the position of trustee.
APPENDIX
DESCRIPTION OF RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the
likelihood of timely payment of debt considered short-term in the
relevant
market. 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."
"A-3" - Issue has an adequate capacity for timely
payment. It is,
however,
more vulnerable to the adverse effects of changes in circumstances than
an
obligation carrying
a higher designation.
Moody's short-term debt ratings are opinions of the ability
of
issuers to repay
punctually senior debt obligations which have an original maturity not
exceeding
one year. 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 ability for repayment of senior short-term debt obligations.
Principal
repayment
capacity will normally be evidenced by many of 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 ability for repayment of senior short-term debt 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 ability
for repayment of senior short-term debt obligations. The effects of
industry
characteristics and
market composition may be more pronounced. Variability in earnings
and
profitability may
result in changes in the level of debt protection measurements and may
require
relatively high
financial leverage. Adequate alternative liquidity is maintained.
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 the higher rated issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and
repay principal
although such issues are somewhat more susceptible to the adverse
effects of
changes in
circumstances and economic conditions than debt in higher-rated
categories.
PLUS (+) OR MINUS (-) - The ratings from "AA" to "CCC"
may be
modified by the
addition of a plus or minus sign to show relative standing within the
major
rating categories.
The following summarizes the ratings used by Moody's for
corporate
and municipal
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the
smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments
are protected by
ng-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the
smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments
are protected by
a large or by an exceptionally stable margin and principal is secure.
While the
various
protective elements are likely to change, such changes as can be
visualized are
most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together
with the "Aaa"
group they comprise what are generally known as high grade bonds.
They are
rated lower
than the best bonds because margins of protection may not be as large as
in
"Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be
other elements
present which make the long-term risks appear somewhat larger than in
"Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are
to be
considered as
upper medium grade obligations. Factors giving security to principal
and
interest are
considered adequate but elements may be present which suggest a
susceptibility
to impairment
sometime in the future.
Those municipal bonds in the Aa, A, Baa, Ba and B groups
which
Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1,
A1, Baa1, Ba1
and B1.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa"
to "B" in its corporate bond rating system. The modifier 1 indicates that
the
company 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 company ranks at the lower end of its
generic
rating category.
- - 1 -
lehman/edg/saimun.doc/draft date: 05/24/95
- - 1 -
lehman/edg/saiflt.doc draft date: 05/24/95
- - 1 -
lehman/edg/sainy.doc draft date: 05/24/95
- - 1 -
lehman/edg/saiprm.doc draft date: 05/24/95
- - 1 -
lehman/edg/saisdmun.doc draft date: 05/24/95
- - 1 -
lehman/edg/saisd.doc draft date:05/24/95
A-2
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
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.
Included in Part C:
Consent of Auditors
(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
incorporated by reference to Exhibit
(1)(a) of Post-Effective Amendment
No. 9 to the Registration Statement
as filed on March 31, 1995 ("Post-
Effective Amendment No. 9").
(b) Amendment No. 1 to Declaration of
Trust of Registrant is incorporated
by reference to Exhibit (1)(b) of
Post-Effective Amendment No. 9.
(c) Designation and Establishment of
Series is incorporated by reference
to Exhibit (1)(c) of Post-Effective
Amendment No. 9.
(d) Form of Certificate pertaining to
Classification of Shares dated
February 18, 1994 is incorporated by
reference to Exhibit (1)(d) of Post-
Effective Amendment No. 4 to the
Registration Statement as filed on
February 18, 1994 ("Post-Effective
Amendment No. 4").
(e) Form of Certificate pertaining to
Classification of Shares with
respect to the Short Duration
Municipal Fund is incorporated by
reference to Exhibit (1)(e) of Post-
Effective Amendment No. 8 to the
Registration Statement as filed on
October 7, 1994 ("Post-Effective
Amendment No. 8").
(2) (a) Amended and Restated By-Laws
dated November 2, 1994 are
incorporated by reference to Exhibit
(2) (a) of Post-Effective Amendment
No. 9.
(3) Not Applicable.
(4) Specimen Share Certificate is
incorporated by reference to Exhibit
(4) of Post-Effective Amendment No.
9.
(5) (a) Investment Advisory Agreement
between Registrant and Lehman
Brothers Global Asset Management
Inc. ("LBGAM"), relating to each
investment portfolio (collectively,
the "Funds") of Registrant is
incorporated by reference to Exhibit
(5)(a) of Post-Effective Amendment
No. 9.
(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 by reference to
Exhibit (5)(b) of Post-Effective
Amendment No. 4.
(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 by reference to
Exhibit (5)(c) of Post-Effective
Amendment No. 4.
(d) Investment Advisory Agreement
between Registrant and Lehman
Brothers Global Asset Management
Inc. relating to the Short Duration
Municipal Fund is incorporated by
reference to Exhibit (5)(d) of Post-
Effective Amendment No. 8.
(6) (a) Distribution Agreement between
Registrant and Lehman Brothers, a
division of Shearson Lehman Brothers
Inc. is incorporated by reference to
Exhibit (6)(a) of Post-Effective
Amendment No. 9.
(7) Not Applicable.
(8) (a) Custody Agreement between
Registrant and Boston Safe Deposit
and Trust Company is incorporated by
reference to Exhibit (8)(a) of Post-
Effective Amendment No. 9.
(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 by reference to Exhibit
(8)(b) of Post-Effective Amendment
No. 6 to the Registration Statement
as filed on August 8, 1994 ("Post-
Effective Amendment No. 6").
(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 by reference to Exhibit
(8)(c) of Post-Effective Amendment
No. 6.
(9) (a) Administration Agreement between
Registrant and The Boston Company
Advisors, Inc. is incorporated by
reference to Exhibit (9)(a) of Post-
Effective Amendment No. 9.
(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 ("Post-
Effective Amendment No. 5").
(c) Transfer Agency Agreement and
Registrar Agreement dated February
1, 1993 between Registrant and The
Shareholder Services Group, Inc. is
incorporated by reference to Exhibit
(9)(a) of Post-Effective Amendment
No. 9.
(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 by reference to
Exhibit (9)(d) of Post-Effective
Amendment No. 6.
(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
by reference to Exhibit (9)(e) of
Post-Effective Amendment No. 6.
(10) (a) Opinion and Consent of Counsel is
incorporated herein by reference to
Exhibit (10)(a) to Pre-Effective
Amendment No. 5 filed with the
Commission on February 5, 1993
("Pre-Effective No. 5").
(b) Opinion and Consent of Massachusetts
Counsel is incorporated herein by
reference to Exhibit (10)(b) to Pre-
Effective Amendment No. 5.
(c) Opinion of Massachusetts Counsel is
incorporated herein by reference to
Exhibit (10)(c) to Post-Effective
Amendment No. 4.
(d) Opinion and Consent of
Massachusetts Counsel is filed
herein.
(11) (a) Power of Attorney is filed
herein.
(b) Consent of Independent Auditors
is filed herein.
(c) Consent of Counsel if filed
herein.
(12) Not Applicable.
(13) (a) Purchase Agreement between
Registrant and Shearson Lehman
Brothers Inc. is incorporated by
reference to Exhibit (13)(a) of
Post-Effective Amendment No. 9.
(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.
(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.
(d) Purchase Agreement dated October 7,
1994 between Registrant and Lehman
Brothers, Inc. relating to the Short
Duration Municipal Fund is
incorporated by reference to Exhibit
(13)(d) of Post- Effective Amendment
No. 8.
(14) Not Applicable.
(15) (a) Form of Shareholder Services Plan
pursuant to Rule 12b-1 is
incorporated by reference to Exhibit
(15)(a) of Post-Effective Amendment
No. 9.
(b) Form of Shareholder Services Plan
pursuant to Rule 12b-1 for Class D
Shares is incorporated by reference
to Exhibit (15)(b) of Post-Effective
Amendment No. 9.
(c) Form of Shareholder Servicing
Agreement for Class B Shares is
incorporated by reference to Exhibit
(15)(c) of Post-Effective Amendment
No. 9.
(d) Form of Shareholder Servicing
Agreement for Class C Shares is
incorporated by reference to Exhibit
(15)(d) of Post-Effective Amendment
No. 9.
(e) Form of Shareholder Servicing
Agreement for Class D Shares is
incorporated by reference to Exhibit
(15)(e) of Post-Effective Amendment
No. 9.
(f) Form of Plan of Distribution for
Shares of the Floating Rate U.S.
Government Fund is incorporated by
reference to Exhibit (15)(f) of
Post-Effective Amendment No. 3 to
the Registration Statement as filed
on December 21, 1993 ("Post-
Effective Amendment No. 3").
