LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS (Form: N-1A/A, Received: 12/15/2006 14:11:26)

As filed with the Securities and Exchange Commission on December 15, 2006

1933 Act Registration No. 333-122847
1940 Act Registration No. 811-21715

SECURITIES AND EXCHANGE COMMISSION

                   Washington, D.C. 20549

                          FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933        [ X ]

                 Pre-Effective Amendment No.        2          [ X ]
                                                  -----

                 Post-Effective Amendment No.                  [   ]
                                                  -----
                                           and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]

Amendment No. 2 [ X ]

(Check appropriate box or boxes)

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS
(Exact Name of Registrant as Specified in Charter)

605 Third Avenue, 2nd Floor
New York, New York 10158-0180
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (212) 476-8800

Peter Eric Sundman
Chairman of the Board, Chief Executive Officer and Trustee
Lehman Brothers Institutional Liquidity Funds
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
(Name and Address of Agent for Service)

With copies to:

Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart Nicholson Graham LLP
1601 K Street, N.W.
Washington, DC 20006-1600

Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement

Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Title of Securities Being Registered: Administrative, Capital, Cash Management, Institutional, Premier, Select and Service Class shares of Prime Portfolio, Money Market Portfolio, Treasury Portfolio, Treasury Reserves Portfolio, Government Portfolio, Government Reserves Portfolio, Tax-Exempt Portfolio, Municipal Portfolio and New York Municipal Portfolio.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

CONTENTS OF REGISTRATION STATEMENT ON FORM N-1A

This Registration Statement contains the following papers and documents:

Cover Sheet

Contents of Registration Statement on Form N-1A

Part A - Administrative Class Prospectus
Capital Class Prospectus

Cash Management Class Prospectus Institutional Class Prospectus Premier Class Prospectus
Select Class Prospectus
Service Class Prospectus

Part B - Statement of Additional Information

Part C - Other Information

Exhibits

LEHMAN BROTHERS
INSTITUTIONAL LIQUIDITY FUNDS

ADMINISTRATIVE CLASS
Money Market Portfolio

Prime Portfolio

Government Portfolio

Government Reserves Portfolio

Treasury Portfolio

Treasury Reserves Portfolio

Tax-Exempt Portfolio

Municipal Portfolio

New York Municipal Portfolio

PROSPECTUS December 19, 2006

LEHMAN BROTHERS ASSET MANAGEMENT

These securities, like the securities of all mutual funds, have not been approved or disapproved by the Securities and Exchange Commission, and the Securities and Exchange Commission has not determined if the prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

CONTENTS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Summary of Portfolios.........................

Money Market Portfolio........................

Prime Portfolio...............................

Government Portfolio..........................

Government Reserves Portfolio.................

Treasury Portfolio............................

Treasury Reserves Portfolio...................

Tax-Exempt Portfolio..........................

Municipal Portfolio...........................

New York Municipal Portfolio..................

Investor Expenses.............................

Financial Highlights..........................

Management....................................

YOUR INVESTMENT

Eligible Accounts............................. Purchasing Shares............................. Redeeming Shares.............................. General Shareholder Information............... Share Prices.................................. Distributions and Taxes....................... Portfolio Structure...........................

THESE PORTFOLIOS:

o require a minimum initial investment of $10 million

o Money Market, Prime, Government and Treasury Portfolios price their shares at 5:00 p.m., Eastern time. Government Reserves and Treasury Reserves Portfolios price their shares at 2:00 p.m., Eastern time. Tax- Exempt, Municipal and New York Municipal Portfolios price their shares at 3:00
p.m., Eastern time

o offer you the opportunity to participate in financial markets through professionally managed money market portfolios

o are also money market sweep funds for certain eligible investors

o are mutual funds, not bank deposits, and are not guaranteed or insured by the FDIC or any other government agency

o carry certain risks, including the risk that you could lose money if Portfolio shares, when you sell them, are worth less than what you originally paid. This prospectus discusses principal risks of investing in Portfolio shares. These and other risks are discussed in more detail in the Statement of Additional Information (see back cover)

o use a master-feeder and multiple class structure, meaning that rather than investing directly in securities, each Portfolio invests in a "master series"; see page [__] for information on how it works

o Tax-exempt Portfolio, Municipal Portfolio and New York Municipal Portfolio are designed for investors seeking income exempt from federal income tax and, for investors in New York Municipal Money Fund, income exempt from New York State and New York City personal income taxes

Please note that shares of each Portfolio may not be available in all states. Shares of each Portfolio are only available in states in which they are authorized for purchase.

SUMMARY OF PORTFOLIOS

MONEY MARKET PORTFOLIO          A  money   market   fund   seeking  the  highest
                                available  current income consistent with safety
                                and   liquidity.   The   Portfolio   invests  in
                                corporate   debt    obligations,    asset-backed
                                securities,     variable    rate    obligations,
                                instruments  issued  or  guaranteed  by the U.S.
                                Government,  its agencies or  instrumentalities,
                                repurchase agreements and securities of U.S. and
                                foreign banks.

PRIME PORTFOLIO                 A  money   market   fund   seeking  the  highest
                                available  current income consistent with safety
                                and liquidity.  The Portfolio  primarily invests
                                in  corporate  debt  obligations,   asset-backed
                                securities,     variable    rate    obligations,
                                instruments  issued  or  guaranteed  by the U.S.
                                Government,  its agencies or  instrumentalities,
                                repurchase  agreements  and  securities  of U.S.
                                banks and  foreign  branches  of U.S.  banks and

foreign branches of U.S. banks.

GOVERNMENT PORTFOLIO A U.S. Government money market fund seeking maximum safety and liquidity and the highest available current income. The Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies and instrumentalities and repurchase agreements relating to such securities.

GOVERNMENT RESERVES PORTFOLIO A U.S. Government money market fund seeking maximum safety and liquidity and the highest available current income. The Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies and instrumentalities.

TREASURY PORTFOLIO A money market fund seeking the highest available current income consistent with safety and liquidity. The Portfolio invests in direct obligations of the U.S. Treasury, including repurchase agreements relating to such securities.

TREASURY RESERVES PORTFOLIO A money market fund seeking the highest available current income consistent with safety and liquidity. The Portfolio invests in direct obligations of the U.S. Treasury.

TAX-EXEMPT PORTFOLIO A money market fund seeking the highest available current income that is exempt from federal income tax and, to the extent possible, is not a tax preference item for purposes of the federal alternative minimum tax, consistent with safety and liquidity. The Portfolio normally invests at least 80% of its net assets in high-quality, short-term municipal securities, the interest on which is not a preference item for federal alternative minimum tax purposes.

MUNICIPAL PORTFOLIO A money market fund seeking the maximum current income exempt from federal income tax, consistent with safety and liquidity. The Portfolio normally invests at least 80% of its net assets in high-quality, short-term municipal securities from issuers around the country. The Portfolio's dividends are generally exempt from federal income tax, but all or part thereof may be a tax preference item for purposes of the federal alternative minimum tax.

NEW YORK MUNICIPAL PORTFOLIO A money market fund seeking the highest

available  current  income  exempt from  federal
income  tax and New York State and New York City
personal  income taxes that is  consistent  with
safety and  liquidity.  The  Portfolio  normally
invests  at  least  80% of  its  net  assets  in

high-quality, short-term municipal securities that provide income that is exempt from those taxes.

MONEY MARKET PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in a diversified portfolio of high- quality money market securities. These securities may be from U.S. or foreign issuers, including governments and their agencies, banks, and corporations, but in all cases must be denominated in U.S. dollars. The Portfolio will primarily invest in corporate debt obligations, asset-backed securities, variable rate obligations, instruments issued or guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"), repurchase agreements and securities of U.S. and foreign banks. The Portfolio seeks to maintain a stable $1.00 share price and seeks to reduce credit risk by diversifying among many issuers of money market securities.

Under normal market conditions, the Portfolio will invest more than 25% of its total assets in the obligations of companies in the financial services industries and repurchase agreements on such obligations.

The managers monitor a range of economic and financial factors to weigh the value and creditworthiness of money market securities. While adhering to the Portfolio's stringent credit quality policies, the managers invest the Portfolio's assets in a mix of money market securities that is intended to provide attractive current income without jeopardizing the stability of its share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

THE REGULATIONS REQUIRE MONEY MARKET FUNDS TO LIMIT INVESTMENTS TO THE TOP TWO RATING CATEGORIES OF CREDIT QUALITY AND UNRATED SECURITIES DETERMINED BY THE INVESTMENT ADVISER TO BE OF EQUIVALENT QUALITY. UNDER NORMAL CIRCUMSTANCES, THE PORTFOLIO WILL EXCEED THIS REQUIREMENT BY INVESTING IN ONLY FIRST TIER SECURITIES.

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well. The Portfolio is also subject to credit risk, which is the risk that issuers may fail, or become less able, to make payments when due.

Because the Portfolio normally concentrates in the financial services industries, factors influencing the health of those industries could have a significant negative effect on the Portfolio's performance. These may include economic trends, governmental action, changes in interest rates, as well as the availability and cost of capital funds.

Investment in foreign securities may involve trading practices different from those in the United States, and custody of securities by foreign banks and depositories could expose the Portfolio to some risk.

The Portfolio's performance also could be affected if unexpected interest rate trends cause the Portfolio's asset-backed securities to be paid off substantially earlier or later than expected. Performance could also be harmed if any of the Portfolio's holdings has its credit rating reduced or goes into default or if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default. The Portfolio's performance may be affected by fluctuations in the value of its fixed income investments due to changes in the issuing company's financial condition.

OTHER RISKS

ALTHOUGH THE PORTFOLIO INTENDS TO MAINTAIN A STABLE SHARE PRICE, THE SHARE PRICE COULD FLUCTUATE, MEANING THAT THERE IS A CHANCE THAT YOU COULD LOSE MONEY BY INVESTING IN THE PORTFOLIO. THE PORTFOLIO IS A MUTUAL FUND, NOT A BANK DEPOSIT, AND IS NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

WHILE THE PORTFOLIO MAY HOLD SECURITIES THAT CARRY U.S. GOVERNMENT GUARANTEES, THESE GUARANTEES DO NOT EXTEND TO SHARES OF THE PORTFOLIO ITSELF AND DO NOT GUARANTEE THE MARKET PRICE OF THE SECURITIES. SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES MAY NOT BE BACKED BY THE FULL FAITH AND CREDIT OF THE U.S. TREASURY; SOME ARE BACKED ONLY BY THE ISSUING ENTITY.

WHEN THE PORTFOLIO ANTICIPATES ADVERSE MARKET, ECONOMIC, POLITICAL OR OTHER CONDITIONS, IT MAY TEMPORARILY DEPART FROM ITS POLICY OF CONCENTRATING IN THE FINANCIAL SERVICES GROUP OF INDUSTRIES. THIS COULD HELP THE PORTFOLIO AVOID LOSSES BUT MAY MEAN LOST OPPORTUNITIES.

PERFORMANCE

The charts below provide an indication of the risks of investing in Administrative Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Neuberger Berman Institutional Cash Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows how the Neuberger Berman Institutional Cash Fund's performance has varied from year to year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year              %
-----------------------
2001            4.01
-----------------------
2002            1.64
-----------------------
2003            0.88
-----------------------
2004            1.09
-----------------------
2005            3.06
-----------------------

Best quarter: Q1 '01, 1.41% Worst quarter: Q3 '03 & Q1 '04, 0.19%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                           Since Inception
                        1 Year  5 Year        5/8/2000*
-------------------------------------------------------------
INSTITUTIONAL CASH       3.06    2.13           2.63
-------------------------------------------------------------

*Performance shown above is that of Neuberger Berman Institutional Cash Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Administrative Class of the Portfolio because it invests in the same master portfolio of securities. Because the Neuberger Berman Institutional Cash Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Administrative Class of the Portfolio. For the period from Neuberger Berman Institutional Cash Fund's inception through 2/9/2001, it was organized in a master-feeder structure. For the period from 2/10/2001 to 12/29/2004, Neuberger Berman Institutional Cash Fund was organized in a multiple class structure. As of 12/30/2004, the Fund was organized as a feeder fund in a master-feeder structure and responsibility for the day-to-day portfolio management of the Fund was transferred from Neuberger Berman Management Inc. to Lehman Brothers Asset Management Inc. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

The information on this page provides different measures of the Portfolio's total return. Total return includes the effect of distributions as well as changes in share price, if any should occur. The figures assume that all distributions were reinvested in the Portfolio, and include all Portfolio expenses.

PRIME PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in a diversified portfolio of high- quality money market securities from U.S. issuers, including governments and their agencies, banks and corporations. The Portfolio may also invest in securities issued by foreign branches of U.S. banks. The Portfolio will primarily invest in corporate debt obligations, asset-backed securities, variable rate obligations, U.S. Government and Agency Securities, repurchase agreements and securities of U.S. banks (including foreign branches of U.S. banks). The Portfolio seeks to maintain a stable $1.00 share price and seeks to reduce credit risk by diversifying among many issuers of money market securities.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MONEY MARKET FUNDS ARE SUBJECT TO FEDERAL REGULATIONS DESIGNED TO HELP MAINTAIN LIQUIDITY AND A STABLE SHARE PRICE. THE REGULATIONS SET STRICT STANDARDS FOR CREDIT QUALITY AND FOR MATURITY (397 DAYS OR LESS FOR INDIVIDUAL SECURITIES, 90 DAYS OR LESS ON AVERAGE FOR THE PORTFOLIO OVERALL). THE PORTFOLIO HAS A STRICTER STANDARD FOR MATURITY AND SEEKS TO MAINTAIN A DOLLAR-WEIGHTED AVERAGE MATURITY OF 60 DAYS OR LESS.

MAIN RISKS

Investment in securities issued by foreign branches of U.S. banks may involve trading practices different from those in the United States, and custody of securities by foreign branches of U.S. banks could expose the Portfolio to some risk.

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Administrative Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Lehman Brothers Prime Money Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows the Lehman Brothers Prime Money Fund's performance for the last calendar year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

-----------------------
Year              %
-----------------------
2005            3.20
-----------------------

Best quarter: Q4 '05, 0.99% Worst quarter: Q1 '05, 0.58%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                    Since Inception
                        1 Year        12/27/2004*
------------------------------------------------------
PRIME MONEY              3.20            3.20
------------------------------------------------------

*Performance shown above is that of Lehman Brothers Prime Money Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Administrative Class of the Portfolio because it invests in the same master series of securities. Because the Lehman Brothers Prime Money Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Administrative Class of the Portfolio. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

GOVERNMENT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"), including repurchase agreements relating to such securities. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The investment managers monitor a range of economic and financial factors, in order to weigh the yields of securities of various maturities against their levels of interest rate risk. Based on their analysis, the managers invest the Portfolio's assets in a mix of securities that is intended to provide as high a yield as possible without violating the Portfolio's credit quality policies or jeopardizing the stability of its share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

BECAUSE THE INTEREST ON INCOME FROM DIRECT OBLIGATIONS OF THE U.S. GOVERNMENT AND CERTAIN OF ITS AGENCIES IS EXEMPT FROM STATE AND LOCAL INCOME TAXES, A PORTION OF THE PORTFOLIO'S DIVIDENDS GENERALLY IS TOO. INVESTORS IN HIGHER TAX BRACKETS WHO LIVE IN AREAS WITH SUBSTANTIAL INCOME TAX RATES MAY REALIZE HIGHER AFTER-TAX YIELDS FROM THE PORTFOLIO THAN FROM CERTAIN FULLY TAXABLE MONEY MARKET FUNDS.

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

The Portfolio's emphasis on U.S. Government and Agency Securities may mean that its yields are lower than those available from certain other money market funds, on either a before- or after-tax basis.

Not all securities issued or guaranteed by U.S. Government agencies or instrumentalities are backed by the full faith and credit of the U.S. Treasury. Some are backed by the right of the issuing entity to borrow from the Treasury, while others are supported by Treasury's discretionary authority to lend to the issuer, and still others are backed only by the issuing entity. This means there is at least some possibility of default.

OTHER RISKS

WHILE SECURITIES IN THE PORTFOLIO'S PORTFOLIO CARRY U.S. GOVERNMENT GUARANTEES, THESE GUARANTEES DO NOT EXTEND TO SHARES OF THE PORTFOLIO ITSELF AND DO NOT GUARANTEE THE MARKET PRICES OF THE PORTFOLIO SECURITIES.

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

To obtain the Portfolio's current yield, call 888-556-9030 or visit www.LehmanBrothersINSTFunds.com. The current yield is the Portfolio's net income over a recent seven-day period expressed as an annual rate of return. You can also obtain information on how the Portfolio's yields compare to taxable yields after taxes are taken into consideration.

GOVERNMENT RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"). The Portfolio may also invest in repurchase agreements, however, under normal circumstances it does not intend to do so. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury, including repurchase agreements relating to such securities. The Portfolio seeks to maintain a stable $1.00 share price.

The managers monitor a range of economic and financial factors to weigh the yields of money market securities of various maturities against their levels of interest rate and credit risks. Based on their analysis, the managers invest the Portfolio's assets in a mix of money market securities that is intended to provide as high a yield as possible without violating the Portfolio's credit quality policies or jeopardizing the stability of its share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

Performance could also be harmed if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury. The Portfolio seeks to maintain a stable $1.00 share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TAX-EXEMPT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX AND, TO THE EXTENT POSSIBLE, IS NOT A TAX PREFERENCE ITEM FOR FEDERAL ALTERNATIVE MINIMUM TAX PURPOSES, THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio normally invests at least 80% of its net assets in high-quality, short-term municipal securities. The Portfolio also normally invests at least 80% of its net assets in securities the interest on which is not a tax preference item for federal alternative minimum tax purposes. The principal issuers of these securities are state and local governments and their agencies located in any of the fifty states, the District of Columbia, Puerto Rico, and other U.S. territories and possessions. The Portfolio seeks to maintain a stable $1.00 share price. The Portfolio's dividends are generally exempt from federal income tax, but all or a part thereof may be a tax preference item for federal alternative minimum tax purposes. A portion of the dividends you receive may also be exempt from state and local income taxes, depending on where you live.

