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"). 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
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, 1996, 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 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 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,
1996.
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
MAY 30, 1996
PROSPECTUS
<TABLE>
TABLE OF CONTENTS
<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
18
Dividends
21
Taxes
21
Management of the Funds
22
Performance and Yields
24
Description of Shares and Miscellaneous
24
</TABLE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION
INCORPORATED
HEREIN DESCRIBE THE INVESTMENT OBJECTIVES AND
POLICIES,
OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE FUNDS' CLASS A
SHARES.
INVESTORS WISHING TO
OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
CLASSES
MAY OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY
CONTACTING LEHMAN
BROTHERS AT
1-800-368-5556.
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.
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." The Fund will not
purchase securities the
income from which may be a specific tax preference item for
purposes of federal
individual and corporate alternative minimum tax.
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.
BACKGROUND AND EXPENSE INFORMATION
Each 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 from 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.
<TABLE>
EXPENSE SUMMARY
CLASS A SHARES
<CAPTION>
GOVERNMENT
PRIME PRIME VALUE
OBLIGATIONS CASH
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
INSTRUMENT
MONEY TAX-FREE
MUNICIPAL
MARKET FUND MONEY
MONEY
II 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% .03%
.06%
Rule 12b-1 fees None None
None
Other Expenses _ including
Administration Fees .08% .15%
.12%
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement) .18% .18%
.18%
* 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 currently in effect for each
Fund's fiscal year
ending January 31, 1997.
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 #are .20% and .10%,
respectively, of
the average daily# net assets of the Funds. Absent fee
waivers and expense
reimbursements, the Total Fund Operating Expenses of Class A
Shares are expected
to be as follows:
</TABLE>
<TABLE>
PERCENTAGE OF AVERAGE
DAILY
NET ASSETS
<S> <C>
Prime Money Market Fund .35%
Prime Value Money Market Fund .35%
Government Obligations Money Market Fund .44%
Cash Management Fund 1.94%
Treasury Instruments Money Market Fund II .35%
Tax-Free Money Market Fund .45%
Municipal Money Market Fund .42%
</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 A Shares:
<TABLE>
MONEY MARKET FUNDS
(OTHER THAN THE CASH MANAGEMENT FUND)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$2 $6 $10 $23
CASH MANAGEMENT FUND
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.
<TABLE>
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year
ended January 31, 1996
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, 1996. 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 in the Statement
of Additional
Information.
<CAPTION>
PRIME MONEY MARKET FUND
PRIME VALUE
MONEY MARKET FUND
YEAR ENDED YEAR ENDED PERIOD
ENDED YEAR ENDED
YEAR ENDED PERIOD ENDED
1/31/96 1/31/95
1/31/94*1/31/961/31/95 1/31/94*
<S> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of
period $1.00 $1.00 $ 1.00
$ 1.00
$ 1.00 $ 1.00
Net investment income (1) 0.0592 0.0442 0.0310
0.0594 0.04420.0315
Dividends from net invest-
ment income (0.0592) (0.0442)
(0.0310) (0.0594)
(0.0442) (0.0315)
Net asset value, end of
period $1.00 $1.00 $ 1.00
$ 1.00
$ 1.00 $ 1.00
Total return (2) 6.08% 4.52%
3.14%
6.10% 4.51% 3.21%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $3,919,186 $1,538,802$2,866,353
$2,754,390 $1,470,317
$3,981,184
Ratio of net investment
income to average
net assets 5.90% 4.30% 3.16%(3) 5.93 % 4.20
% 3.23
%(3)
Ratio of operating
expenses to average
net assets (4) 0.17 % 0.12 % 0.11%(3) 0.17 %
0.09 %
0.07 %(3)
* The Class A Shares commenced operations on February 8,
1993.
(1) Net investment income per share 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 $0.0583 and $0.0428, respectively, for the years ended
January 31, 1996
and 1995 and $0.0289 for the period ended January 31, 1994
for the Prime
Money Market Fund and $0.0585 and $0.0426, respectively,
for the years ended
January 31, 1996 and 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% and 0.25%, respectively, for the years ended
January 31, 1996 and
1995 and 0.33% for the period ended January 31, 1994 for
the Prime Money
Market Fund and 0.25% and 0.25%, respectively, for the
years ended January
31, 1996 and 1995 and 0.36% for the period ended January
31, 1994 for the
Prime Value Money Market Fund.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<CAPTION>
GOVERNMENT
OBLIGATIONS
MONEY MARKET FUND CASH
MANAGEMENT FUND***
YEAR ENDEDYEAR ENDEDPERIODENDED YEAR
ENDED YEAR
ENDED
PERIOD ENDED#
1/31/96 1/31/95
1/31/94*1/31/961/31/95 1/31/94*
<S> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of
period $1.00 $1.00 $ 1.00
$ 1.00
$ 1.00 $ 1.00
Net investment income (1) 0.0585 0.0435
0.0309 0.0585
0.0421 0.0304
Less distributions:
Dividends from net investment
income (0.0585) (0.0435) (0.0309)
(0.0585)
(0.0421) (0.0304)
Distributions from
net realized gains _ _ _ (0.0000 )**
_
_
Total Distributions (0.0585) (0.0435)
(0.0309) (0.0585)
(0.0421) (0.0304)
Net asset value, end of
period $1.00 $1.00 $ 1.00
$ 1.00
$ 1.00 $ 1.00
Total return (2) 6.01% 4.45% 3.14%
6.01%
4.26% 3.09%
Ratios to average net assets/
supplemental data:
Net assets, end of period
(in 000's) $125,390 $40,080 $121,532
$1,110 $4,740
$41,709
Ratio of net investment income
to average net assets 5.82% 4.28% 3.18%(3)
5.62%
3.52% 3.11%(3)
Ratio of operating expenses to
average net assets (4) 0.18% 0.16% 0.03%(3)
0.26%
0.17% 0.06%(3)
<FN>
* The Class A Shares commenced operations on February 8,
1993.
**Amount represents less than $0.0001 per share.
*** Cash Management Fund was formerly named 100%
Government Obligations
Money Market Fund.
(1) Net investment income per share 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 $0.0571 and $0.0419, respectively, for the years ended
January 31, 1996
and 1995 and $0.0261 for the period ended January 31, 1994
for the Government
Obligations Money Market Fund and $0.0429 and $0.0350,
respectively, for the
years ended January 31, 1996 and 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 0.32% and 0.31%, respectively, for the years ended
January 31, 1996 and
1995 and 0.53% for the period ended January 31, 1994 for
the Government
Obligations Money Market Fund and 1.76% and 0.77%,
respectively, for the
years ended January 31, 1996 and 1995 and 0.92% for the
period ended January
31, 1994 for the Cash Management Fund.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
TREASURY
INSTRUMENTS
MONEY MARKET
FUND II
YEAR ENDED
PERIOD
ENDED
1/31/96 1/31/95
1/31/94*
<S> <C> <C>
<C>
Net asset value, beginning of period $ 1.00 $
1.00
$ 1.00
Net investment income (1) 0.0566 0.0424
0.0300
Dividends from net investment income (0.0566)
(0.0424 )
(0.0300)
Net asset value, end of period $1.00 $1.00
$1.00
Total return (2) 5.80 % 4.32%
3.04
%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $183,376
$368,796 $156,782
Ratio of net investment income to
average net assets 5.69% 4.38%
3.12%(3)
Ratio of operating expenses to
average net assets (4) 0.18 % 0.12 % 0.03
%(3)
<FN>
* The Class A Shares commenced operations on February 8,
1993.
(1) Net investment income per share 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 $0.0557 and $0.0407, respectively, for the years ended
January 31, 1996
and 1995 and $0.0256 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 A Shares
were 0.27% and 0.27%, respectively, for the years ended
January 31, 1996 and
1995 and 0.49% for the period ended January 31, 1994 for
the Treasury
Instruments Money Market Fund II.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MARKET FUND MONEY MARKET FUND
YEAR ENDEDYEAR ENDEDPERIODENDED YEAR
ENDED YEAR
ENDED
PERIOD ENDED#
1/31/96 1/31/95
1/31/94*1/31/961/31/95 1/31/94*
<S> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of
period $1.00 $1.00 $ 1.00
$ 1.00
$ 1.00 $ 1.00
Net investment income (1) 0.0386 0.0288
0.0228 0.0396
0.0300 0.0243
Less Distributions:
Dividends from net investment
income (0.0386) (0.0288)
(0.0228 ) (0.0396
) (0.0300) (0.0243)
Distributions from net realized gains _ _ _
(0.0000
)** _ _
Total distributions (0.0386) (0.0288)
(0.0228 ) (0.0396)
(0.0300) (0.0243)
Net asset value, end of period $1.00 $1.00 $1.00
$1.00
$1.00 $1.00
Total return (2) 3.94% 2.93% 2.30%
4.03% 3.04%
2.46%
Ratios to average net assets/
supplemental data:
Net assets, end of period
(in 000's) $89,384 $60,351 $59,735
$135,120 $93,595
$350,975
Ratio of net investment income
to average net assets 3.86% 2.99% 2.38%(3)
3.95%
2.86% 2.53%(3)
Ratio of operating expenses to
average net assets (4) 0.18% 0.16% 0.11%(3)
0.18%
0.15% 0.13%(3)
<FN>
* The Class A Shares commenced operations on February 8,
1993.
**Amount represents less than $0.0001 per share.
(1) Net investment income per share 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 $0.0369 and $0.0266, respectively, for the years ended
January 31, 1996
and 1995 and $0.0093 for the period ended January 31, 1994
for the Tax-Free
Money Market Fund and $0.0384 and $0.0283, respectively,
for the years ended
January 31, 1996 and 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 0.35% and 0.38%, respectively, for the years ended
January 31, 1996 and
1995 and 1.52%, respectively, for the period ended January
31, 1994 for the
Tax-Free Money Market Fund and 0.30% and 0.31%,
respectively, for the years
ended January 31, 1996 and 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.
The 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 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 AND TREASURY
INSTRUMENTS MONEY MARKET FUND II 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).
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 invests solely
in direct
obligations of the U.S. Treasury, such as Treasury bills and
notes, and in
repurchase agreements relating to direct Treasury
obligations. The Fund will not
purchase obligations of agencies or instrumentalities of the
U.S. Government.
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. Tax-
Free Money Market Fund
will not invest in securities the income from which may be a
specific tax
preference item for purposes of federal individual and
corporate alternative
minimum tax. The Funds also have the ability to enter into
repurchase
agreements. Absent emergency or extraordinary circumstances,
however, neither
Fund presently intends to engage in repurchase transactions,
unless such
transactions would not generate taxable income to such
Funds.
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.
#Each Fund generally may not invest more than 5% of its
total assets in the
securities of any one issuer except that the Funds may
invest more than 5% (but
no more than 25%) of the then-current value of the Fund's
total assets in First
Tier Eligible Securities of a single issuer for a period of
up to three business
days.
#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 or are issued
by issuers located
in the same state, 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) 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 or
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 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 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
Each 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 one-third of the value of the
Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings).
WHEN-ISSUED SECURITIES
The Funds (other than 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.
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 and
Treasury Instruments
Money Market Fund II 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 of U.S. Treasury bills with comparable
maturities. In
accordance with Rule 2a-7, the Funds' investments in STRIPS
are limited to those
with maturity components not exceeding thirteen months.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities up to one-third of
the value of its
total assets to U.S. and foreign broker/dealers, banks or
other institutional
borrowers of securities that the Adviser has determined are
creditworthy under
guidelines established by the Board of Trustees. The Funds
will receive
collateral in the form of cash, letters of credit, or
securities of the U.S.
Government or its agencies equal to at least 100% of the
value of the securities
owned.
VARIABLE AND FLOATING RATE SECURITIES
The interest rates payable on certain securities in which
Prime Money Market
Fund, Prime Value Money Market Fund, Government Obligations
Money Market Fund,
Cash Management Fund, 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 personal income taxes of any state or, with respect
to the Municipal
Money Market Fund, from the federal alternative minimum
tax). 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
may be held by the Municipal Money Market Fund and 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 and obtaining funds to lend to other
public institutions and
facilities. Municipal Obligations also include industrial
development bonds or,
with respect to the Municipal Money Market Fund, private
activity 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 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.
