As filed with the Securities and Exchange Commission on
March 29, 1996
Securities Act File
No. 33-55034
Investment Company Act File
No. 811-7364
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
= = =
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
Pre-Effective Amendment No. ____
/_/
Post-Effective Amendment No. 11
/X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 /X/
Amendment No. 16
/X/
Lehman Brothers Institutional Funds Group Trust
(Exact Name of Registrant as Specified in Charter)
One Exchange Place
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617)
248-3490
Patricia L. Bickimer, Esq.
First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
It is proposed that this filing will become effective
(check appropriate box):
_____ immediately upon filing pursuant to paragraph
(b)
_____ on ___________, pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph
(a)(1)
__X__ on May 30, 1996 pursuant to paragraph
(a)(1)
_____ 75 days after filing pursuant to paragraph
(a)(2)
_____ on __________,pursuant to paragraph (a)(2) of
Rule 485
If appropriate, check to following box:
_____ This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
The Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended.
Registrant's Rule 24f-2 Notice for the fiscal year ended
January 31, 1996 was filed on March 27, 1996.
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Synopsis Background and Expense
Information
3. Condensed Financial
Information....................... Financial
Highlights;
Performance Information;
Performance and Yields;
The Fund's Performance; Yields
4. General Description of
Registrant Cover Page; Benefits to
Investors; Summary of Investment
Objectives; Investment Objective(s)
and Policies; Description of Shares;
Additional Information
5. Management of the Fund Management of the
Fund(s); Dividends; Annual
Report;
Additional Information
6. Capital Stock and Other
Securities Cover Page; Dividends;
Taxes; Description of
Shares
7. Purchase of Securities Purchase of Shares;
Redemption of Shares; Purchase and
Redemption of Shares; Purchase,
Redemption and Exchange of Shares;
Exchange Privilege; Valuation of
Shares; Valuation of Shares Net Asset
Value; Management of the Fund(s)
8. Redemption or Repurchase Purchase and Redemption
of Shares; Purchase,
Redemption and Exchange of Shares
9. Legal Proceedings Not Applicable
Part B Heading in Statement
Item No. of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and
History The Trust; Management of
the Fund;
13. Investment Objectives and
Policies Investment Objective and
Policies; Municipal
Obligations
14. Management of the Fund Management of the Fund
15. Control Persons and Principal
Holders of Securities Management of the Fund
16. Investment Advisory and
Other Services Management of the Fund
17. Brokerage Allocation Investment Objective and
Policies
18. Capital Stock and Other Additional Description
Securities Concerning Shares;
Dividends
19. Purchase, Redemption and Additional Purchase and
Pricing of Securities Redemption Information
Being Offered
20. Tax Status Additional Information
Concerning Taxes
21. Underwriters Management of the Fund
22. Calculation of Performance Additional Yield
Information
23. Financial Statements Financial Statements
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FORM N-1A
================================================================================
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.
<PAGE>
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 9
Portfolio Instruments and Practices 12
Investment Limitations 17
Purchase and Redemption of Shares 17
Dividends 20
Taxes 21
Management of the Funds 22
Performance and Yields 23
Description of Shares and Miscellaneous 24
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.
2
<PAGE>
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are summarized below. See
"Investment Objectives and Policies" beginning on page 9 for more detailed
information.
PRIME MONEY MARKET FUND seeks to provide current income and stability
of principal by investing in a broad range of short-term instruments, including
U.S. Government and U.S. bank and commercial obligations and repurchase
agreements relating to such obligations.
PRIME VALUE MONEY MARKET FUND seeks to provide current income and
stability of principal by investing in a portfolio consisting of a broad range
of short-term instruments, including U.S. Government and U.S. bank and
commercial obligations and repurchase agreements relating to such obligations.
Under normal market conditions, at least 25% of the Fund's total assets will be
invested in obligations of issuers in the banking industry and repurchase
agreements relating to such obligations.
GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide current
income with liquidity and security of principal by investing in a portfolio
consisting of U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements relating to such obligations.
CASH MANAGEMENT FUND seeks to provide current income with liquidity
and security of principal by investing in a portfolio consisting of U.S.
Treasury bills, notes and other obligations issued or guaranteed as to principal
and interest by the U.S. Government, its agencies or instrumentalities and
repurchase agreements relating to such obligations. The Fund is designed to
provide a convenient means for the late day investment of short-term assets held
by banks, trust companies, corporations, employee benefit plans and other
institutional investors.
TREASURY INSTRUMENTS MONEY MARKET FUND II seeks to provide current
income with liquidity and security of principal by investing in a portfolio
consisting of U.S. Treasury bills, notes and direct obligations of the U.S.
Treasury and repurchase agreements relating to direct Treasury obligations.
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.
3
<PAGE>
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.
EXPENSE SUMMARY
CLASS A SHARES
<TABLE>
<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%
</TABLE>
<TABLE>
<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%
</TABLE>
* 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
4
<PAGE>
unless shareholders are provided at least 60 days advance notice. The maximum
annual contractual fees payable to the Adviser and Administrator total .30% of
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:
PERCENTAGE OF AVERAGE DAILY
NET ASSETS
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%
----------
EXAMPLE: An investor would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period with respect to the Class A Shares:
MONEY MARKET FUNDS
(OTHER THAN THE CASH MANAGEMENT FUND)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$2 $6 $10 $23
CASH MANAGEMENT FUND
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$3 $8 $15 $33
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND RATES OF RETURN, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31, 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.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND PRIME VALUE MONEY MARKET FUND
1/31/96 1/31/95 1/31/94 1/31/96 1/31/95 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 0.0442 0.0315
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)
</TABLE>
* 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY
MARKET FUND CASH MANAGEMENT FUND
1/31/96 1/31/95 1/31/94 1/31/96 1/31/95 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
Dividends from net investment
income (0.0585) (0.0435) (0.0309) (0.0585) (0.0421) (0.0304)
Dividends from net realized gains -- -- -- (0.0000)** -- --
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)
</TABLE>
* 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.
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
TREASURY INSTRUMENTS
MONEY MARKET FUND II
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)
</TABLE>
* 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.
8
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MARKET FUND MONEY MARKET FUND
1/31/96 1/31/95 1/31/94 1/31/96 1/31/95 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
Dividends from net investment
income (0.0386) (0.0288) (0.0228) (0.0396) (0.0300) (0.0243)
Distributions from net realized gains -- -- -- (0.0000)** -- --
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)
</TABLE>
* 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.
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.
9
<PAGE>
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.
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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.
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.
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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
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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
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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
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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
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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
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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 and to notify Lehman Brothers at least one day in
advance of transactions in excess of $5 million.
PURCHASE PROCEDURES
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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"). 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 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 after 3:00 P.M., Eastern time, investors must telephone the Lehman
Brothers Client Service Center at 1-800-851-3134 before 5:00 P.M., Eastern
time to place the trade and obtain an order reference number for each
trade. It is necessary to obtain a new order reference number for each
investment in Cash Management Fund after 3:00 P.M., Eastern time.
Payment for 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 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
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<PAGE>
and Cash Management Fund
Tax-Free Money Market Fund Noon Same Business Day
and Municipal Money Market Fund
- ----------
* All times stated are Eastern time.
Shares are redeemed at the net asset value per share next determined
after Lehman Brothers' receipt of the redemption order. While the Funds intend
to use their best efforts to maintain their net asset value per share at $1.00,
the proceeds paid to an investor upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption.
The Funds reserve the right to wire redemption proceeds within seven
days after receiving the redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Funds. The Funds shall have the right
to redeem involuntarily shares in any account at their net asset value if the
value of the account is less than $10,000 ($5,000,000 in the case of a high net
worth investor) after 60 days' prior written notice to the investor. Any such
redemption shall be effected at the net asset value per share next determined
after the redemption order is entered. If during the 60-day period the investor
increases the value of its account to the required level, no such redemption
shall take place. In addition, the Funds may redeem shares involuntarily or
suspend the right of redemption as permitted under the Investment Company Act of
1940, as amended (the "1940 Act"), or under certain special circumstances
described in the Statement of Additional Information under "Additional Purchase
and Redemption Information."
The ability to give telephone instructions for the redemption (and
purchase or exchange) of shares is automatically established on an investor's
account. However, the Funds reserve the right to refuse a redemption order
transmitted by telephone if it is believed advisable to do so. Procedures for
redeeming Fund shares by telephone may be modified or terminated at any time by
the Funds or Lehman Brothers. In addition, neither the Funds, Lehman Brothers
nor 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.
Accordingly, the investor will bear the risk of loss. The Funds will attempt to
confirm that telephone instructions are genuine and will use such procedures as
are considered reasonable, including the recording of telephone instructions. To
the extent that the Funds fail to use reasonable procedures to verify the
genuineness of telephone instructions, the Funds or their service providers may
be liable for such instructions that prove to be fraudulent or unauthorized.
EXCHANGE PROCEDURES
The Exchange Privilege enables an investor to exchange shares of a Fund
without charge for shares of the same class of other Funds which have different
investment objectives that may be of interest to investors. To use the Exchange
Privilege, exchange instructions must be given to Lehman Brothers by telephone
or through LEX. See "Redemption Procedures." In exchanging shares, an investor
must meet the minimum initial investment requirement of the other Fund and the
shares involved must be legally available for sale in the state where the
investor resides. Before any exchange, the investor must also obtain and should
review a copy of the 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
19
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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
Prime Value Money Market Fund,
Government Obligations Money Market Fund and 3:00 P.M.
Treasury Instruments Money Market Fund II
4:00 P.M.
Cash Management Fund Noon
3:00 P.M.
5:00 P.M.
Tax-Free Money Market Fund
and Municipal Money Market Fund Noon
4:00 P.M.
----------
* All times stated are Eastern time.
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. The net asset value per share of Fund shares
is calculated separately for each class by adding the value of all securities
and other assets of the Fund, subtracting class-specific liabilities, and
dividing the result by the total number of the Fund's outstanding shares. In
computing net asset value, each Fund uses the amortized cost method of valuation
as described in the Statement of Additional Information under "Additional
Purchase and Redemption Information." A Fund's net asset value per share for
purposes of pricing purchase and redemption orders is determined independently
of the net asset values of the shares of each other Fund.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Funds.
Institutional investors purchasing or holding Fund shares for their customer
accounts may charge customers fees for cash management and other services
provided in connection with their accounts. A customer should, therefore,
consider the terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to Lehman Brothers in
accordance with its customer agreements.
DIVIDENDS
Investors of a Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held by that Fund. Each Fund's net investment income is declared
daily as a dividend to shares held of record at the close of business on the
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.
20
<PAGE>
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.
21
<PAGE>
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 $__ billion as of
_______________, 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
22
<PAGE>
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
23
<PAGE>
such as Morningstar, Inc., Barron's, IBC/Donoghue's Money Fund Report(R), 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."
24
<PAGE>
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 Help Desk 800-566-5LEX
LEHMAN BROTHERS
================================================================================
LBP-202B6
25
================================================================================
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.
1
<PAGE>
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 8
Portfolio Instruments and Practices 10
Investment Limitations 15
Purchase and Redemption of Shares 16
Dividends 19
Taxes 19
Management of the Funds 20
Performance and Yields 22
Description of Shares and Miscellaneous 22
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.
2
<PAGE>
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are summarized below. See
"Investment Objectives and Policies" beginning on page 8 for more detailed
information.
PRIME MONEY MARKET FUND seeks to provide current income and stability
of principal by investing in a broad range of short-term instruments, including
U.S. Government and U.S. bank and commercial obligations and repurchase
agreements relating to such obligations.
PRIME VALUE MONEY MARKET FUND seeks to provide current income and
stability of principal by investing in a portfolio consisting of a broad range
of short-term instruments, including U.S. Government and U.S. bank and
commercial obligations and repurchase agreements relating to such obligations.
Under normal market conditions, at least 25% of the Fund's total assets will be
invested in obligations of issuers in the banking industry and repurchase
agreements relating to such obligations.
GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide current
income with liquidity and security of principal by investing in a portfolio
consisting of U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements relating to such obligations.
TREASURY INSTRUMENTS MONEY MARKET FUND II seeks to provide current
income with liquidity and security of principal by investing in a portfolio
consisting of U.S. Treasury bills, notes and direct obligations of the U.S.
Treasury and repurchase agreements relating to direct Treasury obligations.
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.
3
<PAGE>
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.
EXPENSE SUMMARY
CLASS B SHARES
<TABLE>
<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 .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%
</TABLE>
<TABLE>
<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%
</TABLE>
* 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.
4
<PAGE>
In order to maintain a competitive expense ratio, the Adviser and
Administrator have voluntarily agreed to waive fees and reimburse expenses to
the extent necessary to maintain an annualized expense ratio at a level no
greater than .43% of average daily net assets (.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 total .30% of 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:
PERCENTAGE OF AVERAGE DAILY
NET ASSETS
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%
----------
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$4 $14 $24 $54
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND RATES OF RETURN, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31, 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 July 31, 1995, 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.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND PRIME VALUE MONEY MARKET FUND
1/31/96 1/31/95 1/31/94 1/31/96 1/31/95 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)
</TABLE>
* 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY TREASURY INSTRUMENTS MONEY
MARKET FUND MONEY MARKET FUND II
1/31/96 1/31/95 1/31/94 1/31/96 1/31/95 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 assets 5.57% 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)
</TABLE>
* 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.
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND
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)
</TABLE>
* 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.
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.
8
<PAGE>
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.
9
<PAGE>
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.
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.
10
<PAGE>
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.
11
<PAGE>
FOREIGN SECURITIES
Prime Value Money Market Fund may invest substantially in securities of
foreign issuers, including obligations of foreign banks or foreign branches of
U.S. banks, and debt securities of foreign issuers, where the Adviser deems the
instrument to present minimal credit risks. Investments in foreign banks or
foreign issuers present certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of currency
exchange blockages or other foreign governmental laws or restrictions and
reduced availability of public information. Foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements applicable to domestic issuers.
ZERO COUPON AND CAPITAL APPRECIATION BONDS
The Funds may invest in zero coupon and capital appreciation bonds,
which are debt securities issued or sold at a discount from their face value and
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. These securities may also take the form
of debt securities that have been stripped of their unmatured interest coupons,
the coupons themselves or receipts or certificates representing interest in such
stripped debt obligations or coupons. Discounts with respect to stripped
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
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<PAGE>
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
13
<PAGE>
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,
14
<PAGE>
upon notice specified in the note, demand payment of the principal of the note
at any time or during specified periods not exceeding thirteen months, depending
upon the instrument involved, and may resell the note at any time to a third
party. The absence of such an active secondary market, however, could make it
difficult for the Funds to dispose of a variable rate demand note if the issuer
were to default on its payment obligation or during periods that the Funds are
not entitled to exercise their demand rights, and the Funds could, for this or
other reasons, suffer losses to the extent of the default.
Pre-Refunded Municipal Obligations. The Funds may invest in
pre-refunded Municipal Obligations. The principal of and interest on
pre-refunded Municipal Obligations are no longer paid from the original revenue
source for the Municipal Obligations. Instead, the source of such payments is
typically an escrow fund consisting of obligations issued or guaranteed by the
U.S. Government. The assets in the escrow fund are derived from the proceeds of
refunding bonds issued by the same issuer as the pre-refunded Municipal
Obligations, but usually on terms more favorable to the issuer. Issuers of
Municipal Obligations use this advance refunding technique to obtain more
favorable terms with respect to Municipal Obligations which are not yet subject
to call or redemption by the issuer. For example, advance refunding enables an
issuer to refinance debt at lower market interest rates, restructure debt to
improve cash flow or eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations. However, except
for a change in the revenue source from which principal and interest payments
are made, the pre-refunded Municipal Obligations remain outstanding on their
original terms until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the redemption date if
the issuer has assumed an obligation or indicated its intention to redeem such
obligations on the redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face value.
Tender Option Bonds. The Funds may purchase tender option bonds. A
tender option bond is a Municipal Obligation (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at or near
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. The Adviser will consider on an ongoing
basis the creditworthiness of the issuer of the underlying Municipal Obligation,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying Municipal Obligations and for other reasons. Additionally, the above
description of tender option bonds is meant only to provide an example of one
possible structure of such obligations, and the Funds may purchase tender option
bonds with different types of ownership, payment, credit and/or liquidity
arrangements.
INVESTMENT LIMITATIONS
The Funds' investment objectives and policies described above are not
fundamental and may be changed by the Board of Trustees without a vote of
shareholders. If there is a change in the investment objective of a Fund,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. The Funds'
investment limitations described below may not be changed without the
affirmative vote of the holders of a majority of its outstanding shares. There
can be no assurance that the Funds will achieve their investment objectives. (A
complete list of the investment limitations that cannot be changed without a
vote of shareholders is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Funds may not:
15
<PAGE>
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 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 and to notify Lehman Brothers at least one day in
advance of transactions in excess of $5 million.
PURCHASE PROCEDURES
Shares of the Funds are sold at the net asset value per share of the
Fund next determined after receipt of a purchase order by Lehman Brothers, the
Distributor of the Fund's shares. Purchase orders for shares are accepted only
on days on which both 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"). 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.
<TABLE>
<CAPTION>
ORDER MUST PAYMENT MUST BE
RECEIVED BY* RECEIVED BY*
<S> <C> <C>
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.
</TABLE>
- ----------
* All times stated are Eastern time.
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
16
<PAGE>
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 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.
<TABLE>
<CAPTION>
ORDER MUST BE
RECEIVED BY* PAYMENT MADE
<S> <C> <C>
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
Tax-Free Money Market Fund Noon Same Business Day
and Municipal Money Market Fund
</TABLE>
- ----------
* All times stated are Eastern time.
Shares are redeemed at the net asset value per share next determined
after Lehman Brothers' receipt of the redemption order. While the Funds intend
to use their best efforts to maintain their net asset value per share at $1.00,
the proceeds paid to an investor upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption.
The Funds reserve the right to wire redemption proceeds within seven
days after receiving the redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Funds. The Funds shall have the right
to redeem involuntarily shares in any account at their net asset value if the
value of the account is less than $10,000 after 60 days' prior written notice to
the investor. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
60-day period the investor increases the value of its account to $10,000 or
more, no such redemption shall take place. In addition, the Funds may redeem
shares involuntarily or suspend the right of redemption as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"), or under certain
special circumstances described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
The ability to give telephone instructions for the redemption (and
purchase or exchange) of shares is automatically established on an investor's
account. However, the Funds reserve the right to refuse a redemption order
transmitted by telephone if it is believed advisable to do so. Procedures for
redeeming Fund shares by telephone may be modified or terminated at any time by
the Funds or Lehman Brothers. In addition, neither the Funds, Lehman Brothers
nor 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.
Accordingly, the investor will bear the risk of loss. The Funds will attempt to
confirm that telephone instructions are genuine and will use such procedures as
are considered reasonable, including the recording of telephone instructions. To
the extent that the Funds fail to use reasonable procedures to
17
<PAGE>
verify the genuineness of telephone instructions, the Funds or their service
providers may be liable for such instructions that prove to be fraudulent or
unauthorized.
EXCHANGE PROCEDURES
The Exchange Privilege enables an investor to exchange shares of a Fund
without charge for shares of the same class of other Funds which have different
investment objectives that may be of interest to investors. To use the Exchange
Privilege, exchange instructions must be given to Lehman Brothers by telephone
or through LEX. See "Redemption Procedures." In exchanging shares, an investor
must meet the minimum initial investment requirement of the other Fund and the
shares involved must be legally available for sale in the state where the
investor resides. Before any exchange, the investor must also obtain and should
review a copy of the 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
Prime Value Money Market Fund,
Government Obligations Money Market Fund and 3:00 P.M.
Treasury Instruments Money Market Fund II 4:00 P.M.
Tax-Free Money Market Fund Noon
and Municipal Money Market Fund
4:00 P.M.
- ----------
* All times stated are Eastern time.
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. The net asset value per share of Fund shares
is calculated separately for each class by adding the value of all securities
and other assets of the Fund, subtracting class-specific liabilities, and
dividing the result by the total number of the Fund's outstanding shares. In
computing net asset value, each Fund uses the amortized cost method of valuation
as described in the Statement of Additional Information under "Additional
Purchase and Redemption Information." A Fund's net asset value per share for
purposes of pricing purchase and redemption orders is determined independently
of the net asset values of the shares of each other Fund.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Funds.
Institutional investors purchasing or holding Fund shares for their customer
accounts may charge customers fees for cash management and other services
provided in connection with their accounts. A customer should, therefore,
consider the terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on behalf
18
<PAGE>
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
19
<PAGE>
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 $____ billion as of
___________, 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
20
<PAGE>
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
21
<PAGE>
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(R), 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
22
<PAGE>
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."
23
<PAGE>
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 Help Desk 800-566-5LEX
LEHMAN BROTHERS
================================================================================
LBP-201B6
24
- --------------------------------------------------------------------------------
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.
<PAGE>
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 8
Investment Limitations 14
Purchase and Redemption of Shares 15
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.
2
<PAGE>
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds are summarized below. See
"Investment Objectives and Policies" beginning on page 6 for more detailed
information.
PRIME MONEY MARKET FUND seeks to provide current income and stability
of principal by investing in a broad range of short-term instruments, including
U.S. Government and U.S. bank and commercial obligations and repurchase
agreements relating to such obligations.
PRIME VALUE MONEY MARKET FUND seeks to provide current income and
stability of principal by investing in a portfolio consisting of a broad range
of short-term instruments, including U.S. Government and U.S. bank and
commercial obligations and repurchase agreements relating to such obligations.