The investment managers monitor a range of economic, financial and political factors, in order to weigh the yields of various types and maturities of municipal securities against their levels of interest rate and credit risk.

Based on their analysis, the managers invest the Portfolio's assets primarily in a mix of municipal securities that is intended to provide as high a tax-exempt yield as possible without violating the Portfolio's credit quality policies or jeopardizing the stability of its share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so. The Portfolio will not change its strategy of normally investing at least 80% of its net assets in high- quality, short-term municipal securities without providing shareholders at least 60 days' advance notice.

With respect to 20% of its assets, the Portfolio may invest in taxable securities, the interest income on which is subject to local, state and/or federal income tax or is a tax preference item for federal alternative minimum tax purposes.

MONEY MARKET FUNDS

THE REGULATIONS REQUIRE MONEY MARKET FUNDS TO LIMIT INVESTMENTS TO THE TOP TWO RATING CATEGORIES OF CREDIT QUALITY AND ANY UNRATED SECURITIES DETERMINED BY THE INVESTMENT MANAGER TO BE OF EQUIVALENT QUALITY.

TAX-EQUIVALENT YIELDS

TO MAKE ACCURATE COMPARISONS BETWEEN TAX-EXEMPT AND TAXABLE YIELDS, YOU SHOULD KNOW YOUR TAX SITUATION. ALTHOUGH THE YIELDS ON TAXABLE INVESTMENTS MAY BE HIGHER, TAX-EXEMPT INVESTMENTS MAY BE THE BETTER CHOICE ON AN AFTER-TAX BASIS.

MAIN RISKS

Most of the Portfolio's performance depends on credit quality and interest rates. Because the Portfolio emphasizes high credit quality, it could decide not to invest in higher yielding securities of lower credit quality. This may mean that its yield is lower than that available from certain other tax-free money funds.

When interest rates fall, the Portfolio's yields typically will fall as well.

Even among high-quality, short-term municipal securities, there is the risk that an issuer could go into default, which would affect the Portfolio's performance. State and local governments rely on taxes and, to some extent, revenues from enterprise projects, such as water and sewer, financed by municipal securities to pay interest and principal on municipal debt. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on securities owned by the Portfolio. Performance could also be affected by political or regulatory changes, whether local, regional, or national, and by developments concerning tax laws and tax- exempt securities.

To the extent that the Portfolio invests in "private activity bonds," its dividends may be a tax preference item for purposes of the federal alternative minimum tax. Those bonds are issued by or on behalf of public authorities to finance various privately operated facilities. A private activity bond generally is not backed by the credit of any governmental or public authority (or of the private user); instead, principal and interest on the bond are payable only from the facility financed thereby and the revenues it generates. Historically, these bonds have made up a significant portion of the Portfolio's holdings. Consult your tax adviser for more information.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

WHEN THE PORTFOLIO ANTICIPATES ADVERSE MARKET, ECONOMIC, POLITICAL OR OTHER CONDITIONS, IT MAY TEMPORARILY DEPART FROM ITS GOAL AND INVEST SUBSTANTIALLY IN HIGH-QUALITY, SHORT-TERM TAXABLE DEBT INSTRUMENTS. THIS STRATEGY COULD HELP THE PORTFOLIO AVOID LOSSES BUT COULD PRODUCE INCOME THAT IS NOT TAX-EXEMPT AND MAY MEAN LOST OPPORTUNITIES.

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio normally invests at least 80% of its net assets in high-quality, short-term municipal securities from issuers around the country. The Portfolio seeks to maintain a stable $1.00 share price. The Portfolio's dividends are generally exempt from federal income tax, but all or a part thereof may be a tax preference item for purposes of the federal alternative minimum tax. A portion of the dividends you receive may also be exempt from state and local income taxes, depending on where you live. The Portfolio seeks to reduce credit risk by diversifying among many municipal issuers around the country.

The investment managers monitor a range of economic, financial and political factors in order to weigh the yields of various types and maturities of municipal securities against their levels of interest rate and credit risk.

Based on their analysis, the managers invest the Portfolio's assets in a mix of municipal securities that is intended to provide as high a tax-exempt yield as possible without violating the Portfolio's credit quality policies or jeopardizing the stability of its share price.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

NEW YORK MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio normally invests at least 80% of its net assets in high-quality, short-term municipal securities that provide income that is exempt from federal income tax and New York State and New York City personal income taxes. The Portfolio seeks to maintain a stable $1.00 share price. The Portfolio's dividends are generally exempt from federal income tax, but all or a part thereof may be a tax preference item for purposes of the federal alternative minimum tax. For investors that live outside of New York, a portion of the dividends you receive may also be exempt from state and local income taxes, depending on where you live.

The investment managers monitor a range of economic, financial and political factors in order to weigh the yields of various types and maturities of municipal securities of New York and other municipalities against their levels of interest rate and credit risk.

Based on their analysis, the managers invest the Portfolio's assets primarily in a mix of municipal securities of New York issuers that is intended to provide as high a tax-exempt yield as possible without violating the Portfolio's credit quality policies or jeopardizing the stability of its share price.

With respect to 20% of its assets, the Portfolio may invest in taxable securities, the interest income on which is subject to federal income tax and/or New York State and New York City personal income taxes and/or is a tax preference item for purposes of the federal alternative minimum tax.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

Because the Portfolio invests in municipal securities of New York issuers, it is more vulnerable to unfavorable developments in New York than are mutual funds that invest in municipal securities of many states.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

INVESTOR EXPENSES

The Portfolio does not charge you any fees for buying, selling, or exchanging shares of the Portfolio or for maintaining your account. Your only Portfolio cost is your share of annual operating expenses. The expense example can help you compare costs among mutual funds.

                                                              FEE TABLE
SHAREHOLDER FEES
----------------------------------------------------------------------------------------------------------------------
              MONEY                            GOVERNMENT                TREASURY     TAX-                  NEW YORK
              MARKET    PRIME    GOVERNMENT     RESERVES     TREASURY    RESERVES    EXEMPT    MUNICIPAL    MUNICIPAL
----------------------------------------------------------------------------------------------------------------------
FEES:         None      None       None           None         None         None      None       None          None
----------------------------------------------------------------------------------------------------------------------

ANNUAL OPERATING EXPENSES (% of average net assets)* These are deducted from Portfolio assets, so you pay them indirectly.

----------------------------------------------------------------------------------------------------------------------
              MONEY                            GOVERNMENT                TREASURY     TAX-                  NEW YORK
              MARKET    PRIME    GOVERNMENT     RESERVES     TREASURY    RESERVES    EXEMPT    MUNICIPAL    MUNICIPAL
----------------------------------------------------------------------------------------------------------------------
Management    0.18      0.18       0.18           0.18         0.18         0.18      0.35       0.35          0.35
fees**
----------------------------------------------------------------------------------------------------------------------
Distribution  None      None       None           None         None         None      None       None          None
(12b-1) fees
----------------------------------------------------------------------------------------------------------------------
Other         0.60      0.57       0.87           0.87         0.81         0.81      0.81       0.87          0.81
expenses***
----------------------------------------------------------------------------------------------------------------------
Total annual  0.78      0.75       1.05           1.05         0.99         0.99      1.16       1.22          1.16
operating
expenses
----------------------------------------------------------------------------------------------------------------------
MINUS:        0.33      0.30       0.60           0.60         0.54         0.54      0.71       0.77          0.71
Expense
Reimbursement
or Waiver
----------------------------------------------------------------------------------------------------------------------
Net           0.45      0.45       0.45           0.45         0.45         0.45      0.45@      0.45@         0.45@
expenses****
----------------------------------------------------------------------------------------------------------------------

     *    THE TABLE INCLUDES COSTS PAID BY THE PORTFOLIO AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE INFORMATION ON
          MASTER-FEEDER FUNDS, SEE "PORTFOLIO STRUCTURE" ON PAGE 45.

     **   "MANAGEMENT FEES" INCLUDES INVESTMENT MANAGEMENT AND ADMINISTRATION FEES.

     ***  "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. "OTHER EXPENSES" INCLUDES A 0.25%
          SHAREHOLDER SERVICING FEE.

     **** NEUBERGER BERMAN MANAGEMENT INC. (NBMI) HAS CONTRACTUALLY AGREED TO FORGO CURRENT PAYMENT OF FEES AND/OR REIMBURSE
          CERTAIN EXPENSES OF THE ADMINISTRATIVE CLASS OF EACH PORTFOLIO THROUGH 3/31/2010, SO THAT THE TOTAL ANNUAL
          OPERATING EXPENSES OF THE ADMINISTRATIVE CLASS OF EACH PORTFOLIO ARE LIMITED TO 0.45 % OF ITS AVERAGE NET ASSETS.
          THIS ARRANGEMENT DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES. EACH PORTFOLIO
          HAS AGREED THAT ITS ADMINISTRATIVE CLASS WILL REPAY NBMI FOR FEES AND EXPENSES FOREGONE OR REIMBURSED FOR THAT
          CLASS PROVIDED THAT REPAYMENT DOES NOT CAUSE THE ANNUAL OPERATING EXPENSES OF THAT CLASS OF THE PORTFOLIO TO EXCEED
          0.45% OF ITS AVERAGE NET ASSETS. ANY SUCH REPAYMENT MUST BE MADE WITHIN THREE YEARS AFTER THE YEAR IN WHICH NBMI
          INCURRED THE EXPENSE.

     @    FOR EACH OF TAX-EXEMPT PORTFOLIO, MUNICIPAL PORTFOLIO AND NEW YORK MUNICIPAL PORTFOLIO, NBMI HAS CONTRACTUALLY
          UNDERTAKEN TO FORGO AND/OR REIMBURSE ITS MANAGEMENT FEE IN THE AMOUNT OF 0.17% OF THAT PORTFOLIO'S AVERAGE NET
          ASSETS THROUGH 3/31/10. AS A RESULT OF THIS AGREEMENT, THE INVESTMENT MANAGEMENT FEE OF EACH PORTFOLIO WILL BE
          LIMITED TO 0.08% OF ITS AVERAGE NET ASSETS.

EXPENSE EXAMPLE

The example assumes that you invested $10,000 for the periods shown, that you earned a hypothetical 5% total return each year, and that the Portfolio's expenses were those in the table to the left. Your costs would be the same whether you sold your shares or continued to hold them at the end of each period. Actual performance and expenses may be higher or lower.

                         1 Year       3 Years
MONEY MARKET              $46          $144

PRIME                     $46          $144

GOVERNMENT                $46          $144

GOVERNMENT RESERVES       $46          $144

TREASURY                  $46          $144

TREASURY RESERVES         $46          $144

TAX-EXEMPT                $46          $144

MUNICIPAL                 $46          $144

NEW YORK MUNICIPAL        $46          $144

FINANCIAL HIGHLIGHTS

When this prospectus was prepared, the Portfolios were new and had no financial highlights to report.

MANAGEMENT

PORTFOLIO MANAGERS

The Portfolio Managers of MONEY MARKET PORTFOLIO and PRIME PORTFOLIO are:

JOHN C. DONOHUE, Senior Vice President, Lehman Brothers Asset Management LLC (formerly, Lincoln Capital Fixed Income Management Company, LLC) ("Lehman Brothers Asset Management"), has primary responsibility for managing the Taxable Cash Management product group at Lehman Brothers Asset Management. (Lehman Brothers Asset Management is a wholly owned subsidiary of Lehman Brothers Holdings Inc.) Prior to joining Lehman Brothers Asset Management in 2003, Mr. Donohue worked at two other investment managers where he was a portfolio manager.

TIMOTHY J. ROBEY, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2003. Previously, Mr. Robey was an assistant money market portfolio manager with another investment manager.

The Portfolio Managers of GOVERNMENT PORTFOLIO, GOVERNMENT RESERVES PORTFOLIO, TREASURY PORTFOLIO and TREASURY RESERVES PORTFOLIO are:

JOHN C. DONOHUE, Senior Vice President, Lehman Brothers Asset Management, has primary responsibility for managing the Taxable Cash Management product group at Lehman Brothers Asset Management. Prior to joining Lehman Brothers Asset Management in 2003, Mr. Donohue worked at two other investment managers where he was a portfolio manager.

SCOTT F. RIECKE, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Riecke was a money market portfolio manager with Neuberger Berman.

The Portfolio Managers of MUNICIPAL PORTFOLIO, NEW YORK MUNICIPAL PORTFOLIO and
TAX-EXEMPT PORTFOLIO are:

WILLIAM J. FURRER, Senior Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Furrer managed funds for another investment adviser since 1990.

KRISTIAN J. LIND, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Lind was an assistant portfolio manager with another investment adviser.

INVESTMENT MANAGER

NEUBERGER BERMAN MANAGEMENT INC. (THE "MANAGER") is each Portfolio's investment manager, administrator and distributor. Pursuant to an investment advisory agreement, the Manager is responsible for choosing each Portfolio's investments and handling its day-to-day business. The Manager carries out its duties subject to policies established by the board of trustees. The investment advisory agreement establishes the fees paid to the Manager for its services as each Portfolio's investment manager and expenses paid directly by each Portfolio. The Manager engages a sub-adviser to choose each Portfolio's investments and handle its day-to-day business. The sub-adviser of each Portfolio is Lehman Brothers Asset Management LLC. As investment manager, the Manager is responsible for overseeing the activities of the sub-advisers. The Manager and each sub-adviser are wholly owned subsidiaries of Lehman Brothers Holdings Inc.

Each of Money Market Portfolio, Prime Portfolio, Government Portfolio, Government Reserves Portfolio, Treasury Portfolio and Treasury Reserves Portfolio will pay the Manager fees at the annual rate of 0.08% of average daily net assets for investment management services and 0.10% of average daily net assets for administrative services provided to each Portfolio's shareholders.

Each of Tax-Exempt Portfolio, Municipal Portfolio and New York Municipal Portfolio will pay the Manager fees at the annual rate of 0.35% of average daily net assets for investment management services and 0.10% of average daily net assets for administrative services provided to each Portfolio's shareholders. For each of these Portfolios, the Manager has contractually undertaken to forgo and/or reimburse its management fee in the amount of 0.17% of that Portfolio's average net assets through March 31, 2010. As a result of this agreement, the investment management fee of each Portfolio will be limited to 0.08% of its average net assets.

A discussion regarding the basis for the approval of the investment advisory and sub-advisory contracts by the board of trustees will be available in each Portfolio's annual report to shareholders, dated March 31, 2007.

YOUR INVESTMENT

o ELIGIBLE ACCOUNTS

The Portfolios offer their shares for purchase by investors directly and through financial intermediaries. Each Portfolio has a minimum initial investment of $10 million. Each Portfolio, in its sole discretion, may waive the minimum initial investment in certain cases, including shares of the Portfolios purchased through a financial intermediary.

The fees and policies outlined in this prospectus are set by Lehman Brothers Institutional Liquidity Funds ("the Fund"). However, investors purchasing shares through a financial intermediary should consult their intermediary for additional information needed to manage their investment including information on how to buy and sell shares of the Portfolios, investor services, statements and confirmations and additional policies. In exchange for the services it offers, financial intermediaries may charge fees, which are generally in addition to those described in this prospectus.

Shares of the Government, Government Reserves, Treasury and Treasury Reserves Portfolio are intended to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit Union Act and the National Credit Union Administration. Shares of these Portfolios, however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether these Portfolios are permissible investments under the law applicable to it.

o PURCHASING SHARES

Every purchase order you place will be processed at the next share price calculated after your order has been accepted.

Orders to purchase shares of a Portfolio must be received by the Fund prior to the following times: for the Money Market, Prime, Government and Treasury Portfolios, 5:00 p.m., Eastern time; for the Government Reserves and Treasury Reserves Portfolios, 2:00 p.m., Eastern time; and for the Tax-Exempt, Municipal and New York Municipal Portfolios, 3:00 p.m., Eastern time. If a purchase order is received in good order prior to the Portfolio's specified closing time, the Fund will process the order when it receives payment. (Good order means that you have provided sufficient information to process your request as outlined in this prospectus.) Your order will not be processed unless payment is received on the same day by the close of the Federal Reserve Wire System (6:00 p.m. Eastern time). If payment is not received by that time, your order may be canceled and you may be liable for any resulting losses or fees incurred by the Fund, Lehman Brothers Asset Management, NBMI or the Fund's custodian. All investments must be made in U.S. dollars.

Portfolio investors whose payments are converted to "federal funds" before 6:00
p.m., Eastern time on the day of purchase, will accrue a dividend the same day.

On any business day that the New York Stock Exchange, bond market or Federal Reserve Wire System closes early, the Fund may close early and purchase orders received after such earlier closing times will be processed the following business day. The Fund reserves the right to take orders to purchase Portfolio shares when the New York Stock Exchange is closed, reject any purchase order, or suspend or reject future purchase orders from any investor who does not provide payment to settle a purchase order.

PURCHASING SHARES BY TELEPHONE

You may open an account, subject to acceptance by the Fund, by completing and signing an Account Registration Form, which you can obtain by calling Lehman Brothers Shareholder Service Group at 888-556-9030 and mailing it to:

Lehman Brothers Shareholder Service Group 605 Third Avenue 2nd Floor New York, NY 10158-0180

or faxing it to 781-796-3327. Upon approval of the application, you may purchase Administrative Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade and wiring Federal Funds to the Fund immediately thereafter. (Investors must call Lehman Brothers Shareholder Service Group before effecting any purchase.) The Fund reserves the right to suspend the telephone order privilege.

Federal Funds should be wired to:

State Street Bank
ABA 011-000028
DDA 9905-710-1

Attn: Lehman Brothers Deposit Account
Ref: (Portfolio Name, Portfolio Number, Account Name
and Account Number)

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

If purchasing shares through a financial intermediary, please consult your intermediary for purchase instructions. Customers of a financial intermediary will normally provide purchase instructions to the financial intermediary, who, will in turn, place purchase orders with the Fund. The financial intermediary will establish purchase and payment cutoff times. It is the responsibility of the intermediary to forward your order and the accompanying payment to the Fund in a timely fashion.