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 for temporary or
emergency purposes (not for leveraging or investment) from
banks, or subject to
specific authorization by the SEC, from funds advised by the
Adviser or an
affiliate of the Adviser, and (ii) engage in reverse
repurchase agreements;
provided that (i) and (ii) in combination do not exceed one-
third of the value
of the Fund's total assets (including the amount borrowed)
less liabilities
(other than borrowings). The Funds may not mortgage, pledge
or hypothecate any
assets except in connection with such borrowings and reverse
repurchase
agreements and then only in amounts not exceeding
one-third of the value of the particular Fund's total assets
at the time of such
borrowing (or, with respect to the Cash Management Fund, in
amounts not in
excess of the lesser of the dollar amounts borrowed or one-
third of the value of
the Fund's total assets at the time of such borrowing).
Additional investments
will not be made by a Fund when borrowings exceed 5% of the
Fund's assets.
2. Purchase any securities which would cause 25% or
more of the value of
its total assets at the time of 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.
3. Make loans except that a Fund may (i) purchase or
hold debt obligations
in accordance with its investment objective and policies,
(ii) enter into
repurchase agreements for securities, (iii) lend portfolio
securities and (iv)
with the exception of Government Obligations Money Market
Fund, subject to
specific authorization by the SEC, lend money to other funds
advised by the
Adviser or an affiliate of the Adviser.
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.
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 the New York Stock Exchange 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[SM]"). Purchases of
shares will be effective and dividends will begin to accrue
on the date of
purchase if purchase orders comply with the following
schedule.
- ------------------------------------------------------------
- --------------------
- -
Order Must Payment Must
Be
Received By*+ Received By*+
Prime Money Market Fund, 3:00 P.M. 4:00 P.M.
Prime Value Money Market Fund,
Government Obligations Money Market Fund
and Treasury Instruments Money Market Fund II
Cash Management Fund** 5:00 P.M. 5:30 P.M.
Tax-Free Money Market Fund Noon 4:00 P.M.
and Municipal Money Market Fund#
- ------------------------------------------------------------
- --------------------
* All times stated are Eastern time.
** In order to receive same day acceptance of purchases
in Cash Management
Fund, investors must telephone the Lehman Brothers Client
Service Center at 1-
800-851-3134 #between 3:00 P.M. and# 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. The Cash Management
Fund is not available
for order entry on LEX[SM].
+ Please note that the securities markets for money market
instruments may
close early due to an upcoming holiday or other unusual
circumstances which
may affect Fund trading hours.
[/R]
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 $5 million. To reach the minimum Trust-wide initial
investment, purchases of
shares may be aggregated over a period of six months. There
is no minimum
subsequent investment.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers
by telephone at 1-
800-851-3134 or through LEX[SM] on a day that both the New
York Stock Exchange
and the Federal Reserve Bank of Boston are open for
business. Payment for
redeemed shares will be made according to the following
schedule.
- ------------------------------------------------------------
- --------------------
- -
Order Must Be
Received By*+ Payment Made
Prime Money Market Fund, 3:00 P.M. Same Business Day
Prime Value Money Market Fund,
Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
and Cash Management Fund
Tax-Free Money Market Fund Noon Same Business Day
and Municipal Money Market Fund
- ------------------------------------------------------------
- --------------------
* All times stated are Eastern time.
+ Please note that the securities markets for money market
instruments may
close early due to an upcoming holiday or other unusual
circumstances which
may affect Fund trading hours.
[/R]
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
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 upon
opening of an
investor's account with the Funds. 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 First Data Investor Services
Group, Inc. ("FDISG")
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. 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. Accordingly, the
investor will bear the risk of loss if the Trust follows
reasonable procedures.
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[SM] 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 current prospectus of the Funds.
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 the New
York Stock Exchange
or the Federal Reserve Bank of Boston is closed, according
to the following
schedule.
_________________
- ------------------------------------------------------------
- --------------------
- -
NET ASSET VALUE
CALCULATED*
Prime Money Market Fund, Noon, 3:00 P.M., 4:00
P.M.
Prime Value Money Market Fund,
Government Obligations Money Market Fund
and Treasury Instruments Money Market Fund II
Cash Management Fund Noon, 3:00 P.M.,
5:00 P.M.
Tax-Free Money Market Fund Noon, 4:00 P.M.
and Municipal Money Market Fund
- ------------------------------------------------------------
- --------------------
* All times stated are Eastern time.
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.
Currently, one or both of the New York Stock Exchange 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.
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 date of
declaration. Shares begin accruing dividends on the day the
purchase order for
the shares is effective 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.
FDISG, 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 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 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.
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
taxable 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 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.
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,
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 February
16, 1996, Nippon Life Insurance Company beneficially owned
approximately 8.9%,
FMR Corp. beneficially owned approximately 7.3%, and
Prudential Asset Management
beneficially owned approximately 5.5% of the outstanding
voting securities of
Holdings. Lehman Brothers, a leading full-service investment
firm, meets the
diverse financial needs of individuals, institutions and
governments around the
world. Lehman Brothers has entered into a Distribution
Agreement with the Trust
pursuant to which it has the responsibility for distributing
shares of the
Funds.
The Trust has adopted a Plan of Distribution with respect
to Class A shares
of the Funds pursuant to Rule 12b-1 under the 1940 Act. The
Plan of Distribution
does not provide for the payment by the Funds of any Rule
12b-1 fees for
distribution or shareholder services for Class A shares but
provides that Lehman
Brothers may make payments to assist in the distribution of
Class A shares out
of the other fees received by it or its affiliates from the
Funds, its past
profits or any other sources available to it.
INVESTMENT ADVISER _ LEHMAN BROTHERS GLOBAL ASSET
MANAGEMENT INC.
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 serves as investment adviser to investment
companies and private
accounts and has assets under management of approximately
$5.8 billion as of May
3, 1996.
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 each
Fund at the annual rate of .20% of the value of the Fund's
average daily net
assets.
ADMINISTRATOR AND TRANSFER AGENT _ FIRST DATA
INVESTOR
SERVICES GROUP, INC.
FDISG (formerly named The Shareholder Services Group,
Inc.), located at One
Exchange Place, 53 State Street, Boston, Massachusetts
02109, serves as each
Fund's Administrator and Transfer Agent. FDISG is a wholly-
owned subsidiary of
First Data Corporation. As Administrator, FDISG 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 FDISG's
services as
Administrator, FDISG 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. FDISG
is also entitled to receive a fee from the Funds for its
services as Transfer
Agent. FDISG 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, FDISG 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 FDISG 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 FDISG 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 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). This voluntary waiver and
reimbursement arrangement
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 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 a
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], THE WALL STREET JOURNAL and
THE NEW
YORK TIMES; reports
prepared by Lipper Analytical Services, 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 seven 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 and Tax-Free Money
Market 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
(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[SM] Help Desk 800-566-5LEX
LEHMAN BROTHERS
LBP-202B6
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, six of which are described in this Prospectus
(individually, a "Fund" and collectively, the "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
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,
1996,
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 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 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, 1996.
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
MAY 30, 1996
PROSPECTUS
<TABLE>
TABLE OF CONTENTS
<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 10
Investment Limitations 16
Purchase and Redemption of Shares 16
Dividends 19
Taxes 20
Management of the Funds 21
Performance and Yields 23
Description of Shares and Miscellaneous 23
</TABLE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION
INCORPORATED
HEREIN DESCRIBE THE INVESTMENT OBJECTIVES AND
POLICIES,
OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE FUNDS' CLASS B
SHARES.
INVESTORS WISHING TO
OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
CLASSES MAY OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY
CONTACTING
LEHMAN BROTHERS AT
1-800-368-5556.
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.
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." The Fund will not purchase securities
the
income from which may be a specific tax preference item for purposes of
federal
individual and corporate alternative minimum tax.
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.
BACKGROUND AND EXPENSE INFORMATION
Each 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 from 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.
<TABLE>
EXPENSE SUMMARY
CLASS B SHARES
<CAPTION>
GOVERNMENT
PRIME PRIME VALUE OBLIGATIONS
MONEY MONEY MONEY
MARKET FUNDMARKET 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 .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
INSTRUMENTS
MONEY TAX-FREE MUNICIPAL
MARKET FUND MONEY MONEY
II 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% .03% .06%
Rule 12b-1 fees .25% .25% .25%
Other Expenses _ including Administration Fees .08% .15% .12%
Total Fund Operating Expenses (after fee
waivers and/or expense reimbursement) .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 currently in effect for each
Fund's
fiscal year ending January 31, 1997.
</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 .43% of average daily net assets (.18% excluding Rule 12b-1
fees)
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 #are .20% and .10%,
respectively, of
the #average daily net assets of the Funds. Absent fee waivers and expense
reimbursements, the Total Fund Operating Expenses of Class B Shares are
expected
to be as follows:
<TABLE>
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%
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 B Shares:
<TABLE>
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.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January 31,
1996, 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, 1996. 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 in the Statement of
Additional
Information. As of January 31, 1996, Class B Shares of the Municipal
Money
Market Fund had not been offered to the public. Accordingly, no financial
information is provided with respect to such shares. Financial information
with
respect to Class A Shares of the Municipal Money Market Fund is included
in
that
Class' prospectus and the Trust's Annual Report dated January 31, 1996,
which
are available upon request. Financial information with respect to Class C
Shares
of the Municipal Money Market Fund is included in that Class' prospectus
and
the
Trust's Annual Report dated January 31, 1996, which are available upon
request.
Prime Money Market Fund Prime Value Money
Market Fund
Year Ended Year Ended Period Ended Year Ended
Year Ended Period Ended
1/31/96 1/31/95 1/31/94*1/31/961/31/95 1/31/94*
[S] [C] [C] [C] [C] [C] [C]
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income(1) 0.0567 0.0417 0.0110 0.0569 0.0417
0.0125
Dividends from net investment
income (0.0567)(0.0417)(0.0110)(0.0569)(0.0417) (0.0125)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
$1.00
Total return (2) 5.83% 4.21% 0.99% 5.84% 4.26% 1.26%
Ratios to average net assets/
supplemental data:
Net assets, end of period
(in 000's) $324,474$342,673$350,666$20,372$21,739 $17,504
Ratio of net investment income
to average net assets 5.65% 4.05%2.91%(3) 5.68% 3.95%
2.98%(3)
Ratio of operating expenses to
average net assets (4)0.42% 0.37%0.36%(3) 0.42% 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 per share 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 $0.0558 and $0.0403, respectively, for the years ended January 31,
1996
and 1995 and $0.0102 for the period ended January 31, 1994 for the
Prime
Money Market Fund and $0.0560 and $0.0398, respectively, for the years
ended
January 31, 1996 and 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% and 0.50%, respectively, for the years ended January 31,
1996 and
1995 and 0.58% for the period ended January 31, 1994 for the Prime
Money
Market Fund and 0.50% and 0.50%, respectively, for the years ended
January
31, 1996 and 1995 and 0.61% for the period ended January 31, 1994 for
the
Prime Value Money Market Fund.
[/TABLE]
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Government Obligations Treasury
Instruments
Money Market Fund Money Market Fund
II
Year Ended Year Ended Period Ended Year Ended
Year Ended Period Ended
1/31/96 1/31/95 1/31/94*1/31/961/31/95 1/31/94*
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income (1) 0.0560 0.0410 0.0091 0.0541 0.0399
0.0198
Dividends from net investment
income (0.0560)(0.0410)(0.0091)(0.0541)(0.0399) (0.0198)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
$1.00
Total return (2) 5.76% 4.19% 0.90% 5.54% 4.05% 2.00%
Ratios to average net assets/
supplemental data:
Net assets, end of period
(in 000's) $14,659 $9,322 --(5)$27,907 $27,242 $33,862
Ratio of net investment income
to average net assets5.57% 4.03%2.93%(3)5.44% 4.13%
2.87%(3)
Ratio of operating expenses to
average net assets (4) 0.43% 0.41% 0.28%(3) 0.43% 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 per share 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 $0.0546 and $0.0394, respectively, for the years ended January 31,
1996
and 1995 and $0.0075 for the period ended January 31, 1994 for the
Government
Obligations Money Market Fund and $0.0532 and $0.0384, respectively,
for the
years ended January 31, 1996 and 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 0.57% and 0.56%, respectively, for the years ended January 31,
1996 and
1995 and 0.78% for the period ended January 31, 1994 for the
Government
Obligations Money Market Fund and 0.52% and 0.52%, respectively, for
the
years ended January 31, 1996 and 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>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
TAX-FREE MONEY MARKET FUND
YEAR ENDED PERIOD ENDED
1/31/96 1/31/95*
<S> <C> <C>
Net asset value, beginning of period $1.00 $1.00
Net investment income (1) 0.0361 0.0030
Dividends from net investment income (0.0361) (0.0030)
Net asset value, end of period $1.00 $1.00
Total return (2) 3.69% 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 3.61% 2.74%(3)
Ratio of operating expenses to average net assets (4) 0.43% 0.41%(3)
<FN>
* The Class B Shares commenced operations on December 30, 1994 with
respect to
the Tax-Free Money Market Fund.