Under normal market conditions, at least 25% of the Fund's total assets will be
invested in obligations of issuers in the banking industry and repurchase
agreements relating to such obligations.
GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide current
income with liquidity and security of principal by investing in a portfolio
consisting of U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements relating to such obligations.
TREASURY INSTRUMENTS MONEY MARKET FUND II seeks to provide current
income with liquidity and security of principal by investing in a portfolio
consisting of U.S. Treasury bills, notes and direct obligations of the U.S.
Treasury and repurchase agreements relating to direct Treasury obligations.
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.
3
<PAGE>
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
<TABLE>
<CAPTION>
GOVERNMENT
PRIME VALUE OBLIGATIONS
PRIME MONEY MONEY MARKET MONEY MARKET
MARKET FUND FUND FUND
<S> <C> <C> <C>
ANNUAL OPERATING EXPENSES*
(as a percentage of average net assets)
Advisory Fees (net of applicable fee waivers) .10% .10% .04%
Rule 12b-1 fees .15% .15% .15%
Other Expenses - including Administration Fees .08% .08% .14%
---- ---- ----
Total Fund Operating Expenses
(after fee waivers and/or expense reimbursement) .33% .33% .33%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
TREASURY
INSTRUMENTS
MONEY MARKET TAX-FREE MONEY MUNICIPAL MONEY
FUND MARKET FUND MARKET FUND
II
<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 .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%
==== ==== ====
</TABLE>
* 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.
4
<PAGE>
In order to maintain a competitive expense ratio, the Adviser and
Administrator have voluntarily agreed to waive fees and reimburse expenses to
the extent necessary to maintain an annualized expense ratio at a level no
greater than .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 total .30% of 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.
5
<PAGE>
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.
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS
PRIME MONEY MARKET FUND MONEY MARKET FUND
1/31/96 1/31/95* 1/31/96*
<S> <C> <C> <C>
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)
</TABLE>
* 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.
6
<PAGE>
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
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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.
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.
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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.
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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
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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
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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
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<PAGE>
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
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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 and to notify Lehman Brothers at least one day in
advance of transactions in excess of $5 million.
PURCHASE PROCEDURES
Shares of the Funds are sold at the net asset value per share of the
Fund next determined after receipt of a purchase order by Lehman Brothers, the
Distributor of the Fund's shares. Purchase orders for shares are accepted only
on days on which both 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"). 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.
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ORDER MUST BE 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 and Municipal Noon 4:00 P.M.
Money Market Fund
___________
* All times stated are Eastern time.
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 LEX 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 and Municipal Noon Same Business Day
Money Market Fund
___________
*All times stated are Eastern time.
Shares are redeemed at the net asset value per share next determined
after Lehman Brothers' receipt of the redemption order. While the 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.
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<PAGE>
The Funds reserve the right to wire redemption proceeds within seven
days after receiving the redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Funds. The Funds shall have the right
to redeem involuntarily shares in any account at their net asset value if the
value of the account is less than $10,000 after 60 days' prior written notice to
the investor. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
60-day period the investor increases the value of its account to $10,000 or
more, no such redemption shall take place. In addition, the Funds may redeem
shares involuntarily or suspend the right of redemption as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"), or under certain
special circumstances described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
The ability to give telephone instructions for the redemption (and
purchase or exchange) of shares is automatically established on an investor's
account. However, the Funds reserve the right to refuse a redemption order
transmitted by telephone if it is believed advisable to do so. Procedures for
redeeming Fund shares by telephone may be modified or terminated at any time by
the Funds or Lehman Brothers. In addition, neither the Funds, Lehman Brothers
nor 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. Accordingly, the investor will bear the risk
of loss. The Funds will attempt to confirm that telephone instructions are
genuine and will use such procedures as are considered reasonable, including the
recording of telephone instructions. To the extent that the Funds fail to use
reasonable procedures to verify the genuineness of telephone instructions, the
Funds or their service providers may be liable for such instructions that prove
to be fraudulent or unauthorized.
EXCHANGE PROCEDURES
The Exchange Privilege enables an investor to exchange shares of a Fund
without charge for shares of the same class of other Funds which have different
investment objectives that may be of interest to investors. To use the Exchange
Privilege, exchange instructions must be given to Lehman Brothers by telephone
or through LEX. See "Redemption Procedures." In exchanging shares, an investor
must meet the minimum initial investment requirement of the other Fund and the
shares involved must be legally available for sale in the state where the
investor resides. Before any exchange, the investor must also obtain and should
review a copy of the 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
Prime Value Money Market Fund,
Government Obligations Money Market Fund 3:00 P.M.
and Treasury Instruments Money Market Fund II
4:00 P.M.
Tax-Free Money Market Fund and Municipal Money Noon
Market Fund
4:00 P.M.
16
<PAGE>
___________
*All times stated are Eastern time.
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. The net asset value per share of Fund shares
is calculated separately for each class by adding the value of all securities
and other assets of the Fund, subtracting class specific liabilities, and
dividing the result by the total number of the Fund's outstanding shares. In
computing net asset value, each Fund uses the amortized cost method of valuation
as described in the Statement of Additional Information under "Additional
Purchase and Redemption Information." A Fund's net asset value per share for
purposes of pricing purchase and redemption orders is determined independently
of the net asset values of the shares of each other Fund.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Funds.
Institutional investors purchasing or holding Fund shares for their customer
accounts may charge customers fees for cash management and other services
provided in connection with their accounts. A customer should, therefore,
consider the terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to Lehman Brothers in
accordance with its customer agreements.
DIVIDENDS
Investors of a Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held by that Fund. Each Fund's net investment income is declared
daily as a dividend to shares held of record at the close of business on the
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-
17
<PAGE>
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.
18
<PAGE>
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 $___ billion as of
____________, 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
19
<PAGE>
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 Report(R), 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
20
<PAGE>
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."
21
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS
- --------------------------------------------------------------------------------
Client Service Center 800-851-3134
(8:30 am to 5:00 p.m. Eastern time): fax: 617-261-4330
or 617-261-4340
Dividend factors and yields: 800-238-2560
Administration/Sales/Marketing: 800-368-5556
To place a purchase or redemption order: 800-851-3134
To change account information: 800-851-3134
Additional Prospectuses: 800-368-5556
Information on Service Agreements: 800-851-3134
LEX Help Desk 800-5565LEX
LEHMAN BROTHERS
- --------------------------------------------------------------------------------
LBP-203B6
================================================================================
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.
<PAGE>
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 8
Portfolio Instruments and Practices 10
Investment Limitations 15
Purchase and Redemption of Shares 16
Dividends 18
Taxes 19
Management of the Funds 20
Performance and Yields 22
Description of Shares and Miscellaneous 22
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.
2
<PAGE>
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.
3
<PAGE>
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.
EXPENSE SUMMARY
CLASS C SHARES
<TABLE>
<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%
</TABLE>
<TABLE>
<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%
</TABLE>
* 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 .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
4
<PAGE>
Adviser and Administrator total .30% of 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.
5
<PAGE>
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, have 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.
<TABLE>
<CAPTION>
GOVERNMENT MUNICIPAL
OBLIGATIONS MONEY
MONEY MARKET
PRIME MONEY MARKET FUND MARKET FUND FUND
Year Ended Year Ended Year Ended Year Ended Year Ended
1/31/96 1/31/95 1/31/94* 1/31/96 1/31/96
<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
Dividends from net
investment income (0.0557) (0.0407) (0.0001) (0.0432) (0.0284)
Distributions from net
realized gains -- -- -- -- (0.0000)**
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)
</TABLE>
* 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
6
<PAGE>
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.
7
<PAGE>
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
8
<PAGE>
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.
9
<PAGE>
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
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
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.
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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
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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
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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 and to notify Lehman Brothers at least one day in
advance of transactions in excess of $5 million.
PURCHASE PROCEDURES
Shares of the Funds are sold at the net asset value per share of the
Fund next determined after receipt of a purchase order by Lehman Brothers, the
Distributor of the Fund's shares. Purchase orders for shares are accepted only
on days on which both 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"). 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 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
Tax-Free Money Market Fund Noon 4:00 P.M
and Municipal Money Market Fund.
- ----------
* All times stated are Eastern time.
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
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Redemption orders must be transmitted to Lehman Brothers by telephone
at 1-800-851-3134 or through LEX 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
Tax-Free Money Market Fund Noon Same Business Day
and Municipal Money Market Fund
- ----------
* All times stated are Eastern time.
Shares are redeemed at the net asset value per share next determined
after Lehman Brothers' receipt of the redemption order. While the Funds intend
to use their best efforts to maintain their net asset value per share at $1.00,
the proceeds paid to an investor upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption.
The Funds reserve the right to wire redemption proceeds within seven
days after receiving the redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Funds. The Funds shall have the right
to redeem involuntarily shares in any account at their net asset value if the
value of the account is less than $10,000 after 60 days' prior written notice to
the investor. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
60-day period the investor increases the value of its account to $10,000 or
more, no such redemption shall take place. In addition, the Funds may redeem
shares involuntarily or suspend the right of redemption as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"), or under certain
special circumstances described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
The ability to give telephone instructions for the redemption (and
purchase or exchange) of shares is automatically established on an investor's
account. However, the Funds reserve the right to refuse a redemption order
transmitted by telephone if it is believed advisable to do so. Procedures for
redeeming Fund shares by telephone may be modified or terminated at any time by
the Funds or Lehman Brothers. In addition, neither the Funds, Lehman Brothers
nor 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.
Accordingly, the investor will bear the risk of loss. The Funds will attempt to
confirm that telephone instructions are genuine and will use such procedures as
are considered reasonable, including the recording of telephone instructions. To
the extent that the Funds fail to use reasonable procedures to verify the
genuineness of telephone instructions, the Funds or their service providers may
be liable for such instructions that prove to be fraudulent or unauthorized.
EXCHANGE PROCEDURES
The Exchange Privilege enables an investor to exchange shares of a Fund
without charge for shares of the same class of other Funds which have different
investment objectives that may be of interest to investors. To use the Exchange
Privilege, exchange instructions must be given to Lehman Brothers by telephone
or through LEX. See "Redemption Procedures." In exchanging shares, an investor
must meet the minimum initial investment requirement of the other Fund and the
shares involved must be legally available for sale in the state where the
investor resides. Before any exchange, the investor must also obtain and should
review a copy of the 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
17
<PAGE>
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
Prime Value Money Market Fund,
Government Obligations Money Market Fund and 3:00 P.M.
Treasury Instruments Money Market Fund II 4:00 P.M.
Tax-Free Money Market Fund Noon
and Municipal Money Market Fund
4:00 P.M.
- ----------
* All times stated are Eastern time.
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. The net asset value per share of Fund shares
is calculated separately for each class by adding the value of all securities
and other assets of the Fund, subtracting class specific liabilities, and
dividing the result by the total number of the Fund's outstanding shares. In
computing net asset value, each Fund uses the amortized cost method of valuation
as described in the Statement of Additional Information under "Additional
Purchase and Redemption Information." A Fund's net asset value per share for
purposes of pricing purchase and redemption orders is determined independently
of the net asset values of the shares of each other Fund.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Funds.
Institutional investors purchasing or holding Fund shares for their customer
accounts may charge customers fees for cash management and other services
provided in connection with their accounts. A customer should, therefore,
consider the terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to Lehman Brothers in
accordance with its customer agreements.
DIVIDENDS
Investors of a Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held by that Fund. Each Fund's net investment income is declared
daily as a dividend to shares held of record at the close of business on the
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.
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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
19
<PAGE>
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 $__ billion as of
____________, 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
20
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..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.
21
<PAGE>
PERFORMANCE AND YIELDS
From time to time, the "yields" and "effective yields" with respect to
all Funds and "tax-equivalent yields" with respect to 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(R), 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
22
<PAGE>
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."
23
<PAGE>
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 Help Desk 800-566-5LEX
LEHMAN BROTHERS
================================================================================
LBP-200B6
24
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 may be
required subsequently to place additional assets in
the separate account in order to ensure that the
value of the account remains equal to the amount of
such Fund's commitment. It may be expected that a
Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
Because a Fund will set aside cash or liquid assets
to satisfy its purchase commitments in the manner
described, such Fund's liquidity and ability to
manage its portfolio might be affected in the event
its commitments to purchase when-issued securities
ever exceeded 25% of the value of its assets. When a
Fund engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the
seller to do so may result in a Fund's incurring a
loss or missing an opportunity to obtain a price
considered to be advantageous. Neither Fund intends
to purchase when-issued securities for speculative
purposes but only in furtherance of its investment
objective. Each Fund reserves the right to sell these
securities before the settlement date if it is deemed
advisable.
Examples of the types of U.S. Government
obligations that may be held by a Fund include, in
addition to U.S. Treasury Bills, the obligations of
the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United
States, Small Business Administration, Government
National Mortgage Association, Federal National
Mortgage Association, Federal Financing Bank, General
Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal
Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks,
Federal Land Banks, Federal Farm Credit Banks,
Maritime Administration, Resolution Trust
Corporation, Tennessee Valley Authority, U.S. Postal
Service and Washington D.C. Armory Board.
For purposes of Prime Value Money Market Fund's
investment policies with respect to obligations of
issuers in the banking industry, the assets of a bank
or savings institution will be deemed to include the
assets of its domestic and foreign branches. Prime
Value Money Market Fund's investments in the
obligations of foreign branches of U.S. banks and of
foreign banks and other foreign issuers may subject
Prime Value Money Market Fund to investment risks
that are different in some respects from those of
investment in obligations of U.S. domestic issuers.
Such risks include future political and economic
developments, the possible seizure or nationalization
of foreign deposits, the possible establishment of
exchange controls or the adoption of other foreign
governmental restrictions which might adversely
affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S.
banks and foreign banks may be subject to less
stringent reserve requirements and foreign issuers
generally are subject to different accounting,
auditing, reporting and record keeping standards than
those applicable to U.S. issuers. Prime Value Money
Market Fund will acquire securities issued by foreign
branches of U.S. banks or foreign issuers only when
the Adviser believes that the risks associated with
such instruments are minimal.
Among the bank obligations in which the Funds
may invest are notes issued by banks. These notes,
which are exempt from registration under federal
securities laws, are not deposits of the banks and
are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Holders of notes
rank on a par with other unsecured and unsubordinated
creditors of the banks. Notes may be sold at par or
sold on a discount basis and may bear fixed or
floating rates of interest.
Each Fund may invest in asset-backed and
receivable-backed securities. Several types of
asset-backed and receivable-backed securities have
been offered to investors, including interests in
pools of credit card receivables and motor vehicle
retail installment sales contracts and security
interests in the vehicles securing the contracts.
Payments of principal and interest on these
securities are passed through to certificate holders.
In addition, asset-backed securities often carry
credit protection in the form of extra collateral,
subordinate certificates, cash reserve accounts and
other enhancements. An investor's return on these
securities may be affected by early prepayment of
principal on the underlying receivables or sales
contracts. Any asset-backed or receivable-backed
securities held by the Funds must comply with the
portfolio maturity and quality requirements contained
in Rule 2a-7 under the 1940 Act. Each Fund will
monitor the performance of these investments and will
not acquire any such securities unless rated in the
highest rating category by at least two nationally
recognized statistical rating organizations
("NRSROs").
As stated in the Funds' Prospectuses, each Fund
may invest in obligations issued by state and local
governmental entities. Municipal securities are
issued by various public entities to obtain funds for
various public purposes, including the construction
of a wide range of public facilities, the refunding
of outstanding obligations, the payment of general
operating expenses and the extension of loans to
public institutions and facilities. Private activity
bonds that are issued by or on behalf of public
authorities to finance various privately operated
facilities are considered to be municipal securities
and may be purchased by a Fund. Dividends paid by a
Fund that are derived from interest on such municipal
securities would be taxable to that Fund's investors
for federal income tax purposes.
The SEC has adopted Rule 144A under the
Securities Act of 1933, as amended (the "1933 Act"),
that allows for a broader institutional trading
market for securities otherwise subject to
restrictions on resale to the general public.
Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales
of certain securities to qualified institutional
buyers. The Adviser anticipates that the market for
certain restricted securities such as institutional
commercial paper will expand further as a result of
this regulation and the development of automated
systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
The Adviser will monitor the liquidity of
restricted and other illiquid securities under the
supervision of the Board of Trustees. In reaching
liquidity decisions with respect to Rule 144A
securities, the Adviser will consider, inter alia,
the following factors: (1) the unregistered nature of
a Rule 144A security; (2) the frequency of trades and
quotes for a Rule 144A security; (3) the number of
dealers wishing to purchase or sell the Rule 144A
security and the number of other potential
purchasers; (4) dealer undertakings to make a market
in the Rule 144A security; (5) the trading markets
for the Rule 144A security; and (6) the nature of the
Rule 144A security and the nature of the marketplace
trades (e.g., the time needed to dispose of the
Rule 144A security, the method of soliciting offers
and the mechanics of the transfer).
The Appendix to this Statement of Additional
Information contains a description of the relevant
rating symbols used by NRSROs for commercial
obligations that may be purchased by each Fund.
The Funds may invest in mortgage backed
securities issued by U.S. Government agencies or
instrumentalities consisting of mortgage pass-through
securities or collateralized mortgage obligations
("CMOs"). Mortgage pass-through securities in which
the Funds may invest represent a partial ownership
interest in a pool of residential mortgage loans and
are issued or guaranteed by the Government National
Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). CMOs are debt
obligations collateralized by mortgage loans or
mortgage pass-through securities (collateral
collectively referred to as "Mortgage Assets"). CMOs
in which the Funds may invest are issued by GNMA,
FNMA and FHLMC. In a CMO, a series of bonds or
certificates are usually issued in multiple classes.
Each class of CMOs, often referred to as a "tranche,"
is issued at a specific fixed or floating coupon rate
and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may
cause the CMOs to be retired substantially earlier
than their stated maturities or final distribution
dates, resulting in a loss of all or part of the
premium if any has been paid. Interest is paid or
accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis. The 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 promptly
consider what action, if any, should be initiated. If
the Board believes that the amount of any deviation
from a Fund's $1.00 amortized cost price per share
may result in material dilution or other unfair
results to investors, it will take such steps as it
considers appropriate to eliminate or reduce to the
extent reasonably practicable any such dilution or
unfair results. These steps may include selling
portfolio instruments prior to maturity to realize
capital gains or losses or to shorten a Fund's
average portfolio maturity, redeeming shares in kind,
reducing or withholding dividends, or utilizing a net
asset value per share determined by using available
market quotations.
MANAGEMENT OF THE FUNDS
Trustees and Officers
The Trust's Trustees and Executive Officers,
their addresses, principal occupations during the
past five years and other affiliations are as
follows:
Name
and
Address
Positi
on
with
the
Trust
Principal
Occupations
During Past 5
Years and
Other
Affiliations
JAMES
A.
CARBONE
(1)
3 World
Financi
al
Center
New
York,
NY
10285
Age:
43
Co-
Chairm
an of
the
Board
and
Truste
e
Managing
Director,
Lehman
Brothers.
ANDREW
GORDON
(1)
3 World
Financi
al
Center
New
York,
NY
10285
Age:
42
Co-
Chairm
an of
the
Board,
Truste
e and
Presid
ent
Managing
Director,
Lehman
Brothers.
CHARLES
BARBER
(2)(3)
66
Glenwoo
d Drive
Greenwi
ch, CT
06830
Age:
78
Truste
e
Consultant;
formerly
Chairman of
the Board,
ASARCO
Incorporated.
BURT N.
DORSETT
(2)(3)
201
East
62nd
Street
New
York,
NY
10022
Age:
65
Truste
e
Managing
Partner,
Dorsett McCabe
Capital
Management,
Inc., an
investment
counseling
firm;
Director,
Research
Corporation
Technologies,
a non-profit
patent-clearin
g and
licensing
operation;
formerly
President,
Westinghouse
Pension
Investments
Corporation;
formerly
Executive Vice
President and
Trustee,
College
Retirement
Equities Fund,
Inc., a
variable
annuity fund;
and formerly
Investment
Officer,
University of
Rochester.
EDWARD
J.
KAIER (
2)(3)
1100
One
Penn
Center
Philade
lphia,
PA
19103
Age:
50
Truste
e
Partner with
the law firm
of Hepburn
Willcox
Hamilton &
Putnam.
S.
DONALD
WILEY (
2)(3)
USX
Tower
Pittsbu
rgh, PA
15219
Age:
69
Truste
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.
WINTERS
3 World
Financi
al
Center
New
York,
NY
10285
Age:
46
Vice
Presid
ent
and
Invest
ment
Office
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.
NICHOLA
S
RABIECK
I, III
3 World
Financi
al
Center
New
York,
NY
10285
Age:
39
Vice
Presid
ent
and
Invest
ment
Office
r
Vice President
and Senior
Portfolio
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.; formerly
Senior Fixed-
Income
Portfolio
Manager with
Chase Private
Banking.
MICHAEL
C.
KARDOK
One
Exchang
e Place
Boston,
MA
02109
Age:
36
Treasu
rer
Vice
President,
First Data
Investor
Services
Group, Inc.;
prior to May
1994, Vice
President, The
Boston Company
Advisors, Inc.
PATRICI
A L.
BICKIME
R
One
Exchang
e Place
Boston,
MA
02109
Age:
42
Secret
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
$60,000.
COMPENSATION TABLE
N
a
m
e
o
f
P
e
r
s
o
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o
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(
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$
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0
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0
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d
w
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,
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e
$
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,
0
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..