(g) Form of Plan of Distribution for
Shares of the Short Duration U.S.
Government Fund is incorporated by
reference to Exhibit (15)(g) of
Post-Effective Amendment No. 3.
(h) Form of Shareholder Servicing
Agreement for Class B Shares of the
non-money market portfolios is
incorporated by reference to Exhibit
(15)(h) of Post-Effective Amendment
No. 4.
(i) Form of Plan of Distribution for
Shares of the Short Duration
Municipal Fund is incorporated by
reference to Exhibit (15) (i) of
Post-Effective Amendment No. 7 to
the Registration Statement as filed
on September 27, 1994 ("Post-
Effective Amendment No. 7").
(j) Form of Plan of Distribution for
Retail Shares for the Short Duration
U.S. Government Fund is incorporated
by reference to Exhibit (15) (j) of
Post-Effective Amendment No. 7.
(k) Multi-Class Plan dated May 11,
1995 is filed herein.
(16) Performance Data is filed
herein .
(27) Financial Data Schedules are filed
herein.
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:
Titl
e of
Clas
s
N
u
m
b
e
r
o
f
R
e
c
o
r
d
H
o
l
d
e
r
s
(
C
l
a
s
s
A
S
h
a
r
e
s
N
u
m
b
e
r
o
f
R
e
c
o
r
d
H
o
l
d
e
r
s
(
C
l
a
s
s
B
S
h
a
r
e
s
)
N
u
m
b
e
r
o
f
R
e
c
o
r
d
H
o
l
d
e
r
s
(
C
l
a
s
s
C
S
h
a
r
e
s
)
N
u
m
b
e
r
o
f
R
e
c
o
r
d
H
o
l
d
e
r
s
(
C
l
a
s
s
E
S
h
a
r
e
s
)
Prim
e
Mone
y
Mark
et
Fund
3
7
2
1
0
6
2
Prim
e
Valu
e
Mone
y
Mark
et
Fund
4
2
6
3
1
1
Gove
rnme
nt
Obli
gati
ons
Mone
y
Mark
et
Fund
1
8
3
1
1
Cash
Mana
geme
nt
Fund
7
1
1
1
Trea
sury
Inst
rume
nts
Mone
y
Mark
et
Fund
II
2
8
1
0
1
1
100%
Trea
sury
Inst
rume
nts
Mone
y
Mark
et
Fund
1
5
1
1
1
Tax-
Free
Mone
y
Mark
et
Fund
2
0
1
1
1
Muni
cipa
l
Mone
y
Mark
et
Fund
2
9
1
1
1
P
r
e
m
i
e
r
S
h
a
r
e
s
S
e
l
e
c
t
S
h
a
r
e
s
Flo
ati
ng
Rat
e
U.S
.
Gov
ern
men
t
Fun
d
2
1
Sho
rt
Dur
ati
on
U.S
.
Gov
ern
men
t
Fun
d
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).
(c) Not Applicable.
Item 30. Location of Accounts and Records
(1) Lehman Brothers Institutional Funds Group Trust
260 Franklin Street
Boston, Massachusetts 02110
(2) Lehman Brothers Global Asset Management Inc.
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
(10) (d) Opinion and Consent of
Massachusetts Counsel
(11) (a) Power of Attorney
(11) (b) Consent of Independent Auditors
(11) (c) Consent of Counsel
(15) (k) Multi-Class Plan
(16) Performance Data
(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. 10 to the Registration Statement
meets the requirements for effectiveness pursuant to Rule
485(b) of the Securities Act of 1933, as amended, and the
Registrant has duly caused this Post-Effective Amendment
No. 10 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
26th day of May, 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. 10 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
May
26,
1995
*
Kirk Hartman
Co-Chairman of
the
Board and Trustee
and
Executive Vice
President
May
26,
1995
*
Trustee
May
26,
1995
Charles F.
Barber
*
Trustee
May
26,
1995
Burt N.
Dorsett
*
Trustee
May
26,
1995
Edward J.
Kaier
*
Trustee
May
26,
1995
S. Donald
Wiley
/s/ Michael
C. Kardok
Michael C.
Kardok
Treasurer (Chief
Financial and
Accounting
Officer)
May
26,
1995
*By: /s/ Andrew Gordon
Andrew Gordon
Attorney-In-Fact
lehman/institut/peas/pea10/pea#10.doc
lehman/institut/peas/pea10/pea#10.doc
EXHIBIT 10(d)
May 25, 1995
Lehman Brothers Institutional Funds Group Trust
One Exchange Place
Boston, MA 02109
RE: Post-Effective Amendment No. 10 to the Registration Statement
for
Lehman Brothers Institutional Funds Group Trust (the "Trust")
File Nos: 811-7364 and 33-55034
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 for the Trust. You
have asked that I render my opinion with respect to the offer and sale of an
indefinite number of Class E shares of beneficial interest (the "Shares") of
the
Trust covered by Post-Effective Amendment No. 10 ("Post Effective Amendment
No. 10").
The Trust was organized as a Massachusetts business trust pursuant to a
Declaration of Trust dated November 16, 1992 (the "Declaration of Trust"), as
from time to time amended. The execution and delivery of the Declaration of
Trust took place in Boston, Massachusetts. The Shares were established
pursuant
to an amendment to the Trust's Declaration of Trust approved by at least a
majority of the Trust's Trustees at a meeting duly called and held on April 21,
1994.
I have examined 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.
Based on the foregoing, I am of the opinion that the Trust has been duly
organized and is validly existing in accordance with the laws of The
Commonwealth of Massachusetts and that the Shares which are the subject of
Post-Effective Amendment No. 10 will, when sold in accordance with the terms
of the Trust's current Prospectuses and Statements of Additional Information,
at the time of the sale,
be validly issued, fully paid and non-assessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts 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 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
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\EXB10A.DOC
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\EXB10A.DOC
EXHIBIT 11(a)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
POWER OF ATTORNEY
The undersigned, being all of the trustees of Lehman Brothers Institutional
Funds Group Trust (the "Company"), whose signatures appear below, do hereby
constitute and appoint Andrew Gordon and Patricia L. Bickimer, or any one of
them,
their true and lawful attorneys and agents to execute in their name, place and
stead, in
their capacity as trustee or officer, or both, of
the Company, the Registration Statement
of the Company on Form N-1A, any amendments thereto, and all
instruments necessary
or incidental in connection therewith, and to file
the same with the Securities and
Exchange Commission; and said attorney
s shall have full power of substitution and re-
substitution; and said attorneys shall have full power
and authority to do and perform in
the name and on the behalf of the undersigned
trustees and/or officers of the Company,
in any and all capacities, every act whatsoever
requisite or necessary to be done in the
premises, as fully and to all intents and purposes
as the undersigned trustees and/or
officers of the Company might or
could do in person, said acts of said attorneys being
hereby ratified and approved.
/s/ Charles F. Barber
Charles F. Barber
/s/ Burt N. Dorsett
Burt N. Dorsett
/s/ Edward J. Kaier
Edward J. Kaier
/s/ S. Donald Wiley
S. Donald Wiley
/s/Kirk Hartman
Kirk Hartman
/s/Andrew Gordon
Andrew Gordon
Dated: March 13, 1995
lehman\institut\peas\pea10\exb11a.doc
EXHIBIT 11(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference made to our firm under the captions "Financial
Highlights" in each Prospectus and "Independent Auditors" in each Statement of
Additional Information and to the incorporation by reference in this Post-
Effective Amendment No. 10 to Registration No. 33-55034 on Form N-1A of our
report dated March 15, 1995, on the financial statements and financial
highlights
of Lehman Brothers Institutional Funds Group Trust, included in the 1995
Annual Report to Shareholders.
ERNST & YOUNG LLP
Boston, Massachusetts
May 23, 1995
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\EXB11B.DOC 1
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\EXB11B.DOC
EXHIBIT 11(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our Firm
under the caption "Counsel" in the Statements of Additional
Information that are
included in Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A under the Securities Act of 1933, as amended, of Lehman Brothers
Institutional Funds Group Trust.