(1) Net investment income per share 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 $0.0344 for the fiscal year ended January 31, 1996 and $0.0009 for
the
period 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 0.60% for the fiscal year ended January 31, 1996 and 0.63% for the
period ended January 31, 1995 for the Tax-Free Money Market Fund.
(5) Total net assets for Class B Shares were $100 at January 31, 1996
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 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 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 and Treasury Instruments
Money
Market Fund II 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).
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 invests solely in direct
obligations of the U.S. Treasury, such as Treasury bills and notes, and in
repurchase agreements relating to direct Treasury obligations. The Fund
will
purchase obligations of agencies or instrumentalities of the U.S.
Government.
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. Tax-Free Money
Market
Fund
will not invest in securities the income from which may be a specific tax
preference item for purposes of federal individual and corporate alternative
minimum tax. The Funds also have the ability to enter into repurchase
agreements. Absent emergency or extraordinary circumstances, however,
neither
Fund presently intends to engage in repurchase transactions, unless such
transactions would not generate taxable income to such Funds.
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.
Each Fund generally may not invest more than 5% of its total assets in the
securities of any one issuer except that the Funds may invest more than 5%
(but
no more than 25%) of the then-current value of the Fund's total assets in
First
Tier Eligible Securities of a single issuer for a period of up to three
business
days.
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 or are issued by issuers
located
in the same state, 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) 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 or
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 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 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
Each 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 one-third of the value of the Fund's total
assets
(including the amount borrowed) less liabilities (other than borrowings).
WHEN-ISSUED SECURITIES
The Funds (other than 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.
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 and Treasury Instruments Money Market
Fund II
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 of U.S.
Treasury
bills with comparable maturities. In accordance with Rule 2a-7, the Funds'
investments in STRIPS are limited to those with maturity components not
exceeding thirteen months.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities up to one-third of the value of its
total assets to U.S. and foreign broker/dealers, banks or other institutional
borrowers of securities that the Adviser has determined are creditworthy
under
guidelines established by the Board of Trustees. The Funds will receive
collateral in the form of cash, letters of credit, or securities of the U.S.
government or its agencies 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. 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 personal income taxes of any state or, with respect to the
Municipal
Money Market Fund, from the federal alternative minimum tax). 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
may be held by the Municipal Money Market Fund and 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 industrial
development bonds or, with respect to the Municipal Money Market Fund,
private
activity 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 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.
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 for
temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject
to
specific authorization by the SEC, from funds advised by the Adviser or an
affiliate of the Adviser, and (ii) engage in reverse repurchase agreements;
provided that (i) and (ii) in combination do not exceed one-third of the
value
of the Fund's total assets (including the amount borrowed) less liabilities
(other than borrowings). The Funds may not mortgage, pledge or
hypothecate any
assets except in connection with such borrowings and reverse repurchase
agreements and then only in amounts not exceeding one-third of the value
of
the
particular Fund's total assets at the time of such borrowing. Additional
investments will not be made by the Funds when borrowings exceed 5% of
the
Fund's assets.
2. Purchase any securities which would cause 25% or more of the value
of
its total assets at the time of such purchase to be invested in the securities
of one of 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.
3. Make loans except that a Fund may (i) purchase or hold debt
obligations
in accordance with its investment objective and policies, (ii) enter into
repurchase agreements for securities, (iii) lend portfolio securities and (iv)
with the exception of Government Obligations Money Market Fund,
subject to
specific authorization by the SEC, lend money to other funds advised by
the
Adviser or an affiliate of the Adviser.
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.
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 the New York Stock Exchange 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[SM]").
Purchases
of
shares will be effective and dividends will begin to accrue on the date of
purchase if purchase orders comply with the following schedule.
- ------------------------------------------------------------------------------
- --
- -
Order Must Payment Must Be
Received By*+ Received By*+
Prime Money Market Fund, 3:00 P.M. 4:00 P.M.
Prime Value Money Market Fund,
Government Obligations Money Market Fund
and Treasury Instruments Money Market Fund II
Tax-Free Money Market Fund Noon 4:00 P.M.
and Municipal Money Market Fund#
- ------------------------------------------------------------------------------
- --
- -
______________________
* All times stated are Eastern time.
+ Please note that the securities markets for money market instruments
may
close early due to an upcoming holiday or other unusual circumstances
which may affect Fund trading hours.
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.
Redemption Procedures
Redemption orders must be transmitted to Lehman Brothers by telephone
at 1-
800-851-3134 or through LEX[SM] on a day that both the New York
Stock Exchange
and the Federal Reserve Bank of Boston are open for business. Payment
for
redeemed shares will be made according to the following schedule.
- ------------------------------------------------------------------------------
- --
- -
Order Must Be
Received By*+ Payment Made
Prime Money Market Fund, 3:00 P.M. Same Business Day
Prime Value Money Market Fund,
Government Obligations Money Market Fund
and Treasury Instruments Money Market Fund II
Tax-Free Money Market Fund Noon Same Business Day
and Municipal Money Market Fund
- ------------------------------------------------------------------------------
- --
- -
* All times stated are Eastern time.
[/R]
+ Please note that the securities markets for money market instruments
may
close early due to an upcoming holiday or other unusual circumstances
which
may affect Fund trading hours.
[/R]
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 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 upon opening of an
investors
account with the Funds. 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 First Data Investor Services Group, Inc. ("FDISG")
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. 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. Accordingly, the investor will bear
the
risk of loss if the Trust follows reasonable procedures. 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[SM]. 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 current prospectus of the Funds. 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 the New York Stock
Exchange
or the Federal Reserve Bank of Boston is closed, according to the
following
schedule.
- ------------------------------------------------------------------------------
- --
- -
NET ASSET VALUE
CALCULATED*
Prime Money Market Fund, Noon, 3:00 P.M., 4:00 P.M.
Prime Value Money Market Fund,
Government Obligations Money Market Fund
and Treasury Instruments Money Market Fund II
Tax-Free Money Market Fund Noon, 4:00 P.M.
and Municipal Money Market Fund
- ------------------------------------------------------------------------------
- --
- -
* All times stated are Eastern time.
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.
Currently, one or both of the New York Stock Exchange 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.
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 date of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is effective 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.
FDISG, 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 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 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.
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 taxable 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 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.
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
February
16, 1996, Prudential Asset Management beneficially owned approximately
8.9%,
FMR
Corp. beneficially owned approximately 7.3%, and Nippon Life Insurance
Company
beneficially owned approximately 5.5% 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 serves as investment adviser to investment companies
and
private
accounts and has assets under management of approximately $5.8 billion as
of
May
3, 1996.
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
each
Fund at the annual rate of .20% of the value of the Fund's average daily net
assets.
ADMINISTRATOR AND TRANSFER AGENT _ FIRST DATA
INVESTOR
SERVICES GROUP, INC.
FDISG (formerly named The Shareholder Services Group, Inc.), located
at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109, serves as
each
Fund's Administrator and Transfer Agent. FDISG is a wholly-owned
subsidiary of
First Data Corporation. As Administrator, FDISG 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 FDISG's services as
Administrator, FDISG 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.
FDISG
is also entitled to receive a fee from the Funds for its services as Transfer
Agent. FDISG 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, FDISG 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 FDISG 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 FDISG 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 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, 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 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 (.18% excluding Rule 12b-1 fees) with
respect
to the Funds. This voluntary waiver and reimbursement arrangement 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 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 a
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], THE WALL STREET JOURNAL and
THE NEW
YORK TIMES; reports
prepared by Lipper Analytical Services, 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 seven 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 and Tax-Free Money Market
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
(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[SM] Help Desk 800-566-5LEX
LEHMAN BROTHERS
LBP-201B6
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, six of which are described in this Prospectus
(individually, a "Fund" and collectively, the "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
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,
1996,
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 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 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, 1996.
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
MAY 30, 1996
PROSPECTUS
<TABLE>
TABLE OF CONTENTS
<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 9
Investment Limitations 14
Purchase and Redemption of Shares 15
Dividends 17
Taxes 18
Management of the Funds 19
Performance and Yields 21
Description of Shares and Miscellaneous 21
</TABLE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION
INCORPORATED HEREIN
DESCRIBE THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS,
CONTRACTS AND OTHER
MATTERS RELATING TO THE FUNDS' CLASS C SHARES.
INVESTORS
WISHING TO OBTAIN
SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
CLASSES MAY
OBTAIN SEPARATE
PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN
BROTHERS
AT 1-800-368-5556.
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are summarized below. See
"Investment
Objectives and Policies" beginning on page 7 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.
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." The Fund will not purchase securities
the
income from which may be a specific tax preference item for purposes of
federal
individual and corporate alternative minimum tax.
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.
BACKGROUND AND EXPENSE INFORMATION
Each 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 from 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.
<TABLE>
EXPENSE SUMMARY
CLASS C SHARES
<CAPTION>
GOVERNMENT
PRIME PRIME VALUE
OBLIGATIONS
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 .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
INSTRUMENTS
MONEY TAX-FREE MUNICIPAL
MARKET FUND MONEY MONEY
II 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% .03%
.06%
Rule 12b-1 fees .35% .35% .35%
Other Expenses _ including Administration
Fees .08% .15%
.12%
Total Fund Operating Expenses (after fee
waivers and/or expense reimbursement) 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 currently in effect for each Fund's fiscal year
ending January 31, 1997.
</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 .53% of average daily net assets (.18% excluding Rule 12b-1
fees)
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 are .20% and .10%, respectively,
of
the
average daily net assets of the Funds. Absent fee waivers and expense
reimbursements, the Total Fund Operating Expenses of Class C Shares are
expected
to be as follows:
Percentage of Average Daily
Net Assets
Prime Money Market Fund .70%
Prime Value Money Market Fund .70%
Government Obligations Money Market Fund .79%
Treasury Instruments Money Market Fund II .70%
Tax-Free Money Market Fund .80%
Municipal Money Market Fund .77%
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the Class C Shares:
1 Year 3 Years 5 Years 10 Years
$5 $17 $30 $66
THE FOREGOING SHOULD NOT BE CONSIDERED A
REPRESENTATION OF
ACTUAL EXPENSES AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESS THAN
THOSE
SHOWN.
<TABLE>
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January 31,
1996
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, 1996. 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 in the Statement of Additional
Information. As of January 31, 1996 Class C Shares of the Funds, other
than
Prime Money Market Fund, Government Obligations Money Market Fund,
and
Municipal
Money Market Fund, had not been offered to the public. 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, 1996 which are available
on
request. Financial information with respect to Class B Shares of such Funds
except Municipal Money Market Fund is included in that Class' prospectus
and
the
Trust's Annual Report dated January 31, 1996 which are available upon
request.