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,
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$
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0
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$
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,
0
0
0
(
1
)
_____________
* Represents the total compensation paid to such
persons by all investment companies (including the
Trust) from which such person received compensation
during the fiscal year ended January 31, 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 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
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 the shareholder account records for the
Trust, handles certain communications between
investors and the Trust, distributes dividends and
distributions payable by the Trust and produces
statements with respect to account activity for the
Trust and its investors. For these services, 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 (2.5%) of the first $30 million of a
Fund's average net assets, two percent (2%) of the
next $70 million of the average net assets and one
and one-half percent (1.5%) of the remaining average
net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax
considerations generally affecting a Fund and its
investors that are not described in the Funds'
Prospectuses. No attempt is made to present a
detailed explanation of the tax treatment of a Fund
or its investors or possible legislative changes, and
the discussion here and in the applicable
Prospectuses is not intended as a substitute for
careful tax planning. Investors should consult their
tax advisers with specific reference to their own tax
situation.
As stated in each Prospectus, each Fund is
treated as a separate corporate entity under the Code
and qualified as a regulated investment company under
the Code and intends to so qualify in future years.
In order to so qualify under the Code for a taxable
year, a Fund must satisfy the distribution
requirement described in the Prospectuses, derive at
least 90% of its gross income for the year from
certain qualifying sources, comply with certain
diversification tests and derive less than 30% of its
gross income for the year from the sale or other
disposition of securities and certain other
investments held for less than three months. Interest
(including original issue plus accrued market
discount) received by a Fund at maturity or
disposition of a security held for less than three
months will not be treated as gross income derived
from the sale or other disposition of such security
within the meaning of the 30% requirement. However,
any income in excess of such interest will be treated
as gross income from the sale or other disposition of
securities for this purpose.
A 4% non-deductible excise tax is imposed on
regulated investment companies that fail currently to
distribute an amount equal to specified percentages
of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses).
Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of
each calendar year to avoid liability for this excise
tax.
If for any taxable year a Fund does not qualify
for tax treatment as a regulated investment company,
all of that Fund's taxable income will be subject to
tax at regular corporate rates without any deduction
for distributions to Fund investors. In such event,
dividend distributions to investors would be taxable
as ordinary income to the extent of that Fund's
earnings and profits, and would be eligible for the
dividends received deduction in the case of corporate
shareholders.
Each Fund will be required in certain cases to
withhold and remit to the U.S. Treasury 31% of
taxable dividends or 31% of gross proceeds realized
upon sale paid to its investors who have failed to
provide a correct tax identification number in the
manner required, or who are subject to withholding by
the Internal Revenue Service for failure properly to
include on their return payments of taxable interest
or dividends, or who have failed to certify to a Fund
that they are not subject to backup withholding when
required to do so or that they are "exempt
recipients."
Although each Fund expects to qualify each year
as a "regulated investment company" and to be
relieved of all or substantially all federal income
tax, depending upon the extent of its activities in
states and localities in which its offices are
maintained, in which its agents or independent
contractors are located or in which it is otherwise
deemed to be conducting business, a Fund may be
subject to the tax laws of such states or localities.
In addition, in those states and localities which
have income tax laws, the treatment of the Fund and
its investors under such laws may differ from the
treatment under federal income tax laws. Investors
are advised to consult their tax advisers concerning
the application of state and local taxes.
DIVIDENDS
Each Fund's net investment income for dividend
purposes consists of (i) interest accrued and
original issue discount earned on that Fund's assets,
(ii) plus the amortization of market discount and
minus the amortization of market premium on such
assets, (iii) less accrued expenses directly
attributable to that Fund and the general expenses
(e.g., legal, accounting and trustees' fees) of the
Trust prorated to such Fund on the basis of its
relative net assets. Any realized short-term capital
gains may also be distributed as dividends to Fund
investors. In addition, a Fund's Class B, Class C and
Class E shares bear exclusively the expense of fees
paid to Service Organizations with respect to the
relevant Class of shares. See "Management of the
Funds - Service Organizations."
The Trust uses its best efforts to maintain the
net asset value per share of each Fund at $1.00. As a
result of a significant expense or realized or
unrealized loss incurred by a Fund, it is possible
that a Fund's net asset value per share may fall
below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields" and "effective yields" are
calculated separately for each class of shares of
each Fund and in accordance with the formulas
prescribed by the SEC. The seven-day yield for each
class of shares in a Fund is calculated by
determining the net change in the value of a
hypothetical preexisting account in a Fund having a
balance of one share of the class involved at the
beginning of the period, dividing the net change by
the value of the account at the beginning of the
period to obtain the base period return, and
multiplying the base period return by 365/7. The net
change in the value of an account in a Fund includes
the value of additional shares purchased with
dividends from the original share and dividends
declared on the original share and any such
additional shares, net of all fees charged to all
shareholder accounts in proportion to the length of
the base period and the Fund's average account size,
but does not include gains and losses or unrealized
appreciation and depreciation. In addition, the
effective annualized yield may be computed on a
compounded basis (calculated as described above) with
respect to each class of a Fund's shares by adding 1
to the base period return, raising the sum to a power
equal to 365/7, and subtracting 1 from the result.
Similarly, based on the calculations described above,
30-day (or one-month) yields and effective yields may
also be calculated.
Based on the fiscal year ended January 31, 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 than the net yield of Class A Shares,
respectively.
From time to time, in advertisements or in
reports to investors, a Fund's yield may be quoted
and compared to that of other money market funds or
accounts with similar investment objectives and to
stock or other relevant indices. For example, the
yield of the Fund may be compared to the
IBC/Donoghue's Money Fund Average, which is an
average compiled by IBC/Donoghue's MONEY FUND REPORT
of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance
of money market funds, or to the average yields
reported by the Bank Rate Monitor from money market
deposit accounts offered by the 50 leading banks and
thrift institutions in the top five standard
metropolitan statistical areas.
The Funds' yields will fluctuate, and any
quotation of yield should not be considered as
representative of the future performance of the
Funds. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a
Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a
stated period of time. Investors should remember that
performance and yield are generally functions of the
kind and quality of the investments held in a
portfolio, portfolio maturity, operating expenses and
market conditions. Any fees charged by banks with
respect to Customer accounts investing in shares of a
Fund will not be included in yield calculations; such
fees, if charged, would reduce the actual yield from
that quoted.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Trust does not presently intend to hold
annual meetings of shareholders except as required by
the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the
right to call for a meeting of shareholders to
consider the removal of one or more Trustees. To the
extent required by law, the Trust will assist in
shareholder communication in such matters.
As stated in the Funds' Prospectuses, holders of
shares in a Fund in the Trust will vote in the
aggregate and not by class on all matters, except
where otherwise required by law and except that only
a Fund's Class B, Class C and Class E shares, as the
case may be, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to
that Fund's arrangements with Service Organizations
with respect to the relevant Class of shares. (See
"Management of the Funds - Service Organizations.")
Further, shareholders of each of the Trust's
portfolios will vote in the aggregate and not by
portfolio except as otherwise required by law or when
the Board of Trustees determines that the matter to
be voted upon affects only the interests of the
shareholders of a particular portfolio. Rule 18f-2
under the 1940 Act provides that any matter required
to be submitted by the provisions of such Act or
applicable state law, or otherwise, to the holders of
the outstanding securities of an investment company
such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each
portfolio affected by the matter. Rule 18f-2 further
provides that a portfolio shall be deemed to be
affected by a matter unless it is clear that the
interests of each portfolio in the matter are
identical or that the matter does not affect any
interest of the portfolio. Under the Rule, the
approval of an investment advisory agreement or any
change in a fundamental investment policy would be
effectively acted upon with respect to a portfolio
only if approved by the holders of a majority of the
outstanding voting securities of such portfolio.
However, the Rule also provides that the ratification
of the selection of independent auditors, the
approval of principal underwriting contracts and the
election of Trustees are not subject to the separate
voting requirements and may be effectively acted upon
by shareholders of the investment company voting
without regard to portfolio.
COUNSEL
Willkie Farr & Gallagher, 153 East 53rd Street,
New York, New York 10022, serves as counsel to the
Trust and will pass upon the legality of the shares
offered hereby. Willkie Farr & Gallagher also serves
as counsel to Lehman Brothers.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, serve
as independent auditors to each Fund and render an
opinion on each Fund's financial statements. Ernst &
Young has offices at 200 Clarendon Street, Boston,
Massachusetts 02116-5072.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal year
ended January 31, 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 ("Standard & Poor's") commercial paper rating
is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant
market. The following summarizes the two highest rating
categories used by Standard & Poor's for commercial
paper:
"A-1" - Issue's degree of safety regarding timely
payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted
"A-1+."
"A-2" - Issue's capacity for timely payment is
satisfactory. However, the relative degree of safety is
not as high as for issues designated "A-1."
Moody's short-term debt ratings are opinions of
the ability of issuers to repay punctually senior debt
obligations which have an original maturity not
exceeding one year. The following summarizes the two
highest rating categories used by Moody's for
commercial paper:
"Prime-1" - Issuer or related supporting
institutions are considered to have a superior ability
for repayment of senior short-term debt obligations.
Principal repayment capacity will normally be evidenced
by the following characteristics: leading market
positions in well-established industries; high rates of
return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of
fixed financial charges and high internal cash
generation; and well-established access to a range of
financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuer or related supporting
institutions are considered to have a strong ability
for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the
characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative
liquidity is maintained.
The two highest rating categories of Duff & Phelps
for investment grade commercial paper are "D-1" and "D-
2." Duff & Phelps employs three designations, "D-1+,"
"D-1" and "D-1-," within the highest rating category.
The following summarizes the two highest rating
categories used by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of
timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of
timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely
payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are
very small.
"D-2" - Debt possesses good certainty of timely
payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is
good. Risk factors are small.
Fitch short-term ratings apply to debt obligations
that are payable on demand or have original maturities
of generally up to three years. The two highest rating
categories of Fitch for short-term obligations are
"F-1" and "F-2." Fitch employs two designations, "F-1+"
and "F-1," within the highest rating category. The
following summarizes some of the rating categories used
by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong
credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit
quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in
degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality.
Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of
safety is not as great as the "F-1+" and "F-1"
categories.
Fitch may also use the symbol "LOC" with its
short-term ratings to indicate that the rating is based
upon a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the
likelihood of an untimely payment of principal or
interest of debt having a maturity of one year or less.
The following summarizes the two highest ratings used
by Thomson BankWatch:
"TBW-1" - This designation represents Thomson
BankWatch's highest rating category and indicates a
very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while
the degree of safety regarding timely payment of
principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1."
IBCA assesses the investment quality of unsecured
debt with an original maturity of less than one year
which is issued by bank holding companies and their
principal bank subsidiaries. The highest rating
category of IBCA for short-term debt is "A." IBCA
employs two designations, "A1+" and "A1," within the
highest rating category. The following summarizes the
two highest rating categories used by IBCA for
short-term debt ratings:
"A1" - Obligations are supported by the highest
capacity for timely repayment. Where issues possess a
particularly strong credit feature a rating of "A1+" is
assigned.
"A2" - Obligations are supported by a good
capacity for timely repayment.
Long-Term Debt Ratings
The following summarizes the ratings used by
Standard & Poor's for long-term debt:
"AAA" - This designation represents the highest
rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity
to pay interest and repay principal.
"AA" - Debt is considered to have a very strong
capacity to pay interest and repay principal and
differs from the highest rated issues only in small
degree.
"A" - Debt is considered to have a strong capacity
to pay interest and repay principal although such
issues are somewhat more susceptible to the adverse
effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.
"BB," "B," "CCC," "CC," and "C" - Debt that
possesses one of these ratings is regarded as having
predominantly speculative characteristics with respect
to capacity to pay interest and repay principal. "BB"
indicates the least degree of speculation and "CCC" the
highest degree of speculation. While such debt will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
"CI" - This rating is reserved for income bonds on
which no interest is being paid.
"D" - Debt is in payment default. This rating is
also used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
PLUS (+) or MINUS (-) - The rating of "AA" may be
modified by the addition of a plus or minus sign to
show relative standing within this rating category.
The following summarizes the ratings used by
Moody's for long-term debt:
"Aaa" - Bonds are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
"Aa" - Bonds are judged to be of high quality by
all standards. Together with the "Aaa" group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment
attributes and are to be considered as upper medium
grade obligations. Factors giving security to
principal and interest are considered adequate but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations,
i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact
have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that
possess one of these ratings provide questionable
protection of interest and principal ("Ba" indicates
some speculative elements; "B" indicates a general lack
of characteristics of desirable investment; "Caa"
represents a poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa,"
"Ca" and "C" bonds may be in default.
Con. (---) - Municipal Bonds for which the
security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned
in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in
generic classification of "Aa" in its corporate bond
rating system. The modifier 1 indicates that the
company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the company ranks at
the lower end of its generic rating category.
Those municipal bonds in the "Aa" to "B" groups
which Moody's believes posses the strongest investment
attributes are designated by the symbols "Aa1," "A1,"
"Baa1," "Ba1," and "B1."
The following summarizes the ratings used by Duff
& Phelps for long-term debt:
"AAA" - Debt is considered to be of the highest
credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury
debt.
"AA" - Debt is considered of high credit quality.
Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic
conditions.
"A" - Debt possesses protection factors which are
average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
"BBB" - Debt possesses below average Protection
factors but such protection factors are still
considered sufficient for prudent investment.
Considerable variability in risk is present during
economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that
possesses one of these ratings is considered to be
below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet
obligations when due. Debt rated "B" possesses the
risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has
considerable uncertainty as to timely payment of
principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating
"DP" represents preferred stock with dividend 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 and the
Funds' portfolio turnover is not expected to have a
material effect on the net incomes of the Funds. The
portfolio turnover rate for each of the Funds is
expected to be zero for regulatory reporting purposes.
Additional Information on Investment Practices
The repurchase price under the repurchase
agreements described in the Funds' Prospectuses
generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates
(which may be more or less than the rate on the
securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be
held by the Funds' Custodian, sub-custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by the Funds
under the 1940 Act.
Whenever the Funds enter into reverse repurchase
agreements as described in their Prospectuses, they
will place in a segregated custodian account liquid
assets having a value equal to the repurchase price
(including accrued interest) and will subsequently
monitor the account to ensure such equivalent value is
maintained. Reverse repurchase agreements are
considered to be borrowings by the Funds under the 1940
Act.
As stated in the Funds' Prospectuses, the Funds
may purchase securities on a "when-issued" basis (i.e.,
for delivery beyond the normal settlement date at a
stated price and yield). When a Fund agrees to purchase
when-issued securities, its Custodian will set aside
cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. Normally, the
Custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case such
Fund may be required subsequently to place additional
assets in the separate account in order to ensure that
the value of the account remains equal to the amount of
such Fund's commitment. It may be expected that a
Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
Because the Funds will set aside cash or liquid assets
to satisfy their respective purchase commitments in the
manner described, such a Fund's liquidity and ability
to manage its portfolio might be affected in the event
its commitments to purchase when-issued securities ever
exceeded 25% of the value of its assets. The Funds do
not intend to purchase when-issued securities for
speculative purposes but only in furtherance of their
investment objectives. The Funds reserve the right to
sell the securities before the settlement date if it is
deemed advisable.
When a Fund engages in when-issued transactions,
it relies on the seller to consummate the trade.
Failure of the seller to do so may result in a Fund
incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
Each Fund has the ability to lend securities from
its portfolio to brokers, dealers and other financial
organizations. There is no investment restriction on
the amount of securities that may be loaned. A Fund may
not lend its portfolio securities to Lehman Brothers or
its affiliates without specific authorization from the
SEC. Loans of portfolio securities by a Fund will be
collateralized by cash, letters of credit or securities
issued or guaranteed by the U.S. Government or its
agencies which will be maintained at all times in an
amount equal to at least 100% of the current market
value of the loaned securities (and will be marked to
market daily). From time to time, a Fund may return a
part of the interest earned from the investment of
collateral received for securities loaned to the
borrower and/or a third party, which is unaffiliated
with the Fund or with Lehman Brothers, and which is
acting as a "finder." With respect to loans by the
Funds of their portfolio securities, the Funds would
continue to accrue interest on loaned securities and
would also earn income on loans. Any cash collateral
received by the Funds in connection with such loans
would be invested in short-term U.S. Government
obligations.
The 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
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 promptly consider what action, if any,
should be initiated. If the Board believes that the
amount of any deviation from the $1.00 amortized cost
price per share of a Fund may result in material
dilution or other unfair results to investors or
existing investors, it will take such steps as it
considers appropriate to eliminate or reduce to the
extent reasonably practicable any such dilution or
unfair results. These steps may include selling
portfolio instruments prior to maturity; shortening the
Fund's average portfolio maturity; withholding or
reducing dividends; redeeming shares in kind; or
utilizing a net asset value per share determined by
using available market quotations.
MANAGEMENT OF THE FUNDS
Trustees and Officers
The Trust's Trustees and Executive Officers, their
addresses, principal occupations during the past five
years and other affiliations are as follows:
Name and
Address
Positi
on
with
the
Trust
Principal
Occupations
During Past 5
Years and
Other
Affiliations
JAMES A.
CARBONE
(1)
3 World
Financia
l Center
New
York, NY
10285
Age: 43
Co-
Chairm
an of
the
Board
and
Truste
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.
ANDREW
GORDON
(1)
3 World
Financia
l Center
New
York, NY
10285
Age: 42
Co-
Chairm
an of
the
Board,
Truste
e and
Presid
ent
Managing
Director,
Lehman
Brothers.
CHARLES
F.
BARBER
(2)(3)
66
Glenwood
Drive
Greenwic
h, CT
06830
Age: 78
Truste
e
Consultant;
formerly
Chairman of
the Board,
ASARCO
Incorporated.
BURT N.
DORSETT
(2)(3)
201 East
62nd
Street
New
York, NY
10022
Age: 65
Truste
e
Managing
Partner,
Dorsett
McCabe
Capital
Management,
Inc., an
investment
counseling
firm;
Director,
Research
Corporation
Technologies,
a non-profit
patent-cleari
ng and
licensing
operation;
formerly
President,
Westinghouse
Pension
Investments
Corporation;
formerly
Executive
Vice
President and
Trustee,
College
Retirement
Equities
Fund, Inc., a
variable
annuity fund;
and formerly
Investment
Officer,
University of
Rochester.
EDWARD
J.
KAIER (2
)(3)
1100 One
Penn
Center
Philadel
phia, PA
19103
Age: 50
Truste
e
Partner with
the law firm
of Hepburn
Willcox
Hamilton &
Putnam.
S.
DONALD
WILEY (2
)(3)
USX
Tower
Pittsbur
gh, PA
15219
Age: 69
Truste
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.
WINTERS
3 World
Financia
l Center
New
York, NY
10285
Age: 46
Vice
Presid
ent
and
Invest
ment
Office
r
Senior Vice
President and
Senior Money
Market
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.;
formerly
Product
Manager with
Lehman
Brothers
Capital
Markets
Group.
NICHOLAS
RABIECKI
, III
3 World
Financia
l Center
New
York, NY
10285
Age: 39
Vice
Presid
ent
and
Invest
ment
Office
r
Vice
President and
Senior
Portfolio
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.;
formerly
Senior Fixed-
Income
Portfolio
Manager with
Chase Private
Banking.
MICHAEL
C.
KARDOK
One
Exchange
Place
Boston,
MA 02109
Age: 36
Treasu
rer
Vice
President,
First Data
Investor
Services
Group, Inc.;
prior to May
1994, Vice
President,
The Boston
Company
Advisors,
Inc.
PATRICIA
L.
BICKIMER
One
Exchange
Place
Boston,
MA 02109
Age: 42
Secret
ary
Vice
President and
Associate
General
Counsel,
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 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 and $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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g
g
r
e
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t
e
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o
m
p
e
n
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a
t
i
o
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f
r
o
m
t
h
e
T
r
u
s
t
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ns
io
n
or
Re
ti
re
me
nt
Be
ne
fi
ts
Ac
cr
ue
d
as
Pa
rt
of
Tr
us
t
Ex
pe
ns
es
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s
t
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m
a
t
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d
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n
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u
a
l
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t
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i
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y
,
T
r
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,
0
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/
A
$
2
5
,
0
0
0
(
1
)
__________________________________
* Represents the total compensation paid to such
persons by all investment companies (including the
Trust) from which such person received compensation
during the fiscal year ended January 31, 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 $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 the investor account records for the Trust,
handles certain communications between investors and
the Trust, distributes dividends and distributions
payable by the Trust and produces statements with
respect to account activity for the Trust and its
investors. For these services, 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, and at its option, may also provide to
its Customers of Class E shares services including:
those services set forth in (ii), (iii), (iv), (vi),
(vii) and (viii) above and the optional services set
forth in (a), (b) and (c) above.
Each Fund's agreements with Service Organizations
are governed by a Shareholder Services Plan (the
"Plan") that has been adopted by the Trust's Board of
Trustees under Rule 12b-1 of the 1940 Act. Under this
Plan, the Board of Trustees reviews, at least
quarterly, a written report of the amounts expended
under the Fund's agreements with Service Organizations
and the purposes for which the expenditures were made.
In addition, the Funds' arrangements with Service
Organizations must be approved annually by a majority
of the Trust's Trustees, including a majority of the
Trustees who are not "interested persons" of the Trust
as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved the Funds'
arrangements with Service Organizations based on
information provided by the Funds' service contractors
that there is a reasonable likelihood that the
arrangements will benefit the Funds and their investors
by affording the Funds greater flexibility in
connection with the servicing of the accounts of the
beneficial owners of their shares in an efficient
manner. Any material amendment to the Funds'
arrangements with Service Organizations must be
approved by a majority of the Trust's Board of Trustees
(including a majority of the Disinterested Trustees).
