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- ------------
- -PROSPECTUS
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
ONE EXCHANGE PLACE BOSTON, MASSACHUSETTS 02109
FOR INFORMATION CALL (800) 368-5556
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- ------------
- --
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 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
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.
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- ------------
- -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>
Page ----
<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 .
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>
PERCENTAGE OF AVERAGE DAILY NET ASSETS
---------------------
- -----<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
CASH MANAGEMENT FUND**
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, a division of
The McGraw-Hill Companies ("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 or 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 passthrough
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.
U.S. Treasury STRIPS
The Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations Money Market Fund, Cash
Management Fund, Treasury Instruments Money Market Fund II and
100% Treasury Instruments Money Market 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 Funds 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 U.S. Treasury
bills with comparable maturities. In accordance with Rule 2a-7,
the Funds' investment in STRIPS are limited to those
with maturity components not exceeding thirteen months.
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 securities . 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 Lehman Brothers
ExpressNET, an automated order entry system designed specifically
for the Trust ("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.
4:00 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. High net worth
investors may purchase shares of the Funds. The minimum
aggregate initial investment by a high
net worth investor in the Funds is $10 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
RECEIVED BY* PAYMENT 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 ($5,000,000 in the case
of a high net worth investor) 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 the required level, 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
. 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, 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
noon 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 determining
liability (if any) for the federal alternative minimum tax.
Noncorporate taxpayers, depending on
thier individual tax status, may be subject to alternative minimum
tax at a blended rate between
26% and 28%. Corporate taxpayers may be subject to (1)
alternative minimum tax at at rate of 20%
of the excess of their alternative minimum taxable income ("AMTI")
over the exemption amount, and
(2) the environmental tax.
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 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 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 (then named Shearson Lehman
Brothers Inc.) 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,
(.26% with respect to 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
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
800-566-5LEX
</TABLE>
LEHMAN BROTHERS
- ---------------------------------------------------------
LBP-202E5
- ------------------------------------------------------------------
- -------------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 ,seven 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 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
Class B Shares may not be purchased by
individuals directly, but
institutional investors may purchase shares for accounts
maintained by individuals.
LEHMAN BROTHERS INC. ("Lehman Brothers" or the "Distributor")
sponsors each
Fund and acts as Distributor of its shares. LEHMAN BROTHERS
GLOBAL ASSET MANAGEMENT INC.
("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.
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
MAY 30, 1995
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page ----
<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 .
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>
PERCENTAGE OF AVERAGE DAILY NET ASSETS
---------------------------
- -<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
INSTRUMENTS 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
0.0030
Dividends from net investment income
(0.0149)
(0.0030)
---------- ---
- -------
Net asset value, end of period
$1.00
$1.00
- ---------- ----------
- ---------- ----------
Total return (2)
1.55%
0.30%
- ---------- ----------
- ---------- ----------
Ratios to average net assets/supplemental 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 ,
a division of The McGraw-
Hill Companies ("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 or 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 passthrough
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.
U.S. Treasury STRIPS
The Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations
Money Market Fund, Treasury Instruments Money Market Fund II and
100% Treasury Instruments
Money Market 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
Funds 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 U.S. Treasury bills with comparable
maturities. In accordance
with Rule 2a-7, the Funds' investment in STRIPS are limited to
those with maturity components
not exceeding thirteen months.
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 securities .
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 Lehman Brothers ExpressNET, an automated
order entry system designed
specifically for the Trust ("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.
4:00 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. 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
RECEIVED BY* PAYMENT 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 . 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, 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 determining liability (if any) for the federal
alternative minimum tax.
Noncorporate taxpayers, depending on their individual tax status,
may be subject to alternative
minimum tax as a blended rate between 26% and 28%. Corporate
taxpayers may be subject to (1)
alternative minimum tax at a rate of 20% of the excess of their
alternative minimum taxable income
("AMTI") over the exemption amount, and (2) the environmental
tax.
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 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.
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 (then named Shearson Lehman
Brothers Inc.) 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
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
800-566-5LEX
</TABLE>
LEHMAN BROTHERS
- ---------------------------------------------------------
LBP-201E5
- ------------------------------------------------------------------
- -------------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, seven 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
Class C Shares may not be purchased by
individuals directly, but
institutional investors may purchase shares for accounts
maintained by individuals.