/s/ Willkie, Farr, &
Gallagher
Willkie, Farr, &
Gallagher
New York, NY
May 25, 1995
lehman\institut\peas\pea10\exb11c.doc
EXHIBIT 15(k)
Lehman Brothers Institutional Funds Group Trust
Multi-Class Plan
Introduction
The purpose of this Plan is to specify the attributes of the classes of shares
offered by Lehman Brothers Institutional Funds Group Trust (the "Trust"),
including the sales loads (when applicable), expense allocations, conversion
features and exchange features of each class, as required by Rule 18f-3
under the
Investment Company Act of 1940, as amended (the "1940 Act"). In general,
shares of each class will have the same
rights and obligations except for one or
more expense variables (which will result
in different yields, dividends and, in the
case of the Trust's non-money market portfolios,
net asset values for the different
classes), certain related voting
and other rights, exchange privileges, conversion
rights, class designation and sales loads assessed
due to differing distribution
methods.
The Trust is an open-end series investment company registered under the
1940 Act and the shares of which are registered on Form N-1A under the
Securities Act of 1933. Upon the effective
date of Rule 18f-3, the Trust hereby
elects to offer multiple classes of shares in its
investment portfolios pursuant to
the provisions of Rule 18f-3 and this Plan.
This Plan does not make any material
changes to the class arrangements and expense
allocations previously approved by
the Board of Trustees of the Trust
pursuant to the exemptive order issued by the
Securities and Exchange Commission to the Trust under Section 6(c) of the 1940
Act.
The Trust currently consists of the following twelve separate 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 and New
York Municipal Money Market Fund (the "Money Market Funds") and Floating
Rate U.S. Government Fund, Short Duration U.S. Government Fund and Short
Duration Municipal Fund (the "Non-Money Market Funds").
The above-listed investment portfolios of the Trust (the "Funds") are
authorized to issue the following classes of shares representing
interests in the
Funds:
(i) Money Market Funds - Class A Shares, Class B Shares, Class C
Shares and
Class E Shares;
(ii) Non-Money Market Funds - Premier Shares and Select Shares;
(iii) Government Obligations Money Market Fund and New York
Municipal Money Market Fund - Global Clearing Shares; and
(iv) Government Obligations Money Market Fund, New York
Municipal Money Market Fund and Non-Money Market Funds -
Retail Shares.
Allocation of Expenses
Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall allocate to each
class of shares in a Fund (i) any fees and expenses incurred by the Trust in
connection with the distribution of such class of shares
under a distribution plan
adopted for such class of shares pursuant to Rule 12b-1, and (ii) any fees and
expenses incurred by the Trust under a shareholder servicing plan in connection
with the provision of shareholder services to the
holders of such class of shares.
In addition, the President and Treasurer of the
Trust shall determine, subject to
Board approval or ratification, which additional fees and expenses may be
appropriately allocated to a particular class of shares in a Fund,
such as (but not
limited to):
(i) transfer agent fees identified by the transfer agent as being
attributable to such class of shares;
(ii) printing and postage expense related to preparing and distributing
materials such as shareholder reports, prospectuses, reports, and
proxies to current
shareholders of such class of
shares or to regulatory agencies with respect to such
class of shares;
(iii) blue sky registration or qualification fees incurred by such class of
shares;
(iv) Securities and Exchange Commission registration fees incurred by
such class of shares;
(v) the expense of administrative personnel and services (including,
but not limited to, those of a portfolio accountant,
custodian or dividend paying
agent charged with calculating net asset values or determining or paying
dividends) as required to support the shareholders of such class of shares;
(vi) litigation or other legal expenses relating solely to such class of
shares;
(vii) fees of the Trust's Trustees incurred as a result of issues relating to
such class of shares; and
(viii) independent accountants' fees relating solely to such class of
shares.
Any changes to the determination of class expenses allocated to a
particular class of shares will be approved by a vote of the
Trustees of the Trust,
including a majority of the
Trustees who are not "interested persons" of the Trust
as defined under the 1940 Act.
For purposes of this Plan, a "Daily Dividend Portfolio" shall be a Fund
which declares distributions of net investment
income daily and/or maintains the
same net asset value per share in each class. Income, realized and unrealized
capital gains and losses, and any expenses of a non-Daily Dividend Portfolio of
the Trust not allocated to a
particular class of the Fund pursuant to this Plan shall
be allocated to each class of the
Fund on the basis of the net asset value of that
class in relation to the net asset value of the Fund. Income, realized and
unrealized capital gains and losses, and any expenses of a Daily Dividend
Portfolio, including a money market fund, of the Trust not allocated to a
particular class of the Fund
pursuant to this Plan shall be allocated to each class of
the Fund on the basis of
the relative net assets (settled shares), as defined in Rule
18f-3, of that class in relation to the net assets of the Fund.
Class A Shares
Class A Shares of a Money Market Fund are offered at net asset value to
institutional investors. Class A Shares of a Money Market Fund may be
exchanged for Class A Shares or comparable shares of another Fund of the Trust
without the imposition of any sales charge.
Class B Shares
Class B Shares of a Money Market Fund are offered at net asset value to
institutional investors. Class B Shares of a Money Market Fund may be
exchanged for Class B Shares or comparable shares of another Fund of the Trust
without the imposition of a sales charge.
Class B Shares pay a Rule 12b-1 service fee of up to 0.25% (annualized)
of the average daily net assets of a Fund's
Class B Shares. Institutions ("Service
Organizations") may maintain Class
B shareholder accounts and provide personal
services to Class B shareholders.
Services relating to the sale of Class B Shares
may include, but not be limited to, (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;
and (ii) responding to Client
inquiries relating to the services performed by the Service Organization and
handling correspondence. The Service Organization,
at its option, may also (iii)
act as shareholder of record and as nominee;
(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; (xi) provide reasonable assistance in connection with the
distribution of Shares to Clients as requested from time to time by us, which
assistance may include forwarding
sales literature and advertising provided by us
for Clients; and (xii) 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. The Service Organization will
provide such office space and equipment, telephone facilities and personnel
(which may be 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.
Class C Shares
Class C Shares of a Money Market Fund are offered at net asset value to
institutional investors. Class C Shares of a Money Market Fund may be
exchanged for Class C Shares of another Money Market Fund of the Trust
without the imposition of a sales charge.
Class C Shares pay a Rule 12b-1 service fee of up to 0.35% (annualized)
of the average daily net
assets of a Fund's Class C Shares. Service Organizations
may maintain Class C shareholder accounts and provide personal services to
Class C shareholders.
Services relating to the sale of Class C Shares may include,
but not be limited to, (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; (x) 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. The 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.
Class E Shares
Class E Shares of a Money Market Fund are offered at net asset value to
institutional investors.. Class E Shares of a Money Market Fund may be
exchanged for Class E Shares of another Money Market Fund of the Trust.
Class E Shares pay a Rule 12b-1 service fee of up to 0.15% (annualized)
of the average daily net assets of a
Fund's Class E Shares. Service Organizations
may maintain Class E
shareholder accounts and provide personal services to Class
E shareholders.
Services relating to the sale of Class E Shares may include, but
not be limited to: (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; and (ii) responding to Client inquiries relating
to the services performed by the Service Organization and handling
correspondence. The Service Organization, at its option, may also (iii) act as
shareholder of record and as nominee; (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; (xi)
provide reasonable assistance in connection with the distribution of
shares to Clients as requested from time to time by us, which assistance may
include forwarding sales
literature and advertising provided by us for Clients; and
(xii) 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.
The 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.
Premier Shares
Premier Shares of a Non-Money Market Fund are offered at net asset
value to institutional investors. Premier Shares of a Non-Money Market Fund
may be exchanged for Premier Shares or comparable shares of another Fund of
the Trust without the imposition of any sales charge.
Select Shares
Select Shares of a Non-Money Market Fund are offered at net asset value
to institutional investors. Select Shares of a Non-Money Market Fund may be
exchanged for Select Shares or comparable shares of another Fund of the Trust
without the imposition of a sales charge.
Select Shares pay a Rule 12b-1 service fee of up to 0.25% (annualized) of
the average daily net assets of a Fund's Select Shares. Institutions ("Service
Organizations") may maintain Select shareholder accounts and provide personal
services to Select shareholders.
Services relating to the sale of Select Shares may
include, but not be limited to, (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; and (ii) responding to Client
inquiries relating to the services performed by the Service Organization and
handling correspondence.
The Service Organization, at its option, may also (iii)
act as shareholder of
record and as nominee; (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; (xi) provide reasonable assistance in connection with the
distribution of Shares to Clients as requested from time to time by us, which
assistance
may include forwarding sales literature and advertising provided by us
for Clients; and (xii) 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. The Service Organization will
provide such office space and equipment, telephone facilities and personnel
(which may be 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.