<CAPTION>
GOVERNMENT
MUNICIPAL
OBLIGATIONS
MONEY
MONEY
MARKET
PRIME MONEY MARKET FUND MARKET
FUND FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
YEAR ENDED
YEAR ENDED PERIOD ENDED
1/31/96 1/31/951/31/94*1/31/96 1/31/95*
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00
Net investment income (1) 0.0557 0.0407 0.0001 0.0432
0.0284
Less distributions:
Dividends from net investment income (0.0557)(0.0407) (0.0001)
(0.0432) (0.0284)
Distributions from net realized gains _ _ _ _
(0.0000)**
Total distributions (0.0557) (0.0407)(0.0001) (0.0432)
(0.0284)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00
Total return (2) 5.71% 4.14% _(5) 4.40% 2.88%
Ratios to average net assets/
supplemental data:
Net assets, end of
period (in 000's) $13,255$ 7,245 _(6) $ 2,706 $
1,969
Ratio of net investment income
to average net assets 5.55% 3.95% 2.81%(3)
5.47%(3)
3.60%(3)
Ratio of operating expenses to
average net assets (4) 0.52% 0.47% 0.46%(3)
0.53%(3) 0.53%(3)
<FN>
* The Class C Shares commenced operations on December 27, 1993 for
Prime Money
Market Fund#; April 18, 1995 for Government Obligations Money
Market Fund#;
and April 18, 1995 for Municipal Money Market Fund.
**Amount represents less than $0.0001 per share.
(1) Net investment income per share 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 $0.0548 and $0.0393, respectively, for the years ended January 31,
1996
and 1995 and $0.0001 for the period ended January 31, 1994 for the
Prime
Money Market Fund; $0.0421 for the period ended January 31, 1996 for
the
Government Obligations Money Market Fund; and $0.0275 for the period
ended
January 31, 1996 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 C
Shares
were 0.60% and 0.60%, respectively, for the years ended January 31,
1996 and
1995 and 0.68% for the period ended January 31, 1994 for the Prime
Money
Market Fund; 0.67% for the period ended January 31, 1996 for the
Government
Obligations Money Market Fund; and 0.65% for the period ended January
31,
1996 for the Municipal Money Market Fund.
(5) All Class C Shares of the Prime Money Market Fund offered to the
public
on December 27, 1993 were redeemed on December 28, 1993; therefore,
total
return deemed not to be meaningful.
(6) Total net assets for Class C Shares of the Prime Money Market Fund
were
$100 at January 31, 1994.
</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.
The 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 AND
TREASURY
INSTRUMENTS MONEY
MARKET FUND II 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).
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 invests solely in direct
obligations of the U.S. Treasury, such as Treasury bills and notes, and in
repurchase agreements relating to direct Treasury obligations. The Fund
will
purchase obligations of agencies or instrumentalities of the U.S.
Government.
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. Tax-Free Money Market Fund will not invest in
securities
the income from which may be a specific tax preference item for purposes
of
federal individual and corporate alternative minimum tax. The Funds also
have
the ability to enter into repurchase agreements. Absent emergency of
extraordinary circumstances, however, neither Fund presently intends to
engage
in repurchase transactions, unless such transactions would not generate
taxable
income to such Funds.
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.
#Each Fund generally may not invest more than 5% of its total assets in
the
securities of any one issuer except that the Funds may invest more than 5%
(
but
no more than 25%) of the then-current value of the Fund's total assets in
First
Tier Eligible Securities of a single issuer for a period of up to three
business
days.
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 or are issued by issuers
located
in the same state, 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 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) 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 or
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 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 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
Each 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 one-third of the value of the Fund's total
assets
(including the amount borrowed) less liabilities (other than borrowings).
WHEN-ISSUED SECURITIES
The Funds (other than 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.
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 and Treasury Instruments Money Market
Fund II
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 of U.S.
Treasury
bills with comparable maturities. In accordance with Rule 2a-7, the Funds'
investments in STRIPS are limited to those with maturity components not
exceeding thirteen months.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities up to one-third of the value of its
total assets to U.S. and foreign broker/dealers, banks or other institutional
borrowers of securities that the Adviser has determined are credit worthy
under
guidelines established by the Board of Trustees. The Funds will receive
collateral in the form of cash, letters of credit, or securities of the U.S.
Government or its agencies 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. 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 personal income taxes of any state or, with respect to the
Municipal
Money Market Fund, from the federal alternative minimum tax). 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
may be held by the Municipal Money Market Fund and 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 industrial
development bonds, or with respect to the Municipal Money Market Fund,
private
activity 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 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.
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 for
temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject
to
specific authorization by the SEC, from funds advised by the Adviser or an
affiliate of the Adviser, and (ii) engage in reverse repurchase agreements;
provided that (i) and (ii) in combination do not exceed one-third of the
value
of the Fund's total assets (including the amount borrowed) less liabilities
(other than borrowings). The Funds may not mortgage#, pledge or
hypothecate
any
assets except in connection with such borrowings and reverse repurchase
agreements and then only in amounts not exceeding
one-third of the value of the particular Fund's total assets at the time of
such
borrowing. Additional investments will not be made by a Fund when
borrowings
exceed 5% of the Fund's assets.
2. Purchase any securities which would cause 25% or more of the value
of its
total assets at the time of 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.
3. Make loans except that a Fund may (i) purchase or hold debt
obligations
in
accordance with its investment objective and policies, (ii) enter into
repurchase agreements for securities, (iii) lend portfolio securities and (iv)
with the exception of Government Obligations Money Market Fund,
subject to
specific authorization by the SEC, lend money to other funds advised by
the
Adviser or an affiliate of the Adviser.
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.
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 the New York Stock Exchange 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[SM]").
Purchases
of
shares will be effective and dividends will begin to accrue on the date of
purchase if purchase orders comply with the following schedule.
Order Must Payment Must Be
Received By*+ Received By*+
Prime Money Market Fund, 3:00 P.M. 4:00 P.M.
Prime Value Money Market Fund,
Government Obligations Money Market Fund
and Treasury Instruments Money Market Fund II
Tax-Free Money Market Fund Noon 4:00 P.M.
and Municipal Money Market Fund#
- ------------------------------------------------------------------------------
- --
* All times stated are Eastern time.
+ Please note that the securities markets for money market instruments
may
close early due to an upcoming holiday or other unusual circumstances
which
may affect Fund trading hours.
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.
REDEMPTION PROCEDURES
- ------------------------------------------------------------------------------
- --
- -
Order Must Payment Must Be
Received By*+ Received By*+
Prime Money Market Fund, 3:00 P.M. Same Business Day
Prime Value Money Market Fund,
Government Obligations Money Market Fund
and Treasury Instruments Money Market Fund II
Tax-Free Money Market Fund Noon Same Business Day
and Municipal Money Market Fund#
- ------------------------------------------------------------------------------
- --
Redemption orders must be transmitted to Lehman Brothers by telephone
at 1-
800-851-3134 or through LEX[SM] on a day that both the New York
Stock Exchange
and the Federal Reserve Bank of Boston are open for business. Payment
for
redeemed shares will be made according to the following schedule.
* All times stated are Eastern time.
#+Please note that the securities markets for money market instruments
may
close early due to an upcoming holiday or other unusual circumstances
which
may affect Fund trading hours.
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 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 upon opening of an
investor's account with the Funds. 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 First Data Investor Services Group, Inc.
("FDISG")
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. 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. Accordingly,
the
investor will bear the risk of loss if the Trust follows reasonable
procedures.
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[SM]. 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 current prospectus of the Funds. 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 the New York Stock
Exchange
or the Federal Reserve Bank of Boston is closed, according to the
following
schedule.
* All times stated are Eastern time.
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.
Currently, one or both of the New York Stock Exchange 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.
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 date of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is effective 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.
FDISG, 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 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 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.
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 taxable 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. 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.
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,
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
February
16, 1996, Prudential Asset Management beneficially owned approximately
8.9%,
FMR
Corp. beneficially owned approximately 7.3%, and Nippon Life Insurance
Company
beneficially owned approximately 5.5% 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 serves as investment adviser to investment companies
and
private
accounts and has assets under management of approximately $#5.8# billion
as of
#May 3#, 1996.
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
each
Fund at the annual rate of .20% of the value of the Fund's average daily net
assets.
ADMINISTRATOR AND TRANSFER AGENT _ FIRST DATA
INVESTOR
SERVICES GROUP, INC.
FDISG (formerly named The Shareholder Services Group, Inc.), located
at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109, serves as
each
Fund's Administrator and Transfer Agent. FDISG is a wholly-owned
subsidiary of
First Data Corporation. As Administrator, FDISG 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 FDISG's services as
Administrator, FDISG 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.
FDISG
is also entitled to receive a fee from the Funds for its services as Transfer
Agent. FDISG 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, FDISG 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 FDISG 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 FDISG 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, 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 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 (.18% excluding Rule 12b-1 fees) with
respect
to the Funds. This voluntary waiver and reimbursement arrangement 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 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 a
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,, The Wall Street Journal and The New York Times; reports
prepared
by Lipper Analytical Services, 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 and Tax-Free Money Market
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
(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[SM] Help Desk 800-566-5LEX
LEHMAN BROTHERS
LBP-200B6
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, six of which are described in this
Prospectus (individually, a "Fund" and collectively, the "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
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, 1996, 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 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 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, 1996.
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
MAY 30, 1996
PROSPECTUS
TABLE OF CONTENTS
Page
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
17
Taxes
18
Management of the Funds
19
Performance and Yields
20
Description of Shares and Miscellaneous
21
THIS PROSPECTUS AND THE STATEMENT OF
ADDITIONAL
INFORMATION INCORPORATED
HEREIN DESCRIBE THE INVESTMENT OBJECTIVES AND
POLICIES,
OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE FUNDS' CLASS E
SHARES.
INVESTORS WISHING TO
OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER CLASSES
MAY OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY
CONTACTING LEHMAN
BROTHERS AT
1-800-368-5556.
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.
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." The Fund will not purchase
securities
the income from which may be a specific tax preference item for purposes
of
federal individual and corporate alternative minimum tax.
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.
BACKGROUND AND EXPENSE INFORMATION
Each 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 from Class E 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 1-800-568-5556.
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 E Shares, which
fees are not reflected in the table below. For more complete descriptions
of
the various costs and expenses, see "Management of the Funds" in this
Prospectus and the Statement of Additional Information.
Expense Summary
Class E Shares
Prime
Money
Market
Fund
Prime
Value
Money
Market
Fund
Government
Obligation
s Money
Market
Fund
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%
Treasury
Instrument
s Money
Market
Fund
II
Tax-Free
Money
Market
Fund
Municipal
Money
Market
Fund
Annual Operating Expenses*
(as a percentage of average net
assets)
Advisory Fees (net of applicable
fee waivers)
.10%
.03%
.06%
Rule 12b-1 fees
.15%
.15%
.15%
Other Expenses - including
Administration Fees
.08%
.15%
.12%
Total Fund Operating Expenses
(after fee waivers and/or expense
reimbursement)
.33%
.33%
.33%
*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 currently in effect for each Fund's fiscal year
ending January 31, 1997.
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 (.18% excluding Rule 12b-1
fees)
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 are .20% and .10%, respectively,
of
the average daily net assets of the Funds. Absent fee waivers and expense
reimbursements, the Total Fund Operating Expenses of Class E Shares are
expected to be as follows:
Percentage of Average
Daily Net Assets
Prime Money Market Fund
.50%
Prime Value Money Market Fund
.50%
Government Obligations Money Market Fund
.59%
Treasury Instruments Money Market Fund II
.50%
Tax-Free Money Market Fund
.60%
Municipal Money Market Fund
.57%
___________________
Example: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the Class E Shares:
1 Year
3 Years
5 Years
10 Years
$3
$11
$19
$42
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, 1996 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, 1996. 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 in
the Statement of Additional Information. As of January 31, 1996, Class E
Shares of the
Funds, other than Prime
Money Market Fund and Government Obligations Money Market Fund,
had not been
offered to the public.
Accordingly, no financial information is provided with respect to such
shares. Financial
information with respect
to Class A Shares of such Funds, Class B Shares of such Funds except
Municipal Money
Market Fund, and Class
C Shares of such Funds except Prime Value Money Market Fund and Tax-
Free Money
Market Fund is included in
each Class' prospectus and the Trust's Annual Report dated January 31,
1996, which are
available upon request.