LEHMAN BROTHERS INC. ("Lehman Brothers" or the "Distributor")
sponsors each
Fund and acts as Distributor of its shares. LEHMAN BROTHERS
GLOBAL ASSET MANAGEMENT INC.
("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>
Page ----
<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 .
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>
PERCENTAGE OF AVERAGE DAILY NET ASSETS
---------------------------
- -<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>
PRIME MONEY MARKET 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)
- ---------------
- ----------------Ratios to average net assets/supplemental data:
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 ,
a division of The McGraw-
Hill Companies ("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 or 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 passthrough
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.
U.S. Treasury STRIPS
The Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations
Money Market Fund, Treasury Instruments Money Market Fund II and
100% Treasury Instruments
Money Market 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
Funds 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 U.S. Treasury bills with comparable
maturities. In accordance
with Rule 2a-7, the Funds' investment in STRIPS are limited to
those with maturity components
not exceeding thirteen months.
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 securities . 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 Lehman
Brothers ExpressNET, an automated order entry system designed
specifically for the Trust
("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.
4:00 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.
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
RECEIVED BY* PAYMENT 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
. 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, 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 determining liability (if any) for the federal
alternative minimum tax. Noncorporate
taxpayers, depending on their individual tax status, may be
subject to alternaibe minimum tax at a
blended rate between 26% and 28%. Corporate taxpayers may be
subject to (1) alternative minimum
tax at a rate of 20% of the excess of their alternaibe minimum
taxable income ("AMTI") over the
exemption amount, and (2) the environmental tax.
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 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.
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 (then Shearson Lehman Brothers
Inc.) 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
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
800-566-5LEX
</TABLE>
LEHMAN BROTHERS
- ---------------------------------------------------------
LBP-200E5
- ------------------------------------------------------------------
- ------------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, seven 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
Class E Shares may not be purchased by individuals
directly, but
institutional investors may purchase shares for accounts
maintained by individuals.
LEHMAN BROTHERS INC. ("Lehman Brothers" or the "Distributor")
sponsors each
Fund and acts as Distributor of its shares. LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC. ("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
Page
- ----
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 AVERAGE DAILY NET ASSETS
- ----------
<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, a division of
the McGraw-Hill Companies ("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 or 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.
U.S. Treasury STRIPS
The Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II and 100% Treasury Instruments
Money Market 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 Funds
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 U.S. Treasury bills
with comparable maturities. In accordance with Rule 2a-7, the
Funds' investment in STRIPS are limited to those with
maturity components not exceeding thirteen months.
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 securities .
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. 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 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 determining
liability (if any) for the federal alternative minimum tax.
Noncorporate taxpayers, depending on their individual
tax status, may be subject to alternative minimum tax at a blended
rate between 26% and 28%. Corporate taxpayers may
be subject to (1) alternative minimum tax at a rate of 20% of the
excess of their alternative minimum tax income
("AMTI") over the exemption amount, and (2) the environmental tax.
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 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.
- 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 (then named Shearson Lehman Brothers
Inc.) 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."
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-203E5
- 25
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
Page
Background and Expense Information
3
Financial Highlights
4
Investment Objective and Policies
4
Purchase, Redemption and Exchange of Shares
11
Dividends
13
Taxes
13
Management of the Fund
15
Performance Information
16
Description of Shares
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-
800-368-5556.
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)
.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%
_______________________________
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 Year
3 Years
5 Years
10 Years
$1
$3
$6
$13
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER
OR LESSER THAN THOSE SHOWN.
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.
Short Duration U.S.
Government Fund
1/31/95*
Net asset value, beginning of
period
$10.00
Net investment income (1)
0.46
Net realized and unrealized
loss on investments
(0.12)
Net increase in net assets
resulting
from investment operations
0.34
Dividends from net investment
income
(0.45)
Net asset value, end of period
$9.89
Total return (2)
3.54%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's)
$31,162
Ratio of net investment income to
average net assets
5.43%(3)
Ratio of operating expenses to
average net assets (4)
0.10%(3)
Portfolio turnover rate
112%
* 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, a division of The
McGraw-Hill Companies 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
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. 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 . 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
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.
The Shareholder Services Group, Inc. ("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
May 30, 1995
PROSPECTUS
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
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
Page
Background and Expense Information
3
Financial
Highlights.....................................................
.............................................................