Global Clearing Shares
Global Clearing Shares of Government Obligations Money Market Fund
and New York Municipal Money Market Fund are offered at net asset value to
individual investors. Global Clearing shares of a Fund may be exchanged for
Global Clearing Shares of another Fund of the Trust or comparable shares of
Lehman Brothers Funds, Inc. without the imposition of a sales charge.
Global Clearing Shares pay a distribution fee of up to 0.50% (annualized)
of the average daily net assets of a Fund's Global Clearing Shares to Lehman
Brothers, Inc., each Fund's distributor ("Lehman Brothers"), or a broker that
clears
securities transactions through Lehman Brothers on a fully disclosed basis
(an "Introducing Broker") for services Lehman Brothers or the Introducing
Broker provides to the beneficial owners of such shares.
Retail Shares
Retail Shares of Government Obligations Money Market Fund, New York
Municipal Money Market Fund, Floating Rate U.S. Government Fund and Short
Duration Municipal Fund
are offered at net asset value to individual investors.
Retail Shares of such Funds may be exchanged for Retail Shares of another Fund
of the Trust or comparable shares of Lehman Brothers Funds, Inc. without the
imposition of a sales charge.
Retail Shares of these Funds pay a distribution fee
of up to 0.50% (annualized) of the average daily net assets of a Fund's Retail
Shares to Lehman Brothers for services it provides to the beneficial owners of
such shares.
Retail Shares of Short Duration U.S. Government Fund are offered to
individual investors at net asset value plus a front-end sales load assessed in
accordance with the schedule set forth below.
Amount of Investment
Sales Charge as %
of Offering Price
Less than $100,000
4.75%
$100,000 but under $250,000
3.50%
$250,000 but under $500,000
2.50%
$500,000 but under $1,000,000
2.00%
$1,000,000 or more
0.00%
Purchasers who invest more than $1,000,000 in Retail Shares of the Short
Duration U.S. Government Fund will not pay a front-end sales load, but a
contingent deferred sales charge of 0.75% will be imposed on redemptions of
such shares for the first year after purchase.
Retail Shares of Short Duration U.S.
Government Fund may be exchanged for comparable shares of another Fund of
the Trust or Lehman Brothers Funds, Inc. Retail Shares of Short Duration U.S.
Government Fund pay a services and distribution fee of up to 0.25% (annualized)
of the average
daily net assets of the Fund's Retail Shares to Lehman Brothers for
services it provides to the beneficial owners of such shares.
Dated: May 11, 1995
shared/lehman/institut/peas/pea10/exb15k.doc
Lehman Floating Rate U.S.
Government Fund - Premier
30 day yield calculation
for non-money market funds
for the 30 day period
ending: 1/31/95
A = interest earned during
the period
B = expenses accrued during
the period
C = average fund shares
outstanding during the
period
D = maximum offering price
per share on the last day
of the period
Actuals:
A =
212,305.20
B =
3,663.01
C =
4,532,294.89
D =
9.85
YIELD =
2*((
A - B
+
1
)
^
6
- -
1
)
YIELD =
2*((
212,305.20
- -
3,663.01
+1)^6 -
1)
4,532,294.89
*
9.85
YIELD =
5.67%
Lehman Brothers Floating
Rate U.S. Government Fund -
Premier
Without Waiver
Total Return Calculation
For the period ended
01/31/95
P= Hypothecial initial
investment
ERV= Ending redeemable
value
(ending NAV x
ending shares)
n= Number of years in the
period
Actuals:
p =
1,000.00
ERV =
1,025.49
n =
1.00
T=
Aggregate
total
return
T=
((ERV/P)
^1/n -1)
T=
2.55%
Lehman Brothers Floating
Rate U.S. Government Fund -
Premier
With Waiver
Total Return Calculation
For the period ended
01/31/95
P= Hypothecial initial
investment
ERV= Ending redeemable
value
(ending NAV x
ending shares)
n= Number of years in the
period
Actuals:
n =
1,000.00
ERV =
1,029.62
n =
1.00
T=
Aggregate
total
return
T=
((ERV/P)
^1/n -1)
T=
2.96%
Lehman Short Duration U.S.
Government Fund - Premier
30 day yield calculation
for non-money market funds
for the 30 day period
ending: 1/31/95
A = interest earned during
the period
B = expenses accrued during
the period
C = average fund shares
outstanding during the
period
D = maximum offering price
per share on the last day
of the period
Actuals:
A =
157,483.74
B =
2,560.94
C =
3,148,878.42
D =
9.89
YIELD =
2*((
A - B
+
1
)
^
6
- -
1
)
C * D
YIELD =
2*((
157,483.74
- -
2,560.94
+1)^6 -
1)
3,148,878.42
*
9.89
YIELD =
6.04%
Lehman Brothers Short
Duration U.S. Government
Fund - Premier
Without Waiver
For the period ended
01/31/95
P= Hypothecial initial
investment
ERV= Ending redeemable
value
(ending NAV x
ending shares)
n= Number of years in the
period
Actuals:
p =
1,000.00
ERV =
1,029.15
n =
1.00
T=
((ERV/P)
^1/n -1)
T=
2.92%
Lehman Brothers Short
Duration U.S. Government
Fund - Premier
With Waiver
Total Return Calculation
For the period ended
01/31/95
P= Hypothecial initial
investment
ERV= Ending redeemable
value
(ending NAV x
ending shares)
n= Number of years in the
period
Actuals:
p =
1,000.00
ERV =
1,035.36
n =
1.00
T=
Aggregate
total
return
T=
((ERV/P)
^1/n -1)
T=
3.54%
Lehman Short Duration U.S.
Government Fund - Select
30 day yield calculation
for non-money market funds
for the 30 day period
ending: 1/31/95
A = interest earned during
the period
B = expenses accrued during
the period
C = average fund shares
outstanding during the
period
D = maximum offering price
per share on the last day
of the period
Actuals:
A =
9,813.16
B =
558.41
C =
196,213.63
D =
9.89
YIELD =
2*((
A - B
+
1
)
^
6
- -
1
)
C * D
YIELD =
2*((
9,813.16
- -
558.41
+1)^6 -
1)
196,213.63
*
9.89
YIELD =
5.79%
Lehman Brothers Short
Duration U.S. Government
Fund - Select
Without Waiver
Total Return Calculation
For the period ended
01/31/95
P= Hypothecial initial
investment
ERV= Ending redeemable
value
(ending NAV x
ending shares)
n= Number of years in the
period
Actuals:
p =
1,000.00
ERV =
1,024.08
n =
1.00
T=
Aggregate
total
return
T=
((ERV/P)
^1/n -1)
T=
2.41%
Lehman Brothers Short
Duration U.S. Government
Fund - Select
With Waiver
Total Return Calculation
For the period ended
01/31/95
P= Hypothecial initial
investment
ERV= Ending redeemable
value
(ending NAV x
ending shares)
n= Number of years in the
period
Actuals:
p =
1,000.00
ERV =
1,027.17
n =
1.00
T=
Aggregate
total
return
T=
((ERV/P)
^1/n -1)
T=
2.72%
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
100% Treasury Instruments Money Market Fund
Class A
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 5.51%
B= 31.00%
Yield = 5.51% 7.98%
69.00%
Without Waivers
A= 5.21%
B= 31.00%
Yield = 5.21% 7.55%
69.00%
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
100% Treasury Instruments Money Market Fund
Class B
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.0526
B= 0.31
Yield = 0.0526 0.0762
0.69
Without Waivers
A= 0.0496
B= 0.31
Yield = 0.0496 0.0719
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
100% Treasury Instruments Money Market Fund
Class C
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.0516
B= 0.31
Yield = 0.0516 0.0748
0.69
Without Waivers
A= 0.0486
B= 0.31
Yield = 0.0486 0.0704
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
100% Treasury Instruments Money Market Fund
Class E
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.0536
B= 0.31
Yield = 0.0536 0.0777
0.69
Without Waivers
A= 0.0506
B= 0.31
Yield = 0.0506 0.0733
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Municipal Money Market Fund
Class A
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.0385
B= 0.31
Yield = 0.0385 0.0558
0.69
Without Waivers
A= 0.0375
B= 0.31
Yield = 0.0375 0.0543
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Municipal Money Market Fund
Class B
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.036
B= 0.31
Yield = 0.036 0.0522
0.69
Without Waivers
A= 0.035
B= 0.31
Yield = 0.035 0.0507
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Municipal Money Market Fund
Class C
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.035
B= 0.31
Yield = 0.035 0.0507
0.69
Without Waivers
A= 0.034
B= 0.31
Yield = 0.034 0.0493
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Municipal Money Market Fund
Class E
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.037
B= 0.31
Yield = 0.037 0.0536
0.69
Without Waivers
A= 0.036
B= 0.31
Yield = 0.036 0.0522
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Tax-Free Money Market Fund
Class A
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.0365
B= 0.31
Yield = 0.0365 0.0529
0.69
Without Waivers
A= 0.0337
B= 0.31
Yield = 0.0337 0.0488
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Tax-Free Money Market Fund
Class B
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.034
B= 0.31
Yield = 0.034 0.0493
0.69
Without Waivers
A= 0.0312
B= 0.31
Yield = 0.0312 0.0452
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Tax-Free Money Market Fund
Class C
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.033
B= 0.31
Yield = 0.033 0.0478
0.69
Without Waivers
A= 0.0302
B= 0.31
Yield = 0.0302 0.0438
0.69
Tax Equivalent Yield Calculation for Money Market Fund
The 7 Day Period Ending: January 31, 1995
Tax-Free Money Market Fund
Class E
A = 7 Day Average Yield
B = Federal Rate
7 Day Average Yield
Yield = 1 - Federal Rate
Actuals:
With Waivers
A= 0.035
B= 0.31
Yield = 0.035 0.0507
0.69
Without Waivers
A= 0.0322
B= 0.31
Yield = 0.0322 0.0467
0.69
Lehman
Brothers
Institution
al Funds
Group Trust
Cash
Management
Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.000000000
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000000000
X 365
YIELD=
7
YIELD=
0.00%
CLASS B
ACTUALS:
A=
0.000000000
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000000000
X 365
YIELD=
7
YIELD=
0.00%
CLASS C
ACTUALS:
A=
0.000000000
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000000000