For those purchasing shares via cash sweep, the Portfolios are designed so that free credit cash balances held in an eligible account can be automatically invested in Portfolio shares. All such available cash balances in an eligible account are automatically invested in the specified Portfolio on a daily basis. These amounts include proceeds of securities sold in your account. To open a sweep account, contact the Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY INTERNET

Once you have opened an account, you may place a purchase order for additional shares online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to purchasing shares online. Additionally,

you are responsible for transmitting payments for shares purchased via the Internet in a timely fashion as set forth within this prospectus.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY E-MAIL

Subject to appropriate agreement with the Fund's principal underwriter, the Fund may accept orders by e-mail.

REDEEMING SHARES

Every sell order you place will be processed at the next share price calculated after your order has been received in good order. (Good order means that you have provided sufficient information to process your request as outlined in this prospectus.) Orders to sell shares of a Portfolio must be received by the Fund prior to the following times: for the Money Market, Prime, Government and Treasury Portfolios, 5:00 p.m., Eastern time; for the Government Reserves and Treasury Reserves Portfolios, 2:00 p.m., Eastern time; and for the Tax-Exempt, Municipal and New York Municipal Portfolios, 3:00 p.m., Eastern time. You will not receive dividends earned and accrued by the Portfolios on the day you sell your shares.

The proceeds from the shares you sell are generally sent the same business day your sell order is executed but under certain circumstances may not be made until the next business day. Proceeds may be delayed as permitted pursuant to
Section 22(e) of the Investment Company Act of 1940, as amended. Generally, under that section, redemption requests or payments may be postponed or suspended if the New York Stock Exchange is closed for trading, or trading is restricted, an emergency exists which makes the disposal of securities owned by a Portfolio or the fair determination of the value of the Portfolio's net assets not reasonably practicable, or the Securities and Exchange Commission, by order, permits the suspension of the right of redemption. Redemption payments may also be delayed in the event of the closing of the Federal Reserve wire payment system. In addition, when the New York Stock Exchange, bond market or Federal Reserve Wire System closes early, payments with respect to redemption requests received subsequent to the close will be made the next business day. The Fund reserves the right to take orders to redeem Portfolio shares when the New York Stock Exchange is closed. Notice of such event would be posted on www.LehmanBrothersINSTFunds.com.

The Portfolios reserve the right to pay in kind for redemptions. The Portfolios do not redeem in kind under normal circumstances, but would do so when the Fund has determined that it is in the best interests of a Portfolio's shareholders as a whole.

In some cases, when you sell shares directly or through a financial intermediary, you will have to place your order in writing, and you will need a Medallion signature guarantee (see "Medallion Signature Guarantees").

REDEEMING SHARES BY TELEPHONE

You may sell Administrative Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade. Please provide your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. This option is not available if you have declined the telephone option. The Fund reserves the right to suspend the telephone order privilege.

REDEEMING SHARES BY FAX

Fax us at 781-796-3327 requesting us to sell shares signed by all registered owners; include your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. Please also supply us with your e-mail address and daytime telephone number when you write to us in the event we need to reach you.

REDEEMING SHARES THROUGH A FINANCIAL INTERMEDIARY

If redeeming shares through a financial intermediary, please consult your intermediary for redemption instructions. Customers of a financial intermediary will normally provide redemption instructions to the financial intermediary, who, will in turn, place purchase orders with the Fund. The financial intermediary will establish redemption and payment cutoff times.

For those using the Portfolios as a cash sweep vehicle, the Portfolios are designed so that free credit cash balances held in an eligible account can be automatically invested in shares of a specified Portfolio. All debit cash balances in an eligible account are automatically redeemed from the Portfolio on a daily basis.

REDEEMING SHARES BY INTERNET

You may place a redemption order online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to redeeming shares online.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

GENERAL SHAREHOLDER INFORMATION

MARKET TIMING POLICY. In light of the nature and high quality of the Portfolios' investments and the Portfolios' investment strategy to maintain a stable share price, the market-timing policies adopted by the Fund's Trustees that are applicable to other funds in the Lehman Brothers family of funds are generally not applicable with respect to frequent purchases, exchanges and redemptions of Portfolio shares ("market-timing activities"). It is expected that the Portfolios will be used by shareholders for short-term investing and by certain selected accounts utilizing the Portfolios as a cash sweep vehicle. However, frequent purchases, exchanges and redemptions of Portfolio shares can interfere with Portfolio management and affect costs and performance for other shareholders. Therefore, under certain circumstances, the Fund reserves the right to reject any exchange or purchase order; change, suspend or revoke the exchange privilege or suspend the telephone order privilege in order to combat market-timing activities.

EXCHANGING SHARES. You can exchange a Portfolio's Administrative Class Shares for Administrative Class Shares of other available Portfolios of the Fund based on their respective NAVs (normally, $1 per share) at no additional cost. If you purchased Portfolio shares through a financial intermediary, certain Portfolios of the Fund may be unavailable for exchange. Contact your financial intermediary to determine which Portfolios are available for exchange.

To exchange shares, contact Lehman Brothers Shareholder Service Group at 888- 556-9030 if you purchased the shares directly. Otherwise, please contact your financial intermediary.

When exchanging shares, both accounts must be registered in the same name, address and tax identification number and you will need to observe the minimum investment and minimum account balance requirements for the Portfolio accounts involved.

Under certain circumstances, the Fund reserves the right to reject any exchange order and/or change, suspend or revoke the exchange privilege. The exchange privilege can be withdrawn from any investor that we believe is trying to "time the market" or is otherwise making exchanges that we judge to be excessive. Frequent exchanges can interfere with Portfolio management and affect costs and performance for other shareholders.

PLACING ORDERS BY TELEPHONE. Portfolio investors have the option of placing telephone orders, subject to certain restrictions. This option is available to you unless you indicate on your account application (or in a subsequent letter to the Fund that you do not want it. Whenever we receive a telephone order, we take steps to make sure the order is legitimate. These may include asking for identifying information and recording the call. As long as a Portfolio and its representatives take reasonable measures to verify the authenticity of calls, investors may be responsible for any losses caused by unauthorized telephone orders.

OTHER POLICIES. The Fund reserves the right to suspend the offering of shares and/or change its investment minimums or other requirements for buying and selling, or waive any minimums or requirements for certain investors.

SHAREHOLDER SERVICING FEE

Each Portfolio has implemented a Shareholder Servicing Fee for each Portfolio's Administrative Class shares to pay the Fund's shareholder servicing agent, NBMI, to provide for, or to compensate certain financial intermediaries (also referred to as service organizations) for providing personal and account maintenance

services and administrative services to shareholders. Under this arrangement, each Portfolio pays the Fund's shareholder servicing agent a monthly or quarterly servicing fee which shall not exceed during any one year 0.25% of each Portfolio's average daily net assets of Administrative Class shares which are owned beneficially by the customers of such service organizations during such period.

OTHER PAYMENTS TO THIRD PARTIES

NBMI and/or its affiliates may pay additional compensation, out of their own resources and not as an expense of the Portfolios, to your investment provider or other financial intermediaries, including affiliates, in connection with the sale, distribution, retention and/or servicing of Portfolio shares. In some cases, these payments may create an incentive for your investment provider or its employees to recommend or sell shares of the Portfolios to you. If you have purchased shares of a Portfolio through an investment provider, please speak with your investment provider to learn more about any payments it receives from NBMI and/or its affiliates, as well as fees and/or commissions the investment provider charges. You should also consult disclosures made by your investment provider at the time of purchase. Any such payments will not change the net asset value or the price of each Portfolio's shares. For more information, please see the Portfolios' Statement of Additional Information.

MEDALLION SIGNATURE GUARANTEES

You may need a Medallion signature guarantee when you sell shares directly or through a financial intermediary. A Medallion signature guarantee is a guarantee that your signature is authentic.

Most banks, brokers, and other financial institutions can provide you with one. Some may charge a fee; others may not, particularly if you are a customer of theirs.

Medallion signature guarantees are required for a variety of transactions including requests for changes to your account, exchange privileges or instructions for distribution of proceeds. We reserve the right to require a signature guarantee on any transaction at our discretion.

A notarized signature from a notary public is not a Medallion signature guarantee.

INFORMATION REQUIRED FROM NEW ACCOUNTS

To help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

When you open an account, we (which may include your financial intermediary acting on your behalf or as your agent) may require your name, address, date of birth, and social security number or other identifying number. We may also require other identifying documents. If we cannot verify the information you supply to us or if it is incomplete, we may be required to return your funds or redeem your account.

SHARE PRICES

Because Administrative Class shares of each Portfolio do not have front-end sales charges, the price you pay for each share of a Portfolio is the net asset value per share. Similarly, because there are no fees for selling shares, a Portfolio pays you the full share price when you sell shares. Remember that your financial intermediary may charge fees for its services.

The Portfolios are open for business every day that both the New York Stock Exchange and the Federal Reserve are open. The New York Stock Exchange and the Federal Reserve are closed on all national holidays; the New York Stock Exchange is also closed on Good Friday, and the Federal Reserve is closed on Columbus Day and Veterans Day. Portfolio shares normally will not be priced on those days and any other day the New York Stock Exchange or Federal Reserve is closed. Because fixed income securities trade in markets outside the New York Stock Exchange, a Portfolio may decide to remain open and price its shares on a day when the New York Stock Exchange is closed for unusual reasons.

In general, every buy or sell order you place will go through at the next share price to be calculated after your order has been accepted (see "Your Investment" for instructions on placing orders). The Money Market Portfolio, Prime Portfolio Government Portfolio and Treasury Portfolio each calculates its share price as of 5:00 p.m., Eastern time. Government Reserves Portfolio and Treasury Reserves Portfolio each calculates its share price as of 2:00 p.m., Eastern time. Tax-Exempt Portfolio, Municipal Portfolio and New York Municipal Portfolio each calculates its share price as of 3:00 p.m. Eastern time.

Because foreign markets may be open on days when U.S. markets are closed, the value of foreign securities owned by a Portfolio could change on days when you cannot buy or sell Portfolio shares. Remember, though, any purchase or sale takes place at the next share price calculated after your order is received.

SHARE PRICE CALCULATIONS

The price of shares of a Portfolio is the total value of the assets attributable to that Portfolio minus the liabilities attributable to that Portfolio, divided by the total number of shares outstanding.

When valuing portfolio securities, each Portfolio uses a constant amortization method in an effort to maintain a constant share price of $1.00. Although there can be no assurance, each Portfolio does not anticipate that its share price will fluctuate.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS. Each Portfolio pays out to shareholders any net investment income and realized net capital gains it earns. Each Portfolio declares income dividends at approximately 4:00 p.m. on each business day and pays them monthly, and any net short-term capital gains are paid annually in December. The Portfolios do not anticipate making any long-term capital gain distributions.

Each Portfolio's income dividends are based on its estimated daily net income. To the extent actual income differs from the estimated amount, adjustments will be made to the following business day's income dividends.

Consult your financial intermediary about whether distributions from a Portfolio to your account will be reinvested in additional shares of the Portfolio or paid to your account in cash. Although Portfolio distributions are actually made to the financial intermediary that holds the Portfolio shares on your behalf, the following discussion describes tax consequences of distributions made to you because you are the shares' beneficial owner.

HOW DISTRIBUTIONS ARE TAXED. Portfolio dividends paid to qualified retirement plan accounts are tax-free, though eventual withdrawals from those accounts generally are subject to tax. Portfolio dividends other than "exempt-interest dividends" (described in the next paragraph) paid to any other account are generally taxable to the holder, regardless of whether they are paid in cash or reinvested in additional shares of the Portfolio.

The part of the income distributions from Municipal Portfolio, New York Municipal Portfolio and Tax-Exempt Portfolio (each, a "Tax-Free Portfolio") that is designated as "exempt-interest dividends" -- essentially, the part of the Portfolio's distributions equal to the excess of its excludable interest over certain amounts disallowed as deductions -- is excludable from its shareholders' gross income for federal income tax purposes. Accordingly, shares of a Tax-Free Portfolio are not appropriate investments for tax-advantaged retirement plans and accounts and other tax-exempt investors.

Dividends (other than exempt-interest dividends) are taxable to you, if at all, in the year you receive them. Distributions of income and net short-term capital gains (if any) are taxed as ordinary income and will not qualify for the maximum 15% federal income tax rate available to individual shareholders on their "qualified dividend income."

In general, income dividends from the Tax-Free Portfolios generally are free from federal income tax. However, any exempt-interest dividend that a corporate shareholder receives will be included in "adjusted current earnings" for purposes of the federal alternative minimum tax, and part of the Tax-Free Portfolio's income dividends may be a tax preference item for purposes of that tax. A Tax-Free Portfolio also may invest in securities or use techniques that produce taxable income; your statement will identify any income of this type.

For investors in New York Municipal Portfolio, distributions derived from interest on municipal securities of New York issuers and from interest on qualifying securities issued by U.S. territories and possessions are generally exempt from New York State and New York City personal income taxes. However, distributions that are derived from interest on U.S. securities that is federally taxable as ordinary income or distributions that are derived from interest on state and municipal securities other than New York issuers are generally subject to taxes in New York State and New York City.

"Interest-related dividends" and "short-term capital gain dividends" that a Portfolio properly designates as such are exempt from the federal withholding tax of 30% (or lower treaty rate) that otherwise generally would apply to dividends it pays to most foreign shareholders. "Interest-related dividends" are dividends that are attributable to certain original issue discount, interest on obligations in registered form (with certain exceptions), and interest on deposits derived from U.S. sources and any interest-related dividend from another regulated investment company. "Short-term capital gain dividends" are dividends that are attributable to short-term capital gain, computed with certain adjustments. The withholding exemption generally applies with respect to each Portfolio's taxable years beginning before January 1, 2008.

HOW SHARE TRANSACTIONS ARE TAXED. When a qualified retirement plan sells (redeems) Portfolio shares in its account, there are no tax consequences to the plan or its beneficiaries. For other shareholders, a sale (redemption) of a Portfolio's shares will not result in a taxable gain or loss as long as the Portfolio maintains a share price of $1.00.

TAXES AND YOU

For non-retirement plan account holders, the taxes you actually owe on distributions can vary with many factors, such as your tax bracket.

Most importantly, consult your tax professional. Everyone's tax situation is different, and your professional should be able to help you answer any questions you might have.

PORTFOLIO HOLDINGS POLICY

A description of the Portfolios' policies and procedures with respect to the disclosure of the Portfolios' portfolio holdings is available in the Portfolios' Statement of Additional Information. The complete portfolio holdings for each Portfolio are available at www.LehmanBrothersINSTFunds.com. Month-end holdings will be posted approximately 15 days after each month-end and mid-month holdings will be posted on approximately the last business day of the month.

Each Portfolio's complete portfolio holdings will remain available at www.LehmanBrothersINSTFunds.com until the subsequent period's holdings have been posted. Complete holdings for all Portfolios will also be available in reports on Form N-Q or Form N-CSR filed with the SEC. Historical portfolio holdings are available upon request.

PORTFOLIO STRUCTURE

The Portfolios use a "master-feeder" structure. Rather than investing directly in securities, each Portfolio is a "feeder fund," meaning that it invests in a corresponding "master series." The master series in turn invests in securities, using the strategies described in this prospectus. In this prospectus we have used the word "Portfolio" to mean each feeder fund and its master series. For reasons relating to costs or a change in investment goal, among others, each feeder fund could switch to another master series or decide to manage its assets itself.

Each Portfolio also uses a "multiple class" structure. Each Portfolio offers one or more classes of shares that have identical investment programs, but different arrangements for distribution and shareholder servicing and consequently, different expenses. This prospectus relates solely to the Administrative Class of the Portfolios.

LEHMAN BROTHERS ASSET MANAGEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY SERIES

o No load
o No sales charges

If you would like further details on these Portfolios, you can request a free copy of the following documents:

SHAREHOLDER REPORTS. Published twice a year, the shareholder reports offer information about each Portfolio's recent performance, including:

o a discussion by the portfolio managers about strategies and market conditions that significantly affected the Portfolio's performance
o Portfolio performance data and financial statements
o portfolio holdings

STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI contains more comprehensive information on each Portfolio, including:
o various types of securities and practices, and their risks
o investment limitations and additional policies
o information about each Portfolio's management and business structure

The SAI is hereby incorporated by reference into this prospectus, making it legally part of the prospectus.
Investment manager: Neuberger Berman Management Inc. Sub-adviser: Lehman Brothers Asset Management LLC

OBTAINING INFORMATION

You can obtain a shareholder report, SAI, and other information from your financial intermediary, or from:
LEHMAN BROTHERS SHAREHOLDER SERVICE GROUP
605 Third Avenue 2nd Floor
New York, NY 10158-0180
Broker/Dealer and Institutional Support Services: 888-556-9030 Web site: www.LehmanBrothersINSTFunds.com

You can also request copies of this information from the SEC for the cost of a duplicating fee by sending an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102. They are also available from the EDGAR Database on the SEC's website at www.sec.gov. You may also view and copy the documents at the SEC's Public Reference Room in Washington. Call 202-942-8090 for information about the operation of the Public Reference Room.
SEC file number 811-21715
[EO473] 12/06

LEHMAN BROTHERS
INSTITUTIONAL LIQUIDITY FUNDS

CAPITAL CLASS
Money Market Portfolio

Prime Portfolio

Government Portfolio

Government Reserves Portfolio

Treasury Portfolio

Treasury Reserves Portfolio

Tax-Exempt Portfolio

Municipal Portfolio

New York Municipal Portfolio

PROSPECTUS December 19, 2006

LEHMAN BROTHERS ASSET MANAGEMENT

CONTENTS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Summary of Portfolios.........................

Money Market Portfolio........................

Prime Portfolio...............................

Government Portfolio..........................

Government Reserves Portfolio.................

Treasury Portfolio............................

Treasury Reserves Portfolio...................

Tax-Exempt Portfolio..........................

Municipal Portfolio...........................

New York Municipal Portfolio..................

Investor Expenses.............................

Financial Highlights..........................

Management....................................