Prime Money Market Fund
Government
Obligations
Money Market Fund
Year Ended
Period Ended
Period Ended
1/31/96
1/31/95*
1/31/96*
Net asset value, beginning of period
$1.00
$1.00
$1.00
Net investment income (1)
0.0577
0.0165
0.0173
Dividends from net investment income
(0.0577)
(0.0165)
(0.0173)
Net asset value, end of period
$1.00
$1.00
$1.00
Total return (2)
5.94%
1.66%
1.74%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's)
$11,811
$8,318
- -- (5)
Ratio of net investment income to
average net assets
5.75%
4.15%(3)
5.67%(3)
Ratio of operating expenses to
average net assets (4)
0.32%
0.27%(3)
0.33%(3)
* The Class E Shares commenced operations on October 6, 1994
with respect
to Prime Money Market Fund and October 10, 1995 with respect to
Government
Obligations Money Market Fund.
(1) Net investment income per share 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 $0.0568 for the year ended January 31, 1996 and $0.0160 for the
period
ended January 31, 1995 for the Prime Money Market Fund and $0.0168
for the
period ended January 31, 1996 for the Government Obligations Money
Market
Fund.
(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
0.40% for the year ended January 31, 1996 and 0.39% for the period ended
January 31, 1995 for the Prime Money Market Fund and 0.47% for the
period
ended January 31, 1996 for the Government Obligations Money Market
Fund.
(5) Total net assets for Class E Shares were $100 at January 31, 1996
for
the Government Obligations Money Market Fund.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general policies of each Fund are
described below. Specific investment techniques that may be employed by
the
Funds are described in a separate section of this Prospectus. See "Portfolio
Instruments and Practices." Differences in objectives and policies among
the
Funds, differences in the degree of acceptable risk, and tax considerations
are some of the factors that can be expected to affect the investment return
of each Fund. Because of such factors, the performance results of the
Funds
may differ even though more than one Fund may utilize the same security
selections.
Unless otherwise stated, the investment objectives and policies set
forth in this Prospectus are not fundamental and may be changed by the
Board
of Trustees without shareholder approval. If there is a change in the
investment objective and policies of any Fund, shareholders should
consider
whether the Fund remains an appropriate investment in light of their then-
current financial position and needs. The market value of certain fixed-rate
obligations held by the Funds will generally vary inversely with changes in
market interest rates. Thus, the market value of these obligations generally
declines when interest rates rise and generally rises when interest rates
decline. The Funds are subject to additional investment policies and
restrictions described in the Statement of Additional Information, some of
which are fundamental and may not be changed without shareholder
approval.
The 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 its 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 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 and Treasury
Instruments Money
Market Fund II 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).
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 invests solely in direct
obligations of the U.S. Treasury, such as Treasury bills and notes, and in
repurchase agreements relating to direct Treasury obligations. The Fund
will
not purchase obligations of agencies or instrumentalities of the U.S.
Government.
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. Tax-Free Money Market Fund will not invest 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. The
Funds also have the ability to enter into repurchase agreements. Absent
emergency or extraordinary circumstances, however, neither Fund
presently
intends to engage in repurchase transactions, unless such transactions
would
not generate taxable income to such Funds.
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.
Each Fund generally may not invest more than 5% of its total assets
in
the securities of any one issuer except that the Funds may invest more than
5%
(but no more than 25%) of the then-current value of the Fund's total assets
in
First Tier Eligible Securities of a single issuer for a period of up to three
business day.
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 or are
issued by issuers located in the same state, 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) 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 or
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 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 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
Each 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 one-
third of
the value of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings).
When-Issued Securities
The Funds (other than 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.
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 and Treasury Instruments Money Market
Fund II
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 of 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
Each 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 that the Adviser has determined are creditworthy under
guidelines
established by the Board of Trustees. The Funds will receive collateral in
the form of cash, letters of credit, or securities of the U.S. Government or
its agencies 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. 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 personal income taxes of any state or, with
respect to the Municipal Money Market Fund, from the federal alternative
minimum tax). 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 may be held by the Municipal Money Market Fund
and 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
industrial development bonds, or with respect to the Municipal Money
Market
Fund, private activity 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 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.
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
for
temporary or emergency purposes (not for leveraging or investment) from
banks,
or subject to specific authorization by the SEC, from funds advised by the
Adviser or an affiliate of the Adviser, and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not exceed one-
third
of the value of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings). The Funds may not mortgage, pledge or
hypothecate any assets except in connection with such borrowings and
reverse
repurchase agreements and then only in amounts not exceeding one-third
of the
value of the particular Fund's total assets at the time of such borrowing.
Additional investments will not be made by a Fund when borrowings
exceed 5% of
the Fund's assets.
2. Purchase any securities which would cause 25% or more of
the value
of its total assets at the time of 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.
3. Make loans except that a Fund may (i) purchase or hold
debt
obligations in accordance with its investment objective and policies, (ii)
enter into repurchase agreements for securities, (iii) lend portfolio
securities, and (iv) with the exception of Government Obligations Money
Market
Fund, subject to specific authorization by the SEC, lend money to other
funds
advised by the Adviser or an affiliate of the Adviser.
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.
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 the New York Stock Exchange 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 ("LEXSM"). Orders for the purchase of shares must be made
according to
the following schedule. Purchases of shares will be effective and dividends
will begin to accrue on the date of purchase if purchase orders comply with
the following schedule.
Order Must Be
Received By*
Payment Must Be
Received By*
Prime Money Market Fund,
Prime Value Money Market Fund,
Government Obligations Money
Market Fund
and Treasury Instruments Money
Market Fund II
3:00 P.M.
4:00 P.M.
Tax-Free Money Market Fund
and Municipal Money Market Fund
Noon
4:00 P.M.
* All times stated are Eastern time.
Please note that the securities markets for money market
instruments may close early due to an upcoming holiday or other
unusual
circumstances which may affect Fund trading hours.
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.
Redemption Procedures
Redemption orders must be transmitted to Lehman Brothers by
telephone at
1-800-851-3134 or through "LEXSM" on a day that both the New York
Stock
Exchange and the Federal Reserve Bank of Boston are open for business.
Payment for redeemed shares will be made according to the following
schedule.
Order Must
Be
Received By*
Payment Made
Prime Money Market Fund,
Prime Value Money Market Fund,
Government Obligations Money
Market Fund and Treasury
Instruments Money Market Fund II
3:00 P.M.
Same Business
Day
Tax-Free Money Market Fund and
Municipal Money Market Fund
Noon
Same Business
Day
* All times stated are Eastern time.
Please note that the securities markets for money market
instruments may close early due to an upcoming holiday or other
unusual
circumstances which may affect Fund trading hours.
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 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 upon opening
of
an investor's account with the Funds. 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 First Data Investor Services
Group,
Inc. ("FDISG") 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. 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. Accordingly, the investor will bear the risk of loss if the
Trust follows reasonable procedures. 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 "LEXSM". 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 current prospectus of the
Funds.
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 the New
York
Stock Exchange or the Federal Reserve Bank of Boston is closed,
according to
the following schedule.
Net Asset Value
Calculated*
Prime Money Market Fund,
Prime Value Money Market Fund,
Government Obligations Money
Market Fund
and Treasury Instruments Money
Market Fund II
Noon, 3:00 P.M., 4:00
P.M.
Tax-Free Money Market Fund
and Municipal Money Market Fund
Noon, 4:00 P.M.
*All times stated are Eastern time.
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.
Currently, one or both of the New York Stock Exchange 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.
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
date of declaration. Shares begin accruing dividends on the day the
purchase
order for the shares is effective 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.
FDISG, 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 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
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.
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 taxable income 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 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.
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, 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
February 16, 1996, Prudential Asset Management beneficially owned
approximately 8.9%, FMR Corp. beneficially owned approximately 7.3%,
and
Nippon Life Insurance Company beneficially owned approximately 5.5% 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 serves as investment adviser to investment
companies and
private accounts and has assets under management of approximately $5.8
billion
as of May 3, 1996.
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 each Fund at the annual rate of .20% of the value of the
Fund's average daily net assets.
Administrator and Transfer Agent - First Data Investor Services Group,
Inc.
FDISG (formerly named The Shareholder Services Group, Inc.),
located at
One Exchange Place, 53 State Street, Boston, Massachusetts 02109, serves
as
each Fund's Administrator and Transfer Agent. FDISG is a wholly-owned
subsidiary of First Data Corporation. As Administrator, FDISG 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 FDISG's
services as Administrator, FDISG 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. FDISG is also entitled to receive a fee from the Funds for
its services as Transfer Agent. FDISG 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, FDISG 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 FDISG 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 FDISG 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.
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 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 (.18% excluding Rule 12b-1
fees)
with respect to the Funds. This voluntary waiver and reimbursement
arrangement 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 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 a 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 Reportr, The Wall Street Journal and The
New York
Times; reports prepared by Lipper Analytical Services, 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 seven 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, and Tax-
Free Money
Market 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 pm 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
LEXSM Help Desk 800-556-5LEX
LEHMAN BROTHERS
LBP-203B6
22
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, 1996
This Statement of Additional Information is
meant to be read in conjunction with the Prospectuses
for the Prime Money Market Fund and Prime Value Money
Market Fund portfolios dated May 30, 1996, 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
P
a
g
e
The Trust
2
Investment Objective and
Policies
2
Additional Purchase and
Redemption Information
7
Management of the Funds
9
Additional Information
Concerning Taxes
1
7
Dividends
1
8
Additional Yield Information
1
8
Additional Description
Concerning Fund Shares
2
0
Counsel
2
0
Independent Auditors
2
1
Financial Statements
2
1
Miscellaneous
2
1
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 subsequently
may be required 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 Funds expect
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 that the Fund may (i)
borrow money for temporary or emergency purposes (not
for leveraging or investment) from banks or, subject
to specific authorization by the SEC, from funds
advised by the Adviser or an affiliate of the
Adviser, and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination
do not exceed one-third of the value of the
particular Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).
A Fund may not mortgage, pledge, or hypothecate its
assets except in connection with such borrowings and
reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the
particular Fund's total assets. 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 a Fund may (i) purchase
or hold debt obligations in accordance with its
investment objective and policies, (ii) enter into
repurchase agreements for securities, (iii) lend
portfolio securities, and (iv) subject to specific
authorization by the SEC, lend money to other funds
advised by the Adviser or an affiliate of the
Adviser.
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 15% (or such lesser amount
as set by state securities laws) 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 consider
promptly 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
Addre
ss
Pos
iti
on
wit
h
the
Tru
st
Principal
Occupations
During Past
5
Years and
Other
Affiliations
JAMES
A.
CARBO
NE
(1)
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
43
Co-
Cha
irm
an
of
the
Boa
rd
and
Tru
ste
e
Managing
Director,
Lehman
Brothers.
ANDRE
W
GORDO
N (1)
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
42
Co-
Cha
irm
an
of
the
Boa
rd,
Tru
ste
e
and
Pre
sid
ent
Managing
Director,
Lehman
Brothers.
CHARL
ES
BARBE
R (2)
(3)
66
Glenw
ood
Drive
Green
wich,
CT
06830
Age:
78
Tru
ste
e
Consultant;
formerly
Chairman of
the Board,
ASARCO
Incorporated
.
BURT
N.
DORSE
TT (2
)(3)
201
East
62nd
Stree
t
New
York,
NY
10022
Age:
65
Tru
ste
e
Managing
Partner,
Dorsett
McCabe
Capital
Management,
Inc., an
investment
counseling
firm;
Director,
Research
Corporation
Technologies
, a
non-profit
patent-clear
ing 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.
EDWAR
D J.
KAIER
(2)(
3)
1100
One
Penn
Cente
r
Phila
delph
ia,
PA
19103
Age:
50
Tru
ste
e
Partner with
the law firm
of Hepburn
Willcox
Hamilton &
Putnam.
S.
DONAL
D
WILEY
(2)(
3)
USX
Tower
Pitts
burgh
, PA
15219
Age:
69
Tru
ste
e
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.
WINTE
RS
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
46
Vic
e
Pre
sid
ent
and
Inv
est
men
t
Off
ice
r
Senior Vice
President
and Senior
Money Market
Portfolio
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.;
formerly
Product
Manager with
Lehman
Brothers
Capital
Markets
Group.
NICHO
LAS
RABIE
CKI
III
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
39
Vic
e
Pre
sid
ent
and
Inv
est
men
t
Off
ice
r
Vice
President
and Senior
Portfolio
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.;
formerly
Senior
Fixed-Income
Portfolio
Manager with
Chase
Private
Banking.