X 365
YIELD=
7
YIELD=
0.00%
CLASS E
ACTUALS:
A=
0.000000000
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000000000
X 365
YIELD=
7
YIELD=
0.00%
Lehman
Brothers
Institution
al Funds
Group Trust
Government
Obligations
Money
Market Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.001041370
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001041370
X 365
YIELD=
7
YIELD=
5.43%
CLASS B
ACTUALS:
A=
0.000993425
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000993425
X 365
YIELD=
7
YIELD=
5.18%
CLASS C
ACTUALS:
A=
0.000974247
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000974247
X 365
YIELD=
7
YIELD=
5.08%
CLASS E
ACTUALS:
A=
0.001012603
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001012603
X 365
YIELD=
7
YIELD=
5.28%
Lehman
Brothers
Institution
al Funds
Group Trust
Treasury
Instruments
II Money
Market Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.001024110
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001024110
X 365
YIELD=
7
YIELD=
5.34%
CLASS B
ACTUALS:
A=
0.000976164
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000976164
X 365
YIELD=
7
YIELD=
5.09%
CLASS C
ACTUALS:
A=
0.000956986
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000956986
X 365
YIELD=
7
YIELD=
4.99%
CLASS E
ACTUALS:
A=
0.000995342
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000995342
X 365
YIELD=
7
YIELD=
5.19%
Lehman
Brothers
Institution
al Funds
Group Trust
100%
Treasury
Instruments
Money
Market Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.000999178
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000999178
X 365
YIELD=
7
YIELD=
5.21%
CLASS B
ACTUALS:
A=
0.000951233
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000951233
X 365
YIELD=
7
YIELD=
4.96%
CLASS C
ACTUALS:
A=
0.000932055
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000932055
X 365
YIELD=
7
YIELD=
4.86%
CLASS E
ACTUALS:
A=
0.000970411
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000970411
X 365
YIELD=
7
YIELD=
5.06%
Lehman
Brothers
Institution
al Funds
Group Trust
Municipal
Money
Market Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.000719178
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000719178
X 365
YIELD=
7
YIELD=
3.75%
CLASS B
ACTUALS:
A=
0.000671233
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000671233
X 365
YIELD=
7
YIELD=
3.50%
CLASS C
ACTUALS:
A=
0.000652055
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000652055
X 365
YIELD=
7
YIELD=
3.40%
CLASS E
ACTUALS:
A=
0.000690411
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000690411
X 365
YIELD=
7
YIELD=
3.60%
Lehman
Brothers
Institution
al Funds
Group Trust
Tax Free
Money
Market Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.000646301
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000646301
X 365
YIELD=
7
YIELD=
3.37%
CLASS B
ACTUALS:
A=
0.000598356
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000598356
X 365
YIELD=
7
YIELD=
3.12%
CLASS C
ACTUALS:
A=
0.000579178
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000579178
X 365
YIELD=
7
YIELD=
3.02%
CLASS E
ACTUALS:
A=
0.000617534
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.000617534
X 365
YIELD=
7
YIELD=
3.22%
Lehman
Brothers
Institution
al Funds
Group Trust
Prime Money
Market Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.001083562
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001083562
X 365
YIELD=
7
YIELD=
5.65%
CLASS B
ACTUALS:
A=
0.001035616
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001035616
X 365
YIELD=
7
YIELD=
5.40%
CLASS C
ACTUALS:
A=
0.001016438
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001016438
X 365
YIELD=
7
YIELD=
5.30%
CLASS E
ACTUALS:
A=
0.001054795
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001054795
X 365
YIELD=
7
YIELD=
5.50%
Lehman
Brothers
Institution
al Funds
Group Trust
Prime Value
Money
Market Fund
7 DAY YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY DAILY DIVIDEND RATE
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.001091233
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001091233
X 365
YIELD=
7
YIELD=
5.69%
CLASS B
ACTUALS:
A=
0.001043288
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001043288
X 365
YIELD=
7
YIELD=
5.44%
CLASS C
ACTUALS:
A=
0.001024110
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001024110
X 365
YIELD=
7
YIELD=
5.34%
CLASS E
ACTUALS:
A=
0.001062466
B=
N/A
C=
N/A
7 DAY DAILY DIVIDEND RATE
X 365
YIELD=
7
0.001062466
X 365
YIELD=
7
YIELD=
5.54%
Lehman
Brothers
Institution
al Funds
Group Trust
Government
Obligations
Money
Market Fund
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.0543
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0543
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.57%
CLASS B
ACTUALS:
A=
0.0518
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0518
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.30%
CLASS C
ACTUALS:
A=
0.0508
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0508
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.20%
CLASS E
ACTUALS:
A=
0.0528
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0528
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.41%
Lehman
Brothers
Institution
al Funds
Group Trust
Cash
Management
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
0.00%
CLASS B
ACTUALS:
A=
0
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
0.00%
CLASS C
ACTUALS:
A=
0
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
0.00%
CLASS E
ACTUALS:
A=
0
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
0.00%
Lehman
Brothers
Institution
al Funds
Group Trust
Treasury
Instruments
II Money
Market Fund
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.0534
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0534
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.47%
CLASS B
ACTUALS:
A=
0.0509
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0509
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.21%
CLASS C
ACTUALS:
A=
0.0499
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0499
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.11%
CLASS E
ACTUALS:
A=
0.0519
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0519
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.32%
Lehman
Brothers
Institution
al Funds
Group Trust
100%
Treasury
Instruments
Money
Market Fund
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.0521
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0521
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.34%
CLASS B
ACTUALS:
A=
0.0496
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0496
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.07%
CLASS C
ACTUALS:
A=
0.0486
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0486
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
4.97%
CLASS E
ACTUALS:
A=
0.0506
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0506
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.18%
Lehman
Brothers
Institution
al Funds
Group Trust
Municipal
Money
Market Fund
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.0375
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0375
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.82%
CLASS B
ACTUALS:
A=
0.035
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.035
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.56%
CLASS C
ACTUALS:
A=
0.034
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.034
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.45%
CLASS E
ACTUALS:
A=
0.036
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.036
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.66%
Lehman
Brothers
Institution
al Funds
Group Trust
Tax Free
Money
Market Fund
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.0337
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0337
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.42%
CLASS B
ACTUALS:
A=
0.0312
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0312
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.17%
CLASS C
ACTUALS:
A=
0.0302
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0302
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.06%
CLASS E
ACTUALS:
A=
0.0322
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0322
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
3.27%
Lehman
Brothers
Institution
al Funds
Group Trust
Prime Money
Market Fund
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.0565
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0565
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.80%
CLASS B
ACTUALS:
A=
0.054
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.054
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.54%
CLASS C
ACTUALS:
A=
0.053
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.053
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.43%
CLASS E
ACTUALS:
A=
0.055
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.055
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.64%
Lehman
Brothers
Institution
al Funds
Group Trust
Prime Value
Money
Market Fund
7 DAY
EFFECTIVE
YIELD
CALCULATION
FOR MONEY
MARKET
FUNDS
FOR THE 7
DAYS PERIOD
ENDING:
JANUARY 31,
1995
A=
7 DAY AVERAGE YIELD
B=
FEDERAL RATE
C=
STATE RATE
CLASS A
ACTUALS:
A=
0.0569
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0569
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.84%
CLASS B
ACTUALS:
A=
0.0544
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0544
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.58%
CLASS C
ACTUALS:
A=
0.0534
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0534
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.47%
CLASS E
ACTUALS:
A=
0.0554
B=
N/A
C=
N/A
7 DAY AVERAGE YIELD
12
YIELD=
{ {
12
} +1 }
- -1
0.0554
12
YIELD=
{ {
12
} +1 }
- -1
YIELD=
5.68%
Lehman
Bros.