YOUR INVESTMENT

THESE PORTFOLIOS:

o require a minimum initial investment of $10 million

o offer you the opportunity to participate in financial markets through professionally managed money market portfolios

o are also money market sweep funds for certain eligible investors

o are mutual funds, not bank deposits, and are not guaranteed or insured by the FDIC or any other government agency

Please note that shares of each Portfolio may not be available in all states. Shares of each Portfolio are only available in states in which they are authorized for purchase.

SUMMARY OF PORTFOLIOS

MONEY MARKET PORTFOLIO          A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio invests in
                                corporate debt obligations, asset-backed
                                securities, variable rate obligations,
                                instruments issued or guaranteed by the U.S.
                                Government, its agencies or instrumentalities,
                                repurchase agreements and securities of U.S. and
                                foreign banks.

PRIME PORTFOLIO                 A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio primarily invests
                                in corporate debt obligations, asset-backed
                                securities, variable rate obligations,
                                instruments issued or guaranteed by the U.S.
                                Government, its agencies or instrumentalities,
                                repurchase agreements and securities of U.S.
                                banks and foreign branches of U.S. banks.

GOVERNMENT PORTFOLIO            A U.S. Government money market fund seeking
                                maximum safety and liquidity and the highest
                                available current income. The Portfolio invests
                                in securities issued or guaranteed as to
                                principal or interest by the U.S. Government,
                                its agencies and instrumentalities and
                                repurchase agreements relating to such
                                securities.

GOVERNMENT RESERVES PORTFOLIO   A U.S. Government money market fund seeking
                                maximum safety and liquidity and the highest
                                available current income. The Portfolio invests
                                in securities issued or guaranteed as to
                                principal or interest by the U.S. Government,
                                its agencies and instrumentalities.

TREASURY PORTFOLIO              A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio invests in direct
                                obligations of the U.S. Treasury, including
                                repurchase agreements relating to such
                                securities.

TREASURY RESERVES PORTFOLIO     A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio invests in direct
                                obligations of the U.S. Treasury.

                                       1

TAX-EXEMPT PORTFOLIO            A money market fund seeking the highest
                                available current income that is exempt from
                                federal income tax and, to the extent possible,
                                is not a tax preference item for purposes of the
                                federal alternative minimum tax, consistent with
                                safety and liquidity. The Portfolio normally
                                invests at least 80% of its net assets in
                                high-quality, short-term municipal securities,
                                the interest on which is not a preference item
                                for federal alternative minimum tax purposes.

MUNICIPAL PORTFOLIO             A money market fund seeking the maximum current
                                income exempt from federal income tax,
                                consistent with safety and liquidity. The
                                Portfolio normally invests at least 80% of its
                                net assets in high-quality, short-term municipal
                                securities from issuers around the country. The
                                Portfolio's dividends are generally exempt from
                                federal income tax, but all or part thereof may
                                be a tax preference item for purposes of the
                                federal alternative minimum tax.

NEW YORK MUNICIPAL PORTFOLIO    A money market fund seeking the highest
                                available current income exempt from federal
                                income tax and New York State and New York City
                                personal income taxes that is consistent with
                                safety and liquidity. The Portfolio normally
                                invests at least 80% of its net assets in
                                high-quality, short-term municipal securities
                                that provide income that is exempt from those
                                taxes.

                                       2

MONEY MARKET PORTFOLIO                                    Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Capital Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Neuberger Berman Institutional Cash Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows how the Neuberger Berman Institutional Cash Fund's performance has varied from year to year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year              %
-----------------------
2001            4.01
-----------------------
2002            1.64
-----------------------
2003            0.88
-----------------------
2004            1.09
-----------------------
2005            3.06
-----------------------

Best quarter: Q1 '01, 1.41% Worst quarter: Q3 '03 & Q1 '04, 0.19%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                           Since Inception
                        1 Year  5 Year         5/8/2000*
-------------------------------------------------------------
INSTITUTIONAL CASH       3.06    2.13            2.63
-------------------------------------------------------------

*Performance shown above is that of Neuberger Berman Institutional Cash Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Capital Class of the Portfolio because it invests in the same master portfolio of securities. For the period from Neuberger Berman Institutional Cash Fund's inception through 2/9/2001, it was organized in a master-feeder structure. For the period from 2/10/2001 to 12/29/2004, Neuberger Berman Institutional Cash Fund was organized in a multiple class structure. As of 12/30/2004, the Fund was organized as a feeder fund in a master-feeder structure and responsibility for the day-to-day portfolio management of the Fund was transferred from Neuberger Berman Management Inc. to Lehman Brothers Asset Management Inc. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

PRIME PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Capital Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Lehman Brothers Prime Money Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows the Lehman Brothers Prime Money Fund's performance for the last calendar year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year              %
-----------------------
2005             3.20
-----------------------

Best quarter: Q4 '05, 0.99% Worst quarter: Q1 '05, 0.58%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                  Since Inception
                        1 Year      12/27/2004*
----------------------------------------------------
PRIME MONEY              3.20          3.20
----------------------------------------------------

*Performance shown above is that of Lehman Brothers Prime Money Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Capital Class of the Portfolio because it invests in the same master series of securities. Because the Lehman Brothers Prime Money Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Capital Class of the Portfolio. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

GOVERNMENT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

GOVERNMENT RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"). The Portfolio may also invest in repurchase agreements, however, under normal circumstances it does not intend to do so. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

Performance could also be harmed if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury. The Portfolio seeks to maintain a stable $1.00 share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TAX-EXEMPT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

NEW YORK MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

Investor Expenses

                                                              FEE TABLE
SHAREHOLDER FEES
----------------------------------------------------------------------------------------------------------------------
              MONEY                            GOVERNMENT                TREASURY     TAX-                  NEW YORK
              MARKET    PRIME    GOVERNMENT     RESERVES     TREASURY    RESERVES    EXEMPT    MUNICIPAL    MUNICIPAL
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
FEES:         None      None       None           None         None         None      None       None          None
----------------------------------------------------------------------------------------------------------------------

ANNUAL OPERATING EXPENSES (% of average net assets)* These are deducted from Portfolio assets, so you pay them indirectly.

----------------------------------------------------------------------------------------------------------------------
              MONEY                            GOVERNMENT                TREASURY     TAX-                  NEW YORK
              MARKET    PRIME    GOVERNMENT     RESERVES     TREASURY    RESERVES    EXEMPT    MUNICIPAL    MUNICIPAL
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Management    0.18      0.18       0.18           0.18         0.18         0.18      0.35       0.35          0.35
fees**
----------------------------------------------------------------------------------------------------------------------
Distribution  None      None       None           None         None         None      None       None          None
(12b-1) fees
----------------------------------------------------------------------------------------------------------------------
Other         0.45      0.42       0.72           0.72         0.66         0.66      0.66       0.72          0.66
expenses***
----------------------------------------------------------------------------------------------------------------------
Total annual  0.63      0.60       0.90           0.90         0.84         0.84      1.01       1.07          1.01
operating
expenses
----------------------------------------------------------------------------------------------------------------------
MINUS:        0.33      0.30       0.60           0.60         0.54         0.54      0.71       0.77          0.71
Expense
Reimbursement
or Waiver
----------------------------------------------------------------------------------------------------------------------
Net           0.30      0.30       0.30           0.30         0.30         0.30      0.30@      0.30@         0.30@
expenses****
----------------------------------------------------------------------------------------------------------------------

     *    THE TABLE INCLUDES COSTS PAID BY THE PORTFOLIO AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE INFORMATION ON
          MASTER-FEEDER FUNDS, SEE "PORTFOLIO STRUCTURE" ON PAGE 45.

     **   "MANAGEMENT FEES" INCLUDES INVESTMENT MANAGEMENT AND ADMINISTRATION FEES.

     ***  "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. "OTHER EXPENSES" INCLUDES A 0.10%
          SHAREHOLDER SERVICING FEE.

     **** NEUBERGER BERMAN MANAGEMENT INC. (NBMI) HAS CONTRACTUALLY AGREED TO FORGO CURRENT PAYMENT OF FEES AND/OR REIMBURSE
          CERTAIN EXPENSES OF THE CAPITAL CLASS OF EACH PORTFOLIO THROUGH 3/31/2010, SO THAT THE TOTAL ANNUAL OPERATING
          EXPENSES OF THE CAPITAL CLASS OF EACH PORTFOLIO ARE LIMITED TO 0.30 % OF ITS AVERAGE NET ASSETS. THIS ARRANGEMENT
          DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES. EACH PORTFOLIO HAS AGREED THAT
          ITS CAPITAL CLASS WILL REPAY NBMI FOR FEES AND EXPENSES FOREGONE OR REIMBURSED FOR THAT CLASS PROVIDED THAT
          REPAYMENT DOES NOT CAUSE THE ANNUAL OPERATING EXPENSES OF THAT CLASS OF THE PORTFOLIO TO EXCEED 0.30% OF ITS
          AVERAGE NET ASSETS. ANY SUCH REPAYMENT MUST BE MADE WITHIN THREE YEARS AFTER THE YEAR IN WHICH NBMI INCURRED THE
          EXPENSE.

     @    FOR EACH OF TAX-EXEMPT PORTFOLIO, MUNICIPAL PORTFOLIO AND NEW YORK MUNICIPAL PORTFOLIO, NBMI HAS CONTRACTUALLY
          UNDERTAKEN TO FORGO AND/OR REIMBURSE ITS MANAGEMENT FEE IN THE AMOUNT OF 0.17% OF THAT PORTFOLIO'S AVERAGE NET
          ASSETS THROUGH  3/31/10. AS A RESULT OF THIS AGREEMENT, THE INVESTMENT MANAGEMENT FEE OF EACH PORTFOLIO WILL BE
          LIMITED TO 0.08% OF ITS AVERAGE NET ASSETS.

EXPENSE EXAMPLE

                          1 Year       3 Years
MONEY MARKET              $31          $97

PRIME                     $31          $97

GOVERNMENT                $31          $97

GOVERNMENT RESERVES       $31          $97

TREASURY                  $31          $97

TREASURY RESERVES         $31          $97

TAX-EXEMPT                $31          $97

MUNICIPAL                 $31          $97

NEW YORK MUNICIPAL        $31          $97

FINANCIAL HIGHLIGHTS

When this prospectus was prepared, the Portfolios were new and had no financial highlights to report.

MANAGEMENT

PORTFOLIO MANAGERS

The Portfolio Managers of MONEY MARKET PORTFOLIO and PRIME PORTFOLIO are:

The Portfolio Managers of GOVERNMENT PORTFOLIO, GOVERNMENT RESERVES PORTFOLIO, TREASURY PORTFOLIO and TREASURY RESERVES PORTFOLIO are:

SCOTT F. RIECKE, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Riecke was a money market portfolio manager with Neuberger Berman.

The Portfolio Managers of MUNICIPAL PORTFOLIO, NEW YORK MUNICIPAL PORTFOLIO and
TAX-EXEMPT PORTFOLIO are:

INVESTMENT MANAGER

YOUR INVESTMENT

o ELIGIBLE ACCOUNTS

o PURCHASING SHARES

Every purchase order you place will be processed at the next share price calculated after your order has been accepted.

Portfolio investors whose payments are converted to "federal funds" before 6:00
p.m., Eastern time on the day of purchase, will accrue a dividend the same day.

PURCHASING SHARES BY TELEPHONE

Lehman Brothers Shareholder Service Group 605 Third Avenue 2nd Floor New York, NY 10158-0180

or faxing it to 781-796-3327. Upon approval of the application, you may purchase Capital Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade and wiring Federal Funds to the Fund immediately thereafter. (Investors must call Lehman Brothers Shareholder Service Group before effecting any purchase.) The Fund reserves the right to suspend the telephone order privilege.

Federal Funds should be wired to:

State Street Bank
ABA 011-000028
DDA 9905-710-1

Attn: Lehman Brothers Deposit Account
Ref: (Portfolio Name, Portfolio Number, Account Name
and Account Number)

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

PURCHASING SHARES BY INTERNET

you are responsible for transmitting payments for shares purchased via the Internet in a timely fashion as set forth within this prospectus.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY E-MAIL

Subject to appropriate agreement with the Fund's principal underwriter, the Fund may accept orders by e-mail.

REDEEMING SHARES

REDEEMING SHARES BY TELEPHONE

You may sell Capital Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade. Please provide your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. This option is not available if you have declined the telephone option. The Fund reserves the right to suspend the telephone order privilege.

REDEEMING SHARES BY FAX

REDEEMING SHARES THROUGH A FINANCIAL INTERMEDIARY

REDEEMING SHARES BY INTERNET

You may place a redemption order online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to redeeming shares online.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

GENERAL SHAREHOLDER INFORMATION

EXCHANGING SHARES. You can exchange a Portfolio's Capital Class Shares for Capital Class Shares of other available Portfolios of the Fund based on their respective NAVs (normally, $1 per share) at no additional cost. If you purchased Portfolio shares through a financial intermediary, certain Portfolios of the Fund may be unavailable for exchange. Contact your financial intermediary to determine which Portfolios are available for exchange.

To exchange shares, contact Lehman Brothers Shareholder Service Group at 888- 556-9030 if you purchased the shares directly. Otherwise, please contact your financial intermediary.

SHAREHOLDER SERVICING FEE

Each Portfolio has implemented a Shareholder Servicing Fee for each Portfolio's Capital Class shares to pay the Fund's shareholder servicing agent, NBMI, to provide for, or to compensate certain financial intermediaries (also referred to as service organizations) for providing personal and account maintenance

services and administrative services to shareholders. Under this arrangement, each Portfolio pays the Fund's shareholder servicing agent a monthly or quarterly servicing fee which shall not exceed during any one year 0.10% of each Portfolio's average daily net assets of Capital Class shares which are owned beneficially by the customers of such service organizations during such period.

OTHER PAYMENTS TO THIRD PARTIES

MEDALLION SIGNATURE GUARANTEES

You may need a Medallion signature guarantee when you sell shares directly or through a financial intermediary. A Medallion signature guarantee is a guarantee that your signature is authentic.

Most banks, brokers, and other financial institutions can provide you with one. Some may charge a fee; others may not, particularly if you are a customer of theirs.

A notarized signature from a notary public is not a Medallion signature guarantee.

INFORMATION REQUIRED FROM NEW ACCOUNTS

SHARE PRICES

Because Capital Class shares of each Portfolio do not have front-end sales charges, the price you pay for each share of a Portfolio is the net asset value per share. Similarly, because there are no fees for selling shares, a Portfolio pays you the full share price when you sell shares. Remember that your financial intermediary may charge fees for its services.

SHARE PRICE CALCULATIONS

DISTRIBUTIONS AND TAXES

TAXES AND YOU

For non-retirement plan account holders, the taxes you actually owe on distributions can vary with many factors, such as your tax bracket.

Most importantly, consult your tax professional. Everyone's tax situation is different, and your professional should be able to help you answer any questions you might have.

PORTFOLIO HOLDINGS POLICY

PORTFOLIO STRUCTURE

LEHMAN BROTHERS ASSET MANAGEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY SERIES

o No load
o No sales charges

If you would like further details on these Portfolios, you can request a free copy of the following documents:

SHAREHOLDER REPORTS. Published twice a year, the shareholder reports offer information about each Portfolio's recent performance, including:
o a discussion by the portfolio managers about strategies and market conditions that significantly affected the Portfolio's performance
o Portfolio performance data and financial statements
o portfolio holdings

OBTAINING INFORMATION

LEHMAN BROTHERS
INSTITUTIONAL LIQUIDITY FUNDS

CASH MANAGEMENT CLASS
Money Market Portfolio

Prime Portfolio

Government Portfolio

Government Reserves Portfolio

Treasury Portfolio

Treasury Reserves Portfolio

Tax-Exempt Portfolio

Municipal Portfolio

New York Municipal Portfolio

PROSPECTUS DECEMBER 19, 2006

LEHMAN BROTHERS ASSET MANAGEMENT

CONTENTS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Summary of Portfolios.........................

Money Market Portfolio........................

Prime Portfolio...............................

Government Portfolio..........................

Government Reserves Portfolio.................

Treasury Portfolio............................

Treasury Reserves Portfolio...................

Tax-Exempt Portfolio..........................

Municipal Portfolio...........................

New York Municipal Portfolio..................

Investor Expenses.............................

Financial Highlights..........................

Management....................................

YOUR INVESTMENT

THESE PORTFOLIOS:
o require a minimum initial investment of $10 million

o offer you the opportunity to participate in financial markets through professionally managed money market portfolios

o are also money market sweep funds for certain eligible investors

o are mutual funds, not bank deposits, and are not guaranteed or insured by the FDIC or any other government agency

Please note that shares of each Portfolio may not be available in all states. Shares of each Portfolio are only available in states in which they are authorized for purchase.

SUMMARY OF PORTFOLIOS

MONEY MARKET PORTFOLIO        A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity. The Portfolio invests in corporate debt
                              obligations,   asset-backed  securities,  variable
                              rate obligations, instruments issued or guaranteed
                              by  the   U.S.   Government,   its   agencies   or
                              instrumentalities,   repurchase   agreements   and
                              securities of U.S. and foreign banks.

PRIME PORTFOLIO               A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.  The  Portfolio  primarily  invests  in
                              corporate    debt    obligations,     asset-backed
                              securities, variable rate obligations, instruments
                              issued or guaranteed by the U.S.  Government,  its
                              agencies    or    instrumentalities,    repurchase
                              agreements   and  securities  of  U.S.  banks  and
                              foreign branches of U.S. banks.

GOVERNMENT PORTFOLIO          A  U.S.   Government  money  market  fund  seeking
                              maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities    and   repurchase   agreements
                              relating to such securities.

GOVERNMENT RESERVES           A  U.S.   Government  money  market  fund  seeking
PORTFOLIO                     maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities.

TREASURY PORTFOLIO            A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.   The   Portfolio   invests  in  direct

obligations of the U.S. Treasury, including repurchase agreements relating to such securities.

TREASURY RESERVES PORTFOLIO A money market fund seeking the highest available current income consistent with safety and liquidity. The Portfolio invests in direct obligations of the U.S. Treasury.

NEW YORK MUNICIPAL PORTFOLIO A money market fund seeking the highest available current income exempt from federal income tax and New York State and New York City personal income taxes that is consistent with safety and liquidity. The Portfolio normally invests at least 80% of its net assets in high-quality, short-term municipal securities that provide income that is exempt from those taxes.