So long as the Funds' arrangements with Service
Organizations are in effect, the selection and
nomination of the members of the Trust's Board of
Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Trust will be committed to the
discretion of such non-interested Trustees.
For the fiscal year ended January 31, 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 than the net yield of Class A Shares,
respectively.
From time to time, in advertisements or in reports
to investors, the performance of the Funds may be
quoted and compared to that of other money market funds
or accounts with similar investment objectives and to
stock or other relevant indices. For example, the
yields of the Funds may be compared to the Donoghue's
Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT of Holliston, MA
01746, a widely recognized independent publication that
monitors the performance of money market funds, or to
the average yields reported by the Bank Rate Monitor
from money market deposit accounts offered by the 50
leading banks and thrift institutions in the top five
standard metropolitan statistical areas.
The Funds' yields will fluctuate and any quotation
of yield should not be considered as representative of
the future performance of the Funds. Since yields
fluctuate, yield data cannot necessarily be used to
compare an investment in the Funds' shares with bank
deposits, savings accounts and similar investment
alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time.
Investors should remember that performance and yield
are generally functions of the kind and quality of the
investments held in a portfolio, portfolio maturity,
operating expenses net of waivers and expense
reimbursements and market conditions. Any fees charged
by Service Organizations or other institutional
investors with respect to customer accounts in
investing in shares of the Funds will not be included
in calculations of yield; such fees, if charged, would
reduce the actual yield from that quoted.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Trust does not presently intend to hold annual
meetings of shareholders except as required by the 1940
Act or other applicable law. The law under certain
circumstances provides shareholders with the right to
call for a meeting of shareholders to consider the
removal of one or more Trustees. To the extent required
by law, the Trust will assist in shareholder
communication in such matters.
As stated in the Prospectuses for the Funds,
holders of each Fund's shares, will vote in the
aggregate and not by class on all matters, except where
otherwise required by law and except that for each Fund
only that Fund's Class B, Class C and Class E shares
will be entitled to vote on matters submitted to a vote
of shareholders pertaining to the Fund's arrangements
with Service Organizations with respect to the relevant
Class of shares. (See "Management of the Funds-Service
Organizations"). Further, shareholders of all of the
Trust's portfolios will vote in the aggregate and not
by portfolio except as otherwise required by law or
when the Board of Trustees determines that the matter
to be voted upon affects only the interests of the
shareholders of a particular portfolio. Rule 18f-2
under the 1940 Act provides that any matter required to
be submitted by the provisions of such Act or
applicable state law, or otherwise, to the holders of
the outstanding securities of an investment company
such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each
portfolio affected by the matter. Rule 18f-2 further
provides that a portfolio shall be deemed to be
affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical
or that the matter does not affect any interest of the
portfolio. Under the Rule the approval of an investment
advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with
respect to a portfolio only if approved by the holders
of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that
the ratification of the selection of independent
auditors, the approval of principal underwriting
contracts and the election of Trustees are not subject
to the separate voting requirements and may be
effectively acted upon by shareholders of the
investment company voting without regard to portfolio.
On August 22, 1994, the Cash Management Fund
changed its name from the 100% Government Money Market
Fund to the Cash Management Fund.
COUNSEL
Willkie Farr & Gallagher, One Citicorp Center, 153
East 53rd Street, New York, New York 10022, serves as
counsel to the Trust and will pass upon the legality of
the shares offered hereby. Willkie Farr & Gallagher
also serves as counsel to Lehman Brothers.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, serve as
independent auditors to the Fund and render an opinion
on each Fund's financial statements. Ernst & Young has
offices at 200 Clarendon Street, Boston, Massachusetts
02116-5072.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal period
ended January 31, 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
3
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,
participation's, beneficial interests in trusts and
partnership interests. Under certain circumstances, the
Funds may be at a disadvantage because of these
limitations in comparison with other investment company
portfolios which have a similar investment objective
but are not subject to such limitations. Furthermore,
with respect to such transactions, securities, deposits
and agreements a Fund will not give preference to
Service Organizations with which a Fund enters into
agreements. (See the Prospectuses, "Management of the
Fund-Service Organizations").
The Funds may participate, if and when
practicable, in bidding for the purchase of Municipal
Obligations directly from an issuer in order to take
advantage of the lower purchase price available to
members of a bidding group. A Fund will engage in this
practice, however, only when the Adviser, in its sole
discretion, believes such practice to be in a Fund's
interest.
The Funds may seek profits through short-term
trading. Each Fund's annual portfolio turnover will be
relatively high, but brokerage commissions are normally
not paid on money market instruments and the Funds'
portfolio turnover is not expected to have a material
effect on the net incomes of the Funds. Each Fund's
portfolio turnover rate is expected to be zero for
regulatory reporting purposes.
Additional Information on Investment Practices
Variable and Floating Rate Instruments. Municipal
Obligations purchased by the Funds may include variable
and floating rate instruments, which provide for
adjustments in the interest rate on certain reset dates
or whenever a specified interest rate index changes,
respectively. Variable and floating rate instruments
are subject to the credit quality standards described
in the Prospectuses. In some cases the Funds may
require that the obligation to pay the principal of the
instrument be backed by a letter or line of credit or
guarantee. Such instruments may carry stated maturities
in excess of 397 days provided that the
maturity-shortening provisions stated in Rule 2a-7
under the 1940 Act are satisfied. Although a particular
variable or floating rate demand instrument may not be
actively traded in a secondary market, in some cases,
the Funds may be entitled to principal on demand and
may be able to resell such notes in the dealer market.
Variable and floating rate demand instruments held
by a Fund may have maturities of more than thirteen
months provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified
intervals not exceeding 13 months, upon giving the
prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to
13 months (397 days). Variable and floating rate notes
that do not provide for payment within seven days may
be deemed illiquid and subject to the 10% limitation on
such investments.
In determining a Fund's average weighted portfolio
maturity and whether a variable or floating rate demand
instrument has a remaining maturity of thirteen months
or less, each instrument will be deemed by a Fund to
have a maturity equal to the longer of the period
remaining until its next interest rate adjustment or
the period remaining until the principal amount can be
recovered through demand. In determining whether an
unrated variable or floating rate demand instrument is
of comparable quality at the time of purchase to
securities in which a Fund may invest, the Adviser will
follow guidelines adopted by the Trust's Board of
Trustees.
Tender Option Bonds. Each Fund may invest up to
10% of the value of its assets in tender option bonds.
A Fund will not purchase tender option bonds unless
(a) the demand feature applicable thereto is
exercisable by the Fund within 13 months of the date of
such purchase upon no more than 30 days' notice and
thereafter is exercisable by the Fund no less
frequently than annually upon no more than 30 days'
notice and (b) at the time of such purchase, the
Adviser reasonably expects that, (i) based upon its
assessment of current and historical interest rate
trends, prevailing short-term tax-exempt rates will not
exceed the stated interest rate on the underlying
Municipal Obligations at the time of the next tender
fee adjustment and (ii) the circumstances which might
entitle the grantor of a tender option to terminate the
tender option would not occur prior to the time of the
next tender opportunity. At the time of each tender
opportunity, a Fund will exercise the tender option
with respect to any tender option bonds unless the
Adviser reasonably expects that, (a) based upon its
assessment of current and historical interest rate
trends, prevailing short-term tax-exempt rates will not
exceed the stated interest rate on the underlying
Municipal Obligations at the time of the next tender
fee adjustment and (b) the circumstances which might
entitle the grantor of a tender option to terminate the
tender option would not occur prior to the time of the
next tender opportunity. The Funds will exercise the
tender feature with respect to tender option bonds, or
otherwise dispose of their tender option bonds, prior
to the time the tender option is scheduled to expire
pursuant to the terms of the agreement under which the
tender option is granted. The Funds otherwise will
comply with the provisions of Rule 2a-7 under the 1940
Act in connection with the purchase of tender option
bonds, including, without limitation, the requisite
determination by the Board of Trustees that the tender
option bonds in question meet the quality standards
described in Rule 2a-7. In the event of a default of
the Municipal Obligation underlying a tender option
bond, or the termination of the tender option
agreement, a Fund would look to the maturity date of
the underlying security for purposes of compliance with
Rule 2a-7 and, if its remaining maturity was greater
than 13 months, the Fund would sell the security as
soon as would be practicable. Each Fund will purchase
tender option bonds only when it is satisfied that
(a) the custodial and tender option arrangements,
including the fee payment arrangements, will not
adversely affect the tax-exempt status of the
underlying Municipal Obligations and (b) payment of any
tender fees will not have the effect of creating
taxable income for the Fund. Based on the tender option
bond arrangement, each Fund expects to value the tender
option bond at par; however, the value of the
instrument will be monitored to assure that it is
valued at fair value.
When-Issued Securities. As stated in the Funds'
Prospectuses, the Funds may purchase Municipal
Obligations on a "when-issued" basis (i.e., for
delivery beyond the normal settlement date at a stated
price and yield). When a Fund agrees to purchase
when-issued securities, the Custodian will set aside
cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. Normally, the
Custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case that
Fund may be required subsequently to place additional
assets in the separate account in order to ensure that
the value of the account remains equal to the amount of
such Fund's commitment. It may be expected that a
Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
Because that Fund will set aside cash or liquid assets
to satisfy its purchase commitments in the manner
described, such Fund's liquidity and ability to manage
its portfolio might be affected in the event its
commitments to purchase when-issued securities ever
exceeded 25% of the value of its assets. When a Fund
engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller
to do so may result in such Fund's incurring a loss or
missing an opportunity to obtain a price considered to
be advantageous. The Funds do not intend to purchase
when-issued securities for speculative purposes but
only in furtherance of their investment objective. Each
Fund reserves the right to sell the securities before
the settlement date if it is deemed advisable.
Stand-By Commitments. Each Fund may acquire
"stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Obligations at their
amortized cost value to the Fund plus accrued interest,
if any. (Stand-by commitments acquired by a Fund may
also be referred to as "put" options.) Stand-by
commitments may be exercisable by a Fund at any time
before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned
only with the instruments involved. A Fund's right to
exercise stand-by commitments will be unconditional and
unqualified.
The amount payable to a Fund upon its exercise of
a stand-by commitment will normally be (i) the Fund's
acquisition cost of the Municipal Obligations
(excluding any accrued interest which the Fund paid on
their acquisition), less any amortized market premium
or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the
last interest payment date during that period.
Each Fund expects that stand-by commitments will
generally be available without the payment of any
direct or indirect consideration. However, if necessary
or advisable, a Fund may pay for a stand-by commitment
either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to
the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total
amount paid in either manner for outstanding stand-by
commitments held by a Fund will not exceed 1/2 of 1% of
the value of that Fund's total assets calculated
immediately after each stand-by commitment is acquired.
Each Fund intends to enter into stand-by
commitments only with dealers, banks and broker-dealers
which, in the opinion of the Adviser, present minimal
credit risks. A Fund's reliance upon the credit of
these dealers, banks and broker-dealers will be secured
by the value of the underlying Municipal Obligations
that are subject to the commitment.
Each Fund would acquire stand-by commitments
solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment
would not affect the valuation or assumed maturity of
the underlying Municipal Obligations, which would
continue to be valued in accordance with the amortized
cost method. Stand-by commitments acquired by a Fund
would be valued at zero in determining net asset value.
Where a Fund paid any consideration directly or
indirectly for a stand-by commitment, its cost would be
reflected as unrealized depreciation for the period
during which the commitment was held by that Fund.
Participations. Each Fund may purchase from
financial institutions tax-exempt participation
interests in Municipal Obligations. A participation
interest gives a Fund an undivided interest in the
Municipal Obligation in the proportion that the Fund's
participation interest bears to the total amount of the
Municipal Obligation. These instruments may have
floating or variable rates of interest. If the
participation interest is unrated, it will be backed by
an irrevocable letter of credit or guarantee of a bank
that the Trust's Board of Trustees has determined meets
certain quality standards or the payment obligation
otherwise will be collateralized by obligations of the
U.S. government and its agencies and instrumentalities
("U.S. Government securities") Each Fund will have the
right, with respect to certain participation interests,
to demand payment, on a specified number of days'
notice, for all or any part of the Fund's interest in
the Municipal Obligations, plus accrued interest. Each
Fund will invest no more than 5% of its total assets in
participation interests.
Illiquid Securities. A Fund may not invest more
than 10% of its total net assets in illiquid
securities, including securities that are illiquid by
virtue of the absence of a readily available market or
legal or contractual restrictions on resale. Securities
that have legal or contractual restrictions on resale
but have a readily available market are not considered
illiquid for purposes of this limitation.
The SEC has adopted Rule 144A under the Securities
Act of 1933, as amended (the "1933 Act") which allows
for a broader institutional trading market for
securities otherwise subject to restriction on resale
to the general public. Rule 144A establishes a "safe
harbor" from the registration requirements of the 1933
Act for resales of certain securities to qualified
institutional buyers. The Adviser anticipates that the
market for certain restricted securities such as
institutional municipal securities will expand further
as a result of this regulation and the development of
automated systems for the trading, clearance and
settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL system sponsored by
the National Association of Securities Dealers.
The Adviser will monitor on an ongoing basis the
liquidity of restricted securities under the
supervision of the Board of Trustees. In reaching
liquidity decisions with respect to Rule 144A
securities, the Adviser will consider, inter alia, the
following factors: (1) the unregistered nature of a
Rule 144A security; (2) the frequency of trades and
quotes for a Rule 144A security; (3) the number of
dealers willing to purchase or sell the Rule 144A
security and the number of other potential purchasers;
(4) dealer undertakings to make a market in the Rule
144A security; (5) the trading markets for the Rule
144A security; and (6) the nature of the Rule 144A
security and the nature of marketplace trades
(including the time needed to dispose of the Rule 144A
security, methods of soliciting offers and mechanics of
transfer).
The Appendix to this Statement of Additional
Information contains a description of the relevant
rating symbols used by nationally recognized
statistical rating organizations ("NRSROs") for
Municipal Obligations that may be purchased by the
Funds.
Investment Limitations
The Funds' Prospectuses summarize certain
investment limitations that may not be changed without
the affirmative vote of the holders of a majority of a
Fund's outstanding shares (as defined below under
"Miscellaneous"). Investment limitations numbered 1
through 7 may not be changed without such a vote of
shareholders; investment limitations 8 through 13 may
be changed by a vote of the Trust's Board of Trustees
at any time.
A Fund may not:
1. Purchase the securities of any issuer if as a
result more than 5% of the value of the Fund's assets
would be invested in the securities of such issuer
except that up to 25% of the value of the Fund's assets
may be invested without regard to this 5% limitation
and provided that there is no limitation with respect
to investments in U.S. Government securities.
2. Borrow money, except 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 bond counsel to the
respective issuing authorities at the time of issuance.
Neither the Funds nor the Adviser will review
independently the underlying proceedings relating to
the issuance of Municipal Obligations or the bases for
such opinions.
The Funds may hold tax-exempt derivatives which
may be in the form of tender option bonds,
participations, beneficial interests in a trust,
partnership interests or other forms. A number of
different structures have been used. For example,
interests in long-term fixed rate Municipal Obligations
held by a bank as trustee or custodian are coupled with
tender option, demand and other features when
tax-exempt derivatives are created. Together, these
features entitle the holder of the interest to tender
(or put) the underlying Municipal Obligation to a third
party at periodic intervals and to receive the
principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts
evidencing rights to receive specific future interest
payments, principal payments or both, on the underlying
municipal securities held by the custodian. Under such
arrangements, the holder of the custodial receipt has
the option to tender the underlying municipal
securities at its face value to the sponsor (usually a
bank or broker-dealer or other financial institution),
which is paid periodic fees equal to the difference
between the bond's fixed coupon rate and the rate that
would cause the bond, coupled with the tender option,
to trade at par on the date of a rate adjustment. The
Funds may hold tax-exempt derivatives, such as
participation interests and custodial receipts, for
Municipal Obligations which give the holder the right
to receive payment of principal subject to the
conditions described above. The Internal Revenue
Service has not ruled on whether the interest received
on tax-exempt derivatives in the form of participation
interests or custodial receipts is tax-exempt, and
accordingly, purchases of any such interests or
receipts are based on the opinion of counsel to the
sponsors of such derivative securities. Neither the
Funds nor the Adviser will review independently the
underlying proceedings related to the creation of any
tax-exempt derivatives or the bases for such opinions.
As described in the Funds' Prospectuses, the two
principal classifications of Municipal Obligations
consist of "general obligation" and "revenue" issues,
and each Fund's portfolio may include "moral
obligation" issues, which are normally issued by
special purpose authorities. There are, of course,
variations in the quality of Municipal Obligations both
within a particular classification and between
classifications, and the yields on Municipal
Obligations depend upon a variety of factors, including
general money market conditions, the financial
condition of the issuer, general conditions of the
municipal bond market, the size of a particular
offering, the maturity of the obligation and the rating
of the issue. The ratings of NRSROs represent their
opinions as to the quality of Municipal Obligations. It
should be recognized, however, that ratings are general
and are not absolute standards of quality, and
Municipal Obligations with the same maturity, interest
rate and rating may have different yields while
Municipal Obligations of the same maturity and interest
rate with different ratings may have the same yield.
Subsequent to its purchase by a Fund, an issue of
Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider
such an event in determining whether a Fund should
continue to hold the obligation.
An issuer's obligations under its Municipal
Obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted
by federal or state legislatures extending the time for
payment of principal or interest or both, or imposing
other constraints upon enforcement of such obligations
or upon the ability of municipalities to levy taxes.
The power or ability of an issuer to meet its
obligations for the payment of interest on and
principal of its Municipal Obligations may be
materially adversely affected by litigation or other
conditions.
Among other instruments, each Fund may purchase
short-term General Obligation Notes, Tax Anticipation
Notes, Bond Anticipation Notes, Revenue Anticipation
Notes, Tax-Exempt Commercial Paper, Construction Loan
Notes and other forms of short-term loans. Such notes
are issued with a short-term maturity in anticipation
of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, each Fund
may invest in other types of tax-exempt instruments
such as municipal bonds, private activity bonds and
pollution control bonds, provided they have remaining
maturities of 13 months or less at the time of
purchase.
The payment of principal and interest on most
securities purchased by a Fund will depend upon the
ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their
political subdivisions, agencies, instrumentalities,
and authorities and each multi-state agency of which a
state is a member is a separate "issuer" as that term
is used in this Statement of Additional Information and
the Funds' Prospectuses. The non-governmental user of
facilities financed by private activity bonds is also
considered to be an "issuer."
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
In General
Information on how to purchase and redeem each
Fund's shares is included in the applicable Prospectus.
The issuance of a Fund's shares is recorded on a Fund's
books, and share certificates are not issued.
The regulations of the Comptroller of the Currency
(the "Comptroller") provide that funds held in a
fiduciary capacity by a national bank approved by the
Comptroller to exercise fiduciary powers must be
invested in accordance with the instrument establishing
the fiduciary relationship and local law. The Trust
believes that the purchase of Municipal Money Market
Fund or Tax-Free Money Market Fund shares by such
national banks acting on behalf of their fiduciary
accounts is not contrary to applicable regulations if
consistent with the particular account and proper under
the law governing the administration of the account.
Conflict of interest restrictions may apply to an
institution's receipt of compensation paid by a Fund on
fiduciary funds that are invested in a Fund's Class B,
or Class C or Class E shares. Institutions, including
banks regulated by the Comptroller and investment
advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult
their legal advisers before investing fiduciary funds
in a Fund's Class B, Class C or Class E shares.
Under the 1940 Act, a Fund may suspend the right
of redemption or postpone the date of payment upon
redemption for any period during which the New York
Stock Exchange ("NYSE") is closed, other than customary
weekend and holiday closings, or during which trading
on the NYSE is restricted, or during which (as
determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or
valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may
permit. (A Fund may also suspend or postpone the
recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.) In
addition, a Fund may redeem shares involuntarily in
certain other instances if the Board of Trustees
determines that failure to redeem may have material
adverse consequences to that Fund's investors in
general. Each Fund is obligated to redeem shares solely
in cash up to $250,000 or 1% of such Fund's net asset
value, whichever is less, for any one investor within a
90-day period. Any redemption beyond this amount will
also be in cash unless the Board of Trustees determines
that conditions exist which make payment of redemption
proceeds wholly in cash unwise or undesirable. In such
a case, a Fund may make payment wholly or partly in
readily marketable securities or other property, valued
in the same way as that Fund determines net asset
value. See "Net Asset Value" below for an example of
when such redemption or form of payment might be
appropriate. Redemption in kind is not as liquid as a
cash redemption. Shareholders who receive a redemption
in kind may incur transaction costs, if they sell such
securities or property, and may receive less than the
redemption value of such securities or property upon
sale, particularly where such securities are sold prior
to maturity.
Any institution purchasing shares on behalf of
separate accounts will be required to hold the shares
in a single nominee name (a "Master Account").
Institutions investing in more than one of the Trust's
portfolios or classes of shares must maintain a
separate Master Account for each portfolio or class of
shares. Sub-accounts may be established by name or
number either when the Master Account is opened or
later.
Net Asset Value
Each Fund's net asset value per share is
calculated separately for each class by dividing the
total value of the assets belonging to such Fund
attributable to a class, less the value of any class-
specific liabilities charged to such Fund, by the total
number of that Fund's shares of that class outstanding.