Institution
al Funds
Prime Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000153975
0.000147126
0.000144386
0.000149865
26-Jan-95
0.000154802
0.000147953
0.000145213
0.000150692
27-Jan-95
0.000156476
0.000149627
0.000146887
0.000152366
28-Jan-95
0.000156476
0.000149627
0.000146887
0.000152366
29-Jan-95
0.000156476
0.000149627
0.000146887
0.000152366
30-Jan-95
0.000161283
0.000154434
0.000151694
0.000157173
31-Jan-95
0.000163695
0.000156846
0.000154106
0.000159585
0.001103183
0.001055240
0.001036060
0.001074413
7-day
Yield
5.75%
5.50%
5.40%
5.60%
7-day
Effective
Yield
5.90%
5.64%
5.54%
5.75%
Lehman
Bros.
Institution
al Funds
Prime Value
Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000154268
0.000147419
0.000144679
0.000150158
26-Jan-95
0.000154946
0.000148097
0.000145357
0.000150836
27-Jan-95
0.000157258
0.000150409
0.000147669
0.000153148
28-Jan-95
0.000157258
0.000150409
0.000147669
0.000153148
29-Jan-95
0.000157258
0.000150409
0.000147669
0.000153148
30-Jan-95
0.000162248
0.000155399
0.000152659
0.000158138
31-Jan-95
0.000163911
0.000157062
0.000154322
0.000159801
0.001107147
0.001059204
0.001040024
0.001078377
7-day
Yield
5.77%
5.52%
5.42%
5.62%
7-day
Effective
Yield
5.93%
5.66%
5.56%
5.77%
Lehman
Bros.
Institution
al Funds
Cash
Management
Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000147814
0.000140965
0.000138225
0.000143704
26-Jan-95
0.000153872
0.000147023
0.000144283
0.000149762
27-Jan-95
0.000153879
0.000147030
0.000144290
0.000149769
28-Jan-95
0.000153879
0.000147030
0.000144290
0.000149769
29-Jan-95
0.000153879
0.000147030
0.000144290
0.000149769
30-Jan-95
0.000150985
0.000144136
0.000141396
0.000146875
31-Jan-95
0.000151929
0.000145080
0.000142340
0.000147819
0.001066237
0.001018294
0.000999114
0.001037467
7-day
Yield
5.56%
5.31%
5.21%
5.41%
7-day
Effective
Yield
5.70%
5.44%
5.34%
5.55%
Lehman
Bros.
Institution
al Funds
Treasury
Instruments
Money
Market Fund
II
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000145274
0.000138425
0.000135685
0.000141164
26-Jan-95
0.000146504
0.000139655
0.000136915
0.000142394
27-Jan-95
0.000147162
0.000140313
0.000137573
0.000143052
28-Jan-95
0.000147162
0.000140313
0.000137573
0.000143052
29-Jan-95
0.000147162
0.000140313
0.000137573
0.000143052
30-Jan-95
0.000151842
0.000144993
0.000142253
0.000147732
31-Jan-95
0.000153439
0.000146590
0.000143850
0.000149329
0.001038545
0.000990602
0.000971422
0.001009775
7-day
Yield
5.42%
5.17%
5.07%
5.27%
7-day
Effective
Yield
5.56%
5.29%
5.19%
5.40%
Lehman
Bros.
Institution
al Funds
100%
Treasury
Instruments
Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000148399
0.000141550
0.000138810
0.000144289
26-Jan-95
0.000151256
0.000144407
0.000141667
0.000147146
27-Jan-95
0.000151261
0.000144412
0.000141672
0.000147151
28-Jan-95
0.000151261
0.000144412
0.000141672
0.000147151
29-Jan-95
0.000151261
0.000144412
0.000141672
0.000147151
30-Jan-95
0.000151301
0.000144452
0.000141712
0.000147191
31-Jan-95
0.000151486
0.000144637
0.000141897
0.000147376
0.001056225
0.001008282
0.000989102
0.001027455
7-day
Yield
5.51%
5.26%
5.16%
5.36%
7-day
Effective
Yield
5.65%
5.39%
5.28%
5.49%
Lehman
Bros.
Institution
al Funds
Municipal
Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000101932
0.000095083
0.000092343
0.000097822
26-Jan-95
0.000105580
0.000098731
0.000095991
0.000101470
27-Jan-95
0.000106435
0.000099586
0.000096846
0.000102325
28-Jan-95
0.000106435
0.000099586
0.000096846
0.000102325
29-Jan-95
0.000106435
0.000099586
0.000096846
0.000102325
30-Jan-95
0.000104793
0.000097944
0.000095204
0.000100683
31-Jan-95
0.000106214
0.000099365
0.000096625
0.000102104
0.000737824
0.000689881
0.000670701
0.000709054
7-day
Yield
3.85%
3.60%
3.50%
3.70%
7-day
Effective
Yield
3.92%
3.66%
3.56%
3.76%
Lehman
Bros.
Institution
al Funds
Tax-Free
Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000093866
0.000087017
0.000084277
0.000089756
26-Jan-95
0.000101538
0.000094689
0.000091949
0.000097428
27-Jan-95
0.000101053
0.000094204
0.000091464
0.000096943
28-Jan-95
0.000101053
0.000094204
0.000091464
0.000096943
29-Jan-95
0.000101053
0.000094204
0.000091464
0.000096943
30-Jan-95
0.000100854
0.000094005
0.000091265
0.000096744
31-Jan-95
0.000100758
0.000093909
0.000091169
0.000096648
0.000700175
0.000652232
0.000633052
0.000671405
7-day
Yield
3.65%
3.40%
3.30%
3.50%
7-day
Effective
Yield
3.71%
3.45%
3.35%
3.56%
Lehman
Bros.
Institution
al Funds
Government
Obligations
Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000147655
0.000140806
0.000138066
0.000143545
26-Jan-95
0.000152395
0.000145546
0.000142806
0.000148285
27-Jan-95
0.000152928
0.000146079
0.000143339
0.000148818
28-Jan-95
0.000152928
0.000146079
0.000143339
0.000148818
29-Jan-95
0.000152928
0.000146079
0.000143339
0.000148818
30-Jan-95
0.000158377
0.000151528
0.000148788
0.000154267
31-Jan-95
0.000160945
0.000154096
0.000151356
0.000156835
0.001078156
0.001030213
0.001011033
0.001049386
7-day
Yield
5.62%
5.37%
5.27%
5.47%
7-day
Effective
Yield
5.77%
5.50%
5.40%
5.61%
Prime Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000153975
0.000147126
0.000144386
0.000149865
26-Jan-95
0.000154802
0.000147953
0.000145213
0.000150692
27-Jan-95
0.000156476
0.000149627
0.000146887
0.000152366
28-Jan-95
0.000156476
0.000149627
0.000146887
0.000152366
29-Jan-95
0.000156476
0.000149627
0.000146887
0.000152366
30-Jan-95
0.000161283
0.000154434
0.000151694
0.000157173
31-Jan-95
0.000163695
0.000156846
0.000154106
0.000159585
0.001103183
0.001055240
0.001036060
0.001074413
7-day
Yield
5.75%
5.50%
5.40%
5.60%
7-day
Effective
Yield
5.90%
5.64%
5.54%
5.75%
Lehman Bros.
Institutional
Funds
Prime Value
Money Market
Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000154268
0.000147419
0.000144679
0.000150158
26-Jan-95
0.000154946
0.000148097
0.000145357
0.000150836
27-Jan-95
0.000157258
0.000150409
0.000147669
0.000153148
28-Jan-95
0.000157258
0.000150409
0.000147669
0.000153148
29-Jan-95
0.000157258
0.000150409
0.000147669
0.000153148
30-Jan-95
0.000162248
0.000155399
0.000152659
0.000158138
31-Jan-95
0.000163911
0.000157062
0.000154322
0.000159801
0.001107147
0.001059204
0.001040024
0.001078377
7-day
Yield
5.77%
5.52%
5.42%
5.62%
7-day
Effective
Yield
5.93%
5.66%
5.56%
5.77%
Lehman Bros.