MONEY MARKET PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Cash Management Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Neuberger Berman Institutional Cash Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows how the Neuberger Berman Institutional Cash Fund's performance has varied from year to year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year %

2001 4.01
2002 1.64
2003 0.88
2004 1.09
2005 3.06
Best quarter: Q1 '01, 1.41% Worst quarter: Q3 '03 & Q1 '04, 0.19%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                                     Since Inception
                           1 Year       5 Year          5/8/2000*
----------------------------------------------------------------------
 Institutional Cash         3.06         2.13             2.63
----------------------------------------------------------------------

*Performance shown above is that of Neuberger Berman Institutional Cash Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Cash Management Class of the Portfolio because it invests in the same master portfolio of securities. Because the Cash Management Class of the Portfolio has moderately lower expenses, its performance typically would have been slightly better than that of Neuberger Berman Institutional Cash Fund. For the period from Neuberger Berman Institutional Cash Fund's inception through 2/9/2001, it was organized in a master-feeder structure. For the period from 2/10/2001 to 12/29/2004, Neuberger Berman Institutional Cash Fund was organized in a multiple class structure. As of 12/30/2004, the Fund was organized as a feeder fund in a master-feeder structure and responsibility for the day-to-day portfolio management of the Fund was transferred from Neuberger Berman Management Inc. to Lehman Brothers Asset Management Inc. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

distributions were reinvested in the Portfolio, and include all Portfolio expenses.

PRIME PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Cash Management Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Lehman Brothers Prime Money Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows the Lehman Brothers Prime Money Fund's performance for the last calendar year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year %

2005 3.20
Best quarter: Q4 '05, 0.99% Worst quarter: Q1 '05, 0.58%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                     Since Inception
                     1 Year            12/27/2004*
------------------------------------------------------
Prime Money           3.20                3.20
------------------------------------------------------

*Performance shown above is that of Lehman Brothers Prime Money Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Cash Management Class of the Portfolio because it invests in the same master series of securities. Because the Lehman Brothers Prime Money Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Cash Management Class of the Portfolio. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

GOVERNMENT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

GOVERNMENT RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"). The Portfolio may also invest in repurchase agreements, however, under normal circumstances it does not intend to do so. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

Performance could also be harmed if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury. The Portfolio seeks to maintain a stable $1.00 share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TAX-EXEMPT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

MUNICIPAL PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

NEW YORK MUNICIPAL PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

INVESTOR EXPENSES

                                                              FEE TABLE
SHAREHOLDER FEES
------------------------------------------------------------------------------------------------------------------------------------
                  MONEY                             GOVERNMENT                  TREASURY      TAX-                     NEW YORK
                  MARKET       PRIME    GOVERNMENT   RESERVES       TREASURY    RESERVES     EXEMPT     MUNICIPAL      MUNICIPAL
------------------------------------------------------------------------------------------------------------------------------------
Fees:             None         None        None        None           None        None        None        None            None
------------------------------------------------------------------------------------------------------------------------------------

ANNUAL OPERATING EXPENSES (% of average net assets)* These are deducted from Portfolio assets, so you pay them indirectly.

------------------------------------------------------------------------------------------------------------------------------------
                  MONEY                             GOVERNMENT                  TREASURY      TAX-                     NEW YORK
                  MARKET       PRIME    GOVERNMENT   RESERVES       TREASURY    RESERVES     EXEMPT     MUNICIPAL      MUNICIPAL
------------------------------------------------------------------------------------------------------------------------------------
Management         0.18        0.18        0.18        0.18           0.18        0.18        0.35        0.35            0.35
fees**
------------------------------------------------------------------------------------------------------------------------------------
Distribution       None        None        None        None           None        None        None        None            None
(12b-1) fees
------------------------------------------------------------------------------------------------------------------------------------
Other              0.40        0.37        0.67        0.67           0.61        0.61        0.61        0.67            0.61
expenses***
------------------------------------------------------------------------------------------------------------------------------------
Total annual       0.58        0.55        0.85        0.85           0.79        0.79        0.96        1.02            0.96
operating
expenses
------------------------------------------------------------------------------------------------------------------------------------
Minus:             0.33        0.30        0.60        0.60           0.54        0.54        0.71        0.77            0.71
Expense
Reimbursement
or Waiver
------------------------------------------------------------------------------------------------------------------------------------
Net                0.25        0.25        0.25        0.25           0.25        0.25        0.25@       0.25@           0.25@
expenses****
------------------------------------------------------------------------------------------------------------------------------------

     *    THE TABLE INCLUDES COSTS PAID BY THE PORTFOLIO AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE INFORMATION ON
          MASTER-FEEDER FUNDS, SEE "PORTFOLIO STRUCTURE" ON PAGE 45.

     **   "MANAGEMENT FEES" INCLUDES INVESTMENT MANAGEMENT AND ADMINISTRATION FEES.

     ***  "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. "OTHER EXPENSES" INCLUDES A 0.05%
          SHAREHOLDER SERVICING FEE.

     **** NEUBERGER BERMAN MANAGEMENT INC. (NBMI) HAS CONTRACTUALLY AGREED TO FORGO CURRENT PAYMENT OF FEES AND/OR REIMBURSE
          CERTAIN EXPENSES OF THE CASH MANAGEMENT CLASS OF EACH PORTFOLIO THROUGH 3/31/2010, SO THAT THE TOTAL ANNUAL
          OPERATING EXPENSES OF THE CASH MANAGEMENT CLASS OF EACH PORTFOLIO ARE LIMITED TO 0.25 % OF ITS AVERAGE NET ASSETS.
          THIS ARRANGEMENT DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES. EACH PORTFOLIO
          HAS AGREED THAT ITS CASH MANAGEMENT CLASS WILL REPAY NBMI FOR FEES AND EXPENSES FOREGONE OR REIMBURSED FOR THAT
          CLASS PROVIDED THAT REPAYMENT DOES NOT CAUSE THE ANNUAL OPERATING EXPENSES OF THAT CLASS OF THE PORTFOLIO TO EXCEED
          0.25% OF ITS AVERAGE NET ASSETS. ANY SUCH REPAYMENT MUST BE MADE WITHIN THREE YEARS AFTER THE YEAR IN WHICH NBMI
          INCURRED THE EXPENSE.

     @    FOR EACH OF TAX-EXEMPT PORTFOLIO, MUNICIPAL PORTFOLIO AND NEW YORK MUNICIPAL PORTFOLIO, NBMI HAS CONTRACTUALLY
          UNDERTAKEN TO FORGO AND/OR REIMBURSE ITS MANAGEMENT FEE IN THE AMOUNT OF 0.17% OF THAT PORTFOLIO'S AVERAGE NET
          ASSETS THROUGH  3/31/10. AS A RESULT OF THIS AGREEMENT, THE INVESTMENT MANAGEMENT FEE OF EACH PORTFOLIO WILL BE
          LIMITED TO 0.08% OF ITS AVERAGE NET ASSETS.

EXPENSE EXAMPLE

                             1 Year           3 Years
MONEY MARKET                 $26              $80
PRIME                        $26              $80
GOVERNMENT                   $26              $80
GOVERNMENT RESERVES          $26              $80
TREASURY                     $26              $80
TREASURY RESERVES            $26              $80
TAX-EXEMPT                   $26              $80
MUNICIPAL                    $26              $80
NEW YORK MUNICIPAL           $26              $80

FINANCIAL HIGHLIGHTS

When this prospectus was prepared, the Portfolios were new and had no financial highlights to report.

MANAGEMENT

PORTFOLIO MANAGERS

The Portfolio Managers of MONEY MARKET PORTFOLIO and PRIME PORTFOLIO are:

The Portfolio Managers of GOVERNMENT PORTFOLIO, GOVERNMENT RESERVES PORTFOLIO, TREASURY PORTFOLIO and TREASURY RESERVES PORTFOLIO are:

SCOTT F. RIECKE, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Riecke was a money market portfolio manager with Neuberger Berman.

The Portfolio Managers of MUNICIPAL PORTFOLIO, NEW YORK MUNICIPAL PORTFOLIO and
TAX-EXEMPT PORTFOLIO are:

INVESTMENT MANAGER

YOUR INVESTMENT

o ELIGIBLE ACCOUNTS

o PURCHASING SHARES

Every purchase order you place will be processed at the next share price calculated after your order has been accepted.

Portfolio investors whose payments are converted to "federal funds" before 6:00
p.m., Eastern time on the day of purchase, will accrue a dividend the same day.

PURCHASING SHARES BY TELEPHONE

Lehman Brothers Shareholder Service Group 605 Third Avenue 2nd Floor New York, NY 10158-0180

or faxing it to 781-796-3327. Upon approval of the application, you may purchase Cash Management Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade and wiring Federal Funds to the Fund immediately thereafter. (Investors must call Lehman Brothers Shareholder Service Group before effecting any purchase.) The Fund reserves the right to suspend the telephone order privilege.

Federal Funds should be wired to:

State Street Bank
ABA 011-000028
DDA 9905-710-1

Attn: Lehman Brothers Deposit Account
Ref: (Portfolio Name, Portfolio Number, Account Name
and Account Number)

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

PURCHASING SHARES BY INTERNET

you are responsible for transmitting payments for shares purchased via the Internet in a timely fashion as set forth within this prospectus.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY E-MAIL

Subject to appropriate agreement with the Fund's principal underwriter, the Fund may accept orders by e-mail.

REDEEMING SHARES

REDEEMING SHARES BY TELEPHONE

You may sell Cash Management Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade. Please provide your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. This option is not available if you have declined the telephone option. The Fund reserves the right to suspend the telephone order privilege.

REDEEMING SHARES BY FAX

REDEEMING SHARES THROUGH A FINANCIAL INTERMEDIARY

REDEEMING SHARES BY INTERNET

You may place a redemption order online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to redeeming shares online.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

GENERAL SHAREHOLDER INFORMATION

EXCHANGING SHARES. You can exchange a Portfolio's Cash Management Class Shares for Cash Management Class Shares of other available Portfolios of the Fund based on their respective NAVs (normally, $1 per share) at no additional cost. If you purchased Portfolio shares through a financial intermediary, certain Portfolios of the Fund may be unavailable for exchange. Contact your financial intermediary to determine which Portfolios are available for exchange.

To exchange shares, contact Lehman Brothers Shareholder Service Group at 888- 556-9030 if you purchased the shares directly. Otherwise, please contact your financial intermediary.

SHAREHOLDER SERVICING FEE

Each Portfolio has implemented a Shareholder Servicing Fee for each Portfolio's Cash Management Class shares to pay the Fund's shareholder servicing agent, NBMI, to provide for, or to compensate certain financial intermediaries (also

referred to as service organizations) for providing personal and account maintenance services and administrative services to shareholders. Under this arrangement, each Portfolio pays the Fund's shareholder servicing agent a monthly or quarterly servicing fee which shall not exceed during any one year 0.05% of each Portfolio's average daily net assets of Cash Management Class shares which are owned beneficially by the customers of such service organizations during such period.

OTHER PAYMENTS TO THIRD PARTIES

MEDALLION SIGNATURE GUARANTEES

You may need a Medallion signature guarantee when you sell shares directly or through a financial intermediary. A Medallion signature guarantee is a guarantee that your signature is authentic.

Most banks, brokers, and other financial institutions can provide you with one. Some may charge a fee; others may not, particularly if you are a customer of theirs.

A notarized signature from a notary public is not a Medallion signature guarantee.

INFORMATION REQUIRED FROM NEW ACCOUNTS

SHARE PRICES

Because Cash Management Class shares of each Portfolio do not have front-end sales charges, the price you pay for each share of a Portfolio is the net asset value per share. Similarly, because there are no fees for selling shares, a Portfolio pays you the full share price when you sell shares. Remember that your financial intermediary may charge fees for its services.

SHARE PRICE CALCULATIONS

DISTRIBUTIONS AND TAXES

TAXES AND YOU

For non-retirement plan account holders, the taxes you actually owe on distributions can vary with many factors, such as your tax bracket.

Most importantly, consult your tax professional. Everyone's tax situation is different, and your professional should be able to help you answer any questions you might have.

PORTFOLIO HOLDINGS POLICY

PORTFOLIO STRUCTURE

LEHMAN BROTHERS ASSET MANAGEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY SERIES

o No load
o No sales charges

If you would like further details on these Portfolios, you can request a free copy of the following documents:

Shareholder Reports. Published twice a year, the shareholder reports offer information about each Portfolio's recent performance, including:
o a discussion by the portfolio managers about strategies and market conditions that significantly affected the Portfolio's performance
o Portfolio performance data and financial statements
o portfolio holdings

Statement of Additional Information (SAI). The SAI contains more comprehensive information on each Portfolio, including:
o various types of securities and practices, and their risks
o investment limitations and additional policies
o information about each Portfolio's management and business structure

OBTAINING INFORMATION

LEHMAN BROTHERS
INSTITUTIONAL LIQUIDITY FUNDS

INSTITUTIONAL CLASS
Money Market Portfolio

Prime Portfolio

Government Portfolio

Government Reserves Portfolio

Treasury Portfolio

Treasury Reserves Portfolio

Tax-Exempt Portfolio

Municipal Portfolio

New York Municipal Portfolio

PROSPECTUS December 19, 2006

LEHMAN BROTHERS ASSET MANAGEMENT

CONTENTS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Summary of Portfolios.........................

Money Market Portfolio........................

Prime Portfolio...............................

Government Portfolio..........................

Government Reserves Portfolio.................

Treasury Portfolio............................

Treasury Reserves Portfolio...................

Tax-Exempt Portfolio..........................

Municipal Portfolio...........................

New York Municipal Portfolio..................

Investor Expenses.............................

Financial Highlights..........................

Management....................................

YOUR INVESTMENT

THESE PORTFOLIOS:
o require a minimum initial investment of $10 million

o offer you the opportunity to participate in financial markets through professionally managed money market portfolios

o are also money market sweep funds for certain eligible investors

o are mutual funds, not bank deposits, and are not guaranteed or insured by the FDIC or any other government agency

Please note that shares of each Portfolio may not be available in all states. Shares of each Portfolio are only available in states in which they are authorized for purchase.

SUMMARY OF PORTFOLIOS

MONEY MARKET PORTFOLIO          A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio invests in
                                corporate debt obligations, asset-backed
                                securities, variable rate obligations,
                                instruments issued or guaranteed by the U.S.
                                Government, its agencies or instrumentalities,
                                repurchase agreements and securities of U.S. and
                                foreign banks.

PRIME PORTFOLIO                 A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio primarily invests
                                in corporate debt obligations, asset-backed
                                securities, variable rate obligations,
                                instruments issued or guaranteed by the U.S.
                                Government, its agencies or instrumentalities,
                                repurchase agreements and securities of U.S.
                                banks and foreign branches of U.S. banks.

GOVERNMENT PORTFOLIO            A U.S. Government money market fund seeking
                                maximum safety and liquidity and the highest
                                available current income. The Portfolio invests
                                in securities issued or guaranteed as to
                                principal or interest by the U.S. Government,
                                its agencies and instrumentalities and
                                repurchase agreements relating to such
                                securities.

GOVERNMENT RESERVES PORTFOLIO   A U.S. Government money market fund seeking
                                maximum safety and liquidity and the highest
                                available current income. The Portfolio invests
                                in securities issued or guaranteed as to
                                principal or interest by the U.S. Government,
                                its agencies and instrumentalities.

TREASURY PORTFOLIO              A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio invests in direct
                                obligations of the U.S. Treasury, including
                                repurchase agreements relating to such
                                securities.

TREASURY RESERVES PORTFOLIO     A money market fund seeking the highest
                                available current income consistent with safety
                                and liquidity. The Portfolio invests in direct
                                obligations of the U.S. Treasury.

                                       1

TAX-EXEMPT PORTFOLIO            A money market fund seeking the highest
                                available current income that is exempt from
                                federal income tax and, to the extent possible,
                                is not a tax preference item for purposes of the
                                federal alternative minimum tax, consistent with
                                safety and liquidity. The Portfolio normally
                                invests at least 80% of its net assets in
                                high-quality, short-term municipal securities,
                                the interest on which is not a preference item
                                for federal alternative minimum tax purposes.

MUNICIPAL PORTFOLIO             A money market fund seeking the maximum current
                                income exempt from federal income tax,
                                consistent with safety and liquidity. The
                                Portfolio normally invests at least 80% of its
                                net assets in high-quality, short-term municipal
                                securities from issuers around the country. The
                                Portfolio's dividends are generally exempt from
                                federal income tax, but all or part thereof may
                                be a tax preference item for purposes of the
                                federal alternative minimum tax.

NEW YORK MUNICIPAL PORTFOLIO    A money market fund seeking the highest
                                available current income exempt from federal
                                income tax and New York State and New York City
                                personal income taxes that is consistent with
                                safety and liquidity. The Portfolio normally
                                invests at least 80% of its net assets in
                                high-quality, short-term municipal securities
                                that provide income that is exempt from those
                                taxes.