"Assets belonging to" a Fund consist of the
consideration received upon the issuance of Fund shares
together with all income, earnings, profits and
proceeds derived from the investment thereof, including
any proceeds from the sale, exchange or liquidation of
such investments, any funds or payments derived from
any reinvestment of such proceeds and a portion of any
general assets of the Trust not belonging to a
particular Fund. Assets belonging to a Fund are charged
with the direct liabilities of that Fund and with a
share of the general liabilities of the Trust allocated
on a daily basis in proportion to the relative net
assets of that Fund and the Trust's other portfolios.
Determinations made in good faith and in accordance
with generally accepted accounting principles by the
Trust's Board of Trustees as to the allocation of any
assets or liabilities with respect to a Fund are
conclusive.
As stated in the applicable Prospectus, in
computing the net asset value of its shares for
purposes of sales and redemptions, each Fund uses the
amortized cost method of valuation. Under this method,
a Fund values each of its portfolio securities at cost
on the date of purchase and thereafter assumes a
constant proportionate amortization of any discount or
premium until maturity of the security. As a result,
the value of a portfolio security for purposes of
determining net asset value normally does not change in
response to fluctuating interest rates. While the
amortized cost method provides certainty in portfolio
valuation, it may result in valuations of a Fund's
securities which are higher or lower than the market
value of such securities.
In connection with its use of amortized cost
valuation, each Fund limits the dollar-weighted average
maturity of its portfolio to not more than 90 days and
does not purchase any instrument with a remaining
maturity of more than 13 months (397 days) (with
certain exceptions). The Trust's Board of Trustees has
also established, pursuant to rules promulgated by the
SEC, procedures that are intended to stabilize each
Fund's net asset value per share for purposes of sales
and redemptions at $1.00. Such procedures include the
determination at such intervals as the Board deems
appropriate, of the extent, if any, to which a Fund's
net asset value per share calculated by using available
market quotations deviates from $1.00 per share. In the
event such deviation exceeds 1/2 of 1%, the Board will
promptly consider what action, if any, should be
initiated. If the Board believes that the amount of any
deviation from a Fund's $1.00 amortized cost price per
share may result in material dilution or other unfair
results to investors or existing shareholders, it will
take such steps as its considers appropriate to
eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These
steps may include selling portfolio instruments prior
to maturity to realize capital gains or losses or to
shorten a Fund's average portfolio maturity, redeeming
shares in kind, reducing or withholding dividends, or
utilizing a net asset value per share determined by
using available market quotations.
MANAGEMENT OF THE FUNDS
Trustees and Officers
The Trust's Trustees and Executive Officers, their
addresses, principal occupations during the past five
years and other affiliations are as follows:
Name
and
Address
Positi
on
with
the
Trust
Principal
Occupations
During Past 5
Years and
Other
Affiliations
JAMES
A.
CARBONE
(1)
3 World
Financi
al
Center
New
York,
NY
10285
Age:
43
Co-
Chairm
an of
the
Board
and
Truste
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.
ANDREW
GORDON
(1)
3 World
Financi
al
Center
New
York,
NY
10285
Age: 42
Co-
Chairm
an of
the
Board,
Truste
e and
Presid
ent
Managing
Director,
Lehman
Brothers.
CHARLES
F.
BARBER
(2)(3)
66
Glenwoo
d Drive
Greenwi
ch, CT
06830
Age: 78
Truste
e
Consultant;
formerly
Chairman of
the Board,
ASARCO
Incorporated.
BURT N.
DORSETT
(2)(3)
201
East
62nd
Street
New
York,
NY
10022
Age: 65
Truste
e
Managing
Partner,
Dorsett McCabe
Capital
Management,
Inc., an
investment
counseling
firm;
Director,
Research
Corporation
Technologies,
a non-profit
patent-clearin
g and
licensing
operation;
formerly
President,
Westinghouse
Pension
Investments
Corporation;
formerly
Executive Vice
President and
Trustee,
College
Retirement
Equities Fund,
Inc., a
variable
annuity fund;
and formerly
Investment
Officer,
University of
Rochester.
EDWARD
J.
KAIER (
2)(3)
1100
One
Penn
Center
Philade
lphia,
PA
19103
Age: 50
Truste
e
Partner with
the law firm
of Hepburn
Willcox
Hamilton &
Putnam.
S.
DONALD
WILEY (
2)(3)
USX
Tower
Pittsbu
rgh, PA
15219
Age: 69
Truste
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.
WINTERS
3 World
Financi
al
Center
New
York,
NY
10285
Age: 46
Vice
Presid
ent
and
Invest
ment
Office
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.
NICHOLA
S
RABIECK
I, III
3 World
Financi
al
Center
New
York,
NY
10285
Age: 39
Vice
Presid
ent
and
Invest
ment
Office
r
Vice President
and Senior
Portfolio
Manager,
Lehman
Brothers
Global Asset
Management,
Inc.; formerly
Senior Fixed
Income
Portfolio
Manager with
Chase Private
Banking.
MICHAEL
C.
KARDOK
One
Exchang
e Place
Boston,
MA
02109
Age: 36
Treasu
rer
Vice
President,
First Data
Investor
Services
Group, Inc.;
prior to May
1994, Vice
President, The
Boston Company
Advisors, Inc.
PATRICI
A L.
BICKIME
R
One
Exchang
e Place
Boston,
MA
02109
Age: 42
Secret
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
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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 the investor account records for the Trust,
handles certain communications between investors and
the Trust, distributes dividends and distributions
payable by the Trust and produces statements with
respect to account activity for the Trust and its
investors. For these services, 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;
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
and one and one-half percent (1 1/2%) of the remaining
average net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax
considerations generally affecting a Fund and its
investors that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of a Fund or its
investors or possible legislative changes, and the
discussion here and in the applicable Prospectus is not
intended as a substitute for careful tax planning.
Investors should consult their tax advisers with
specific reference to their own tax situation.
As stated in each Prospectus, each Fund is treated
as a separate corporate entity under the Code and
qualified as a regulated investment company under the
Code and intends to so qualify in future years. In
order to so qualify for a taxable year, a Fund must
satisfy the distribution requirement described in the
Prospectuses, derive at least 90% of its gross income
for the year from certain qualifying sources, comply
with certain diversification requirements and derive
less than 30% of its gross income for the year from the
sale or other disposition of securities and certain
other investments held for less than three months.
Interest (including original issue discount and, with
respect to taxable debt securities, accrued market
discount) received by a Fund at maturity or disposition
of a security held for less than three months will not
be treated as gross income derived from the sale or
other disposition of such security within the meaning
of the 30% requirement. However, any other income which
is attributable to realized market appreciation will be
treated as gross income from the sale or other
disposition of securities for this purpose.
As described above and in each Fund's Prospectus,
each Fund is designed to provide institutions with
current tax-exempt interest income. A Fund is not
intended to constitute a balanced investment program
and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of a Fund would
not be suitable for tax-exempt institutions and may not
be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual
retirement accounts since such plans and accounts are
generally tax-exempt and, therefore, not only would not
gain any additional benefit from such Fund's dividends
being tax-exempt but also such dividends would be
taxable when distributed to the beneficiary. In
addition, a Fund may not be an appropriate investment
for entities which are "substantial users" of
facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such
facilities in his or her trade or business and whose
gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such
facilities, or who occupies more than 5% of the usable
area of such facilities or for whom such facilities or
a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include
certain related natural persons, affiliated
corporations, a partnership and its partners and an
S Corporation and its shareholders.
In order for a Fund to pay exempt-interest
dividends for any taxable year, at the close of each
quarter of its taxable year at least 50% of the
aggregate value of such Fund's assets must consist of
exempt-interest obligations. After the close of its
taxable year, a Fund will notify its investors of the
portion of the dividends paid by such Fund which
constitutes an exempt-interest dividend with respect to
such taxable year. However, the aggregate amount of
dividends so designated by a Fund cannot exceed the
excess of the amount of interest exempt from tax under
Section 103 of the Code received by that Fund for the
taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. The
percentage of total dividends paid by a Fund with
respect to any taxable year which qualifies as federal
exempt-interest dividends will be the same for all
investors of that Fund receiving dividends for such
year.
Interest on indebtedness incurred by an investor
to purchase or carry a Fund's shares is not deductible
for federal income tax purposes if that Fund
distributes exempt-interest dividends during the
investor's taxable year.
While the Funds do not expect to realize long-term
capital gains, any net realized long-term capital gains
will be distributed at least annually. Each Fund will
generally have no tax liability with respect to such
gains, and the distributions will be taxable to each
Fund's investors as long-term capital gains, regardless
of how long a investor has held such Fund's shares.
Such distributions will be designated as a capital gain
dividend in a written notice mailed by the Fund to its
investors not later than 60 days after the close of a
Fund's taxable year.
Similarly, while the Funds do not expect to earn
any investment company taxable income, taxable income
earned by each Fund will be distributed to its
investors. In general, a Fund's investment company
taxable income will be its taxable income (for example,
any short-term capital gains) subject to certain
adjustments and excluding the excess of any net
long-term capital gain for the taxable year over the
net short-term capital loss, if any, for such year. A
Fund will be taxed on any undistributed investment
company taxable income of such Fund. To the extent such
income is distributed by a Fund (whether in cash or
additional shares), it will be taxable to that Fund's
investors as ordinary income.
A 4% nondeductible excise tax is imposed on
regulated investment companies that fail currently to
distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses).
Each Fund intends to make sufficient distributions or
deemed distributions of any ordinary taxable income and
any capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax.
If for any taxable year a Fund does not qualify
for tax treatment as a regulated investment company,
all of that Fund's taxable income will be subject to
tax at regular corporate rates without any deduction
for distributions to Fund investors. In such event,
dividend distributions to investors would be taxable to
investors to the extent of that Fund's earnings and
profits, and would be eligible for the dividends
received deduction for corporations.
Each Fund will be required in certain cases to
withhold and remit to the U.S. Treasury 31% of taxable
dividends or 31% of gross proceeds realized upon sale
paid to its investors who have failed to provide a
correct tax identification number in the manner
required, or who are subject to withholding by the
Internal Revenue Service for failure properly to
include on their return payments of taxable interest or
dividends, or who have failed to certify to a Fund that
they are not subject to backup withholding when
required to do so or that they are "exempt recipients."
Although each Fund expects to qualify each year as
a "regulated investment company" and to be relieved of
all or substantially all federal income taxes,
depending upon the extent of its activities in states
and localities in which its offices are maintained, in
which its agents or independent contractors are located
or in which they are otherwise deemed to be conducting
business, a Fund may be subject to the tax laws of such
states or localities.
DIVIDENDS
Each Fund's net investment income for dividend
purposes consists of (i) interest accrued and discount
earned on that Fund's assets, (ii) less amortization of
market premium on such assets, accrued expenses
directly attributable to that Fund, and the general
expenses (e.g., legal, accounting and trustees' fees)
of the Trust prorated to such Fund on the basis of its
relative net assets. The amortization of market
discount on a Fund's assets is not included in the
calculation of net income.
Realized and unrealized gains and losses on
portfolio securities are reflected in net asset value.
In addition, the Fund's Class B, Class C and Class E
shares bear exclusively the expense of fees paid to
Service Organizations with respect to the relevant
Class of shares. See "Management of the Funds-Service
Organizations."
As stated, the Trust uses its best efforts to
maintain the net asset value per share of each Fund at
$1.00. As a result of a significant expense or realized
or unrealized loss incurred by a Fund, it is possible
that a Fund's net asset value per share may fall below
$1.00.
ADDITIONAL YIELD INFORMATION
The "yields," "effective yields" and
"tax-equivalent yields" are calculated separately for
each class of shares of each Fund and in accordance
with the formulas prescribed by the SEC. The seven-day
yield for each series of shares in a Fund is calculated
by determining the net change in the value of a
hypothetical preexisting account in such Fund which has
a balance of one share of the class involved at the
beginning of the period, dividing the net change by the
value of the account at the beginning of the period to
obtain the base period return, and multiplying the base
period return by 365/7. The net change in the value of
an account in a Fund includes the value of additional
shares purchased with dividends from the original share
and dividends declared on the original share and any
such additional shares, net of all fees charged to all
investor accounts in proportion to the length of the
base period and the Fund's average account size, but
does not include gains and losses or unrealized
appreciation and depreciation. In addition, the
effective yield quotations may be computed on a
compounded basis (calculated as described above) by
adding 1 to the base period return for the class
involved, raising that sum to a power equal to 365/7,
and subtracting 1 from the result. A tax-equivalent
yield for each class of a Fund's shares is computed by
dividing the portion of the yield (calculated as above)
that is exempt from federal income tax by one minus a
stated federal income tax rate and adding that figure
to that portion, if any, of the yield that is not
exempt from federal income tax. Similarly, based on the
calculations described above, 30-day (or one-month)
yields, effective yields and tax-equivalent yields may
also be calculated.
Based on the period ended January 31, 1996, the yields, effective yields and
tax-equivalent yields for each of the Funds were as follows:
7
- -
d
a
y
Y
i
e
l
d
7
- -
d
a
y
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
7
- -
d
a
y
T
a
x
- -
E
q
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 than the net yield of Class A Shares,
respectively.
From time to time, in advertisements or in reports to investors, a Fund's
yield
may be quoted and compared to that of other money market funds or accounts with
similar investment objectives and to stock or other relevant indices. For
example, the
yield of the Fund may be compared to the IBC/Donoghue's Money Fund Average,
which is an average compiled by IBC/Donoghue's MONEY FUND REPORT of
Holliston, MA 01746, a widely recognized independent publication that
monitors the
performance of money market funds, or to the average yields reported by the
Bank
Rate Monitor from money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five standard metropolitan statistical
areas.
Yields will fluctuate, and any quotation of yield
should not be considered as representative of the
future performance of a Fund. Since yields fluctuate,
yield data for a Fund cannot necessarily be used to
compare an investment in that Fund's shares with bank
deposits, savings accounts and similar investment
alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance and yield
are generally functions of the kind and quality of the
investments held in a portfolio, portfolio maturity,
operating expenses and market conditions. Any fees
charged by banks with respect to customer accounts
investing in shares of a Fund will not be included in
yield calculations; such fees, if charged, would reduce
the actual yield from that quoted.
ADDITIONAL DESCRIPTION CONCERNING 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 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, serve as
auditors to each Fund and render an opinion on each
Fund's financial statements. Ernst & Young has offices
at 200 Clarendon Street, Boston, Massachusetts 02116-
5072.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal year
ended January 31, 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 RATINGS
Commercial Paper Ratings
Standard & Poor's, a division of The McGraw-Hill
Companies ("Standard & Poor's) commercial paper rating
is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant
market. The following summarizes the two highest
rating categories used by Standard & Poor's for
commercial paper:
"A-1" - Issue's degree of safety regarding timely
payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted
"A-1+."
"A-2" - Issue's capacity for timely payment is
satisfactory. However, the relative degree of safety is
not as high as for issues designated "A-1."
Moody's short-term debt ratings are opinions of
the ability of issuers to repay punctually senior debt
obligations which have an original maturity not
exceeding one year. The following summarizes the two
highest rating categories used by Moody's for
commercial paper:
"Prime-1" - Issuer or related supporting
institutions are considered to have a superior ability
for repayment of senior short-term debt obligations.
Principal repayment capacity will normally be evidenced
by the following characteristics: leading market
positions in well-established industries; high rates of
return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of
fixed financial charges and high internal cash
generation; and well-established access to a range of
financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuer or related supporting
institutions are considered to have a strong ability
for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the
characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative
liquidity is maintained.
The two highest rating categories of Duff & Phelps
for investment grade commercial paper are "D-1" and "D-
2." Duff & Phelps employs three designations, "D-1+,"
"D-1" and "D-1-," within the highest rating category.
The following summarizes the two highest rating
categories used by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of
timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of
timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely
payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are
very small.
"D-2" - Debt possesses good certainty of timely
payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is
good. Risk factors are small.
Fitch short-term ratings apply to debt obligations
that are payable on demand or have original maturities
of generally up to three years. The two highest rating
categories of Fitch for short-term obligations are
"F-1" and "F-2." Fitch employs two designations, "F-1+"
and "F-1," within the highest rating category. The
following summarizes some of the rating categories used
by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong
credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit
quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in
degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality.
Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of
safety is not as great as the "F-1+" and "F-1"
categories.
Fitch may also use the symbol "LOC" with its
short-term ratings to indicate that the rating is based
upon a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the
likelihood of an untimely payment of principal or
interest of debt having a maturity of one year or less.
The following summarizes the two highest ratings used
by Thomson BankWatch:
"TBW-1" - This designation represents Thomson
BankWatch's highest rating category and indicates a
very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while
the degree of safety regarding timely payment of
principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1."
IBCA assesses the investment quality of unsecured
debt with an original maturity of less than one year
which is issued by bank holding companies and their
principal bank subsidiaries. The highest rating
category of IBCA for short-term debt is "A." IBCA
employs two designations, "A1+" and "A1," within the
highest rating category. The following summarizes the
two highest rating categories used by IBCA for
short-term debt ratings:
"A1" - Obligations are supported by the highest
capacity for timely repayment. Where issues possess a
particularly strong credit feature a rating of "A1+" is
assigned.
"A2" - Obligations are supported by a good
capacity for timely repayment.
Municipal Long-Term Debt Ratings
The following summarizes the ratings used by
Standard & Poor's for municipal long-term debt:
"AAA" - This designation represents the highest
rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity
to pay interest and repay principal.
"AA" - Debt is considered to have a very strong
capacity to pay interest and repay principal and
differs from the highest rated issues only in small
degree.
"A" - Debt is considered to have a strong capacity
to pay interest and repay principal although such
issues are somewhat more susceptible to the adverse
effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.
"BB," "B," "CCC," "CC," and "C" - Debt that
possesses one of these ratings is regarded as having
predominantly speculative characteristics with respect
to capacity to pay interest and repay principal. "BB"
indicates the least degree of speculation and "CCC" the
highest degree of speculation. While such debt will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
"CI" - This rating is reserved for income bonds on
which no interest is being paid.
"D" - Debt is in payment default. This rating is
also used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
PLUS (+) or MINUS (-) - The rating of "AA" may be
modified by the addition of a plus or minus sign to
show relative standing within this rating category.
The following summarizes the ratings used by
Moody's for municipal long-term debt:
"Aaa" - Bonds are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
"Aa" - Bonds are judged to be of high quality by
all standards. Together with the "Aaa" group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment
attributes and are to be considered as upper medium
grade obligations. Factors giving security to
principal and interest are considered adequate but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations,
i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact
have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that
possess one of these ratings provide questionable
protection of interest and principal ("Ba" indicates
some speculative elements; "B" indicates a general lack
of characteristics of desirable investment; "Caa"
represents a poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa,"
"Ca" and "C" bonds may be in default.
Con. (---) - Municipal Bonds for which the
security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned
in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in
generic classification of "Aa" in its corporate bond
rating system. The modifier 1 indicates that the
company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the company ranks at
the lower end of its generic rating category.
Those municipal bonds in the "Aa" to "B" groups
which Moody's believes posses the strongest investment
attributes are designated by the symbols "Aa1," "A1,"
"Baa1," "Ba1," and "B1."
The following summarizes the ratings used by Duff
& Phelps for municipal long-term debt:
"AAA" - Debt is considered to be of the highest
credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury
debt.
"AA" - Debt is considered of high credit quality.
Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic
conditions.
"A" - Debt possesses protection factors which are
average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
"BBB" - Debt possesses below average Protection
factors but such protection factors are still
considered sufficient for prudent investment.
Considerable variability in risk is present during
economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that
possesses one of these ratings is considered to be
below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet
obligations when due. Debt rated "B" possesses the
risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has
considerable uncertainty as to timely payment of
principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating
"DP" represents preferred stock with dividend
arrearages.
To provide more detailed indications of credit
quality, the "AA," "A," "BBB," "BB" and "B" ratings may
be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within these major
rating categories.
The following summarizes the ratings used by Fitch
for municipal bonds:
"AAA" - Bonds considered to be investment grade
and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by
reasonably foreseeable events.
"AA" - Bonds considered to be investment grade and
of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is
generally rated "F-1+."
"A" - Bonds considered to be investment grade and
of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds
with higher ratings.
"BBB" - Bonds considered to be investment grade
and of satisfactory credit quality. The obligor's
ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely
to have an adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that
the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D"
- -Bonds that possess one of these ratings are considered
by Fitch to be speculative investments. The ratings
"BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest
in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating
"DDD" to "D" is an assessment that bonds should be
valued on the basis of the ultimate recovery value in
liquidation or reorganization of the obligor.
To provide more detailed indications of credit
quality, the Fitch ratings from and including "AA" to
"C" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these
major rating categories.
Thomson BankWatch assesses the likelihood of an
untimely repayment of principal or interest over the
term to maturity of long-term debt and preferred stock
which are issued by United States commercial banks,
thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the two
highest rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation represents the highest
category assigned by Thomson BankWatch to long-term
debt and indicates that the ability to repay principal
and interest on a timely basis is very high.
"AA" - This designation indicates a superior
ability to repay principal and interest on a timely
basis with limited incremental risk versus issues rated
in the highest category.
"A" - This designation indicates the ability to
repay principal and interest is strong. Issues rated
"A" could be more vulnerable to adverse developments
(both 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.