Institutional
Funds
Cash
Management
Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000147814
0.000140965
0.000138225
0.000143704
26-Jan-95
0.000153872
0.000147023
0.000144283
0.000149762
27-Jan-95
0.000153879
0.000147030
0.000144290
0.000149769
28-Jan-95
0.000153879
0.000147030
0.000144290
0.000149769
29-Jan-95
0.000153879
0.000147030
0.000144290
0.000149769
30-Jan-95
0.000150985
0.000144136
0.000141396
0.000146875
31-Jan-95
0.000151929
0.000145080
0.000142340
0.000147819
0.001066237
0.001018294
0.000999114
0.001037467
7-day
Yield
5.56%
5.31%
5.21%
5.41%
7-day
Effective
Yield
5.70%
5.44%
5.34%
5.55%
Lehman Bros.
Institutional
Funds
Treasury
Instruments
Money Market
Fund II
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000145274
0.000138425
0.000135685
0.000141164
26-Jan-95
0.000146504
0.000139655
0.000136915
0.000142394
27-Jan-95
0.000147162
0.000140313
0.000137573
0.000143052
28-Jan-95
0.000147162
0.000140313
0.000137573
0.000143052
29-Jan-95
0.000147162
0.000140313
0.000137573
0.000143052
30-Jan-95
0.000151842
0.000144993
0.000142253
0.000147732
31-Jan-95
0.000153439
0.000146590
0.000143850
0.000149329
0.001038545
0.000990602
0.000971422
0.001009775
7-day
Yield
5.42%
5.17%
5.07%
5.27%
7-day
Effective
Yield
5.56%
5.29%
5.19%
5.40%
Lehman Bros.
Institutional
Funds
100% Treasury
Instruments
Money Market
Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000148399
0.000141550
0.000138810
0.000144289
26-Jan-95
0.000151256
0.000144407
0.000141667
0.000147146
27-Jan-95
0.000151261
0.000144412
0.000141672
0.000147151
28-Jan-95
0.000151261
0.000144412
0.000141672
0.000147151
29-Jan-95
0.000151261
0.000144412
0.000141672
0.000147151
30-Jan-95
0.000151301
0.000144452
0.000141712
0.000147191
31-Jan-95
0.000151486
0.000144637
0.000141897
0.000147376
0.001056225
0.001008282
0.000989102
0.001027455
7-day
Yield
5.51%
5.26%
5.16%
5.36%
7-day
Effective
Yield
5.65%
5.39%
5.28%
5.49%
Lehman Bros.
Institutional
Funds
Municipal
Money Market
Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000101932
0.000095083
0.000092343
0.000097822
26-Jan-95
0.000105580
0.000098731
0.000095991
0.000101470
27-Jan-95
0.000106435
0.000099586
0.000096846
0.000102325
28-Jan-95
0.000106435
0.000099586
0.000096846
0.000102325
29-Jan-95
0.000106435
0.000099586
0.000096846
0.000102325
30-Jan-95
0.000104793
0.000097944
0.000095204
0.000100683
31-Jan-95
0.000106214
0.000099365
0.000096625
0.000102104
0.000737824
0.000689881
0.000670701
0.000709054
7-day
Yield
3.85%
3.60%
3.50%
3.70%
7-day
Effective
Yield
3.92%
3.66%
3.56%
3.76%
Lehman Bros.
Institutional
Funds
Tax-Free Money
Market Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000093866
0.000087017
0.000084277
0.000089756
26-Jan-95
0.000101538
0.000094689
0.000091949
0.000097428
27-Jan-95
0.000101053
0.000094204
0.000091464
0.000096943
28-Jan-95
0.000101053
0.000094204
0.000091464
0.000096943
29-Jan-95
0.000101053
0.000094204
0.000091464
0.000096943
30-Jan-95
0.000100854
0.000094005
0.000091265
0.000096744
31-Jan-95
0.000100758
0.000093909
0.000091169
0.000096648
0.000700175
0.000652232
0.000633052
0.000671405
7-day
Yield
3.65%
3.40%
3.30%
3.50%
7-day
Effective
Yield
3.71%
3.45%
3.35%
3.56%
Lehman Bros.
Institutional
Funds
Government
Obligations
Money Market
Fund
DATE
CL. A
CL. B
CL. C
CL. E
25-Jan-95
0.000147655
0.000140806
0.000138066
0.000143545
26-Jan-95
0.000152395
0.000145546
0.000142806
0.000148285
27-Jan-95
0.000152928
0.000146079
0.000143339
0.000148818
28-Jan-95
0.000152928
0.000146079
0.000143339
0.000148818
29-Jan-95
0.000152928
0.000146079
0.000143339
0.000148818
30-Jan-95
0.000158377
0.000151528
0.000148788
0.000154267
31-Jan-95
0.000160945
0.000154096
0.000151356
0.000156835
0.001078156
0.001030213
0.001011033
0.001049386
7-day
Yield
5.62%
5.37%
5.27%
5.47%
7-day
Effective
Yield
5.77%
5.50%
5.40%
5.61%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> LBI 100% Treasury Instruments MM Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 79,161,840
<INVESTMENTS-AT-VALUE> 79,161,840
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,615
<TOTAL-ASSETS> 79,202,455
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 386,308
<TOTAL-LIABILITIES> 386,308
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,806,330
<SHARES-COMMON-STOCK> 78,806,330
<SHARES-COMMON-PRIOR> 127,456,586
<ACCUMULATED-NII-CURRENT> 6,349
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,161
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 78,815,840
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,189,635
<OTHER-INCOME> 0
<EXPENSES-NET> 119,855
<NET-INVESTMENT-INCOME> 3,069,780
<REALIZED-GAINS-CURRENT> 3,161
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,072,941
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,069,770)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 302,935,830
<NUMBER-OF-SHARES-REDEEMED> (351,656,249)
<SHARES-REINVESTED>
<ARTICLE> 6
<SERIES>
[NUMBER] 7
<NAME> LBI 100% Treasury Instruments MM Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 79,161,840
[INVESTMENTS-AT-VALUE] 79,161,840
[RECEIVABLES] 0
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 40,615
[TOTAL-ASSETS] 79,202,455
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 386,308
[TOTAL-LIABILITIES] 386,308
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 100
[SHARES-COMMON-STOCK] 100
[SHARES-COMMON-PRIOR] 100
[ACCUMULATED-NII-CURRENT] 6,349
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 3,161
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,189,635
[OTHER-INCOME] 0
[EXPENSES-NET] 119,855
[NET-INVESTMENT-INCOME] 3,069,780
[REALIZED-GAINS-CURRENT] 3,161
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 3,072,941
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (4)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
<NET-CHANGE-IN-ASSETS> (48,646,998)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,349
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 75,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 251,996
<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
<ARTICLE> 6
<SERIES>
[NUMBER] 7
<NAME> LBI 100% Treasury Instruments MM Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 79,161,840
[INVESTMENTS-AT-VALUE] 79,161,840
[RECEIVABLES] 0
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 40,615
[TOTAL-ASSETS] 79,202,455
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 386,308
[TOTAL-LIABILITIES] 386,308
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 107
[SHARES-COMMON-STOCK] 107
[SHARES-COMMON-PRIOR] 100
[ACCUMULATED-NII-CURRENT] 6,349
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 3,161
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 107
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,189,635
[OTHER-INCOME] 0
[EXPENSES-NET] 119,855
[NET-INVESTMENT-INCOME] 3,069,780
[REALIZED-GAINS-CURRENT] 3,161
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 3,072,941
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (4)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 7
[NET-CHANGE-IN-ASSETS] (48,646,998)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 6,349
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 75,538
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 251,996
[AVERAGE-NET-ASSETS] 105
[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
<ARTICLE> 6
<SERIES>
[NUMBER] 7
<NAME> LBI 100% Treasury Instruments MM Class E
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 79,161,840
[INVESTMENTS-AT-VALUE] 79,161,840
[RECEIVABLES] 0
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 40,615
[TOTAL-ASSETS] 79,202,455
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 386,308
[TOTAL-LIABILITIES] 386,308
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 100
[SHARES-COMMON-STOCK] 100
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 6,349
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 3,161
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,189,635
[OTHER-INCOME] 0
[EXPENSES-NET] 119,855
[NET-INVESTMENT-INCOME] 3,069,780
[REALIZED-GAINS-CURRENT] 3,161
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 3,072,941
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (2)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 100
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (48,646,998)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 6,349
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 75,538
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 251,996
[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
<ARTICLE> 6
<SERIES>
[NUMBER] 11
<NAME> LBI Floating Rate 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] 44,709,419
[INVESTMENTS-AT-VALUE] 44,114,376
[RECEIVABLES] 688,755
[ASSETS-OTHER] 132,110
[OTHER-ITEMS-ASSETS] 50,000
[TOTAL-ASSETS] 44,985,241
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 347,094
[TOTAL-LIABILITIES] 347,094
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 45,285,894
[SHARES-COMMON-STOCK] 4,531,900
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (9,770)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (175,144)
[ACCUM-APPREC-OR-DEPREC] (462,933)
[NET-ASSETS] 44,641,862
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2,031,615
[OTHER-INCOME] 0
[EXPENSES-NET] 37,238
[NET-INVESTMENT-INCOME] 1,994,377
[REALIZED-GAINS-CURRENT] (175,144)
[APPREC-INCREASE-CURRENT] (462,933)
[NET-CHANGE-FROM-OPS] 1,356,300
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (2,004,147)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,923,126
[NUMBER-OF-SHARES-REDEEMED] (391,226)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 44,641,862
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 114,900
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 252,727
[AVERAGE-NET-ASSETS] 45,241,135
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.43
[PER-SHARE-GAIN-APPREC] (0.14)
[PER-SHARE-DIVIDEND] (0.44)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.85
[EXPENSE-RATIO] 0.10
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 11
<NAME> LBI Floating Rate 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] 44,709,419
[INVESTMENTS-AT-VALUE] 44,114,376
[RECEIVABLES] 688,755
[ASSETS-OTHER] 132,110
[OTHER-ITEMS-ASSETS] 50,000