                                       2

MONEY MARKET PORTFOLIO                                    Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Institutional Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Neuberger Berman Institutional Cash Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows how the Neuberger Berman Institutional Cash Fund's performance has varied from year to year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year              %
-----------------------
2001            4.01
-----------------------
2002            1.64
-----------------------
2003            0.88
-----------------------
2004            1.09
-----------------------
2005            3.06
-----------------------

Best quarter: Q1 '01, 1.41% Worst quarter: Q3 '03 & Q1 '04, 0.19%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                           Since Inception
                        1 Year  5 Year         5/8/2000*
-------------------------------------------------------------
INSTITUTIONAL CASH       3.06    2.13            2.63
-------------------------------------------------------------

*Performance shown above is that of Neuberger Berman Institutional Cash Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Institutional Class of the Portfolio because it invests in the same master portfolio of securities. Because the Institutional Class of the Portfolio has moderately lower expenses, its performance typically would have been slightly better than that of Neuberger Berman Institutional Cash Fund. For the period from Neuberger Berman Institutional Cash Fund's inception through 2/9/2001, it was organized in a master-feeder structure. For the period from 2/10/2001 to 12/29/2004, Neuberger Berman Institutional Cash Fund was organized in a multiple class structure. As of 12/30/2004, the Fund was organized as a feeder fund in a master-feeder structure and responsibility for the day-to-day portfolio management of the Fund was transferred from Neuberger Berman Management Inc. to Lehman Brothers Asset Management Inc. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

PRIME PORTFOLIO Ticker Symbol: [_____]

Goal & Strategy

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Institutional Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Lehman Brothers Prime Money Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows the Lehman Brothers Prime Money Fund's performance for the last calendar year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year              %
-----------------------
2005            3.20
-----------------------

Best quarter: Q4 '05, 0.99% Worst quarter: Q1 '05, 0.58%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                     Since Inception
                        1 Year         12/27/2004*
-----------------------------------------------------
PRIME MONEY              3.20             3.20
-----------------------------------------------------

*Performance shown above is that of Lehman Brothers Prime Money Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Institutional Class of the Portfolio because it invests in the same master series of securities. Because the Lehman Brothers Prime Money Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Institutional Class of the Portfolio. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

GOVERNMENT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

GOVERNMENT RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"). The Portfolio may also invest in repurchase agreements, however, under normal circumstances it does not intend to do so. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

Performance could also be harmed if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury. The Portfolio seeks to maintain a stable $1.00 share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TAX-EXEMPT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

NEW YORK MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

INVESTOR EXPENSES

                                                              FEE TABLE
SHAREHOLDER FEES
----------------------------------------------------------------------------------------------------------------------
              MONEY                            GOVERNMENT                TREASURY     TAX-                  NEW YORK
              MARKET    PRIME    GOVERNMENT     RESERVES     TREASURY    RESERVES    EXEMPT    MUNICIPAL    MUNICIPAL
----------------------------------------------------------------------------------------------------------------------
FEES:         None      None       None           None         None         None      None       None          None
----------------------------------------------------------------------------------------------------------------------

ANNUAL OPERATING EXPENSES (% of average net assets)* These are deducted from Portfolio assets, so you pay them indirectly.

                                            FEE TABLE
SHAREHOLDER FEES
----------------------------------------------------------------------------------------------------------------------
              MONEY                            GOVERNMENT                TREASURY     TAX-                  NEW YORK
              MARKET    PRIME    GOVERNMENT     RESERVES     TREASURY    RESERVES    EXEMPT    MUNICIPAL    MUNICIPAL
----------------------------------------------------------------------------------------------------------------------
Management    0.18      0.18       0.18           0.18         0.18         0.18      0.35       0.35          0.35
fees**
----------------------------------------------------------------------------------------------------------------------
Distribution  None      None       None           None         None         None      None       None          None
(12b-1) fees
----------------------------------------------------------------------------------------------------------------------
Other         0.35      0.32       0.62           0.62         0.56         0.56      0.56       0.62          0.56
expenses***
----------------------------------------------------------------------------------------------------------------------
Total annual  0.53      0.50       0.80           0.80         0.74         0.74      0.91       0.97          0.91
operating
expenses
----------------------------------------------------------------------------------------------------------------------
MINUS:        0.33      0.30       0.60           0.60         0.54         0.54      0.71       0.77          0.71
Expense
Reimbursement
or Waiver
----------------------------------------------------------------------------------------------------------------------
Net           0.20      0.20       0.20           0.20         0.20         0.20      0.20@      0.20@         0.20@
expenses****
----------------------------------------------------------------------------------------------------------------------

     *    THE TABLE INCLUDES COSTS PAID BY THE PORTFOLIO AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE INFORMATION ON
          MASTER-FEEDER FUNDS, SEE "PORTFOLIO STRUCTURE" ON PAGE 45. EXPENSES.

     **   "MANAGEMENT FEES" INCLUDES INVESTMENT MANAGEMENT AND ADMINISTRATION FEES.

     ***  "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.

     **** NEUBERGER BERMAN MANAGEMENT INC. (NBMI) HAS CONTRACTUALLY AGREED TO FORGO CURRENT PAYMENT OF FEES AND/OR REIMBURSE
          CERTAIN EXPENSES OF THE INSTITUTIONAL CLASS OF EACH PORTFOLIO THROUGH 3/31/2010, SO THAT THE TOTAL ANNUAL OPERATING
          EXPENSES OF THE INSTITUTIONAL CLASS OF EACH PORTFOLIO ARE LIMITED TO 0.20 % OF ITS AVERAGE NET ASSETS. THIS
          ARRANGEMENT DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES. EACH PORTFOLIO HAS
          AGREED THAT ITS INSTITUTIONAL CLASS WILL REPAY NBMI FOR FEES AND EXPENSES FOREGONE OR REIMBURSED FOR THAT CLASS
          PROVIDED THAT REPAYMENT DOES NOT CAUSE THE ANNUAL OPERATING EXPENSES OF THAT CLASS OF THE PORTFOLIO TO EXCEED 0.20%
          OF ITS AVERAGE NET ASSETS. ANY SUCH REPAYMENT MUST BE MADE WITHIN THREE YEARS AFTER THE YEAR IN WHICH NBMI INCURRED
          THE EXPENSE.

     @    FOR EACH OF TAX-EXEMPT PORTFOLIO, MUNICIPAL PORTFOLIO AND NEW YORK MUNICIPAL PORTFOLIO, NBMI HAS CONTRACTUALLY
          UNDERTAKEN TO FORGO AND/OR REIMBURSE ITS MANAGEMENT FEE IN THE AMOUNT OF 0.17% OF THAT PORTFOLIO'S AVERAGE NET
          ASSETS THROUGH  3/31/10. AS A RESULT OF THIS AGREEMENT, THE INVESTMENT MANAGEMENT FEE OF EACH PORTFOLIO WILL BE
          LIMITED TO 0.08% OF ITS AVERAGE NET ASSETS.

EXPENSE EXAMPLE

                          1 Year       3 Years
MONEY MARKET              $20          $64

PRIME                     $20          $64

GOVERNMENT                $20          $64

GOVERNMENT RESERVES       $20          $64

TREASURY                  $20          $64

TREASURY RESERVES         $20          $64

TAX-EXEMPT                $20          $64

MUNICIPAL                 $20          $64

NEW YORK MUNICIPAL        $20          $64

FINANCIAL HIGHLIGHTS

When this prospectus was prepared, the Portfolios were new and had no financial highlights to report.

MANAGEMENT

PORTFOLIO MANAGERS

The Portfolio Managers of MONEY MARKET PORTFOLIO and PRIME PORTFOLIO are:

The Portfolio Managers of GOVERNMENT PORTFOLIO, GOVERNMENT RESERVES PORTFOLIO, TREASURY PORTFOLIO and TREASURY RESERVES PORTFOLIO are:

SCOTT F. RIECKE, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Riecke was a money market portfolio manager with Neuberger Berman.

The Portfolio Managers of MUNICIPAL PORTFOLIO, NEW YORK MUNICIPAL PORTFOLIO and
TAX-EXEMPT PORTFOLIO are:

INVESTMENT MANAGER

YOUR INVESTMENT

o ELIGIBLE ACCOUNTS

o PURCHASING SHARES

Every purchase order you place will be processed at the next share price calculated after your order has been accepted.

Portfolio investors whose payments are converted to "federal funds" before 6:00
p.m., Eastern time on the day of purchase, will accrue a dividend the same day.

PURCHASING SHARES BY TELEPHONE

Lehman Brothers Shareholder Service Group 605 Third Avenue 2nd Floor New York, NY 10158-0180

or faxing it to 781-796-3327. Upon approval of the application, you may purchase Institutional Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade and wiring Federal Funds to the Fund immediately thereafter. (Investors must call Lehman Brothers Shareholder Service Group before effecting any purchase.) The Fund reserves the right to suspend the telephone order privilege.

Federal Funds should be wired to:

State Street Bank
ABA 011-000028
DDA 9905-710-1

Attn: Lehman Brothers Deposit Account
Ref: (Portfolio Name, Portfolio Number, Account Name
and Account Number)

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

PURCHASING SHARES BY INTERNET

you are responsible for transmitting payments for shares purchased via the Internet in a timely fashion as set forth within this prospectus.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY E-MAIL

Subject to appropriate agreement with the Fund's principal underwriter, the Fund may accept orders by e-mail.

REDEEMING SHARES

REDEEMING SHARES BY TELEPHONE

You may sell Institutional Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade. Please provide your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. This option is not available if you have declined the telephone option. The Fund reserves the right to suspend the telephone order privilege.

REDEEMING SHARES BY FAX

REDEEMING SHARES THROUGH A FINANCIAL INTERMEDIARY

REDEEMING SHARES BY INTERNET

You may place a redemption order online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to redeeming shares online.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

GENERAL SHAREHOLDER INFORMATION

EXCHANGING SHARES. You can exchange a Portfolio's Institutional Class Shares for Institutional Class Shares of other available Portfolios of the Fund based on their respective NAVs (normally, $1 per share) at no additional cost. If you purchased Portfolio shares through a financial intermediary, certain Portfolios of the Fund may be unavailable for exchange. Contact your financial intermediary to determine which Portfolios are available for exchange.

To exchange shares, contact Lehman Brothers Shareholder Service Group at 888- 556-9030 if you purchased the shares directly. Otherwise, please contact your financial intermediary.

OTHER PAYMENTS TO THIRD PARTIES

MEDALLION SIGNATURE GUARANTEES

You may need a Medallion signature guarantee when you sell shares directly or through a financial intermediary. A Medallion signature guarantee is a guarantee that your signature is authentic.

Most banks, brokers, and other financial institutions can provide you with one. Some may charge a fee; others may not, particularly if you are a customer of theirs.

A notarized signature from a notary public is not a Medallion signature guarantee.

INFORMATION REQUIRED FROM NEW ACCOUNTS

SHARE PRICES

Because Institutional Class shares of each Portfolio do not have front-end sales charges, the price you pay for each share of a Portfolio is the net asset value per share. Similarly, because there are no fees for selling shares, a Portfolio pays you the full share price when you sell shares. Remember that your financial intermediary may charge fees for its services.

SHARE PRICE CALCULATIONS

DISTRIBUTIONS AND TAXES

TAXES AND YOU

For non-retirement plan account holders, the taxes you actually owe on distributions can vary with many factors, such as your tax bracket.

Most importantly, consult your tax professional. Everyone's tax situation is different, and your professional should be able to help you answer any questions you might have.

PORTFOLIO HOLDINGS POLICY

PORTFOLIO STRUCTURE

LEHMAN BROTHERS ASSET MANAGEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY SERIES

o No load
o No sales charges

If you would like further details on these Portfolios, you can request a free copy of the following documents:

OBTAINING INFORMATION

LEHMAN BROTHERS
INSTITUTIONAL LIQUIDITY FUNDS

PREMIER CLASS
Money Market Portfolio

Prime Portfolio

Government Portfolio

Government Reserves Portfolio

Treasury Portfolio

Treasury Reserves Portfolio

Tax-Exempt Portfolio

Municipal Portfolio

New York Municipal Portfolio

PROSPECTUS December 19, 2006

LEHMAN BROTHERS ASSET MANAGEMENT

CONTENTS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Summary of Portfolios.........................

Money Market Portfolio........................

Prime Portfolio...............................

Government Portfolio..........................

Government Reserves Portfolio.................

Treasury Portfolio............................

Treasury Reserves Portfolio...................

Tax-Exempt Portfolio..........................

Municipal Portfolio...........................

New York Municipal Portfolio..................

Investor Expenses.............................

Financial Highlights..........................

Management....................................

YOUR INVESTMENT

THESE PORTFOLIOS:
o require a minimum initial investment of $10 million

o offer you the opportunity to participate in financial markets through professionally managed money market portfolios

o are also money market sweep funds for certain eligible investors

o are mutual funds, not bank deposits, and are not guaranteed or insured by the FDIC or any other government agency

Please note that shares of each Portfolio may not be available in all states. Shares of each Portfolio are only available in states in which they are authorized for purchase.

SUMMARY OF PORTFOLIOS

MONEY MARKET PORTFOLIO        A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity. The Portfolio invests in corporate debt
                              obligations,   asset-backed  securities,  variable
                              rate obligations, instruments issued or guaranteed
                              by  the   U.S.   Government,   its   agencies   or
                              instrumentalities,   repurchase   agreements   and
                              securities of U.S. and foreign banks.

PRIME PORTFOLIO               A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.  The  Portfolio  primarily  invests  in
                              corporate    debt    obligations,     asset-backed
                              securities, variable rate obligations, instruments
                              issued or guaranteed by the U.S.  Government,  its
                              agencies    or    instrumentalities,    repurchase
                              agreements   and  securities  of  U.S.  banks  and
                              foreign branches of U.S. banks.

GOVERNMENT PORTFOLIO          A  U.S.   Government  money  market  fund  seeking
                              maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities    and   repurchase   agreements
                              relating to such securities.

GOVERNMENT RESERVES           A  U.S.   Government  money  market  fund  seeking
PORTFOLIO                     maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities.

TREASURY PORTFOLIO            A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.   The   Portfolio   invests  in  direct

obligations of the U.S. Treasury, including repurchase agreements relating to such securities.

TREASURY RESERVES PORTFOLIO A money market fund seeking the highest available current income consistent with safety and liquidity. The Portfolio invests in direct obligations of the U.S. Treasury.

MONEY MARKET PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Premier Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Neuberger Berman Institutional Cash Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows how the Neuberger Berman Institutional Cash Fund's performance has varied from year to year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year %

2001 4.01
2002 1.64
2003 0.88
2004 1.09
2005 3.06
Best quarter: Q1 '01, 1.41% Worst quarter: Q3 '03 & Q1 '04, 0.19%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                                    Since Inception
                          1 Year       5 Year          5/8/2000*
---------------------------------------------------------------------
Institutional Cash         3.06         2.13             2.63
---------------------------------------------------------------------

*Performance shown above is that of Neuberger Berman Institutional Cash Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Premier Class of the Portfolio because it invests in the same master portfolio of securities. Because the Neuberger Berman Institutional Cash Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Premier Class of the Portfolio. For the period from Neuberger Berman Institutional Cash Fund's inception through 2/9/2001, it was organized in a master-feeder structure. For the period from 2/10/2001 to 12/29/2004, Neuberger Berman Institutional Cash Fund was organized in a multiple class structure. As of 12/30/2004, the Fund was organized as a feeder fund in a master-feeder structure and responsibility for the day-to-day portfolio management of the Fund was transferred from Neuberger Berman Management Inc. to Lehman Brothers Asset Management Inc. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

PRIME PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Premier Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Lehman Brothers Prime Money Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows the Lehman Brothers Prime Money Fund's performance for the last calendar year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year %

2005 3.20
Best quarter: Q4 '05, 0.99%Worst quarter: Q1 '05, 0.58%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                    Since Inception
                     1 Year           12/27/2004*
------------------------------------------------------
PRIME MONEY           3.20               3.20
------------------------------------------------------

*Performance shown above is that of Lehman Brothers Prime Money Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Premier Class of the Portfolio because it invests in the same master series of securities. Because the Lehman Brothers Prime Money Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Premier Class of the Portfolio. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

GOVERNMENT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

GOVERNMENT RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"). The Portfolio may also invest in repurchase agreements, however, under normal circumstances it does not intend to do so. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCe

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

The Portfolio seeks the highest available current income consistent with safety and liquidity.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

Performance could also be harmed if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury. The Portfolio seeks to maintain a stable $1.00 share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TAX-EXEMPT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

MUNICIPAL PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

NEW YORK MUNICIPAL PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

INVESTOR EXPENSES

                                                              FEE TABLE
SHAREHOLDER FEES

------------------------------------------------------------------------------------------------------------------------------------
                  MONEY                             GOVERNMENT                  TREASURY      TAX-                     NEW YORK
                  MARKET       PRIME    GOVERNMENT   RESERVES       TREASURY    RESERVES     EXEMPT     MUNICIPAL      MUNICIPAL
------------------------------------------------------------------------------------------------------------------------------------
Fees:             None         None        None        None           None        None        None        None            None
------------------------------------------------------------------------------------------------------------------------------------

ANNUAL OPERATING EXPENSES (% of average net assets)* These are deducted from Portfolio assets, so you pay them indirectly.

------------------------------------------------------------------------------------------------------------------------------------
                  MONEY                             GOVERNMENT                  TREASURY      TAX-                     NEW YORK
                  MARKET       PRIME    GOVERNMENT   RESERVES       TREASURY    RESERVES     EXEMPT     MUNICIPAL      MUNICIPAL
------------------------------------------------------------------------------------------------------------------------------------
Management        0.18         0.18        0.18        0.18           0.18        0.18        0.35        0.35            0.35
fees**
------------------------------------------------------------------------------------------------------------------------------------
Distribution      0.25         0.25        0.25        0.25           0.25        0.25        0.25        0.25            0.25
(12b-1) fees
------------------------------------------------------------------------------------------------------------------------------------
Other             0.60         0.57        0.87        0.87           0.81        0.81        0.81        0.87            0.81
expenses***
------------------------------------------------------------------------------------------------------------------------------------
Total annual      1.03         1.00        1.30        1.30           1.24        1.24        1.41        1.47            1.41
operating
expenses
------------------------------------------------------------------------------------------------------------------------------------
MINUS:            0.33         0.30        0.60        0.60           0.54        0.54        0.71        0.77            0.71
Expense
Reimbursement
or Waiver
------------------------------------------------------------------------------------------------------------------------------------
Net               0.70         0.70        0.70        0.70           0.70        0.70        0.70@       0.70@           0.70@
expenses****
------------------------------------------------------------------------------------------------------------------------------------

     *    THE TABLE INCLUDES COSTS PAID BY THE PORTFOLIO AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE INFORMATION ON
          MASTER-FEEDER FUNDS, SEE "PORTFOLIO STRUCTURE" ON PAGE 45.

     **   "MANAGEMENT FEES" INCLUDES INVESTMENT MANAGEMENT AND ADMINISTRATION FEES.

     ***  "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. "OTHER EXPENSES" INCLUDES A 0.25%
          SHAREHOLDER SERVICING FEE.