4
Investment Objective and Policies
4
Purchase, Redemption and Exchange of Shares
11
Dividends
13
Taxes
14
Management of the Fund
15
Performance Information
17
Description of Shares
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 1-800-368-5556.
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)
.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%
_______________________________
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 Year
3 Years
5 Years
10 Years
$4
$11
$20
$44
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.
Short Duration U.S.
Government Fund
1/31/95*
Net asset value, beginning of
period
$9.94
Net investment income (1)
0.30
Net realized and unrealized
loss on investments
(0.04)
Net increase in net assets
resulting
from investment operations
0.26
Dividends from net investment
income
(0.31)
Net asset value, end of period
$9.89
Total return (2)
2.72%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's)
$1,942
Ratio of net investment income to
average net assets
5.18%(3)
Ratio of operating expenses to
average net assets (4)
0.35%(3)
Portfolio turnover rate
112%
* 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, a division of The McGraw-
Hill
Companies 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
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 . 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. 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
Lehman Brothers, 260 Franklin Street, 15th Floor, Boston,
Massachusetts 02110-9624, <./R>and will
become effective after its receipt by the Lehman Brothers, with
respect to dividends paid.
The Shareholder Services Group, Inc. ("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 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
May 30, 1995
PROSPECTUS
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
LEHMAN BROTHERS
LBP-206E5
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
Page
Background and Expense Information
3
Financial Highlights
4
Investment Objective and Policies
4
Purchase, Redemption and Exchange of Shares
11
Dividends
13
Taxes
14
Management of the Fund
15
Performance Information
17
Description of Shares
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 1-800-368-5556.
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)
.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%
_______________________________
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 Year
3 Years
5 Years
10 Years
$1
$3
$6
$13
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND
RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
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.
Floating Rate U.S.
Government Fund
1/31/95*
Net asset value, beginning of
period
$10.00
Net investment income (1)
0.43
Net realized and unrealized
loss on investments
(0.14)
Net increase in net assets
resulting
from investment operations
0.29
Dividends from net investment
income
(0.44)
Net asset value, end of period
$9.85
Total return (2)
2.96%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's)
$44,638
Ratio of net investment income to
average net assets
5.21%(3)
Ratio of operating expenses to
average net assets (4)
0.10%(3)
Portfolio turnover rate
164%
* 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,
a division
of The McGraw-Hill Companies 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
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 . 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 . 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 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.
The Shareholder Services Group, Inc. ("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 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
May 30, 1995
PROSPECTUS
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
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
Page
Background and Expense Information
3
Financial
Highlights........................................................
....
....................................................
4
Investment Objective and Policies
4
Purchase, Redemption and Exchange of Shares
10
Dividends
12
Taxes
13
Management of the Fund
14
Performance Information
16
Description of Shares
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 1-800-368-5556.
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)
.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 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 Year
3 Years
5 Years
10 Years
$4
$11
$20
$44
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,
a division
of The McGraw-Hill Companies 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 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 . 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 . 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 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.
The Shareholder Services Group, Inc. ("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 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.
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 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
May 30, 1995
PROSPECTUS
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
LEHMAN BROTHERS
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G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\PROSPECT\SDUSPR.DOC
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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
Page
The Trust
2
Investment Objective and Policies
2
Additional Purchase and Redemption
Information
13
Management of the Fund
14
Additional Information Concerning Taxes
21
Dividends
23
Additional Performance Information
23
Additional Description Concerning Shares
25
Counsel
25
Independent Auditors
25
Financial Statements
26
Miscellaneous
26
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 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 .
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.
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 rate 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, a division of The McGraw-Hill
Companies ("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 a
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 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. A high rate of portfolio turnover (100% or
higher) involves correspondingly greater expenses which must be
borne
by the Fund and its shareholders and may under certain
circumstances
make it more difficult for the Fund to qualify as a regulated
investment company under the Internal Revenue Code. The portfolio
turnover rate is calculated by dividing the lesser of the dollar
amount of sales or purchases of portfolio securities by the
average
monthly value of the Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year
or
less. 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 the 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
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; 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 President and
Investment 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 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 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
Aggregate
Compensation
from the
Trust
Pension or
Retirement
Benefits
Accrued as Part
of Trust
Expenses
Estimated
Annual
Benefits
Upon
Retirement
Total
Compensation
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
Investment
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 Fund (excluding
preparation and printing expenses necessary for the continued
registration of Fund shares) and of
preparing, printing and distributing all sales literature. No
compensation is payable by the Fund to Lehman
Brothers for its distribution services.