MICHA
EL C.
KARDO
K
One
Excha
nge
Place
Bosto
n, MA
02109
Age:
36
Tre
asu
rer
Vice
President,
First Data
Investor
Services
Group, Inc.;
prior to May
1994, Vice
President,
The Boston
Company
Advisors,
Inc.
PATRI
CIA
L.
BICKI
MER
One
Excha
nge
Place
Bosto
n, MA
02109
Age:
42
Sec
ret
ary
Vice
President
and
Associate
General
Counsel,
First Data
Investor
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. Carbone, Gordon, 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 or investment
adviser.
No employee of Lehman Brothers, the Adviser, or
First Data Investor Services Group, Inc. ("FDISG")
(formerly named The Shareholder Services Group,
Inc.), 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 FDISG 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, 1996, such
fees and expenses totaled $54,393 for the Prime Money
Market Fund and $43,139 for the Prime Value Money
Market Fund and $109,882 in the aggregate for the
Trust. As of January 31, 1996, 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, FDISG, 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,
1996. No executive officer or person affiliated with
the Trust received compensation from the Trust during
the fiscal year ended January 31, 1996 in excess of
$60,000.
COMPENSATION TABLE
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_____________
* 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, 1996 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 February 16, 1996, Nippon
Life Insurance Company beneficially owned
approximately 8.9%, FMR Corp. beneficially owned
approximately 7.3%, and Prudential Asset Management
beneficially owned approximately 5.5% 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 most recently approved by
the Trust's Board of Trustees, including a majority
of the Trust's "non-interested" Trustees, on December
5, 1995 and by shareholders on January 31, 1996. The
Investment Advisory Agreements commenced on February
1, 1996 and will continue until February 1, 1998
unless terminated or amended prior to that date
according to its terms. The Investment Advisory
Agreements will continue initially for a two-year
period and automatically for successive annual
periods thereafter 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).
Effective February 1, 1996, 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 .20% of the average
daily net assets of the Fund. Prior to February 1,
1996, the Adviser was 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 for the
fiscal years ended January 31, 1995 and 1996, the
Adviser was entitled to receive advisory fees in the
following amounts: the Prime Money Market Fund,
$1,165,899, $2,386,734 and $4,452,829, respectively,
and the Prime Value Money Market Fund, $1,106,003,
$1,858,719, and $2,885,657, 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;
$1,171,734 and $0, respectively, for the fiscal year
ended January 31, 1995; and $0 and $0, respectively,
for the fiscal year ended January 31, 1996; and the
Prime Value Money Market Fund, $1,106,003 and
$757,799, respectively, for the fiscal period ended
January 31, 1994; $1,388,554 and $0, respectively,
for the fiscal year ended January 31, 1995; and $0
and $0, respectively, for the fiscal year ended
January 31, 1996. In order to maintain competitive
expense ratios during 1996 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
On March 15, 1996, the principal holders of
Class A Shares of Prime Money Market Fund were as
follows: Harris Trust and Savings Bank, 200 West
Monroe Street, Chicago, IL 60606, 10.12% shares held
of record and Unisys Corporation, P.O. Box 500,
Township Line & Union Mtg. Road, Bluebell, PA 19424,
7.56% shares held of record. Principal holders of
Class B Shares of Prime Money Market Fund as of March
15, 1996 were as follows: Harris Trust and Savings
Bank, 200 West Monroe Street, Chicago, IL 60606,
53.29% shares held of record and Hare & Co., One Wall
Street, New York, New York 10286, 45.38% shares held
of record. Principal holders of Class C Shares of
Prime Money Market Fund as of March 15, 1996 were as
follows: FNB Nominee Bank, 614 Philadelphia Street,
Indiana, PA 15701, 89.52% shares held of record and
Gordon's Inc. 401K Retirement Plan, P.O. Box 291,
Jackson, MS 39205; 7.19% shares held of record. The
principal holder of Class E Shares as of March 15,
1996 was Heart Special Trust Account, 120 Wall
Street, New York, New York 10043, with 99.99% shares
held of record.
Principal holders of Class A Shares of Prime
Value Money Market Fund as of March 15, 1996 were as
follows: Northern Trust Cash Investment, 801 South
Canal Street, Chicago, IL 60607, 10.21% shares held
of record; Mellon Bank Securities Lending, 3 Mellon
Bank Center, Pittsburgh, PA 15259, 8.95% shares held
of record; and Thermo Electron Corporation, 81 Wyman
Street, Waltham, MA 02254, 7.89% shares held of
record. The principal holder of Class B Shares of
Prime Value Money Market Fund was Hare & Co., One
Wall Street, New York, New York 10286, 95.31% shares
held of record.
As of March 15, 1996, there were no investors in
Class C or Class 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
FDISG, 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, FDISG 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. FDISG 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.
FDISG 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, FDISG
acquired TBCA's third party mutual fund
administration business from Mellon, and each Fund's
administration agreement with TBCA was assigned to
FDISG. For the fiscal period ended January 31, 1994
and the fiscal years ended January 31, 1995 and 1996,
the Administrator was entitled to receive
administration fees in the following amounts: the
Prime Money Market Fund - $1,165,899, $2,386,734, and
$4,452,829, respectively, and the Prime Value Money
Market Fund - $1,106,003, $1,858,719, and $2,885,657,
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; $1,815,227 and
$0, respectively, for the fiscal year ended January
31, 1995; and $3,282,923 and $0, respectively, for
the fiscal year ended January 31, 1996; and the Prime
Value Money Market Fund - $1,106,003 and $192,939,
respectively, for the fiscal period ended January 31,
1994; $1,414,970 and $0, respectively, for the fiscal
period ended January 31, 1995; and $2,127,361 and $0,
respectively, for the fiscal year ended January 31,
1996. In order to maintain competitive expense
ratios during 1996 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, FDISG
maintains 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, FDISG 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 FDISG 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, 1996, the
following service fees were paid by Prime Money
Market Fund: Class B shares, $960,077; Class C
shares, $41,105; and Class E shares, $17,459. 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, 1996, the following service
fees were paid by Prime Value Money Market Fund:
Class B shares, $72,893; Class C shares, $0; and
Class E shares, $0. 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 FDISG 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 and 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 and 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, 1996,
the yields and effective yields for each of the Funds
were as follows:
7
- -
d
a
y
Y
i
e
l
d
7
- -
d
a
y
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
Prime Money
Market Fund
Class A
Shares
5
.
5
7
%
5
.
7
1
%
Class B
Shares
5
.
3
2
%
5
.
4
5
%
Class C
Shares
5
.
2
2
%
5
.
3
5
%
Class E
Shares
5
.
4
2
%
5
.
5
6
%
Class A
Shares*
5
.
5
0
%
5
.
6
4
%
Class B
Shares*
5
.
2
5
%
5
.
3
8
%
Class C
Shares*
5
.
1
5
%
5
.
2
7
%
Class E
Shares*
5
.
3
5
%
5
.
4
8
%
Prime Value
Money Market
Fund
Class A
Shares
5
.
5
9
%
5
.
7
4
%
Class B
Shares
5
.
3
4
%
5
.
4
7
%
Class C
Shares
5
.
2
4
%
5
.
3
7
%
Class E
Shares
5
.
4
4
%
5
.
5
8
%
Class A
Shares*
5
.
5
1
%
5
.
6
5
%
Class B
Shares*
5
.
2
6
%
5
.
3
9
%
Class C
Shares*
5
.
1
6
%
5
.
2
8
%
Class E
Shares*
5
.
3
6
%
5
.
4
9
%
* 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, respectively, than the net
yield of Class A Shares.
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 REPORTr
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 net
of waivers and expense reimbursements, 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 of 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, serves
as independent auditors to each Fund and renders 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, 1996 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, 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 which 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 which 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 possess the strongest
investment attributes are designated by the symbols
"Aa1," "A1," "Baa1," "Ba1," and "B1."
The following summarizes the ratings used by
Duff & Phelps for 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
averages.
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.
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, 1996
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, 1996, 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 16
Dividends 17
Additional Yield Information 17
Additional Description Concerning Fund 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.
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
subsequently may be required 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 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
accrued on all classes of the CMOs on a monthly,
quarterly, or semiannual basis. The Funds expect
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 that the Fund may (i) borrow
money for temporary or emergency purposes (not for
leveraging or investment) from banks or, subject to
specific authorization by the SEC, from funds advised
by the Adviser or an affiliate of the Adviser, and
(ii) engage in reverse repurchase agreements;
provided that (i) and (ii) in combination do not
exceed one-third of the value of the particular
Fund's total assets (including the amount borrowed)
less liabilities (other than borrowings). A Fund may
not mortgage, pledge, or hypothecate its assets
except in connection with such borrowings and reverse
repurchase agreements and then only in amounts not
exceeding one-third of the value of the particular
Fund's total assets. Additional investments will not
be made when borrowings exceed 5% of the Fund's
assets.
3. Make loans except that a 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) 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 15% (or such lesser amount
as set by state securities laws) 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 consider
promptly 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
Addres
s
Posi
tion
with
the
Trus
t
Principal
Occupations
During Past
5
Years and
Other
Affiliation
s
JAMES
A.
CARBON
E (1)
3
World
Financ
ial
Center
New
York,
NY
10285
Age:
43
Co-
Chai
rman
of
the
Boar
d
and
Trus
tee
Director,
Lehman
Brothers
Global
Asset
Management
K.K.;
Managing
Director,
Lehman
Brothers
Inc.;
formerly
Branch
Manager,
Lehman
Brothers
Japan Inc.;
formerly
Chairman,
Lehman
Brothers
Asia
Holdings
Limited;
and
formerly
Manager --
Debt
Syndicate,
Origination
& Corporate
Bonds,
Lehman
Brothers
Inc.
ANDREW
GORDON
(1)
3
World
Financ
ial
Center
New
York,
NY
10285
Age:
42
Co-
Chai
rman
of
the
Boar
d,
Trus
tee,
and
Pres
iden
t
Managing
Director,
Lehman
Brothers.
CHARLE
S F.
BARBER
(2)(3)
66
Glenwo
od
Drive
Greenw
ich,
CT
06830
Age:
78
Trus
tee
Consultant;
formerly
Chairman of
the Board,
ASARCO
Incorporate
d.
BURT
N.
DORSET
T (2)(
3)
201
East
62nd
Street
New
York,
NY
10022
Age:
65
Trus
tee
Managing
Partner,
Dorsett
McCabe
Capital
Management,
Inc., an
investment
counseling
firm;
Director,
Research
Corporation
Technologie
s, a
non-profit
patent-clea
ring and
licensing
operation;
formerly
President,
Westinghous
e 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
Philad
elphia
, PA
19103
Age:
50
Trus
tee
Partner
with the
law firm of
Hepburn
Willcox
Hamilton &
Putnam.
S.
DONALD
WILEY
(2)(3)
USX
Tower
Pittsb
urgh,
PA
15219
Age:
69
Trus
tee
Vice-Chairm
an and
Trustee,
H.J. Heinz
Company
Foundation;
prior to
October 199
0, Senior
Vice
President,
General
Counsel and
Secretary,
H.J. Heinz
Company.
JOHN
M.
WINTER
S
3
World
Financ
ial
Center
New
York,
NY
10285
Age:
46
Vice
Pres
iden
t
and
Inve
stme
nt
Offi
cer
Senior Vice
President
and Senior
Money
Market
Manager,
Lehman
Brothers
Global
Asset
Management,
Inc.;
formerly
Product
Manager
with Lehman
Brothers
Capital
Markets
Group.
NICHOL
AS
RABIEC
KI III
3
World
Financ
ial
Center
New
York,
NY
10285
Age:
39
Vice
Pres
iden
t
and
Inve
stme
nt
Offi
cer
Vice
President
and Senior
Portfolio
Manager,
Lehman
Brothers
Global
Asset
Management,
Inc.;
formerly
Senior
Fixed-
Income
Portfolio
Manager
with Chase
Private
Banking.
MICHAE
L C.
KARDOK
One
Exchan
ge
Place
Boston
, MA
02109
Age:
36
Trea
sure
r
Vice
President,
First Data
Investor
Services
Group,
Inc.; prior
to May
1994, Vice
President,
The Boston
Company
Advisors,
Inc.