     **** NEUBERGER BERMAN MANAGEMENT INC. (NBMI) HAS CONTRACTUALLY AGREED TO FORGO CURRENT PAYMENT OF FEES AND/OR REIMBURSE
          CERTAIN EXPENSES OF THE PREMIER CLASS OF EACH PORTFOLIO THROUGH 3/31/2010, SO THAT THE TOTAL ANNUAL OPERATING
          EXPENSES OF THE PREMIER CLASS OF EACH PORTFOLIO ARE LIMITED TO 0.70 % OF ITS AVERAGE NET ASSETS. THIS ARRANGEMENT
          DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES. EACH PORTFOLIO HAS AGREED THAT
          ITS PREMIER CLASS WILL REPAY NBMI FOR FEES AND EXPENSES FOREGONE OR REIMBURSED FOR THAT CLASS PROVIDED THAT
          REPAYMENT DOES NOT CAUSE THE ANNUAL OPERATING EXPENSES OF THAT CLASS OF THE PORTFOLIO TO EXCEED 0.70% OF ITS
          AVERAGE NET ASSETS. ANY SUCH REPAYMENT MUST BE MADE WITHIN THREE YEARS AFTER THE YEAR IN WHICH NBMI INCURRED THE
          EXPENSE.

     @    FOR EACH OF TAX-EXEMPT PORTFOLIO, MUNICIPAL PORTFOLIO AND NEW YORK MUNICIPAL PORTFOLIO, NBMI HAS CONTRACTUALLY
          UNDERTAKEN TO FORGO AND/OR REIMBURSE ITS MANAGEMENT FEE IN THE AMOUNT OF 0.17% OF THAT PORTFOLIO'S AVERAGE NET
          ASSETS THROUGH  3/31/10. AS A RESULT OF THIS AGREEMENT, THE INVESTMENT MANAGEMENT FEE OF EACH PORTFOLIO WILL BE
          LIMITED TO 0.08% OF ITS AVERAGE NET ASSETS.

EXPENSE EXAMPLE

                          1 Year         3 Years
MONEY MARKET              $72            $224

PRIME                     $72            $224

GOVERNMENT                $72            $224

GOVERNMENT RESERVES       $72            $224

TREASURY                  $72            $224

TREASURY RESERVES         $72            $224

TAX-EXEMPT                $72            $224

MUNICIPAL                 $72            $224

NEW YORK MUNICIPAL        $72            $224

FINANCIAL HIGHLIGHTS

When this prospectus was prepared, the Portfolios were new and had no financial highlights to report.

MANAGEMENT

PORTFOLIO MANAGERS

The Portfolio Managers of MONEY MARKET PORTFOLIO and PRIME PORTFOLIO are:

The Portfolio Managers of GOVERNMENT PORTFOLIO, GOVERNMENT RESERVES PORTFOLIO, TREASURY PORTFOLIO and TREASURY RESERVES PORTFOLIO are:

SCOTT F. RIECKE, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Riecke was a money market portfolio manager with Neuberger Berman.

The Portfolio Managers of MUNICIPAL PORTFOLIO, NEW YORK MUNICIPAL PORTFOLIO and
TAX-EXEMPT PORTFOLIO are:

INVESTMENT MANAGER

YOUR INVESTMENT

o ELIGIBLE ACCOUNTS

Shares of the Government, Government Reserves, Treasury and Treasury Reserves Portfolio are intended to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit Union Act and the National Credit Union Administration. Shares of these portfolios, however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether these Portfolios are permissible investments under the law applicable to it.

o PURCHASING SHARES

Every purchase order you place will be processed at the next share price calculated after your order has been accepted.

Portfolio investors whose payments are converted to "federal funds" before 6:00
p.m., Eastern time on the day of purchase, will accrue a dividend the same day.

PURCHASING SHARES BY TELEPHONE

Lehman Brothers Shareholder Service Group 605 Third Avenue 2nd Floor New York, NY 10158-0180

or faxing it to 781-796-3327. Upon approval of the application, you may purchase Premier Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade and wiring Federal Funds to the Fund immediately thereafter. (Investors must call Lehman Brothers Shareholder Service Group before effecting any purchase.) The Fund reserves the right to suspend the telephone order privilege.

Federal Funds should be wired to:

State Street Bank
ABA 011-000028
DDA 9905-710-1

Attn: Lehman Brothers Deposit Account
Ref: (Portfolio Name, Portfolio Number, Account Name
and Account Number)

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

PURCHASING SHARES BY INTERNET

you are responsible for transmitting payments for shares purchased via the Internet in a timely fashion as set forth within this prospectus.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY E-MAIL

Subject to appropriate agreement with the Fund's principal underwriter, the Fund may accept orders by e-mail.

REDEEMING SHARES

REDEEMING SHARES BY TELEPHONE

You may sell Premier Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade. Please provide your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. This option is not available if you have declined the telephone option. The Fund reserves the right to suspend the telephone order privilege.

REDEEMING SHARES BY FAX

REDEEMING SHARES THROUGH A FINANCIAL INTERMEDIARY

REDEEMING SHARES BY INTERNET

You may place a redemption order online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to redeeming shares online.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

GENERAL SHAREHOLDER INFORMATION

EXCHANGING SHARES. You can exchange a Portfolio's Premier Class Shares for Premier Class Shares of other available Portfolios of the Fund based on their respective NAVs (normally, $1 per share) at no additional cost. If you purchased Portfolio shares through a financial intermediary, certain Portfolios of the Fund may be unavailable for exchange. Contact your financial intermediary to determine which Portfolios are available for exchange.

To exchange shares, contact Lehman Brothers Shareholder Service Group at 888- 556-9030 if you purchased the shares directly. Otherwise, please contact your financial intermediary.

DISTRIBUTION AND SERVICE FEE

Each Portfolio has adopted a Distribution and Services Plan on behalf of the Premier Class pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Premier Class of each Portfolio pays the Portfolio's distributor, NBMI, a maximum of 0.25% of the average net assets of the Portfolio's Premier Class each year to compensate financial intermediaries (also referred to as service organizations) for providing distribution-related services to the Portfolio and/or administrative or shareholder services to Portfolio shareholders. NBMI also may retain part of this fee as compensation for providing these services.

These fees increase the cost of investment. Over the long term, they could result in higher overall costs than other types of sales charges.

SHAREHOLDER SERVICING FEE

Each Portfolio has also implemented a Shareholder Servicing Fee for its Premier Class shares to pay the Fund's shareholder servicing agent, NBMI, to provide for, or to compensate certain financial intermediaries (also referred to as service organizations) for providing personal and account maintenance services and administrative services to shareholders. Under this arrangement, each Portfolio pays the Fund's shareholder servicing agent a monthly or quarterly servicing fee which shall not exceed during any one year 0.25% of each Portfolio's average daily net assets of Premier Class shares which are owned beneficially by the customers of such service organizations during such period.

OTHER PAYMENTS TO THIRD PARTIES

MEDALLION SIGNATURE GUARANTEES

You may need a Medallion signature guarantee when you sell shares directly or through a financial intermediary. A Medallion signature guarantee is a guarantee that your signature is authentic.

Most banks, brokers, and other financial institutions can provide you with one. Some may charge a fee; others may not, particularly if you are a customer of theirs.

A notarized signature from a notary public is not a Medallion signature guarantee.

INFORMATION REQUIRED FROM NEW ACCOUNTS

supply to us or if it is incomplete, we may be required to return your funds or redeem your account.

SHARE PRICES

Because Premier Class shares of each Portfolio do not have front-end sales charges, the price you pay for each share of a Portfolio is the net asset value per share. Similarly, because there are no fees for selling shares, a Portfolio pays you the full share price when you sell shares. Remember that your financial intermediary may charge fees for its services.

SHARE PRICE CALCULATIONS

DISTRIBUTIONS AND TAXES

TAXES AND YOU

For non-retirement plan account holders, the taxes you actually owe on distributions can vary with many factors, such as your tax bracket.

Most importantly, consult your tax professional. Everyone's tax situation is different, and your professional should be able to help you answer any questions you might have.

PORTFOLIO HOLDINGS POLICY

PORTFOLIO STRUCTURE

LEHMAN BROTHERS ASSET MANAGEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY SERIES

o No load
o No front-end sales charges

If you would like further details on these Portfolios, you can request a free copy of the following documents:

OBTAINING INFORMATION

LEHMAN BROTHERS
INSTITUTIONAL LIQUIDITY FUNDS

SELECT CLASS
Money Market Portfolio

Prime Portfolio

Government Portfolio

Government Reserves Portfolio

Treasury Portfolio

Treasury Reserves Portfolio

Tax-Exempt Portfolio

Municipal Portfolio

New York Municipal Portfolio

PROSPECTUS December 19, 2006

LEHMAN BROTHERS ASSET MANAGEMENT

CONTENTS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Summary of Portfolios.........................

Money Market Portfolio........................

Prime Portfolio...............................

Government Portfolio..........................

Government Reserves Portfolio.................

Treasury Portfolio............................

Treasury Reserves Portfolio...................

Tax-Exempt Portfolio..........................

Municipal Portfolio...........................

New York Municipal Portfolio..................

Investor Expenses.............................

Financial Highlights..........................

Management....................................

YOUR INVESTMENT

THESE PORTFOLIOS:
o require a minimum initial investment of $10 million

o offer you the opportunity to participate in financial markets through professionally managed money market portfolios

o are also money market sweep funds for certain eligible investors

o are mutual funds, not bank deposits, and are not guaranteed or insured by the FDIC or any other government agency

Please note that shares of each Portfolio may not be available in all states. Shares of each Portfolio are only available in states in which they are authorized for purchase.

SUMMARY OF PORTFOLIOS

MONEY MARKET PORTFOLIO        A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity. The Portfolio invests in corporate debt
                              obligations,   asset-backed  securities,  variable
                              rate obligations, instruments issued or guaranteed
                              by  the   U.S.   Government,   its   agencies   or
                              instrumentalities,   repurchase   agreements   and
                              securities of U.S. and foreign banks.

PRIME  PORTFOLIO              A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.  The  Portfolio  primarily  invests  in
                              corporate    debt    obligations,     asset-backed
                              securities, variable rate obligations, instruments
                              issued or guaranteed by the U.S.  Government,  its
                              agencies    or    instrumentalities,    repurchase
                              agreements   and  securities  of  U.S.  banks  and
                              foreign branches of U.S. banks.

GOVERNMENT PORTFOLIO          A  U.S.   Government  money  market  fund  seeking
                              maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities    and   repurchase   agreements
                              relating to such securities.

GOVERNMENT RESERVES           A  U.S.   Government  money  market  fund  seeking
PORTFOLIO                     maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities.

TREASURY PORTFOLIO            A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.   The   Portfolio   invests  in  direct

obligations of the U.S. Treasury, including repurchase agreements relating to such securities.

TREASURY RESERVES PORTFOLIO A money market fund seeking the highest available current income consistent with safety and liquidity. The Portfolio invests in direct obligations of the U.S. Treasury.

MONEY MARKET PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Select Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Neuberger Berman Institutional Cash Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows how the Neuberger Berman Institutional Cash Fund's performance has varied from year to year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year %

2001 4.01
2002 1.64
2003 0.88
2004 1.09
2005 3.06
Best quarter: Q1 '01, 1.41% Worst quarter: Q3 '03 & Q1 '04, 0.19%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                                Since Inception
                          1 Year     5 Year        5/8/2000*
----------------------------------------------------------------
Institutional Cash         3.06       2.13           2.63
----------------------------------------------------------------

*Performance shown above is that of Neuberger Berman Institutional Cash Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Select Class of the Portfolio because it invests in the same master portfolio of securities. Because the Neuberger Berman Institutional Cash Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Select Class of the Portfolio. For the period from Neuberger Berman Institutional Cash Fund's inception through 2/9/2001, it was organized in a master-feeder structure. For the period from 2/10/2001 to 12/29/2004, Neuberger Berman Institutional Cash Fund was organized in a multiple class structure. As of 12/30/2004, the Fund was organized as a feeder fund in a master-feeder structure and responsibility for the day-to-day portfolio management of the Fund was transferred from Neuberger Berman Management Inc. to Lehman Brothers Asset Management Inc. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

PRIME PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Select Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Lehman Brothers Prime Money Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows the Lehman Brothers Prime Money Fund's performance for the last calendar year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year %

2005 3.20
Best quarter: Q4 '05, 0.99%Worst quarter: Q1 '05, 0.58%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                    Since Inception
                        1 Year        12/27/2004*
----------------------------------------------------
Prime Money              3.20            3.20
----------------------------------------------------

*Performance shown above is that of Lehman Brothers Prime Money Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Select Class of the Portfolio because it invests in the same master series of securities. Because the Lehman Brothers Prime Money Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Select Class of the Portfolio. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

GOVERNMENT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

GOVERNMENT RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"). The Portfolio may also invest in repurchase agreements, however, under normal circumstances it does not intend to do so. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

Performance could also be harmed if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury. The Portfolio seeks to maintain a stable $1.00 share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TAX-EXEMPT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

MUNICIPAL PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

NEW YORK MUNICIPAL PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

INVESTOR EXPENSES

                                                              FEE TABLE
SHAREHOLDER FEES
------------------------------------------------------------------------------------------------------------------------------------
                  MONEY                             GOVERNMENT                  TREASURY      TAX-                     NEW YORK
                  MARKET       PRIME    GOVERNMENT   RESERVES       TREASURY    RESERVES     EXEMPT     MUNICIPAL      MUNICIPAL
------------------------------------------------------------------------------------------------------------------------------------
Fees:             None         None        None        None           None        None        None        None            None
------------------------------------------------------------------------------------------------------------------------------------

ANNUAL OPERATING EXPENSES (% of average net assets)* These are deducted from Portfolio assets, so you pay them indirectly.

------------------------------------------------------------------------------------------------------------------------------------
                  MONEY                             GOVERNMENT                  TREASURY      TAX-                     NEW YORK
                  MARKET       PRIME    GOVERNMENT   RESERVES       TREASURY    RESERVES     EXEMPT     MUNICIPAL      MUNICIPAL
------------------------------------------------------------------------------------------------------------------------------------
Management         0.18        0.18        0.18        0.18           0.18       0.18        0.35        0.35            0.35
fees**
------------------------------------------------------------------------------------------------------------------------------------
Distribution       None        None        None        None           None        None        None        None            None
(12b-1) fees
-----------------------------------------------------------------------------------------------------------------------------------
Other              0.50        0.47        0.77        0.77           0.71        0.71        0.71        0.77            0.71
expenses***
-----------------------------------------------------------------------------------------------------------------------------------
Total annual       0.68        0.65        0.95        0.95           0.89        0.89        1.06        1.12            1.06
operating
expenses
-----------------------------------------------------------------------------------------------------------------------------------
MINUS:             0.33        0.30        0.60        0.60           0.54        0.54        0.71        0.77            0.71
Expense
Reimbursement
or Waiver
-----------------------------------------------------------------------------------------------------------------------------------
Net                0.35        0.35        0.35        0.35           0.35        0.35        0.35@       0.35@           0.35@
expenses****
------------------------------------------------------------------------------------------------------------------------------------

     *    THE TABLE INCLUDES COSTS PAID BY THE PORTFOLIO AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE INFORMATION ON
          MASTER-FEEDER FUNDS, SEE "PORTFOLIO STRUCTURE" ON PAGE 46.

     **   "MANAGEMENT FEES" INCLUDES INVESTMENT MANAGEMENT AND ADMINISTRATION FEES.

     ***  "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. "OTHER EXPENSES" INCLUDES A 0.15%
          SHAREHOLDER SERVICING FEE.

     **** NEUBERGER BERMAN MANAGEMENT INC. (NBMI) HAS CONTRACTUALLY AGREED TO FORGO CURRENT PAYMENT OF FEES AND/OR REIMBURSE
          CERTAIN EXPENSES OF THE SELECT CLASS OF EACH PORTFOLIO THROUGH 3/31/2010, SO THAT THE TOTAL ANNUAL OPERATING
          EXPENSES OF THE SELECT CLASS OF EACH PORTFOLIO ARE LIMITED TO 0.35 % OF ITS AVERAGE NET ASSETS. THIS ARRANGEMENT
          DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES. EACH PORTFOLIO HAS AGREED THAT
          ITS SELECT CLASS WILL REPAY NBMI FOR FEES AND EXPENSES FOREGONE OR REIMBURSED FOR THAT CLASS PROVIDED THAT
          REPAYMENT DOES NOT CAUSE THE ANNUAL OPERATING EXPENSES OF THAT CLASS OF THE PORTFOLIO TO EXCEED 0.35% OF ITS
          AVERAGE NET ASSETS. ANY SUCH REPAYMENT MUST BE MADE WITHIN THREE YEARS AFTER THE YEAR IN WHICH NBMI INCURRED THE
          EXPENSE.

     @    FOR EACH OF TAX-EXEMPT PORTFOLIO, MUNICIPAL PORTFOLIO AND NEW YORK MUNICIPAL PORTFOLIO, NBMI HAS CONTRACTUALLY
          UNDERTAKEN TO FORGO AND/OR REIMBURSE ITS MANAGEMENT FEE IN THE AMOUNT OF 0.17% OF THAT PORTFOLIO'S AVERAGE NET
          ASSETS THROUGH  3/31/10. AS A RESULT OF THIS AGREEMENT, THE INVESTMENT MANAGEMENT FEE OF EACH PORTFOLIO WILL BE
          LIMITED TO 0.08% OF ITS AVERAGE NET ASSETS.

EXPENSE EXAMPLE

                         1 Year       3 Years
MONEY MARKET             $36          $113
PRIME                    $36          $113
GOVERNMENT               $36          $113
GOVERNMENT RESERVES      $36          $113
TREASURY                 $36          $113
TREASURY RESERVES        $36          $113
TAX-EXEMPT               $36          $113
MUNICIPAL                $36          $113
NEW YORK MUNICIPAL       $36          $113

FINANCIAL HIGHLIGHTS

When this prospectus was prepared, the Portfolios were new and had no financial highlights to report.