[TOTAL-ASSETS] 44,985,241
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 347,094
[TOTAL-LIABILITIES] 347,094
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 100
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (9,770)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (175,144)
[ACCUM-APPREC-OR-DEPREC] (462,933)
[NET-ASSETS] 99
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2,031,615
[OTHER-INCOME] 0
[EXPENSES-NET] 37,238
[NET-INVESTMENT-INCOME] 1,994,377
[REALIZED-GAINS-CURRENT] (175,144)
[APPREC-INCREASE-CURRENT] (462,933)
[NET-CHANGE-FROM-OPS] 1,356,300
[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] 44,638,047
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 114,900
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 252,727
[AVERAGE-NET-ASSETS] 99
[PER-SHARE-NAV-BEGIN] 10.00
[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] 9.85
[EXPENSE-RATIO] 0.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 3
<NAME> LBI GOVT OBLIGATIONS MM CLASS A
<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] 40,081,039
[SHARES-COMMON-STOCK] 40,081,039
[SHARES-COMMON-PRIOR] 121,530,527
[ACCUMULATED-NII-CURRENT] 1,817
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (4,414)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 40,079,762
[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] (3,323,563)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,366,951,349
[NUMBER-OF-SHARES-REDEEMED] (1,448,866,123)
[SHARES-REINVESTED] 465,286
[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] 78,346,180
[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] 0.16
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<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
[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] 9,323,278
[SHARES-COMMON-STOCK] 9,323,278
[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] 9,321,958
[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] (349,962)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
[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] 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
[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
<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
[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] 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
[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] 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
[EXPENSE-RATIO] 0.10
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<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
<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
<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
[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] 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
<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
<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
<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
<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
<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
[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] 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)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 7
[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] 105
[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
<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
[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] 100
[SHARES-COMMON-STOCK] 100
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[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] (2)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 100
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[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] 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
<ARTICLE> 6
<SERIES>
[NUMBER] 6
<NAME> LBI CASH MANAGEMENT CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 4,871,000
[INVESTMENTS-AT-VALUE] 4,871,000
[RECEIVABLES] 61,792
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 38,917
[TOTAL-ASSETS] 4,971,709
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 31,292
[TOTAL-LIABILITIES] 31,292
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 4,740,100
[SHARES-COMMON-STOCK] 4,740,100
[SHARES-COMMON-PRIOR] 41,709,370
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 10
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 4,740,110
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 440,479
[OTHER-INCOME] 0
[EXPENSES-NET] 20,578
[NET-INVESTMENT-INCOME] 419,901
[REALIZED-GAINS-CURRENT] 102
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 420,003
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (419,337)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 101,753,182
[NUMBER-OF-SHARES-REDEEMED] (138,723,878)
[SHARES-REINVESTED] 1,426
[NET-CHANGE-IN-ASSETS] (36,769,061)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (92)
[GROSS-ADVISORY-FEES] 11,931
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 91,725
[AVERAGE-NET-ASSETS] 11,919,946
[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] 0.17
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 6
<NAME> LBI CASH MANAGEMENT CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 4,871,000
[INVESTMENTS-AT-VALUE] 4,871,000
[RECEIVABLES] 61,792
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 38,917
[TOTAL-ASSETS] 4,971,709
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 31,292
[TOTAL-LIABILITIES] 31,292
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 100
[SHARES-COMMON-STOCK] 100
[SHARES-COMMON-PRIOR] 100
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 10
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 440,479
[OTHER-INCOME] 0
[EXPENSES-NET] 20,578
[NET-INVESTMENT-INCOME] 419,901
[REALIZED-GAINS-CURRENT] 102
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 420,003
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (532)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,814,865
[NUMBER-OF-SHARES-REDEEMED] (3,814,865)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (36,769,061)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (92)
[GROSS-ADVISORY-FEES] 11,931
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 91,725
[AVERAGE-NET-ASSETS] 10,552
[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] 0.42
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 6
<NAME> LBI CASH MANAGMENT CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 4,871,000
[INVESTMENTS-AT-VALUE] 4,871,000
[RECEIVABLES] 61,792
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 38,917
[TOTAL-ASSETS] 4,971,709
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 31,292
[TOTAL-LIABILITIES] 31,292
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 200,107
[SHARES-COMMON-STOCK] 200,107
[SHARES-COMMON-PRIOR] 100
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 10
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 200,107
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 440,479
[OTHER-INCOME] 0
[EXPENSES-NET] 20,578
[NET-INVESTMENT-INCOME] 419,901
[REALIZED-GAINS-CURRENT] 102
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 420,003
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (32)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 200,000
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 7
[NET-CHANGE-IN-ASSETS] (36,769,061)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (92)
[GROSS-ADVISORY-FEES] 11,931
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 91,725
[AVERAGE-NET-ASSETS] 653
[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] 0.52
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 6
<NAME> LBI CASH MANAGEMENT CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 4,871,000
[INVESTMENTS-AT-VALUE] 4,871,000
[RECEIVABLES] 61,792
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 38,917
[TOTAL-ASSETS] 4,971,709
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 31,292
[TOTAL-LIABILITIES] 31,292
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 4,740,100
[SHARES-COMMON-STOCK] 4,740,100
[SHARES-COMMON-PRIOR] 41,709,370
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 10
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 4,740,110
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 440,479
[OTHER-INCOME] 0
[EXPENSES-NET] 20,578
[NET-INVESTMENT-INCOME] 419,901
[REALIZED-GAINS-CURRENT] 102
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 420,003
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (419,337)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 101,753,182
[NUMBER-OF-SHARES-REDEEMED] (138,723,878)
[SHARES-REINVESTED] 1,426
[NET-CHANGE-IN-ASSETS] (36,769,061)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (92)
[GROSS-ADVISORY-FEES] 11,931
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 91,725
[AVERAGE-NET-ASSETS] 11,919,946
[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] 0.17
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 6
<NAME> LBI CASH MANAGEMENT CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 4,871,000
[INVESTMENTS-AT-VALUE] 4,871,000
[RECEIVABLES] 61,792
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 38,917
[TOTAL-ASSETS] 4,971,709
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 31,292
[TOTAL-LIABILITIES] 31,292
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 100
[SHARES-COMMON-STOCK] 100
[SHARES-COMMON-PRIOR] 100
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 10
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 440,479
[OTHER-INCOME] 0
[EXPENSES-NET] 20,578
[NET-INVESTMENT-INCOME] 419,901
[REALIZED-GAINS-CURRENT] 102
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 420,003
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (532)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,814,865
[NUMBER-OF-SHARES-REDEEMED] (3,814,865)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (36,769,061)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (92)
[GROSS-ADVISORY-FEES] 11,931
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 91,725
[AVERAGE-NET-ASSETS] 10,552
[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] 0.42
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