- - 12 -
- - 19 -
G:\SHARED\LEHMAN/INSTITUT/PEAS/SAI/1996/053096/596SAI3A.DOC
A-7
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
Included in Part B:
Registrant's Annual Report dated January 31, 1996
and the Report of Independent Accountants dated March 8, 1996
are incorporated by reference to the Rule 30b2-1 filed on
March 27, 1996 as Accession #0000927405-96-000160.
Included in Part C:
Consent of Auditors
(b) Exhibits:
All references are to the Registrant's Registration Statement
on Form N-1A as filed with the Securities and Exchange
Commission on December 28, 1992 (the "Registration
Statement").
(1)(a) Declaration of Trust of Registrant dated November
16, 1992 as previously filed in the Registration Statement is
incorporated by reference to Exhibit (1)(a) of Post-Effective
Amendment No. 9.
(b) Amendment No. 1 to Declaration of Trust of
Registrant is incorporated by reference to Exhibit (1)(b) of
Post-Effective Amendment No. 9.
(c) Designation and Establishment of Series is
incorporated by reference to Exhibit (1)(c) of Post-Effective
Amendment No. 9.
(d) Form of Certificate pertaining to Classification
of Shares dated February 18, 1994 is incorporated by
reference to Exhibit (1)(d) of Post-Effective Amendment No.
4.
(2) Amended and Restated By-Laws dated November 2,
1994 are incorporated by reference to Exhibit (2) (a) of
Post-Effective Amendment No. 9.
(3) Not Applicable.
(4) Specimen Share Certificate is incorporated by reference
to Exhibit (4) of Post-Effective Amendment No. 9.
(5) (a) Form of Investment Advisory Agreement dated
February 1, 1996 between Registrant and Lehman Brothers
Global Asset Management Inc. ("LBGAM"), relating to each
investment portfolio (collectively, the "Funds") of
Registrant is filed herein.
(b) Investment Advisory Agreement between Registrant
and Lehman Brothers Global Asset Management Inc. ("LBGAM"),
the Funds of Registrant is incorporated by reference to
Exhibit (5)(a) of Post-Effective Amendment No. 9.
(6) Distribution Agreement between Registrant and
Lehman Brothers, a division of Shearson Lehman Brothers Inc.,
is incorporated by reference to Exhibit (6)(a) of Post-
Effective Amendment No. 9.
(7) Not Applicable.
(8) (a) Custody Agreement between Registrant and
Boston Safe Deposit and Trust Company is incorporated by
reference to Exhibit (8)(a) of Post-Effective Amendment No.
9.
(b) Form of Amendment No. 1 to the Custody Agreement dated
November 10, 1993 between Registrant and Boston Safe Deposit
and Trust Company is incorporated by reference to Exhibit
(8)(b) of Post-Effective Amendment No. 6.
(c) Form of Amendment No. 2 to the Custody Agreement dated
January 27, 1994 between Registrant and Boston Safe Deposit
and Trust Company is incorporated by reference to Exhibit
(8)(c) of Post-Effective Amendment No. 6.
(9) (a) Administration Agreement between Registrant
and The Boston Company Advisors, Inc. is incorporated by
reference to Exhibit (9)(a) of Post-Effective Amendment No.
9.
(b) Assignment of Administration Agreement dated April 21,
1994 between Registrant and The Boston Company Advisors, Inc.
to The Shareholder Services Group, Inc. is incorporated by
reference to Exhibit (9)(b) of Post-Effective Amendment No.
5.
(c) Transfer Agency Agreement and Registrar Agreement dated
February 1, 1993 between Registrant and The Shareholder
Services Group, Inc. is incorporated by reference to Exhibit
(9)(a) of Post-Effective Amendment No. 9.
(d) Amendment No. 1 to the Transfer Agency Agreement dated
November 10, 1993 between Registrant and The Shareholder
Services Group, Inc. is incorporated by reference to Exhibit
(9)(d) of Post-Effective Amendment No. 6.
(e) Amendment No. 2 to the Transfer Agency Agreement dated
January 27, 1994 between the Registrant and The Shareholder
Services Group, Inc. is incorporated by reference to Exhibit
(9)(e) of Post-Effective Amendment No. 6.
(10) Not Applicable.
(11) (a) Power of Attorney for James A. Carbone is
filed herein.
(b) Powers of Attorney for Charles F. Barber, Burt N.
Dorsett, Edward J. Kaier, and S. Donald Wiley are
incorporated by reference to Exhibit 11 (a) to Post-Effective
Amendment No. 10.
(c) Consent of Independent Auditors is filed herein.
(d) Consent of Counsel is filed herein.
(12) Not Applicable.
(13) Purchase Agreement between Registrant and
Shearson Lehman Brothers Inc. is incorporated by reference to
Exhibit (13)(a) of Post-Effective Amendment No. 9.
(14) Not Applicable.
(15) (a) Shareholder Services Plan pursuant to Rule 12b-1
is incorporated by reference to Exhibit (15)(a) of Post-
Effective Amendment No. 9.
(b) Form of Shareholder Servicing Agreement for
Class E Shares is filed herein.
(c) Form of Shareholder Servicing Agreement for Class
B Shares is incorporated by reference to Exhibit (15)(c) of
Post-Effective Amendment No. 9.
(d) Form of Shareholder Servicing Agreement for Class
C Shares is incorporated by reference to Exhibit (15)(d) of
Post-Effective Amendment No. 9.
(16) Performance Data is incorporated by
reference to Exhibit 16 of Post-Effective
Amendment No. 10.
(17) Financial Data Schedules are filed
herein.
(18) (a) Amended and Restated Multi-Class Plan dated
November 1, 1995 is filed herein.
(b) Multi-Class Plan dated May 11, 1995 is incorporated
by reference to Exhibit 15 (k) of Post-Effective Amendment
No. 10.
Item 25. Persons Controlled by or under Common Control
with Registrant
None
Item 26. Number of Holders of Securities
The following information is as of March 15, 1996:
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Item 27. Indemnification
Under Section 4.3 of Registrant's Declaration of Trust,
as amended, any past or present Trustee or officer of
Registrant (including persons who serve at Registrant's
request as directors, officers or trustees of another
organization in which Registrant has any interest as a
shareholder, creditor or otherwise [hereinafter referred to
as a "Covered Person"]) is indemnified to the fullest extent
permitted by law against liability and all expenses
reasonably incurred by him in connection with any action,
suit or proceeding to which he may be a party or otherwise
involved by reason of his being or having been a Covered
Person. This provision does not authorize indemnification
when it is determined, in the manner specified in the
Declaration of Trust, that such Covered Person has not acted
in good faith in the reasonable belief that his actions were
in or not opposed to the best interests of Registrant.
Moreover, this provision does not authorize indemnification
when it is determined, in the manner specified in the
Declaration of Trust, that such Covered Person would
otherwise be liable to Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties. Expenses may be paid to
Registrant in advance of the final disposition of any action,
suit or proceedings upon receipt of an undertaking by such
Covered Person to repay such expenses to Registrant in the
event that it is ultimately determined that indemnification
of such expenses is not authorized under the Declaration of
Trust and the Covered Person either provides security for
such undertaking or insures Registrant against losses from
such advances or the disinterested Trustees or independent
legal counsel determines, in the manner specified in the
Declaration of Trust, that there is reason to believe the
Covered Person will be found to be entitled to
indemnification.
Insofar as indemnification for liability arising under
the Securities Act of 1933, as amended (the "Securities
Act"), may be permitted to Trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions,
or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person
of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment
Adviser
(a) Investment Adviser
Lehman Brothers Global Asset Management Inc. ("LBGAM"),
which serves as investment adviser to the Registrant's
portfolios, is a wholly owned subsidiary of Lehman Brothers
Holdings Inc. ("Holdings"). As of December 31, 1995, FMR
Corp. beneficially owned approximately 11.7%, Nippon Life
Insurance Company beneficially owned approximately 5.0% and
Prudential Asset Management beneficially owned approximately
5.0% of the outstanding voting securities of Holdings.
LBGAM is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act") and
serves as investment counsel for individuals with substantial
capital, executors, trustees and institutions. It also
serves as investment adviser, sub-investment adviser,
administrator or sub-administrator to numerous investment
companies.
The list required by this Item 28 of officers and
directors of LBGAM, together with information as to any other
business profession, vocation or employment of a substantial
nature engaged in by such officers and directors during the
past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by LBGAM pursuant to the Advisers Act
(SEC File No. 801-42006).
Item 29. Principal Underwriters
(a) Lehman Brothers acts as distributor for the
shares of Registrant's portfolios. Lehman Brothers currently
acts as distributor for Lehman Brothers Funds, Inc.,
Lehman Brothers Series I Mortgage-Related Securities
Portfolio N.V., the Global Advisors Portfolio N.V., the
Global Advisors Portfolio II N.V., and various series
of unit investment trusts
(b) Lehman Brothers is a wholly-owned subsidiary of
Lehman Brothers Holdings Inc. The information required by
this Item 29 with respect to each director, officer and
partner of Lehman Brothers is incorporated by reference to
Schedule A of Form BD filed by Lehman Brothers pursuant to
the Securities Exchange Act of 1934 (SEC File No. 8-12324).
(c) Not Applicable.
Item 30. Location of Accounts and Records
(1) Lehman Brothers Institutional Funds Group Trust
260 Franklin Street
Boston, Massachusetts 02110
(2) Lehman Brothers Global Asset Management Inc.
3 World Financial Center
New York, New York 10285
(3) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant hereby undertakes as follows:
(1) Registrant hereby undertakes to call a meeting of
its shareholders for the purpose of voting upon the question
of removal of a trustee or trustees of Registrant when
requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares. Registrant undertakes
further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the Investment Company Act of
1940, as amended, relating to communications with the
shareholders of certain common-law trusts.
Exhibit Index
Exhibit
No. Exhibit
(5) (a) Form of Investment Advisory
Agreement
(11) (a) Power of Attorney
(11) (c) Consent of Independent Auditors
(11) (d) Consent of Counsel
(15) (b) Form of Shareholder Services
Agreement for Class E Shares
(17) Financial Data Schedules
(18) (a) Amended and Restated Multi-
Class Plan
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933, as amended, and the Investment Company Act of 1940,
as amended, the Registrant has duly caused this Post-Effective Amendment No. 11
to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Boston, Commonwealth of Massachusetts, on the 29th day of
March, 1996.
LEHMAN BROTHERS
INSTITUTIONAL
FUNDS GROUP TRUST
By: /s/ Andrew
Gordon
Andrew Gordon
President
Pursuant to the requirements of the Securities Act
of 1933, this Post-Effective Amendment No. 11 to the
Registration Statement of Lehman Brothers Institutional Funds
Group Trust has been signed below by the following persons in
the capacities and on the dates indicated.
Signature
Title
Dat
e
/s/ Andrew
Gordon
Andrew
Gordon
Co-Chairman of
the
Board and
Trustee and
President
March
29,
199
6
*
James A.
Carbone
Co-Chairman of
the
Board and
Trustee
March
29,
199
6
*
Trustee
March
29,
199
6
Charles F.
Barber
*
Trustee
March
29,
199
6
Burt N.
Dorsett
*
Trustee
March
29,
199
6
Edward J.
Kaier
*
Trustee
March
29,
199
6
S. Donald
Wiley
/s/ Michael
C. Kardok
Michael C.
Kardok
Treasurer
(Chief
Financial
and Accounting
Officer)
March
29,
199
6
*By: /s/ Andrew Gordon
Andrew Gordon
Attorney-In-Fact
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EXHIBIT 11(a)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
POWER OF ATTORNEY
The undersigned, James Carbone, whose signature appears below, does
hereby constitute and appoint Andrew Gordon and Patricia L. Bickimer, or
any one of them, his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as trustee or officer, or both, of
the Lehman Brothers Institutional Funds Group Trust (the "Company"), the
Registration Statement of the Company on Form N-1A, any amendments thereto,
and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and said
attorneys shall have full power of substitution and re-substitution; and
said attorneys shall have full power and authority to do and perform in the
name and on the behalf of the undersigned trustee and and/or officer of the
Company, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and
purposes as the undersigned trustee and/or officer of the Company might or
could do in person, said acts of said attorneys being hereby ratified and
approved.
/s/ James A. Carbone
James A. Carbone
Dated: March 25, 1996
EXHIBIT 11(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference made to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information and to the
incorporation by reference in this Post-Effective Amendment No. 11 to
Registration No. 33-55034 on Form N-1A of our report dated March 8, 1996,
on the financial statements and financial highlights of Lehman Brothers
Institutional Funds Group Trust, included in the 1996 Annual Report to
Shareholders.
ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 1996
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA11\E&Y.DOC
G:\SHARED\LEHMAN\INSTITUT\PEAS\PEA10\EXB11B.DOC
EXHIBIT 11(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the
reference to our Firm under the caption "Counsel" in the
Statements of Additional Information that are included in
Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A under the Securities Act of 1933, as
amended, of Lehman Brothers Institutional Funds Group Trust.
/s/ Willkie, Farr, & Gallagher
Willkie, Farr, & Gallagher
New York, NY
March 28, 1996
lehman\institut\peas\pea10\exb11c.doc
EXHIBIT 15(b)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
SHAREHOLDER SERVICING AGREEMENT (Class E)
[Name of Service Organization]
[Address of Service Organization]
Ladies and Gentlemen:
Lehman Brothers Institutional Funds Group Trust (the "Trust")
confirms its agreement with ___________________ ("Service Organization"),
in accordance with the terms of the shareholder service plan dated as of
__________, 1994 (the "Plan") adopted by the Trust with respect to
_________ (the "Fund"), which is a series of the Trust, pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act"), as follows:
Section 1. Compensation and Services to be Rendered.
(a) Service Organization agrees to provide the following
support services to its clients ("Clients") who may from time to time
beneficially own Class E shares of the Fund ("Shares"): (i) aggregating
and processing purchase and redemption requests for Shares from Clients and
placing net purchase and redemption orders with the distributor of the
Shares; and (ii) responding to Client inquiries relating to the services
performed by the Service Organization and handling correspondence. The
Service Organization, at its option, may also (iii) act as shareholder of
record and as nominee; (iv) provide Clients with a service that invests the
assets of their accounts in Shares pursuant to specific or pre-authorized
instructions; (v) provide sub-accounting with respect to Shares
beneficially owned by Clients or the information necessary for sub-
accounting; (vi) provide checkwriting services; (vii) process dividend
payments from the Fund on behalf of Clients; (viii) provide information
periodically to Clients showing their positions in Shares; (ix) arrange for
bank wires; (x) forward shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements
and dividend, distribution and tax notices) to Clients; (xi) provide
reasonable assistance in connection with the distribution of Shares to
Clients as requested from time to time by us, which assistance may include
forwarding sales literature and advertising provided by us for Clients; and
(xii) provide such other similar services as the Fund may reasonably
request to the extent the Service Organization is permitted to do so under
applicable statutes, rules or regulations.
(b) Service Organization will provide such office space and
equipment, telephone facilities and personnel (which may be any part of the
space, equipment and facilities currently used in its business, or any
personnel employed by it) as may be reasonably necessary or beneficial in
order to provide the aforementioned services and assistance.
(c) Neither Service Organization nor any of its officers,
employees or agents are authorized to make any representations concerning
the Trust, the Fund or Shares except those contained in the then current
prospectus for such Shares, copies of which will be supplied to Service
Organization, or in such supplemental literature or advertising as may be
authorized by the Trust in writing.
(d) For all purposes of this Agreement, Service Organization
will be deemed to be an independent contractor, and will have no authority
to act as agent for the Trust or the Fund in any matter or in any respect.
By its written acceptance of this Agreement, Service Organization agrees to
and does release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by Service Organization or its
officers, employees or agents regarding its responsibilities hereunder or
the purchase, redemption, transfer or registration of Shares by or on
behalf of Clients. Service Organization and its employees will, upon
request, be available during normal business hours to consult with the
Trust or its designees concerning the performance of their responsibilities
under this Agreement.
(e) In consideration of the services and facilities provided
by Service Organization hereunder, the Trust will pay to Service
Organization, and Service Organization will accept as full payment
therefor, a fee at the annual rate of .15 of 1% of the average daily net
asset value of the Shares beneficially owned by clients of a Service
Organization (the "Clients' Shares"), which fee will be computed daily and
payable monthly. For purposes of determining the fees payable under this
Section 1(e), the average daily net asset value of the Clients' Shares will
be computed in the manner specified in the Trust's registration statement
relating to the Fund (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions. The fee rate stated above may be
prospectively decreased by the Trust, in its sole discretion, at any time
upon notice to Service Organization. Further, the Trust may, in its
discretion and without notice, suspend or withdraw the sale of Shares,
including the sale of such Shares to Service Organization for the account
of any Client or Clients. Notwithstanding the above, in order to seek to
assure that the net asset value per share for all Fund shares is the same,
Service Organization agrees to waive such portion of any payments to it
hereunder to the extent necessary to ensure that payments, if any, required
to be accrued by the Shares on any day do not exceed the income to be
accrued to such Shares on that day.
Section 2. Approval by Trustees.
This Agreement will not take effect with respect to a Fund
until approved by a majority vote of both (a) the full Board of Trustees of
the Trust and (b) those Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the
operation of the Plan or in this Agreement (the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on this
Agreement.
Section 3. Continuance of the Agreement.
This Agreement will continue in effect for an initial two-year
term and thereafter will continue from year to year with respect to the
Fund so long as its continuance is specifically approved annually by vote
of the Trust's Board of Trustees in the manner described in Section 2
above.
Section 4. Termination.
(a) This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class, or by you, in either case upon written notice to
the other party hereto.
(b) This Agreement will terminate automatically in the event
of its assignment.
Section 5. Written Reports.
(a) Service Organization will furnish the Trust or its
designees with such information as they may reasonably request (including,
without limitation, periodic certifications confirming the provision to
Clients of the services described herein), and will otherwise cooperate
with the Trust and its designees (including, without limitation, any
auditors designated by the Trust), in connection with the preparation of
reports to the Trust's Board of Trustees concerning this Agreement and the
monies paid or payable by Trustees pursuant hereto, as well as any other
reports or filings that may be required by law.
(b) The Trust may enter into other similar Servicing
Agreements with any other person or persons without Service Organization's
consent.
Section 6. Representations and Warranties
By its written acceptance of this Agreement, Service
Organization represents, warrants and agrees that: (i) the compensation
payable to Service Organization hereunder, together with any other
compensation Service Organization receives from Clients for services
contemplated by this Agreement, will not be excessive or unreasonable under
the laws and instruments governing Service Organization's relationships
with Clients; and (ii) Service Organization will provide to Clients a
schedule of any fees that it may charge to them relating to the investment
of their assets in Shares. In addition, Service Organization understands
that this Agreement has been entered into pursuant to the Rule and is
subject to the provisions of the Rule, as well as any other applicable
rules or regulations promulgated by the Securities and Exchange Commission.
Section 7. Meaning of Certain Terms.
As used in this Agreement, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the
same meaning that those terms have under the 1940 Act and the rules and
regulations under the 1940 Act, subject to any exemption that may be
granted to the Trust under the 1940 Act by the Securities and Exchange
Commission.
Section 8. Filing of Declaration of Trust.
The Trust represents that a copy of its Declaration of Trust
dated as of November 25, 1992, as amended from time to time (the
"Declaration of Trust"), is on file with the Secretary of The Commonwealth
of Massachusetts and with the Boston City Clerk.
Section 9. Limitation of Liability.
The obligations of the Trust under this Agreement will not be
binding upon any of the Trustees of the Trust, shareholders of the Fund or
any other investment fund offered by the Trust, nominees, officers,
employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of the
Fund, as provided in the Declaration of Trust. The execution and delivery
of this Agreement have been authorized by the Trustees of the Trust, and
signed by an authorized officer of the Trust, acting as such, and neither
the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the
trust property of the Funds as provided in the Declaration of Trust. No
Fund will be liable for any claims against any other investment fund
offered by the Trust and no class of Fund shares will be liable for any
claims against any other class.
Section 10. Governing Law.
This Agreement will be governed by the laws of the State of New
York, without regard to the choice of law provisions thereof.
If the terms and conditions described above are in accordance
with your understanding, kindly indicate your acceptance of this Agreement
by signing and returning to us the enclosed copy of this Agreement.
Very truly yours,
LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
By:
Name:
Title:
Accepted:
[Service Organization]
By:
Name:
Title:
Dated: , 1993
lehman/institut/agrmts/servicee.doc
EXHIBIT 18(a)
Lehman Brothers Institutional Funds Group Trust
Amended and Restated Multi-Class Plan
Introduction
The purpose of this Plan is to specify the attributes
of the classes of shares offered by Lehman Brothers
Institutional Funds Group Trust (the "Trust"), including the
sales loads (when applicable), expense allocations,
conversion features and exchange features of each class, as
required by Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"). In general, shares of
each class will have the same rights and obligations except
for one or more expense variables (which will result in
different yields, dividends and, in the case of the Trust's
non-money market portfolios, net asset values for the
different classes), certain related voting and other rights,
exchange privileges, conversion rights, class designation
and sales loads assessed due to differing distribution
methods.
The Trust is an open-end series investment company
registered under the 1940 Act and the shares of which are
registered on Form N-1A under the Securities Act of 1933.
Upon the effective date of Rule 18f-3, the Trust hereby
elects to offer multiple classes of shares in its investment
portfolios pursuant to the provisions of Rule 18f-3 and this
Plan. This Plan does not make any material changes to the
class arrangements and expense allocations previously
approved by the Board of Trustees of the Trust pursuant to
the exemptive order issued by the Securities and Exchange
Commission to the Trust under Section 6(c) of the 1940 Act.