PATRIC
IA L.
BICKIM
ER
One
Exchan
ge
Place
Boston
, MA
02109
Age:
42
Secr
etar
y
Vice
President
and
Associate
General
Counsel,
First Data
Investor
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. Carbone, Gordon, 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 and investment
adviser.
No employee of Lehman Brothers, the Adviser, or
First Data Investor Services Group, Inc. ("FDISG")
(formerly named The Shareholder Services Group,
Inc.), 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 FDISG 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, 1996,
such fees and expenses totaled $1,208 for the
Government Obligations Money Market Fund, $106 for
the Cash Management Fund, $7,219 for the Treasury
Instruments Money Market Fund II, and $109,882 for
the Trust in the aggregate. As of December 21, 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, FDISG, 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,
1996. No executive officer or person affiliated with
the Trust received compensation from the Trust during
the fiscal year ended January 31, 1996 in excess of
$60,000.
COMPENSATION TABLE
N
a
m
e
o
f
P
e
r
s
o
n
a
n
d
P
o
s
i
t
i
o
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A
g
g
r
e
g
a
t
e
C
o
m
p
e
n
s
a
t
i
o
n
f
r
o
m
t
h
e
T
r
u
s
t
P
e
n
s
i
o
n
o
r
R
e
t
i
r
e
m
e
n
t
B
e
n
e
f
i
t
s
A
c
c
r
u
e
d
a
s
P
a
r
t
o
f
T
r
u
s
t
E
x
p
e
n
s
e
s
E
s
t
i
m
a
t
e
d
A
n
n
u
a
l
B
e
n
e
f
i
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__________________________________
* 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, 1996 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 February 16, 1996, Nippon
Life Insurance Company beneficially owned
approximately 8.9%, FMR Corp. beneficially owned
approximately 7.3%, and Prudential Asset Management
beneficially owned approximately 5.5% 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 most recently approved by
the Trust's Board of Trustees, including a majority
of the Trust's "non-interested" Trustees, on December
5, 1995 and by shareholders on January 31, 1996. The
Investment Advisory Agreements commenced on February
1, 1996 and will continue until February 1, 1998
unless terminated or amended prior to that date
according to its terms. The Investment Advisory
Agreements will continue initially for a two-year
period and automatically for successive annual
periods thereafter 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).
Effective February 1, 1996, 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 .20% of the average
daily net assets of the Fund. Prior to February 1,
1996, the Adviser was entitled to a fee, computed
daily and paid monthly, at the annual rate of .10% of
the average net assets of the Fund. For the fiscal
period ended January 31, 1994 and the fiscal years
ended January 31, 1995 and 1996, the Adviser was
entitled to receive advisory fees in the following
amounts: the Government Obligations Money Market
Fund, $72,100, $86,255, and $87,394, respectively;
the Cash Management Fund, $27,323, $11,931, and
$2,930, respectively; and the Treasury Instruments
Money Market Fund II, $96,737, $357,350, and
$408,362, 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; $48,079 and $0, respectively, for the fiscal
year ended January 31, 1995, and $33,786 and $0,
respectively, for the fiscal year ended January 31,
1996; the Cash Management Fund, $27,323 and $130,650,
respectively, for the fiscal year ended January 31,
1994; $11,931 and $45,500, respectively, for the
fiscal year ended January 31, 1995; and $2,930 and
$37,850, respectively, for the fiscal year ended
January 31, 1996; and the Treasury Instruments Money
Market Fund II, $96,737 and $173,335, respectively
for the fiscal period ended January 31, 1994;
$231,451 and $0, respectively, for the fiscal year
ended January 31, 1995; and $29,151 and $0,
respectively, for the fiscal year ended January 31,
1996. In order to maintain competitive expense
ratios during 1996 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
On March 15, 1996, the principal holders of
Class A Shares of Government Obligations Money Market
Fund were as follows: Bank of Boston, 150 Royal
Street, Canton, MA 02021, 25.18% shares held of
record; The Commerce Insurance Company, 211 Main
Street, Webster, MA 01570, 18.13% shares held of
record; Oster & Co., P.O. Box 1338, Victoria, TX
77902, 16.71% shares held of record; New United Motor
Manufacturing, Inc., 45500 Fremont Blvd., Fremont, CA
94538, 8.91% shares held of record; FMCO FBO Cash
Management, One Financial Plaza, Holland, MI 49423,
6.31% shares held of record; Old Kent Bank and Trust
Company, Investment Management Division, Second Floor
Monroe Building, 111 Lyon N.W., Grand Rapids, MI
49503, 5.97% shares held of record; and Hardware
Wholesalers, Inc., 6502 Nelson Road, Fort Wayne, IN
46803, 5.87% shares held of record. The principal
holder of Class B Shares of Government Obligations
Money Market Fund as of March 15, 1996 was Hare &
Co., One Wall Street, New York, NY 10286, with
98.80% shares held of record. The principal holder
of Class C Shares of Government Obligations Money
Market Fund as of March 15, 1996 was FNB Nominee
Company, 614 Philadelphia Street, Indiana, PA 15701,
with 99.69% shares held of record.
As of March 15, 1996, there were no investors in
Class E Shares of Government Obligations Money Market
Fund and all outstanding shares were held by Lehman
Brothers.
Principal holders of Class A Shares of Treasury
Instruments Money Market Fund II as of March 15,
1996, were as follows: Health Care Service
Corporation, 233 N. Michigan Avenue, 10th Floor,
Chicago, IL 60601, 30.63% shares held of record; BSDT
as Escrow Agent for APEX Property and Track Exchange,
Inc., 1606Y, One Cabot Road, Medford, MA 02155,
16.52% shares held of record; LBF as Pledge for
Stratton Partners, 225 W. Washington Street, Chicago,
IL 60606, 7.58% shares held of record; State
Street/Securities Lending/Reinvested Earnings, 2
International Place, Boston, MA 02110, 7.56% shares
held of record; and Boston & Co., 3 Mellon Bank
Center, Pittsburgh, PA 15259, 7.10% shares held of
record. The principal holders of Class B shares of
Treasury Instruments Money Market Fund II as of March
15, 1996 were as follows: HCA/Federal Settlement
Escrow Account, 77 Water Street, New York, New York
10005, 73.61% shares held of record; and Harris Trust
Co. of NY as agent for Dolco Packaging, 77 Water
Street, New York, NY 10005, 12.28% shares held of
record. The principal holder of Class C Shares of
Treasury Instruments Money Market Fund II as of March
15, 1996 was Perusahaan Petambangan Minyak Dan Gas
Bumi Negara (Pertamina), 350 Park Avenue, New York,
NY 10022-6022, with 99.99% shares held of record.
As of March 15, 1996, there were no investors in
the Class E Shares of Treasury Instruments Money
Market Fund II and all outstanding shares were held
by Lehman Brothers.
Principal holders of Class A Shares of Cash
Management Fund as of March 15, 1996 were as follows:
Sammons Enterprises Inc., One Midland Plaza, Sioux
Falls, SD 57193, 82.49% shares held of record; and
Lehman Brothers Inc, 200 Vesey St, 28th Floor, New
York, NY 10285, 17.50% shares held of record.
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
FDISG, 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, FDISG 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. FDISG 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.
FDISG 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, FDISG acquired TBCA's third party mutual fund
administration business from Mellon, and each Fund's
administration agreement with TBCA was assigned to
FDISG. For the fiscal period ended January 31, 1994
and the fiscal years ended January 31, 1995 and 1996
the Administrator was entitled to receive
administration fees in the following amounts: the
Government Obligations Money Market Fund, $72,100,
$86,255, and $87,394, respectively; the Cash
Management Fund, $27,323, $11,931, and $2,930,
respectively; and the Treasury Instruments Money
Market Fund II, $96,737, $357,350, and 408,362,
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; $64,842 and $0, respectively, for the fiscal
year ended January 31, 1995; and $64,488 and $0 for
the fiscal year ended January 31, 1996; the Cash
Management Fund, $27,323 and $9,381, respectively,
for the fiscal period ended January 31, 1994; $9,110
and $0, respectively, for the fiscal year ended
January 31, 1995; and $2,165 and $0 for the fiscal
year ended January 31, 1996; and the Treasury
Instruments Money Market Fund II, $96,737 and
$42,443, respectively, for the fiscal period ended
January 31, 1994; $269,369 and $0, respectively, for
the fiscal year ended January 31, 1995; and $301,631
and $0 for the fiscal year ended January 31, 1996.
In order to maintain competitive expense ratios
during 1996 and thereafter, 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, FDISG
maintains 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, FDISG 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 FDISG 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, 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, 1996, the
following service fees were paid by Government
Obligations Money Market Fund: Class B shares,
$26,709; Class C shares, $3,897; and Class E shares,
$35. 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, 1996, the following service fees were paid by
Cash Management Fund: Class B shares, $0; Class C
shares, $0; and Class E shares, $0. 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, 1996, the following service fees were paid by
Treasury Instruments Money Market Fund II: Class B
shares, $77,085; Class C shares, $41,889; and Class E
shares, $0. 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 FDISG 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, 1996, the
yields and effective yields for each of the Funds
were as follows:
7
- -
d
a
y
Y
i
e
l
d
7
- -
d
a
y
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
Government
Obligations Money
Market Fund
Class A Shares
5
.
4
6
5
.
6
0
%
Class B Shares
5
.
2
1
5
.
3
4
%
Class C Shares
5
.
1
1
5
.
2
3
%
Class E Shares
5
.
3
1
5
.
4
4
%
Class A Shares*
5
.
2
8
%
5
.
4
1
%
Class B Shares*
5
.
0
3
5
.
1
5
%
Class C Shares*
4
.
9
3
%
5
.
0
4
%
Class E Shares*
5
.
1
3
%
5
.
2
5
%
Cash Management Fund
Class A Shares
5
.
5
1
%
5
.
6
5
%
Class A Shares*
4
.
0
1
%
4
.
0
8
%
Treasury Instruments
Money Market Fund II
Class A Shares
5
.
3
9
%
5
.
5
3
%
Class B Shares
5
.
1
4
%
5
.
2
6
%
Class C Shares
5
.
0
4
%
5
.
1
6
%
Class E Shares
5
.
2
4
%
5
.
3
7
%
Class A Shares*
5
.
2
7
&
5
.
4
0
%
Class B Shares*
5
.
0
2
%
5
.
1
4
%
Class C Shares*
4
.
9
2
%
5
.
0
3
%
Class E Shares*
5
.
1
2
%
5
.
2
4
%
* 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, respectively, than the net
yield of Class A Shares.
From time to time, in advertisements or in
reports to investors, the performance of the Funds
may be quoted and compared with 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 REPORTr
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 Funds' Prospectuses, holders of
shares in a Fund of the Trust 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, serves
as independent auditors to the Fund and renders 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, 1996 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.
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, 1996
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,
1996, as amended or supplemented from time to time,
and is incorporated by reference in its entirety into
each Prospectus. Because this Statement of Additional
Information is not itself a prospectus, no investment
in shares of the Municipal Money Market Fund or
Tax-Free Money Market Fund portfolios should be made
solely upon the information contained herein. Copies
of the Prospectuses for Municipal Money Market Fund
and Tax-Free Money Market Fund may be obtained by
calling Lehman Brothers Inc. ("Lehman Brothers") at
1-800-368-5556. Capitalized terms used but not
defined herein have the same meanings as in the
Prospectuses.
TABLE OF CONTENTS
P
a
g
e
The Trust
2
Investment Objective and
Policies
2
Municipal Obligations
8
Additional Purchase and
Redemption Information
9
Management of the Funds
1
1
Additional Information
Concerning Taxes
1
9
Dividends
2
1
Additional Yield Information
2
1
Additional Description
Concerning Fund Shares
2
3
Counsel
2
4
Independent Auditors
2
4
Financial Statements
2
4
Miscellaneous
2
4
Appendix
A
- -
1
THE TRUST
Lehman Brothers Institutional Funds Group Trust
(the "Trust") is an open-end management investment
company. The Trust 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. 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, the 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, the 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) the 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
subsequently may be required 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) the 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 that the Fund may (i)
borrow money for temporary or emergency purposes (not
for leveraging or investment) from banks or, subject
to specific authorization by the SEC, from funds
advised by the Adviser or an affiliate of the
Adviser, and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination
do not exceed one-third of the value of the
particular Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).