Lehman Brothers is comprised of several major operating
business units. Lehman Brothers
Institutional Funds Group is the business group within Lehman
Brothers that is primarily responsible for
the distribution and client service requirements of the Trust and
its 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 agreement provides 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
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 and monitoring the arrangements
pertaining to the Fund's agreements with Service Organizations;
(ii) prepare reports to the Fund' investors
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 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 the
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 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 the 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
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.
Expenses
The Fund's expenses include taxes, interest, fees and
salaries
of the Trust's trustees and officers who are not directors,
officers
or employees of the Trust's service contractors, SEC fees, state
securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to
shareholders, advisory and administration fees, charges of the
administrator, the custodian and of the transfer and dividend
disbursing agent, 12b-1 fees, certain insurance premiums, outside
auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also
pays for brokerage fees and commissions (if any) in connection
with
the purchase and sale of portfolio securities. The Adviser and
TSSG
have agreed that if, in any fiscal year, the expenses borne by the
Fund exceed the applicable expense limitations imposed by the
securities regulations of any state in which shares of that Fund
are
registered or qualified for sale to the public, they will
reimburse
the Fund for any excess to the extent required by such
regulations.
Unless otherwise required by law, such reimbursement would be
accrued
and paid on the same basis that the advisory and administration
fees
are accrued and paid by the Fund. To the Fund's knowledge, of the
expense limitations in effect on the date of this Statement of
Additional Information, none is more restrictive than two and
one-half percent (2 1/2%) of the first $30 million of a Fund's
average
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 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 the 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
portfolio . 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
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 shareholder incurring financial loss
beyond the amount invested in the 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
Standard & Poor's, a division of The McGraw-Hill
Companies
("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 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.
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
Page
The Trust
2
Investment Objective and Policies
2
Additional Purchase and Redemption
Information
14
Management of the Fund
15
Additional Information Concerning Taxes
22
Dividends
24
Additional Performance Information
24
Additional Description Concerning Shares
26
Counsel
26
Independent Auditors
27
Financial Statements
27
Miscellaneous
27
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 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.
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")) of
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 or 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 rate 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, a
division of The McGraw-Hill Companies ("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 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 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 a
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 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. A high rate of portfolio turnover (100% or
higher) involves correspondingly greater expenses which must be
borne
by the Fund and its shareholders and may under certain
circumstances
make it more difficult for the Fund to qualify as a regulated
investment company under the Internal Revenue Code. The portfolio
turnover rate is calculated by dividing the lesser of the dollar
amount of sales or purchases of porfolio securities by the average
monthly value of the Fund's portfolio securites, excluding
securities
having a maturnity at the date of purchase of one year or less.
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 the 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
Compensation
from the
Trust
Pension or
Retirement
Benefits
Accrued as Part
of Trust
Expenses
Estimated
Annual
Benefits
Upon
Retirement
Total
Compensation
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
Investment
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 Fund (excluding
preparation and printing expenses necessary for the continued
registration of Fund shares) and of
preparing, printing and distributing all sales literature. No
compensation is payable by the Fund to Lehman
Brothers for its distribution services.
Lehman Brothers is comprised of several major operating
business units. Lehman Brothers
Institutional Funds Group is the business group within Lehman
Brothers that is primarily responsible for
the distribution and client service requirements of the Trust and
its 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
agreement provides 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
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 and monitoring the arrangements
pertaining to the Fund's agreements with Service Organizations;
(ii) prepare reports to the 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 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.
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 the 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 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 the 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
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.
Expenses
The Fund's expenses include taxes, interest, fees and
salaries
of the Trust's trustees and officers who are not directors,
officers
or employees of the Trust's service contractors, SEC fees, state
securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to
shareholders, advisory and administration fees, charges of the
administrator, the custodian and of the transfer and dividend
disbursing agent, 12b-1 fees, certain insurance premiums, outside
auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also
pays for brokerage fees and commissions (if any) in connection
with
the purchase and sale of portfolio securities. The Adviser and
TSSG
have agreed that if, in any fiscal year, the expenses borne by the
Fund exceed the applicable expense limitations imposed by the
securities regulations of any state in which shares of that Fund
are
registered or qualified for sale to the public, they will
reimburse
the Fund for any excess to the extent required by such
regulations.