The Trust currently consists of the following seven
separate investment portfolios: Prime Money Market Fund,
Prime Value Money Market Fund, Government Obligations Money
Market Fund, Cash Management Fund, Treasury Instruments
Money Market Fund II, Municipal Money Market Fund and Tax-
Free Money Market Fund (the "Money Market Funds").
The above-listed investment portfolios of the Trust
(the "Funds") are authorized to issue the following classes
of shares representing interests in the Funds:
(i) Money Market Funds* - Class A Shares, Class B
Shares, Class C Shares and
Class E Shares;
(ii) Government Obligations Money Market Fund -
Global Clearing Shares; and
(iii) Government Obligations Money Market Fund -
Retail Shares
Allocation of Expenses
Pursuant to Rule 18f-3 under the 1940 Act, the Trust
shall allocate to each class of shares in a Fund (i) any
fees and expenses incurred by the Trust in connection with
the distribution of such class of shares under a
distribution plan adopted for such class of shares pursuant
to Rule 12b-1, and (ii) any fees and expenses incurred by
the Trust under a shareholder servicing plan in connection
with the provision of shareholder services to the holders of
such class of shares. In addition, the President and
Treasurer of the Trust shall determine, subject to Board
approval or ratification, which additional fees and expenses
may be appropriately allocated to a particular class of
shares in a Fund, such as (but not limited to):
(i) transfer agent fees identified by the transfer
agent as being attributable to such class of shares;
(ii) printing and postage expense related to
preparing and distributing materials such as shareholder
reports, prospectuses, reports, and proxies to current
shareholders of such class of shares or to regulatory
agencies with respect to such class of shares;
(iii) blue sky registration or qualification fees
incurred by such class of shares;
(iv) Securities and Exchange Commission registration
fees incurred by such class of shares;
(v) the expense of administrative personnel and
services (including, but not limited to, those of a
portfolio accountant, custodian or dividend paying agent
charged with calculating net asset values or determining or
paying dividends) as required to support the shareholders of
such class of shares;
(vi) litigation or other legal expenses relating
solely to such class of shares;
(vii) fees of the Trust's Trustees incurred as a
result of issues relating to such class of shares; and
(viii) independent accountants' fees relating
solely to such class of shares.
Any changes to the determination of class expenses
allocated to a particular class of shares will be approved
by a vote of the Trustees of the Trust, including a majority
of the Trustees who are not "interested persons" of the
Trust as defined under the 1940 Act.
For purposes of this Plan, a "Daily Dividend
Portfolio" shall be a Fund which declares distributions of
net investment income daily and/or maintains the same net
asset value per share in each class. Income, realized and
unrealized capital gains and losses, and any expenses of a
non-Daily Dividend Portfolio of the Trust not allocated to a
particular class of the Fund pursuant to this Plan shall be
allocated to each class of the Fund on the basis of the net
asset value of that class in relation to the net asset value
of the Fund. Income, realized and unrealized capital gains
and losses, and any expenses of a Daily Dividend Portfolio,
including a money market fund, of the Trust not allocated to
a particular class of the Fund pursuant to this Plan shall
be allocated to each class of the Fund on the basis of the
relative net assets (settled shares), as defined in Rule
18f-3, of that class in relation to the net assets of the
Fund.
Class A Shares
Class A Shares of a Money Market Fund are offered at
net asset value to institutional investors. Class A Shares
of a Money Market Fund may be exchanged for Class A Shares
or comparable shares of another Fund of the Trust without
the imposition of any sales charge.
Class B Shares
Class B Shares of a Money Market Fund are offered at
net asset value to institutional investors. Class B Shares
of a Money Market Fund may be exchanged for Class B Shares
or comparable shares of another Fund of the Trust without
the imposition of a sales charge.
Class B Shares pay a Rule 12b-1 service fee of up to
0.25% (annualized) of the average daily net assets of a
Fund's Class B Shares. Institutions ("Service
Organizations") may maintain Class B shareholder accounts
and provide personal services to Class B shareholders.
Services relating to the sale of Class B Shares may include,
but not be limited to, (i) aggregating and processing
purchase and redemption requests for Shares from Clients and
placing net purchase and redemption orders with the
distributor of the Shares; and (ii) responding to Client
inquiries relating to the services performed by the Service
Organization and handling correspondence. The Service
Organization, at its option, may also (iii) act as
shareholder of record and as nominee; (iv) provide Clients
with a service that invests the assets of their accounts in
Shares pursuant to specific or pre-authorized instructions;
(v) provide sub-accounting with respect to Shares
beneficially owned by Clients or the information necessary
for sub-accounting; (vi) provide checkwriting services;
(vii) process dividend payments from the Fund on behalf of
Clients; (viii) provide information periodically to Clients
showing their positions in Shares; (ix) arrange for bank
wires; (x) forward shareholder communications from the Fund
(such as proxies, shareholder reports, annual and semi-
annual financial statements and dividend, distribution and
tax notices) to Clients; (xi) provide reasonable assistance
in connection with the distribution of Shares to Clients as
requested from time to time by us, which assistance may
include forwarding sales literature and advertising provided
by us for Clients; and (xii) provide such other similar
services as the Fund may reasonably request to the extent
the Service Organization is permitted to do so under
applicable statutes, rules or regulations. The Service
Organization will provide such office space and equipment,
telephone facilities and personnel (which may be part of the
space, equipment and facilities currently used in its
business, or any personnel employed by it) as may be
reasonably necessary or beneficial in order to provide the
aforementioned services and assistance.
Class C Shares
Class C Shares of a Money Market Fund are offered at
net asset value to institutional investors. Class C Shares
of a Money Market Fund may be exchanged for Class C Shares
of another Money Market Fund of the Trust without the
imposition of a sales charge.
Class C Shares pay a Rule 12b-1 service fee of up to
0.35% (annualized) of the average daily net assets of a
Fund's Class C Shares. Service Organizations may maintain
Class C shareholder accounts and provide personal services
to Class C shareholders. Services relating to the sale of
Class C Shares may include, but not be limited to, (i)
aggregating and processing purchase and redemption requests
for Shares from Clients and placing net purchase and
redemption orders with the distributor of the Shares; (ii)
processing dividend payments from the Fund on behalf of
Clients; (iii) providing information periodically to Clients
showing their positions in Shares; (iv) arranging for bank
wires; (v) responding to Client inquiries relating to the
services performed by the Service Organization and handling
correspondence; (vi) forwarding shareholder communications
from the Fund (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend,
distribution and tax notices) to Clients; (vii) acting as
shareholder of record and nominee; and (viii) providing such
other similar services as the Fund may reasonably request to
the extent the Service Organization is permitted to do so
under applicable statutes, rules or regulations. The
Service Organization, at its option, may also (ix) provide
Clients with a service that invests the assets of their
accounts in Shares pursuant to specific or pre-authorized
instructions; (x) provide sub-accounting with respect to
Shares beneficially owned by Clients or the information
necessary for sub-accounting; and (xi) provide checkwriting
services. In addition, Service Organization shall provide
assistance in connection with the distribution of Shares to
Clients, which shall include marketing assistance and the
forwarding of sales literature and advertising provided by
the distributor of the Shares for Clients to the extent the
Service Organization is permitted to do so under applicable
statutes, rules or regulations. The Service Organization
will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the
space, equipment and facilities currently used in its
business, or any personnel employed by it) as may be
reasonably necessary or beneficial in order to provide the
aforementioned services and assistance.
Class E Shares
Class E Shares of a Money Market Fund are offered at
net asset value to institutional investors. Class E Shares
of a Money Market Fund may be exchanged for Class E Shares
of another Money Market Fund of the Trust.
Class E Shares pay a Rule 12b-1 service fee of up to
0.15% (annualized) of the average daily net assets of a
Fund's Class E Shares. Service Organizations may maintain
Class E shareholder accounts and provide personal services
to Class E shareholders. Services relating to the sale of
Class E Shares may include, but not be limited to: (i)
aggregating and processing purchase and redemption requests
for Shares from Clients and placing net purchase and
redemption orders with the distributor of the Shares; and
(ii) responding to Client inquiries relating to the services
performed by the Service Organization and handling
correspondence. The Service Organization, at its option,
may also (iii) act as shareholder of record and as nominee;
(iv) provide Clients with a service that invests the assets
of their accounts in Shares pursuant to specific or pre-
authorized instructions; (v) provide sub-accounting with
respect to Shares beneficially owned by Clients or the
information necessary for sub-accounting; (vi) provide
checkwriting services; (vii) process dividend payments from
the Fund on behalf of Clients; (viii) provide information
periodically to Clients showing their positions in Shares;
(ix) arrange for bank wires; (x) forward shareholder
communications from the Fund (such as proxies, shareholder
reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Clients; (xi)
provide reasonable assistance in connection with the
distribution of shares to Clients as requested from time to
time by us, which assistance may include forwarding sales
literature and advertising provided by us for Clients; and
(xii) provide such other similar services as the Fund may
reasonably request to the extent the Service Organization is
permitted to do so under applicable statutes, rules or
regulations. The Service Organization will provide such
office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and
facilities currently used in its business, or any personnel
employed by it) as may be reasonably necessary or beneficial
in order to provide the aforementioned services and
assistance.
Global Clearing Shares
Global Clearing Shares of Government Obligations Money
Market Fund are offered at net asset value to individual
investors. Global Clearing shares of a Fund may be
exchanged for Global Clearing Shares of another Fund of the
Trust or comparable shares of Lehman Brothers Funds, Inc.
without the imposition of a sales charge.
Global Clearing Shares pay a distribution fee of up to
0.50% (annualized) of the average daily net assets of a
Fund's Global Clearing Shares to Lehman Brothers, Inc., each
Fund's distributor ("Lehman Brothers"), or a broker that
clears securities transactions through Lehman Brothers on a
fully disclosed basis (an "Introducing Broker") for services
Lehman Brothers or the Introducing Broker provides to the
beneficial owners of such shares.
Retail Shares
Retail Shares of Government Obligations Money Market
Fund are offered at net asset value to individual investors.
Retail Shares of such Funds may be exchanged for Retail
Shares of another Fund of the Trust or comparable shares of
Lehman Brothers Funds, Inc. without the imposition of a
sales charge. Retail Shares of these Funds pay a
distribution fee of up to 0.50% (annualized) of the average
daily net assets of a Fund's Retail Shares to Lehman
Brothers for services it provides to the beneficial owners
of such shares.
Amendments
No material amendment to the Plan may be made unless it is
first approved by a majority of both (a) the full Board of
Trustees of the Trust and (b) those trustees of the Trust
who are not "interested persons" of the Trust as defined
under the 1940 Act.
Dated: November 1, 1995
* Cash Management Fund is authorized to issue Class A Shares only.
G:\SHARED\LEHMAN\INSTITUT\PROCEDUR\MULTI4.DOC
EXHIBIT 5 (a)
[Name of Fund]
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
INVESTMENT ADVISORY AGREEMENT
[Date]
Lehman Brothers Global Asset Management Inc.
Three World Trade Center
New York, NY
Ladies and Gentlemen:
Lehman Brothers Institutional Funds Group Trust
(the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, confirms its agreement
with Lehman Brothers Global Asset Management Inc. (the
"Advisor") regarding investment advisory services to be
provided by the Advisor to the [Name of Fund] (the "Fund"),
a portfolio of the Trust. The Advisor agrees to provide
services upon the following terms and conditions:
1. Investment Description; Appointment.
The Trust anticipates that the Fund will employ
its capital by investing and reinvesting in investments of
the kind and in accordance with the limitations specified in
the Trust's Declaration of Trust dated November 25, 1992, as
amended from time to time (the "Declaration of Trust "), in
the prospectus (the "Prospectus") and the statement of
additional information (the "Statement") describing the Fund
filed with the Securities and Exchange Commission as part of
the Trust's Registration Statement on Form N-1A, as amended
from time to time, and in the manner and to the extent as
may from time to time be approved by the Board of Trustees
of the Trust. Copies of the Prospectus, the Statement and
the Declaration of Trust have been or will be submitted to
the Advisor. The Trust desires to employ and appoints the
Advisor to act as the Fund's investment adviser. The
Advisor accepts the appointment and agrees to furnish the
services for the compensation set forth below.
2. Services as Investment Adviser.
Subject to the supervision and direction of the
Board of Trustees of the Trust, the Advisor has general
oversight responsibility for the investment advisory
services provided to the Fund and will exercise this
responsibility in accordance with the Declaration of Trust,
the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, as the same may from time to time be
amended, and with the Fund's investment objective and
policies as stated in the Prospectus and Statement of
Additional Information relating to the Fund as from time to
time in effect. In connection therewith, the Advisor will,
among other things, (a) participate in the formulation of
the Fund's investment policies, (b) analyze economic trends
affecting the Fund, and (c) monitor the brokerage and
research services (as those terms are defined in Section
28(e) of the Securities Act of 1934) that are provided to
the Fund and may be considered by the Advisor in selecting
brokers or dealers to execute particular transactions.
3. Information Provided to the Trust.
The Advisor will keep the Trust informed of
developments materially affecting the Fund, and will, on its
own initiative, furnish the Trust from time to time with
whatever information the Advisor believes is appropriate for
this purpose.
4. Standard of Care.
The Advisor will exercise its best judgment in
rendering the services described in paragraph 2 of this
Agreement. The Advisor will not be liable for any error of
judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement
relates, except that nothing in this Agreement may be deemed
to protect or purport to protect the Advisor against any
liability to the Trust or to shareholders of the Fund to
which the Advisor would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or by reason of the
Advisor's reckless disregard of its obligations and duties
under this Agreement.
5. Compensation.
In consideration of the services rendered
pursuant to this Agreement, the Trust will pay the Advisor
on the first business day of each month a fee for the
previous month at the annual rate of __% of the value of
the Fund's average daily net assets. The fee for the period
from the date the Fund commences its investment operations
to the end of the month during which the Fund commences its
investment operations will be prorated according to the
proportion that the period bears to the full monthly period.
Upon any termination of this Agreement before the end of a
month, the fee for such part of that month will be prorated
according to the proportion that the period bears to the
full monthly period and will be payable upon the date of
termination of this Agreement. For the purpose of
determining fees payable to the Advisor, the value of the
Fund's net assets will be computed at the times and in the
manner specified in the Prospectus and/or the Statement.
6. Expenses.
The Advisor will bear all expenses in connection
with the performance of its services under this Agreement.
The Fund will bear certain other expenses to be incurred in
its operation, including, but not limited to: costs
incurred in connection with the Trust's organization;
investment advisory, administration and shareholder
servicing fees; fees for necessary professional and
brokerage services; fees for any pricing service; the costs
of regulatory compliance; and the costs associated with
maintaining the Trust's legal existence; and costs of
corresponding with shareholders of the Fund.
7. Reduction of Fee.
If in any fiscal year of the Fund, the aggregate
expenses of the Fund (including fees pursuant to this
Agreement and the Trust's administration agreement relating
to the Fund, but excluding interest, taxes, brokerage fees,
fees paid by the Fund pursuant to the Trust's shareholder
services plan and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the
Fund, the Advisor will reduce its fee to the Fund for that
excess expense to the extent required by state law in the
same proportion as its advisory fee bears to the Fund's
aggregate fees for investment advice and administration. A
fee reduction pursuant to this paragraph 7, if any, will be
estimated, reconciled and paid on a monthly basis.
8. Services to Other Companies or Accounts.
(a) The Trust understands that the Advisor now
acts, will continue to act and may act in the future as
investment adviser to fiduciary and other managed accounts,
and may act in the future as investment adviser to other
investment companies, and the Trust has no objection to the
Advisor so acting, provided that whenever the Fund and one
or more fiduciary and other managed accounts or other
investment companies advised by the Advisor have available
funds for investment, investments suitable and appropriate
for each will be allocated in accordance with a formula
believed by the Advisor to be equitable to each. The Trust
recognizes that in some cases this procedure may adversely
affect the price paid or received by the Fund or the size of
the position obtained or disposed of by the Fund.
(b) The Trust understands that the persons
employed by the Advisor to assist in the performance of the
Advisor's duties under this Agreement will not devote their
full time to such service and nothing contained in this
Agreement will be deemed to limit or restrict the right of
the Advisor or any affiliate of the Advisor to engage in and
devote time and attention to other businesses or to render
services of whatever kind or nature.
9. Term of Agreement.
(a) This Agreement will become effective as of
the date the Fund commences its investment operations and
will continue for an initial two-year term and will continue
thereafter so long as the continuance is specifically
approved at least annually by (i) the Board of Trustees of
the Trust or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"))
of the Fund's outstanding voting securities, provided that
in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for
the purpose of voting on the approval.
(b) This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of
Trustees of the Trust or by vote of holders of a majority of
the Fund's outstanding voting securities, or upon 90 days'
written notice, by the Advisor.
(c) This Agreement will terminate automatically
in the event of its "assignment" (as defined in the 1940
Act).
10. Representation by the Trust.
The Trust represents that a copy of the
Declaration of Trust is on file with the Secretary of The
Commonwealth of Massachusetts and with the Boston City
Clerk.
11. Limitation of Liability.
The Trust and the Advisor agree that the
obligations of the Trust under this Agreement will not be
binding upon any of the Trustees of the Trust, shareholders
of the Fund, nominees, officers, employees or agents,
whether past, present or future, of the Trust, individually,
but are binding only upon the assets and property of the
Fund, as provided in the Declaration of Trust. The
execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an
authorized officer of the Trust, acting as such, and neither
the authorization by the Trustees, nor the execution and
delivery by the officer will be deemed to have been made by
any of them individually or to impose any liability on any
of them personally, but will bind only the assets and
property of the Fund as provided in its Declaration of Trust
.. No series of the Trust, including the Fund, will be
liable for any claims against any other series.
* * * * *
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this
Agreement by signing and returning the enclosed copy of this
Agreement.
Very truly yours,
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
By:
Name:
Title:
Accepted:
LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.
By:
Name:
Title:
APPENDIX A
effective February 1, 1996
Name of Fund
C
o
n
t
r
a
c
t
u
a
l
R
a
t
e
Prime Money Market Fund
..
2
0
%
Prime Value Money Market Fund
..
2
0
%
Government Obligations Money
Market Fund
..
2
0
%
Cash Management Fund
..
2
0
%
Treasury Instruments Money
Market Fund II
..
2
0
%
Municipal Money Market Fund
..
2
0
%
Tax-Free Money Market Fund
..