A Fund may not mortgage, pledge, or hypothecate its
assets except in connection with such borrowings and
reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the
particular Fund's total assets. Additional
investments will not be made when borrowings exceed
5% of the Fund's assets.
3. Make loans, except that a Fund may (i) purchase
or hold debt obligations in accordance with its
investment objective and policies, (ii) enter into
repurchase agreements for securities, (iii) lend
portfolio securities, and (iv) 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 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 15% (or such lesser
amount as set by state securities laws) 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 by
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 consider
promptly 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
Addre
ss
Pos
iti
on
wit
h
the
Tru
st
Principal
Occupations
During Past
5
Years and
Other
Affiliations
JAMES
A.
CARBO
NE
(1)
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
43
Co-
Cha
irm
an
of
the
Boa
rd
and
Tru
ste
e
Director,
Lehman
Brothers
Global Asset
Management
K.K.;
Managing
Director,
Lehman
Brothers
Inc.;
formerly
Branch
Manager,
Lehman
Brothers
Japan Inc.;
formerly
Chairman,
Lehman
Brothers
Asia
Holdings
Limited; and
formerly
Manager --
Debt
Syndicate,
Origination
& Corporate
Bonds,
Lehman
Brothers
Inc.
ANDRE
W
GORDO
N (1)
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
42
Co-
Cha
irm
an
of
the
Boa
rd,
Tru
ste
e
and
Pre
sid
ent
Managing
Director,
Lehman
Brothers.
CHARL
ES F.
BARBE
R (2)
(3)
66
Glenw
ood
Drive
Green
wich,
CT
06830
Age:
78
Tru
ste
e
Consultant;
formerly
Chairman of
the Board,
ASARCO
Incorporated
.
BURT
N.
DORSE
TT (2
)(3)
201
East
62nd
Stree
t
New
York,
NY
10022
Age:
65
Tru
ste
e
Managing
Partner,
Dorsett
McCabe
Capital
Management,
Inc., an
investment
counseling
firm;
Director,
Research
Corporation
Technologies
, a
non-profit
patent-clear
ing 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.
EDWAR
D J.
KAIER
(2)(
3)
1100
One
Penn
Cente
r
Phila
delph
ia,
PA
19103
Age:
50
Tru
ste
e
Partner with
the law firm
of Hepburn
Willcox
Hamilton &
Putnam.
S.
DONAL
D
WILEY
(2)(
3)
USX
Tower
Pitts
burgh
, PA
15219
Age:
69
Tru
ste
e
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.
WINTE
RS
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
46
Vic
e
Pre
sid
ent
and
Inv
est
men
t
Off
ice
r
Senior Vice
President
and Senior
Money Market
Portfolio
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.;
formerly
Product
Manager with
Lehman
Brothers
Capital
Markets
Group.
NICHO
LAS
RABIE
CKI
III
3
World
Finan
cial
Cente
r
New
York,
NY
10285
Age:
39
Vic
e
Pre
sid
ent
and
Inv
est
men
t
Off
ice
r
Vice
President
and Senior
Portfolio
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.;
formerly
Senior Fixed
Income
Portfolio
Manager with
Chase
Private
Banking.
MICHA
EL C.
KARDO
K
One
Excha
nge
Place
Bosto
n, MA
02109
Age:
36
Tre
asu
rer
Vice
President,
First Data
Investor
Services
Group, Inc.;
prior to May
1994, Vice
President,
The Boston
Company
Advisors,
Inc.
PATRI
CIA
L.
BICKI
MER
One
Excha
nge
Place
Bosto
n, MA
02109
Age:
42
Sec
ret
ary
Vice
President
and
Associate
General
Counsel,
First Data
Investor
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. Carbone, Gordon, 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
First Data Investor Services Group, Inc. ("FDISG")
(formerly named The Shareholder Services Group,
Inc.), 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 FDISG 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, 1996, such
fees and expenses totaled $2,590 for the Municipal
Money Market Fund and $1,227 for the Tax-Free Money
Market Fund and $109,882 for the Trust in the
aggregate. As of January 31, 1996, 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, FDISG, 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,
1996. No executive officer or person affiliated with
the Trust received compensation from the Trust during
the fiscal year ended January 31, 1996 in excess of
$60,000.
COMPENSATION TABLE
N
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__________________________________
*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, 1996 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 February 16, 1996, Nippon
Life Insurance Company beneficially owned
approximately 8.9%, FMR Corp. beneficially owned
approximately 7.3%, and Prudential Asset Management
beneficially owned approximately 5.5% 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 most recently approved by
the Trust's Board of Trustees, including a majority
of the Trust's "non-interested" Trustees, on December
5, 1995 and by shareholders on January 31, 1996. The
Investment Advisory Agreements commenced on February
1, 1996 and will continue until February 1, 1998
unless terminated or amended prior to that date
according to its terms. The Investment Advisory
Agreements will continue initially for a two-year
period and automatically for successive annual
periods thereafter 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).
Effective February 1, 1996, 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 .20% of the average
daily net assets of the Fund. Prior to February 1,
1996, the Adviser was entitled to a fee, computed
daily and paid monthly, at the annual rate of .10% of
the average net assets of the Fund. For the fiscal
period ended January 31, 1994 and the fiscal years
ended January 31, 1995 and 1996, the Adviser was
entitled to receive advisory fees in the following
amounts: the Municipal Money Market Fund, $103,318,
$223,512 and $172,515, respectively, and the Tax-Free
Money Market Fund, $15,640, $59,392 and $76,038,
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; $150,715 and $0,
respectively, for the fiscal year ended January 31,
1995; and $44,040 and $0, respectively, for the
fiscal year ended January 31, 1996; and the Tax-Free
Money Market Fund, $15,640 and $139,234,
respectively, for the fiscal period ended January 31,
1994; $59,392 and $9,042, respectively, for the
fiscal year ended January 31, 1995; and $48,697 and
$0, respectively, for the fiscal year ended January
31, 1996. In order to maintain competitive expense
ratios during 1996 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
On March 15, 1996, the principal holders of
Class A Shares of Municipal Money Market Fund were as
follows: Society Asset Management, Inc., 127 Public
Square, 19th Floor, Cleveland, OH 44114, 18.78%
shares held of record; Synopsys Inc., 700 East
Middlefield Road, Mountain View, CA 94043, 15.00%
shares held of record; Van Kampen Merritt Investment
Advisory Corp., 225 Franklin Street, Boston, MA
02105, 13.49% shares held of record; Deposit Guaranty
National Bank, Trust Division, P.O. Box 23100,
Jackson, MS 39225-3100, 7.33% shares held of record;
Employers Reinsurance Corporation, P.O. Box 2991,
Overland Park, KS 66201, 6.97% shares held of
record; Publix Supermarket, P.O. Box 407, Lakeland,
FL 33802, 6.69% shares held of record; The Gap, Inc.,
900 Cherry Avenue, San Bruno, CA 94066, 6.41% shares
held of record; and Oracle Corporation, 500 Oracle
Parkway, Box 659506, Redwood Shore, CA 94065, 5.22%
shares held of record. The principal holder of Class
C Shares of Municipal Money Market Fund as of March
15, 1996 was FNB Nominee Company, 614 Philadelphia
Street, Indiana, PA 15701, with 99.99% shares held
of record.
As of March 15, 1996, there were no investors in
Class B or Class E Shares of Municipal Money Market
Fund and all outstanding shares were held by Lehman
Brothers.
Principal holders of Class A Shares of Tax-Free
Money Market Fund as of March 15, 1996 were as
follows: Theodore G. Schwartz Revocable Trust, Under
Authority dated 4/4/86, P.O. Box 4464, Northbrook, IL
60065, 24.20% shares held of record; Trulin & Co.,
P.O. Box 1412, Rochester, NY 14603, 12.85% shares
held of record; Bank of Boston, 150 Royal Street,
Canton, MA 02021, 6.52% shares held of record;
Schwartz 1994 Children's Trust, #2, Under Authority
dated 4/2/94, P.O. Box 4464, Northbrook, IL 60065,
6.18% shares held of record; and Schwartz 1994
Children's Trust, #1, Under Authority dated 4/2/94,
P.O. Box 4464, Northbrook, IL 60065, 6.18% shares
held of record.
As of March 15, 1996, there were no investors in
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
FDISG, 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, FDISG 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.
FDISG 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. FDISG 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, FDISG
acquired TBCA's third party mutual fund
administration business from Mellon, and each Fund's
administration agreement with TBCA was assigned to
FDISG. For the fiscal period ended January 31, 1994
and the fiscal years ended January 31, 1995 and 1996,
the Administrator was entitled to receive
administration fees in the following amounts: the
Municipal Money Market Fund, $103,318, $223,512 and
$172,515, respectively, and the Tax-Free Money Market
Fund, $15,640, $59,392 and $76,038, 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; $171,438 and $0, respectively, for
the fiscal year ended January 31, 1995; and $127,184
and $0, respectively, for the fiscal year ended
January 31, 1996; and the Tax-Free Money Market Fund,
$15,640 and $10,485, respectively, for the fiscal
period ended January 31, 1994; $44,947 and $0,
respectively, for the fiscal year ended January 31,
1995; and $56,170 and $0, respectively, for the
fiscal year ended January 31, 1996. In order to
maintain competitive expense ratios during 1996 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, FDISG
maintains 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, FDISG 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 FDISG 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, 1996, the
following service fees were paid by Tax-Free Money
Market Fund: Class B shares, $0; Class C shares, $0;
and Class E shares, $0. 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 and no service fees were paid by the Fund with
respect to Class C or Class E shares. For the fiscal
year ended January 31, 1996, the following service
fees were paid by Municipal Money Market Fund: Class
B shares, $0; Class C shares, $5,923; and Class E
shares, $0. 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 FDISG 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 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 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 pre-existing 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, 1996, the yields, effective
yields,
and tax-equivalent yields for each of the Funds were as follows:
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x
- -
E
q
u
i
v
a
l
e
n
t
Y
i
e
l
d
Municipal Money Market
Fund
Class A Shares
3
.
5
1
%
3
.
5
7
%
5
.
0
9
%
Class B Shares
3
.
2
6
%
3
.
3
1
%
4
.
7
2
%
Class C Shares
3
.
1
6
%
3
.
2
1
%
4
.
5
8
%
Class E Shares
3
.
3
6
%
3
.
4
1
%
4
.
8
7
%
Class A Shares*
3
.
4
0
%
3
.
4
5
%
4
.
9
3
%
Class B Shares*
3
.
1
5
%
3
.
2
0
%
4
.
5
7
%
Class C Shares*
3
.
0
5
%
3
.
0
9
%
4
.
4
2
%
Class E Shares*
3
.
2
5
%
3
.
3
0
%
4
.
7
1
%
Tax-Free Money Market
Fund
Class A Shares
3
.
5
4
%
3
.
6
0
%
5
.
1
3
%
Class B Shares
3
.
2
9
%
3
.
3
4
%
4
.
7
7
%
Class C Shares
3
.
1
9
%
3
.
2
4
%
4
.
6
2
%
Class E Shares
3
.
3
9
%
3
.
4
4
%
4
.
9
1
%
Class A Shares*
3
.
4
1
%
3
.
4
6
%
4
.
9
4
%
Class B Shares*
3
.
1
6
%
3
.
2
1
%
4
.
5
8
%
Class C Shares*
3
.
0
6
%
3
.
1
0
%
4
.
4
3
%
Class E Shares*
3
.
2
6
%
3
.
3
1
%
4
.
7
2
%
* 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, respectively, than the net
yield of Class A Shares.
From time to time, in advertisements or in reports to investors, a
Fund's
yield may be quoted and compared with 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 REPORTr 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 net
of waivers and expense reimbursements, 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 of the Trust 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 auditors, serves
as auditors to each Fund and renders 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, 1996 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 A-1 RATINGS
Commercial Paper Ratings
Standard & Poor's, a division of The McGraw-Hill
Companies, 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 which 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 which 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 the 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 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.
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