Unless otherwise required by law, such reimbursement would be
accrued
and paid on the same basis that the advisory and administration
fees
are accrued and paid by the Fund. To the Fund's knowledge, of the
expense limitations in effect on the date of this Statement of
Additional Information, none is more restrictive than two and
one-half percent (2 1/2 %) of the first $30 million of a Fund's
average
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 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, 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 Premier Shares of the Fund were as follows:
30-day
Yield
Aggregate
Total
Return**
Premier Shares
5.67%
2.96%
Premier Shares*
5.03%
2.55%
*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 the
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
portfolio. 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
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 shareholder incurring financial loss
beyond the amount invested in the 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
Standard & Poor's, a division of The McGraw-Hill
Companies
("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 &
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 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.
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 May30, 1995, as
amended or supplemented from time to time, and is incorporated by
reference in its entirety into each Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no
investment in shares of the Prime Money Market Fund or Prime Value
Money Market Fund portfolios should be made solely upon the
information contained herein. Copies of a Prospectus for Prime
Money
Market Fund or Prime Value Money Market Fund shares may be
obtained
by calling Lehman Brothers Inc. ("Lehman Brothers") at 1-800-
368-5556. Capitalized terms used but not defined herein have the
same
meanings as in the Prospectuses.
TABLE OF CONTENTS
Page
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
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.
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
brokerage commissions are normally not paid on money market
instruments and 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, Inc.
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
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 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 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
Person and
Position
Aggregate
Compensat
ion
from the
Trust
Pension or
Retirement
Benefits
Accrued as
Part of Trust
Expenses
Estimated
Annual
Benefits
Upon
Retirement
Total
Compensation
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
Investment
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 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. The 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) sub-accounting
with
respect to shares beneficially owned by Customers or the
information
necessary for sub-accounting; and (c) 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 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 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 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 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-day
Yield
7-day
Effecti
ve
Yield
Prime Money Market Fund
Class A Shares
5.75%
5.90%
Class B Shares
5.50%
5.64%
Class C Shares
5.40%
5.54%
Class E Shares
5.60%
5.75%
Class A Shares*
5.65%
5.80%
Class B Shares*
5.40%
5.54%
Class C Shares*
5.30%
5.43%
Class E Shares*
5.50%
5.64%
Prime Value Money Market Fund
Class A Shares
5.77%
5.93%
Class B Shares
5.52%
5.66%
Class C Shares
5.42%
5.56%
Class E Shares
5.62%
5.77%
Class A Shares*
5.69%
5.84%
Class B Shares*
5.44%
5.58%
Class C Shares*
5.34%
5.47%
Class E Shares*
5.54%
5.68%
*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
Standard & Poor's, a division of The McGraw-Hill
Companies
("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.
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
Page
The Trust
2
Investment Objective and Policies
2
Municipal Obligations
8
Additional Purchase and Redemption
Information
10
Management of the Funds
12
Additional Information Concerning Taxes
19
Dividends
21
Additional Yield Information
22
Additional Description Concerning Shares
23
Counsel
24
Independent Auditors
24
Financial Statements
24
Miscellaneous
24
Appendix
A-1
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 .
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
brokerage commissions are normally not paid on money market
instruments and the Funds' portfolio turnover is not expected to
have
a material effect on the net incomes of the Funds. 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
Position
Aggregate
Compensation
from the
Trust
Pension or
Retirement
Benefits Accrued
as Part of Trust
Expenses
Estimated
Annual
Benefits
Upon
Retirement
Total
Compensation
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
Investment
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 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-day
Yield
7-day
Effective
Yield
7-day Tax-
Equivalent
Yield
Municipal Money Market Fund
Class A Shares
3.85%
3.92%
5.58%
Class B Shares
3.60%
3.66%
5.22%
Class C Shares
3.50%
3.56%
5.07%
Class E Shares
3.70%
3.76%
5.36%
Class A Shares*
3.75%
3.82%
5.43%
Class B Shares*
3.50%
3.56%
5.07%
Class C Shares*
3.40%
3.45%
4.93%
Class E Shares*
3.60%
3.66%
5.22%
Tax-Free Money Market Fund
Class A Shares
3.65%
3.71%
5.29%
Class B Shares
3.40%
3.45%
4.93%
Class C Shares
3.30%
3.35%
4.78%
Class E Shares
3.50%
3.56%
5.07%
Class A Shares*
3.37%
3.42%
4.88%
Class B Shares*
3.12%
3.17%
4.52%
Class C Shares*
3.02%
3.06%
4.38%
Class E Shares*
3.22%
3.27%
4.67%
*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
Standard & Poor's, a division of The McGraw-Hill
Companies
("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.