2
0
%
Please see Appendix A for a list of fees.
lehman/institut/bdbook/1994/080394\invadvs.doc
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> LB INSTIT FUNDS CASH MANAGEMENT CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 1,118,000
<INVESTMENTS-AT-VALUE> 1,118,000
<RECEIVABLES> 15,609
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,884
<TOTAL-ASSETS> 1,163,493
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,830
<TOTAL-LIABILITIES> 53,830
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,109,653
<SHARES-COMMON-STOCK> 1,109,653
<SHARES-COMMON-PRIOR> 4,740,100
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,109,663
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 172,405
<OTHER-INCOME> 0
<EXPENSES-NET> 7,830
<NET-INVESTMENT-INCOME> 164,575
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 164,575
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (164,555)
<DISTRIBUTIONS-OF-GAINS> (10)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 390,296,226
<NUMBER-OF-SHARES-REDEEMED> (393,928,236)
<SHARES-REINVESTED> 1,563
<NET-CHANGE-IN-ASSETS> (3,830,754)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 10
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,930
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51,890
<AVERAGE-NET-ASSETS> 2,929,879
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LB INSTIT FUNDS GOVT OBLIG MONEY MKT CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 142,879,016
<INVESTMENTS-AT-VALUE> 142,879,016
<RECEIVABLES> 334,319
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,853
<TOTAL-ASSETS> 143,238,188
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 482,794
<TOTAL-LIABILITIES> 482,794
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 125,391,577
<SHARES-COMMON-STOCK> 125,391,577
<SHARES-COMMON-PRIOR> 40,081,039
<ACCUMULATED-NII-CURRENT> 1,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,414)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 125,390,300
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,239,855
<OTHER-INCOME> 0
<EXPENSES-NET> 187,954
<NET-INVESTMENT-INCOME> 5,051,901
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,051,901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,398,709)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1,069,873,758
<NUMBER-OF-SHARES-REDEEMED> (985,017,413)
<SHARES-REINVESTED> 454,193
<NET-CHANGE-IN-ASSETS> 93,353,474
<ACCUMULATED-NII-PRIOR> 1,817
<ACCUMULATED-GAINS-PRIOR> (4,414)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 87,394
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 308,400
<AVERAGE-NET-ASSETS> 75,573,231
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LB INSTIT FUNDS GOVT OBLIG MONET MKT CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 142,879,016
<INVESTMENTS-AT-VALUE> 142,879,016
<RECEIVABLES> 334,319
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,853
<TOTAL-ASSETS> 143,238,188
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 482,794
<TOTAL-LIABILITIES> 482,794
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,659,849
<SHARES-COMMON-STOCK> 14,659,849
<SHARES-COMMON-PRIOR> 9,323,278
<ACCUMULATED-NII-CURRENT> 1,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,414)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 14,658,529
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,239,855
<OTHER-INCOME> 0
<EXPENSES-NET> 187,954
<NET-INVESTMENT-INCOME> 5,051,901
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,051,901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (591,902)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58,867,348
<NUMBER-OF-SHARES-REDEEMED> (53,549,648)
<SHARES-REINVESTED> 18,871
<NET-CHANGE-IN-ASSETS> 93,353,474
<ACCUMULATED-NII-PRIOR> 1,817
<ACCUMULATED-GAINS-PRIOR> (4,414)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 87,394
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 308,400
<AVERAGE-NET-ASSETS> 10,683,705
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LB INSTIT FUNDS GOVT OBLIG MONEY MKT CL-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 142,879,016
<INVESTMENTS-AT-VALUE> 142,879,016
<RECEIVABLES> 334,319
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,853
<TOTAL-ASSETS> 143,238,188
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 482,794
<TOTAL-LIABILITIES> 482,794
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,706,465
<SHARES-COMMON-STOCK> 2,706,465
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 1,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,414)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,706,465
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,239,855
<OTHER-INCOME> 0
<EXPENSES-NET> 187,954
<NET-INVESTMENT-INCOME> 5,051,901
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,051,901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (60,017)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,589,114
<NUMBER-OF-SHARES-REDEEMED> (2,882,756)
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 93,353,474
<ACCUMULATED-NII-PRIOR> 1,817
<ACCUMULATED-GAINS-PRIOR> (4,414)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 87,394
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 308,400
<AVERAGE-NET-ASSETS> 1,113,266
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LB INSTIT FUNDS GOVT OBLIG MONEY MKT CL-E
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 142,879,016
<INVESTMENTS-AT-VALUE> 142,879,016
<RECEIVABLES> 334,319
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,853
<TOTAL-ASSETS> 143,238,188
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 482,794
<TOTAL-LIABILITIES> 482,794
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 1,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,414)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,239,855
<OTHER-INCOME> 0
<EXPENSES-NET> 187,954
<NET-INVESTMENT-INCOME> 5,051,901
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,051,901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,273)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 588,760
<NUMBER-OF-SHARES-REDEEMED> (590,074)
<SHARES-REINVESTED> 1,314
<NET-CHANGE-IN-ASSETS> 93,353,474
<ACCUMULATED-NII-PRIOR> 1,817
<ACCUMULATED-GAINS-PRIOR> (4,414)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 87,394
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 308,400
<AVERAGE-NET-ASSETS> 23,692
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LB INSTIT FUNDS MUNI MONEY MARKET CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 136,130,210
<INVESTMENTS-AT-VALUE> 136,130,210
<RECEIVABLES> 1,414,449
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 660,601
<TOTAL-ASSETS> 138,205,260
<PAYABLE-FOR-SECURITIES> 817,010
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 298,943
<TOTAL-LIABILITIES> 1,115,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 135,096,214
<SHARES-COMMON-STOCK> 135,096,214
<SHARES-COMMON-PRIOR> 93,601,276
<ACCUMULATED-NII-CURRENT> 24,329
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 135,120,106
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,132,330
<OTHER-INCOME> 0
<EXPENSES-NET> 316,449
<NET-INVESTMENT-INCOME> 6,815,881
<REALIZED-GAINS-CURRENT> 30,323
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,846,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,749,439)
<DISTRIBUTIONS-OF-GAINS> (5,653)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,859,696,960
<NUMBER-OF-SHARES-REDEEMED> (2,820,023,841)
<SHARES-REINVESTED> 1,821,819
<NET-CHANGE-IN-ASSETS> 43,493,725
<ACCUMULATED-NII-PRIOR> 18,620
<ACCUMULATED-GAINS-PRIOR> (24,614)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 518,763
<AVERAGE-NET-ASSETS> 170,822,598
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LB INSTIT FUNDS MUNI MONEY MARKET CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 136,130,210
<INVESTMENTS-AT-VALUE> 136,130,210
<RECEIVABLES> 1,414,449
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 660,601
<TOTAL-ASSETS> 138,205,260
<PAYABLE-FOR-SECURITIES> 817,010
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 298,943
<TOTAL-LIABILITIES> 1,115,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 24,329
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,132,330
<OTHER-INCOME> 0
<EXPENSES-NET> 316,449
<NET-INVESTMENT-INCOME> 6,815,881
<REALIZED-GAINS-CURRENT> 30,323
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,846,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 43,493,725
<ACCUMULATED-NII-PRIOR> 18,620
<ACCUMULATED-GAINS-PRIOR> (24,614)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 518,763
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LB INSTIT FUNDS MUNI MONEY MARKET CL-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 136,130,210
<INVESTMENTS-AT-VALUE> 136,130,210
<RECEIVABLES> 1,414,449
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 660,601
<TOTAL-ASSETS> 138,205,260
<PAYABLE-FOR-SECURITIES> 817,010
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 298,943
<TOTAL-LIABILITIES> 1,115,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,968,564
<SHARES-COMMON-STOCK> 1,968,564
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 24,329
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,969,001
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,132,330
<OTHER-INCOME> 0
<EXPENSES-NET> 316,449
<NET-INVESTMENT-INCOME> 6,815,881
<REALIZED-GAINS-CURRENT> 30,323
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,846,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (60,733)
<DISTRIBUTIONS-OF-GAINS> (56)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,263,120
<NUMBER-OF-SHARES-REDEEMED> (5,294,660)
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 43,493,725
<ACCUMULATED-NII-PRIOR> 18,620
<ACCUMULATED-GAINS-PRIOR> (24,614)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 518,763
<AVERAGE-NET-ASSETS> 1,692,313
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LB INSTIT FUNDS MUNI MONEY MARKET CL-E
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 136,130,210
<INVESTMENTS-AT-VALUE> 136,130,210
<RECEIVABLES> 1,414,449
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 660,601
<TOTAL-ASSETS> 138,205,260
<PAYABLE-FOR-SECURITIES> 817,010
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 298,943
<TOTAL-LIABILITIES> 1,115,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 24,329
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,132,330
<OTHER-INCOME> 0
<EXPENSES-NET> 316,449
<NET-INVESTMENT-INCOME> 6,815,881
<REALIZED-GAINS-CURRENT> 30,323
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,846,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 43,493,725
<ACCUMULATED-NII-PRIOR> 18,620
<ACCUMULATED-GAINS-PRIOR> (24,614)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 518,763
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LB INSTIT FUNDS PRIME MONEY MKT CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 4,305,426,050
<INVESTMENTS-AT-VALUE> 4,305,426,050
<RECEIVABLES> 13,127,990
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,623
<TOTAL-ASSETS> 4,318,583,663
<PAYABLE-FOR-SECURITIES> 36,960,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,896,409
<TOTAL-LIABILITIES> 49,857,199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,919,329,687
<SHARES-COMMON-STOCK> 3,919,329,687
<SHARES-COMMON-PRIOR> 1,538,801,574
<ACCUMULATED-NII-CURRENT> 19,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (177,802)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,919,185,764
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 270,322,907
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,051
<NET-INVESTMENT-INCOME> 261,679,856
<REALIZED-GAINS-CURRENT> (159,065)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 261,520,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (238,538,736)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 97,578,640,948
<NUMBER-OF-SHARES-REDEEMED> (95,294,028,189)
<SHARES-REINVESTED> 95,915,354
<NET-CHANGE-IN-ASSETS> 2,371,688,491
<ACCUMULATED-NII-PRIOR> 19,757
<ACCUMULATED-GAINS-PRIOR> (18,737)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,452,829
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,293,034
<AVERAGE-NET-ASSETS> 4,045,414,028
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LB INSTIT FUNDS PRIME MONEY MKT CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 4,305,426,050
<INVESTMENTS-AT-VALUE> 4,305,426,050
<RECEIVABLES> 13,127,990
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,623
<TOTAL-ASSETS> 4,318,583,663
<PAYABLE-FOR-SECURITIES> 36,960,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,896,409
<TOTAL-LIABILITIES> 49,857,199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 324,487,480
<SHARES-COMMON-STOCK> 324,487,480
<SHARES-COMMON-PRIOR> 342,672,590
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<ACCUMULATED-NET-GAINS> (177,802)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 324,474,411
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 270,322,907
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,051
<NET-INVESTMENT-INCOME> 261,679,856
<REALIZED-GAINS-CURRENT> (159,065)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 261,520,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,823,102)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 2,718,357,901
<NUMBER-OF-SHARES-REDEEMED> (2,736,718,080)
<SHARES-REINVESTED> 175,069
<NET-CHANGE-IN-ASSETS> 2,371,688,491
<ACCUMULATED-NII-PRIOR> 19,757
<ACCUMULATED-GAINS-PRIOR> (18,737)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,452,829
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,293,034
<AVERAGE-NET-ASSETS> 384,031,229
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LB INSTIT FUNDS PRIME MONEY MKT CL-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 4,305,426,050
<INVESTMENTS-AT-VALUE> 4,305,426,050
<RECEIVABLES> 13,127,990
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,623
<TOTAL-ASSETS> 4,318,583,663
<PAYABLE-FOR-SECURITIES> 36,960,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,896,409
<TOTAL-LIABILITIES> 49,857,199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,255,438
<SHARES-COMMON-STOCK> 13,255,438
<SHARES-COMMON-PRIOR> 7,244,890
<ACCUMULATED-NII-CURRENT> 19,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (177,802)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 13,254,868
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 270,322,907
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,051
<NET-INVESTMENT-INCOME> 261,679,856
<REALIZED-GAINS-CURRENT> (159,065)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 261,520,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (649,583)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 56,321,073
<NUMBER-OF-SHARES-REDEEMED> (50,418,076)
<SHARES-REINVESTED> 107,551
<NET-CHANGE-IN-ASSETS> 2,371,688,491
<ACCUMULATED-NII-PRIOR> 19,757
<ACCUMULATED-GAINS-PRIOR> (18,737)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,452,829
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,293,034
<AVERAGE-NET-ASSETS> 11,744,201
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.52
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LB INSTIT FUNDS PRIME MONEY MKT CL-E
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 4,305,426,050
<INVESTMENTS-AT-VALUE> 4,305,426,050
<RECEIVABLES> 13,127,990
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,623
<TOTAL-ASSETS> 4,318,583,663
<PAYABLE-FOR-SECURITIES> 36,960,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,896,409
<TOTAL-LIABILITIES> 49,857,199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,811,904
<SHARES-COMMON-STOCK> 11,811,904
<SHARES-COMMON-PRIOR> 8,317,899
<ACCUMULATED-NII-CURRENT> 19,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (177,802)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,811,421
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 270,322,907
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,051
<NET-INVESTMENT-INCOME> 261,679,856
<REALIZED-GAINS-CURRENT> (159,065)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 261,520,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (668,435)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 603,114,534
<NUMBER-OF-SHARES-REDEEMED> (600,288,961)
<SHARES-REINVESTED> 668,432
<NET-CHANGE-IN-ASSETS> 2,371,688,491
<ACCUMULATED-NII-PRIOR> 19,757
<ACCUMULATED-GAINS-PRIOR> (18,737)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,452,829
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,293,034
<AVERAGE-NET-ASSETS> 11,639,130
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LB INSTIT FUNDS TREAS INSTRUM MONEY MKT CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 236,191,486
<INVESTMENTS-AT-VALUE> 236,191,486
<RECEIVABLES> 19,081
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 28,210
<TOTAL-ASSETS> 236,238,777
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 455,088
<TOTAL-LIABILITIES> 455,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 183,376,407
<SHARES-COMMON-STOCK> 183,376,416
<SHARES-COMMON-PRIOR> 368,796,414
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (804)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 183,375,648
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,979,891
<OTHER-INCOME> 0
<EXPENSES-NET> 854,025
<NET-INVESTMENT-INCOME> 23,125,866
<REALIZED-GAINS-CURRENT> (804)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 23,125,062
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,827,192)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,000,089,634
<NUMBER-OF-SHARES-REDEEMED> (5,192,723,407)
<SHARES-REINVESTED> 7,213,775
<NET-CHANGE-IN-ASSETS> (160,254,555)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 408,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,234,222
<AVERAGE-NET-ASSETS> 365,559,173
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LB INSTIT FUNDS TREAS INSTRUM MONEY MKT CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 236,191,486
<INVESTMENTS-AT-VALUE> 236,191,486
<RECEIVABLES> 19,081
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 28,210
<TOTAL-ASSETS> 236,238,777
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 455,088
<TOTAL-LIABILITIES> 455,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,906,637
<SHARES-COMMON-STOCK> 27,906,638
<SHARES-COMMON-PRIOR> 27,241,640
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (804)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 27,906,592
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,979,891
<OTHER-INCOME> 0
<EXPENSES-NET> 854,025
<NET-INVESTMENT-INCOME> 23,125,866
<REALIZED-GAINS-CURRENT> (804)
<APPREC-INCREASE-CURRENT> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,678,955)
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 225,104,138
<NUMBER-OF-SHARES-REDEEMED> (225,915,368)
<SHARES-REINVESTED> 1,476,228
<NET-CHANGE-IN-ASSETS> (160,254,555)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 408,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,234,222
<AVERAGE-NET-ASSETS> 30,833,932
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LB INSTIT FUNDS TREAS INSTRUM MONEY MKT CL-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 236,191,486
<INVESTMENTS-AT-VALUE> 236,191,486
<RECEIVABLES> 19,081
<ASSETS-OTHER> 0
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<TOTAL-ASSETS> 236,238,777
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<TOTAL-LIABILITIES> 455,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,501,349
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (804)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 24,501,349
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,979,891
<OTHER-INCOME> 0
<EXPENSES-NET> 854,025
<NET-INVESTMENT-INCOME> 23,125,866
<REALIZED-GAINS-CURRENT> (804)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 23,125,062
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<DISTRIBUTIONS-OF-INCOME> (619,719)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,311,812
<NUMBER-OF-SHARES-REDEEMED> (1,365,351)
<SHARES-REINVESTED> 554,788
<NET-CHANGE-IN-ASSETS> (160,254,555)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 408,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,234,222
<AVERAGE-NET-ASSETS> 11,968,328
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
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<PER-SHARE-DIVIDEND> (0.02)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LB INSTIT FUNDS TREAS INSTRUM MONEY MKT CL-E
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 236,191,486
<INVESTMENTS-AT-VALUE> 236,191,486
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<TOTAL-ASSETS> 236,238,777
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<PAID-IN-CAPITAL-COMMON> 100
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<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,979,891
<OTHER-INCOME> 0
<EXPENSES-NET> 854,025
<NET-INVESTMENT-INCOME> 23,125,866
<REALIZED-GAINS-CURRENT> (804)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 23,125,062
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (160,254,555)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 408,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,234,222
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LB INSTIT FUNDS PRIME VALUE MONEY MKT CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 2,830,803,256
<INVESTMENTS-AT-VALUE> 2,830,803,256
<RECEIVABLES> 12,231,873
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 407,055
<TOTAL-ASSETS> 2,843,442,184
<PAYABLE-FOR-SECURITIES> 59,269,692
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,410,064
<TOTAL-LIABILITIES> 68,679,756
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,754,626,240
<SHARES-COMMON-STOCK> 2,754,626,240
<SHARES-COMMON-PRIOR> 1,470,637,137
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (241,002)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,754,390,013
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 176,094,141
<OTHER-INCOME> 0
<EXPENSES-NET> 5,046,158
<NET-INVESTMENT-INCOME> 171,047,983
<REALIZED-GAINS-CURRENT> 85,517
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 171,133,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (169,378,776)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47,981,427,671
<NUMBER-OF-SHARES-REDEEMED> (46,756,804,775)
<SHARES-REINVESTED> 59,366,207
<NET-CHANGE-IN-ASSETS> 1,282,706,794
<ACCUMULATED-NII-PRIOR> 1,576
<ACCUMULATED-GAINS-PRIOR> (326,519)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,885,657
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,419,432
<AVERAGE-NET-ASSETS> 2,856,499,296
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LB INSTIT FUNDS PRIME VALUE MONEY MKT CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 2,830,803,256
<INVESTMENTS-AT-VALUE> 2,830,803,256
<RECEIVABLES> 12,231,873
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 407,055
<TOTAL-ASSETS> 2,843,442,184
<PAYABLE-FOR-SECURITIES> 59,269,692
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,410,064
<TOTAL-LIABILITIES> 68,679,756
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,375,414
<SHARES-COMMON-STOCK> 20,375,414
<SHARES-COMMON-PRIOR> 21,743,240
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (241,002)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20,372,215
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 176,094,141
<OTHER-INCOME> 0
<EXPENSES-NET> 5,046,158
<NET-INVESTMENT-INCOME> 171,047,983
<REALIZED-GAINS-CURRENT> 85,517
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 171,133,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,669,207)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 253,136,580
<NUMBER-OF-SHARES-REDEEMED> (254,505,306)
<SHARES-REINVESTED> 900
<NET-CHANGE-IN-ASSETS> 1,282,706,794
<ACCUMULATED-NII-PRIOR> 1,576
<ACCUMULATED-GAINS-PRIOR> (326,519)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,885,657
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,419,432
<AVERAGE-NET-ASSETS> 29,157,233
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LB INSTIT FUNDS PRIME VALUE MONEY MKT CL-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 2,830,803,256
<INVESTMENTS-AT-VALUE> 2,830,803,256
<RECEIVABLES> 12,231,873
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 407,055
<TOTAL-ASSETS> 2,843,442,184
<PAYABLE-FOR-SECURITIES> 59,269,692
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,410,064
<TOTAL-LIABILITIES> 68,679,756
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (241,002)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 176,094,141
<OTHER-INCOME> 0
<EXPENSES-NET> 5,046,158
<NET-INVESTMENT-INCOME> 171,047,983
<REALIZED-GAINS-CURRENT> 85,517
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 171,133,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,282,706,794
<ACCUMULATED-NII-PRIOR> 1,576
<ACCUMULATED-GAINS-PRIOR> (326,519)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,885,657
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,419,432
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>
<NAME> LB INSTIT FUNDS PRIME VALUE MONEY MKT CL-E
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 2,830,803,256
<INVESTMENTS-AT-VALUE> 2,830,803,256
<RECEIVABLES> 12,231,873
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 407,055
<TOTAL-ASSETS> 2,843,442,184
<PAYABLE-FOR-SECURITIES> 59,269,692
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,410,064
<TOTAL-LIABILITIES> 68,679,756
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (241,002)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 176,094,141
<OTHER-INCOME> 0
<EXPENSES-NET> 5,046,158
<NET-INVESTMENT-INCOME> 171,047,983
<REALIZED-GAINS-CURRENT> 85,517
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 171,133,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,282,706,794
<ACCUMULATED-NII-PRIOR> 1,576
<ACCUMULATED-GAINS-PRIOR> (326,519)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,885,657
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,419,432
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LB INSTIT FUNDS TAX FREE MONEY MKT CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 87,974,237
<INVESTMENTS-AT-VALUE> 87,974,237
<RECEIVABLES> 1,704,524
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,434
<TOTAL-ASSETS> 89,703,195
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 319,390
<TOTAL-LIABILITIES> 319,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,379,039
<SHARES-COMMON-STOCK> 89,379,039
<SHARES-COMMON-PRIOR> 60,348,059
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (330)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 89,383,505
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,070,140
<OTHER-INCOME> 0
<EXPENSES-NET> 136,868
<NET-INVESTMENT-INCOME> 2,933,272
<REALIZED-GAINS-CURRENT> 1,988
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,935,260
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,933,268)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 768,188,301
<NUMBER-OF-SHARES-REDEEMED> (739,716,133)
<SHARES-REINVESTED> 558,812
<NET-CHANGE-IN-ASSETS> 29,032,968
<ACCUMULATED-NII-PRIOR> 4,796
<ACCUMULATED-GAINS-PRIOR> (2,318)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76,038
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,587
<AVERAGE-NET-ASSETS> 76,037,315
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LB INSTIT FUNDS TAX FREE MONEY MKT CL-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 87,974,237
<INVESTMENTS-AT-VALUE> 87,974,237
<RECEIVABLES> 1,704,524
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,434
<TOTAL-ASSETS> 89,703,195
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 319,390
<TOTAL-LIABILITIES> 319,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (330)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,070,140
<OTHER-INCOME> 0
<EXPENSES-NET> 136,868
<NET-INVESTMENT-INCOME> 2,933,272
<REALIZED-GAINS-CURRENT> 1,988
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,935,260
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (31)
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> 29,032,968
<ACCUMULATED-NII-PRIOR> 4,796
<ACCUMULATED-GAINS-PRIOR> (2,318)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76,038
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,587
<AVERAGE-NET-ASSETS> 102
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LB INSTIT FUNDS TAX FREE MONEY MKT CL-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 87,974,237
<INVESTMENTS-AT-VALUE> 87,974,237
<RECEIVABLES> 1,704,524
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,434
<TOTAL-ASSETS> 89,703,195
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 319,390
<TOTAL-LIABILITIES> 319,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (330)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,070,140
<OTHER-INCOME> 0
<EXPENSES-NET> 136,868
<NET-INVESTMENT-INCOME> 2,933,272
<REALIZED-GAINS-CURRENT> 1,988
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,935,260
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,032,968
<ACCUMULATED-NII-PRIOR> 4,796
<ACCUMULATED-GAINS-PRIOR> (2,318)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76,038
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,587
<AVERAGE-NET-ASSETS> 107
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LB INSTIT FUNDS TAX FREE MONEY MKT CL-E
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 87,974,237
<INVESTMENTS-AT-VALUE> 87,974,237
<RECEIVABLES> 1,704,524
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,434
<TOTAL-ASSETS> 89,703,195
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 319,390
<TOTAL-LIABILITIES> 319,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (330)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,070,140
<OTHER-INCOME> 0
<EXPENSES-NET> 136,868
<NET-INVESTMENT-INCOME> 2,933,272
<REALIZED-GAINS-CURRENT> 1,988
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,935,260
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,032,968
<ACCUMULATED-NII-PRIOR> 4,796
<ACCUMULATED-GAINS-PRIOR> (2,318)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76,038
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,587
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