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.
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
brokerage commissions are normally not paid on money market
instruments and the Funds' portfolio turnover is not expected to
have
a material effect on the net incomes of the Funds. 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-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 $1,851 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
Compensation
from the
Trust
Pension or
Retirement
Benefits
Accrued as Part
of Trust
Expenses
Estimated
Annual
Benefits
Upon
Retirement
Total
Compensation
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
Investment
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 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
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-day
Yield
7-day
Effective
Yield
Government Obligations Money Market Fund
Class A Shares
5.62%
5.77%
Class B Shares
5.37%
5.50%
Class C Shares
5.27%
5.40%
Class E Shares
5.47%
5.61%
Class A Shares*
5.43%
5.57%
Class B Shares*
5.18%
5.30%
Class C Shares*
5.08%
5.20%
Class E Shares*
5.28%
5.41%
Cash Management Fund
Class A Shares
5.56%
5.70%
Class B Shares
5.31%
5.44%
Class C Shares
5.21%
5.34%
Class E Shares
5.41%
5.55%
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%
5.56%
Class B Shares
5.17%
5.29%
Class C Shares
5.07%
5.19%
Class E Shares
5.27%
5.40%
7-day
Yield
7-day
Effective
Yield
Class A Shares*
5.34%
5.47%
Class B Shares*
5.09%
5.21%
Class C Shares*
4.99%
5.11%
Class E Shares*
5.19%
5.32%
**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.
100% Treasury Instruments Money Market Fund
Investment Portfolio 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.
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 the
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 Fund's annual
portfolio turnover rate will be relatively high, but brokerage
commissions are normally not paid on money
market instruments and the Fund's portfolio turnover is not
expected to have a material effect on the net
income of the Fund. 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 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 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 the 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 its 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
Compensation
from the
Trust
Pension or
Retirement
Benefits
Accrued as Part
of Trust
Expenses
Estimated
Annual
Benefits
Upon
Retirement
Total
Compensation
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
Investment
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 Fund (excluding
preparation and printing expenses necessary for the continued
registration of Fund shares) and of
preparing, printing and distributing all sales literature. No
compensation is payable by the Fund to Lehman
Brothers for its distribution services.
Lehman Brothers is comprised of several major operating
business units. Lehman Brothers
Institutional Funds Group is the business group within Lehman
Brothers that is primarily responsible for
the distribution and client service requirements of the Trust and
its 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
agreement provides 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
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 and monitoring the arrangements
pertaining to the Fund's agreements with Service Organizations;
(ii) prepare reports to the 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 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.
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 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 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 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) sub-accounting with respect to shares beneficially owned by
Customers or the information necessary for
sub-accounting; and (c) 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 the 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 the 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.
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 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 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, it will
reimburse the 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 the
Fund. To the Fund's knowledge, of the
expense limitations in effect on the date of this Statement of
Additional Information, none is more
restrictive than two and one-half percent (2 1/2%) of the first $30
million of a Fund's average 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 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-day
Yield
7-day
Effective
Yield
7-day Tax-
Equivalent
Yield
Class A Shares
5.51%
5.65%
7.98%
Class B Shares
5.26%
5.39%
7.62%
Class C Shares
5.16%
5.28%
7.48%
Class E Shares
5.36%
5.49%
7.77%
Class A Shares*
5.21%
5.34%
7.55%
Class B Shares*
4.96%
5.07%
7.19%
Class C Shares*
4.86%
4.97%
7.04%
Class E Shares*
5.06%
5.18%
7.33%
*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 the 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 the 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.
- - 28 -
lehman/institut/peas/sai/saisd.doc draft date:06/02/95
- - 28 -
lehman/institut/peas/sai/saiflt.doc draft date: 06/01/95
- - 3 -
lehman/institut/peas/sai/saiprm.doc draft date: 06/01/95
- - 24 -
lehman/institut/peas/sai/saimun.doc/draft date: 06/01/95
- -18-
lehman/institut/peas/sai/sai100%.doc draft date: 06/01/95