MANAGEMENT

PORTFOLIO MANAGERS

The Portfolio Managers of MONEY MARKET PORTFOLIO and PRIME PORTFOLIO are:

The Portfolio Managers of GOVERNMENT PORTFOLIO, GOVERNMENT RESERVES PORTFOLIO, TREASURY PORTFOLIO and TREASURY RESERVES PORTFOLIO are:

SCOTT F. RIECKE, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Riecke was a money market portfolio manager with Neuberger Berman.

The Portfolio Managers of MUNICIPAL PORTFOLIO, NEW YORK MUNICIPAL PORTFOLIO and
TAX-EXEMPT PORTFOLIO are:

INVESTMENT MANAGER

YOUR INVESTMENT

o ELIGIBLE ACCOUNTS

o PURCHASING SHARES

Every purchase order you place will be processed at the next share price calculated after your order has been accepted.

Portfolio investors whose payments are converted to "federal funds" before 6:00
p.m., Eastern time on the day of purchase, will accrue a dividend the same day.

PURCHASING SHARES BY TELEPHONE

Lehman Brothers Shareholder Service Group 605 Third Avenue 2nd Floor New York, NY 10158-0180

or faxing it to 781-796-3327. Upon approval of the application, you may purchase Select Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade and wiring Federal Funds to the Fund immediately thereafter. (Investors must call Lehman Brothers Shareholder Service Group before effecting any purchase.) The Fund reserves the right to suspend the telephone order privilege.

Federal Funds should be wired to:

State Street Bank
ABA 011-000028
DDA 9905-710-1

Attn: Lehman Brothers Deposit Account
Ref: (Portfolio Name, Portfolio Number, Account Name
and Account Number)

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

PURCHASING SHARES BY INTERNET

you are responsible for transmitting payments for shares purchased via the Internet in a timely fashion as set forth within this prospectus.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY E-MAIL

Subject to appropriate agreement with the Fund's principal underwriter, the Fund may accept orders by e-mail.

REDEEMING SHARES

REDEEMING SHARES BY TELEPHONE

You may sell Select Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade. Please provide your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. This option is not available if you have declined the telephone option. The Fund reserves the right to suspend the telephone order privilege.

REDEEMING SHARES BY FAX

REDEEMING SHARES THROUGH A FINANCIAL INTERMEDIARY

REDEEMING SHARES BY INTERNET

You may place a redemption order online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to redeeming shares online.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

GENERAL SHAREHOLDER INFORMATION

EXCHANGING SHARES. You can exchange a Portfolio's Select Class Shares for Select Class Shares of other available Portfolios of the Fund based on their respective NAVs (normally, $1 per share) at no additional cost. If you purchased Portfolio shares through a financial intermediary, certain Portfolios of the Fund may be unavailable for exchange. Contact your financial intermediary to determine which Portfolios are available for exchange.

To exchange shares, contact Lehman Brothers Shareholder Service Group at 888- 556-9030 if you purchased the shares directly. Otherwise, please contact your financial intermediary.

SHAREHOLDER SERVICING FEE

Each Portfolio has implemented a Shareholder Servicing Fee for each Portfolio's Select Class shares to pay the Fund's shareholder servicing agent, NBMI, to provide for, or to compensate certain financial intermediaries (also referred to as service organizations) for providing personal and account maintenance

services and administrative services to shareholders. Under this arrangement, each Portfolio pays the Fund's shareholder servicing agent a monthly or quarterly servicing fee which shall not exceed during any one year 0.15% of each Portfolio's average daily net assets of Select Class shares which are owned beneficially by the customers of such service organizations during such period.

OTHER PAYMENTS TO THIRD PARTIES

MEDALLION SIGNATURE GUARANTEES

You may need a Medallion signature guarantee when you sell shares directly or through a financial intermediary. A Medallion signature guarantee is a guarantee that your signature is authentic.

Most banks, brokers, and other financial institutions can provide you with one. Some may charge a fee; others may not, particularly if you are a customer of theirs.

A notarized signature from a notary public is not a Medallion signature guarantee.

INFORMATION REQUIRED FROM NEW ACCOUNTS

SHARE PRICES

Because Select Class shares of each Portfolio do not have front-end sales charges, the price you pay for each share of a Portfolio is the net asset value per share. Similarly, because there are no fees for selling shares, a Portfolio pays you the full share price when you sell shares. Remember that your financial intermediary may charge fees for its services.

SHARE PRICE CALCULATIONS

DISTRIBUTIONS AND TAXES

TAXES AND YOU

For non-retirement plan account holders, the taxes you actually owe on distributions can vary with many factors, such as your tax bracket.

Most importantly, consult your tax professional. Everyone's tax situation is different, and your professional should be able to help you answer any questions you might have.

PORTFOLIO HOLDINGS POLICY

PORTFOLIO STRUCTURE

LEHMAN BROTHERS ASSET MANAGEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY SERIES

o No load
o No sales charges

If you would like further details on these Portfolios, you can request a free copy of the following documents:

OBTAINING INFORMATION

LEHMAN BROTHERS
INSTITUTIONAL LIQUIDITY FUNDS

SERVICE CLASS
Money Market Portfolio

Prime Portfolio

Government Portfolio

Government Reserves Portfolio

Treasury Portfolio

Treasury Reserves Portfolio

Tax-Exempt Portfolio

Municipal Portfolio

New York Municipal Portfolio

PROSPECTUS December 19, 2006

LEHMAN BROTHERS ASSET MANAGEMENT

CONTENTS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Summary of Portfolios.........................

Money Market Portfolio........................

Prime Portfolio...............................

Government Portfolio..........................

Government Reserves Portfolio.................

Treasury Portfolio............................

Treasury Reserves Portfolio...................

Tax-Exempt Portfolio..........................

Municipal Portfolio...........................

New York Municipal Portfolio..................

Investor Expenses.............................

Financial Highlights..........................

Management....................................

YOUR INVESTMENT

THESE PORTFOLIOS:

o require a minimum initial investment of $10 million

o offer you the opportunity to participate in financial markets through professionally managed money market portfolios

o are also money market sweep funds for certain eligible investors

o are mutual funds, not bank deposits, and are not guaranteed or insured by the FDIC or any other government agency

Please note that shares of each Portfolio may not be available in all states. Shares of each Portfolio are only available in states in which they are authorized for purchase.

SUMMARY OF PORTFOLIOS

MONEY MARKET PORTFOLIO        A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity. The Portfolio invests in corporate debt
                              obligations,   asset-backed  securities,  variable
                              rate obligations, instruments issued or guaranteed
                              by  the   U.S.   Government,   its   agencies   or
                              instrumentalities,   repurchase   agreements   and
                              securities of U.S. and foreign banks.

PRIME PORTFOLIO               A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.  The  Portfolio  primarily  invests  in
                              corporate    debt    obligations,     asset-backed
                              securities, variable rate obligations, instruments
                              issued or guaranteed by the U.S.  Government,  its
                              agencies    or    instrumentalities,    repurchase
                              agreements   and  securities  of  U.S.  banks  and
                              foreign branches of U.S. banks.

GOVERNMENT PORTFOLIO          A  U.S.   Government  money  market  fund  seeking
                              maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities    and   repurchase   agreements
                              relating to such securities.

GOVERNMENT RESERVES           A  U.S.   government  money  market  fund  seeking
PORTFOLIO                     maximum  safety  and  liquidity  and  the  highest
                              available current income. The Portfolio invests in
                              securities issued or guaranteed as to principal or
                              interest by the U.S. Government,  its agencies and
                              instrumentalities.

TREASURY PORTFOLIO            A money market fund seeking the highest  available
                              current   income   consistent   with   safety  and
                              liquidity.   The   Portfolio   invests  in  direct

obligations of the U.S. Treasury, including repurchase agreements relating to such securities.

TREASURY RESERVES PORTFOLIO A money market fund seeking the highest available current income consistent with safety and liquidity. The Portfolio invests in direct obligations of the U.S. Treasury.

MONEY MARKET PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Service Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Neuberger Berman Institutional Cash Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows how the Neuberger Berman Institutional Cash Fund's performance has varied from year to year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

Year %

2001 4.01
2002 1.64
2003 0.88
2004 1.09
2005 3.06
Best quarter: Q1 '01, 1.41% Worst quarter: Q3 '03 & Q1 '04, 0.19%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                          1 Year       5 Year       Since Inception
                                                       5/8/2000*
----------------------------------------------------------------------
Institutional Cash         3.06         2.13             2.63
----------------------------------------------------------------------

*Performance shown above is that of Neuberger Berman Institutional Cash Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Service Class of the Portfolio because it invests in the same master portfolio of securities. Because the Neuberger Berman Institutional Cash Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Service Class of the Portfolio. For the period from Neuberger Berman Institutional Cash Fund's inception through 2/9/2001, it was organized in a master-feeder structure. For the period from 2/10/2001 to 12/29/2004, Neuberger Berman Institutional Cash Fund was organized in a multiple class structure. As of 12/30/2004, the Fund was organized as a feeder fund in a master-feeder structure and responsibility for the day-to-day portfolio management of the Fund was transferred from Neuberger Berman Management Inc. to Lehman Brothers Asset Management Inc. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

PRIME PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

The charts below provide an indication of the risks of investing in Service Class shares of the Portfolio. When this prospectus was prepared, the Portfolio had not yet commenced operations. However, the bar chart shows the performance of the Lehman Brothers Prime Money Fund, a fund that invests in the same master series as the Portfolio. The bar chart shows the Lehman Brothers Prime Money Fund's performance for the last calendar year. The bar chart does not reflect any reduction for taxes that a shareholder might have paid on taxable fund distributions. The table beside the chart shows what the return would equal if you averaged out actual performance over various lengths of time. This information is based on past performance; it's not a prediction of future results.

YEAR-BY-YEAR % RETURNS as of 12/31 each year*

 Year        %
------------------
 2005       3.20
------------------

Best quarter: Q4 '05, 0.99% Worst quarter: Q1 '05, 0.58%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/05*

                                        Since Inception
                       1 Year             12/27/2004*
----------------------------------------------------------
Prime Money             3.20                 3.20
----------------------------------------------------------

*Performance shown above is that of Lehman Brothers Prime Money Fund, which is not offered in this prospectus, but would have substantially similar annual returns as the Service Class of the Portfolio because it invests in the same master series of securities. Because the Lehman Brothers Prime Money Fund has moderately lower expenses, its performance typically would have been slightly better than that of the Service Class of the Portfolio. Returns would have been lower if Neuberger Berman Management Inc. had not reimbursed certain expenses and/or waived a portion of the investment management fee during the periods shown.

PERFORMANCE MEASURES

GOVERNMENT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

GOVERNMENT RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS MAXIMUM SAFETY AND LIQUIDITY WITH THE HIGHEST AVAILABLE CURRENT INCOME.

To pursue this goal, the Portfolio invests in securities issued or guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government and Agency Securities"). The Portfolio may also invest in repurchase agreements, however, under normal circumstances it does not intend to do so. The Portfolio seeks to maintain a stable $1.00 share price. A portion of the Portfolio's dividends is generally exempt from state and local income taxes (but not federal income tax) to the extent derived from interest on securities issued by the U.S. Government or certain of its agencies (but not interest derived from repurchase agreements on those securities).

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

BY TYPICALLY INVESTING ONLY IN U.S. GOVERNMENT AND AGENCY SECURITIES, THE PORTFOLIO MAINTAINS EVEN MORE STRINGENT QUALITY STANDARDS THAN MONEY MARKET FUND REGULATIONS REQUIRE.

STATE TAX EXEMPTIONS

MAIN RISKS

Most of the Portfolio's performance depends on interest rates. When interest rates fall, the Portfolio's yields will typically fall as well.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY PORTFOLIO Ticker Symbol: [_____]

Goal & Strategy

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

Performance could also be harmed if any of the counter-parties to repurchase agreements has its credit rating reduced or goes into default.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TREASURY RESERVES PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH SAFETY AND LIQUIDITY.

To pursue this goal, the Portfolio invests in direct obligations of the U.S. Treasury. The Portfolio seeks to maintain a stable $1.00 share price.

The Portfolio is authorized to change its goal without shareholder approval, although it does not currently intend to do so.

MONEY MARKET FUNDS

MAIN RISKS

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

TAX-EXEMPT PORTFOLIO Ticker Symbol: [_____]

GOAL & STRATEGY

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts, and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

NEW YORK MUNICIPAL PORTFOLIO TICKER SYMBOL: [_____]

GOAL & STRATEGY

THE PORTFOLIO SEEKS THE HIGHEST AVAILABLE CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES THAT IS CONSISTENT WITH SAFETY AND LIQUIDITY.

MONEY MARKET FUNDS

TAX-EQUIVALENT YIELDS

MAIN RISKS

When interest rates fall, the Portfolio's yields typically will fall as well.

The Portfolio is not an appropriate investment for tax-advantaged accounts, such as individual retirement accounts and may not be beneficial for investors in low tax brackets.

OTHER RISKS

PERFORMANCE

When this prospectus was prepared, the Portfolio was new. Accordingly, performance charts are not included.

INVESTOR EXPENSES

                                                              FEE TABLE
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------------------
         Money     Prime    Government     Government    Treasury      Treasury      Tax-       Municipal      New York
         Market                            Reserves                    Reserves      Exempt                    Municipal
-----------------------------------------------------------------------------------------------------------------------------------
Fees:    None     None     None           None           None         None           None      None           None
-----------------------------------------------------------------------------------------------------------------------------------

Annual operating expenses (% of average net assets)* These are deducted from Portfolio assets, so you pay them indirectly.

-----------------------------------------------------------------------------------------------------------------------------------
                    Money     Prime     Government     Government      Treasury    Treasury      Tax-       Municipal      New York
                    Market                             Reserves                    Reserves      Exempt                    Municipal
-----------------------------------------------------------------------------------------------------------------------------------
Management         0.18        0.18        0.18          0.18            0.18        0.18        0.35        0.35         0.35
fees**
-----------------------------------------------------------------------------------------------------------------------------------
Distribution       0.15        0.15        0.15          0.15            0.15        0.15        0.15        0.15         0.15
(12b-1) fees
-----------------------------------------------------------------------------------------------------------------------------------
Other              0.60        0.57        0.87          0.87            0.81        0.81        0.81        0.87         0.81
expenses***
-----------------------------------------------------------------------------------------------------------------------------------
Total annual       0.93        0.90        1.20          1.20            1.14        1.14        1.31        1.37         1.31
operating
expenses
-----------------------------------------------------------------------------------------------------------------------------------
Minus:             0.33        0.30        0.60          0.60            0.54        0.54         0.71        0.77         0.71
Expense
Reimbursement
or Waiver
-----------------------------------------------------------------------------------------------------------------------------------
Net                0.60        0.60        0.60          0.60            0.60        0.60        0.60@       0.60@        0.60@
expenses****
-----------------------------------------------------------------------------------------------------------------------------------

     *    THE TABLE INCLUDES COSTS PAID BY THE PORTFOLIO AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE INFORMATION ON
          MASTER-FEEDER FUNDS, SEE "PORTFOLIO STRUCTURE" ON PAGE 46.

     **   "MANAGEMENT FEES" INCLUDES INVESTMENT MANAGEMENT AND ADMINISTRATION FEES.

     ***  "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. "OTHER EXPENSES" INCLUDES A 0.25%
          SHAREHOLDER SERVICING FEE.

     **** NEUBERGER BERMAN MANAGEMENT INC. (NBMI) HAS CONTRACTUALLY AGREED TO FORGO CURRENT PAYMENT OF FEES AND/OR REIMBURSE
          CERTAIN EXPENSES OF THE SERVICE CLASS OF EACH PORTFOLIO THROUGH 3/31/2010, SO THAT THE TOTAL ANNUAL OPERATING
          EXPENSES OF THE SERVICE CLASS OF EACH PORTFOLIO ARE LIMITED TO 0.60 % OF ITS AVERAGE NET ASSETS. THIS ARRANGEMENT
          DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES. EACH PORTFOLIO HAS AGREED THAT
          ITS SERVICE CLASS WILL REPAY NBMI FOR FEES AND EXPENSES FOREGONE OR REIMBURSED FOR THAT CLASS PROVIDED THAT
          REPAYMENT DOES NOT CAUSE THE ANNUAL OPERATING EXPENSES OF THAT CLASS OF THE PORTFOLIO TO EXCEED 0.60% OF ITS
          AVERAGE NET ASSETS. ANY SUCH REPAYMENT MUST BE MADE WITHIN THREE YEARS AFTER THE YEAR IN WHICH NBMI INCURRED THE
          EXPENSE.

     @    FOR EACH OF TAX-EXEMPT PORTFOLIO, MUNICIPAL PORTFOLIO AND NEW YORK MUNICIPAL PORTFOLIO, NBMI HAS CONTRACTUALLY
          UNDERTAKEN TO FORGO AND/OR REIMBURSE ITS MANAGEMENT FEE IN THE AMOUNT OF 0.17% OF THAT PORTFOLIO'S AVERAGE NET
          ASSETS THROUGH  3/31/10. AS A RESULT OF THIS AGREEMENT, THE INVESTMENT MANAGEMENT FEE OF EACH PORTFOLIO WILL BE
          LIMITED TO 0.08% OF ITS AVERAGE NET ASSETS.

EXPENSE EXAMPLE

                     1 Year      3 Years
Money Market           $61       $192
Prime                  $61       $192
Government             $61       $192
Government Reserves    $61       $192
Treasury               $61       $192
Treasury Reserves      $61       $192
Tax-Exempt             $61       $192
Municipal              $61       $192
New York Municipal     $61       $192

FINANCIAL HIGHLIGHTS

When this prospectus was prepared, the Portfolios were new and had no financial highlights to report.

MANAGEMENT

PORTFOLIO MANAGERS

The Portfolio Managers of MONEY MARKET PORTFOLIO and PRIME PORTFOLIO are:

The Portfolio Managers of GOVERNMENT PORTFOLIO, GOVERNMENT RESERVES PORTFOLIO, TREASURY PORTFOLIO and TREASURY RESERVES PORTFOLIO are:

SCOTT F. RIECKE, Vice President, Lehman Brothers Asset Management, joined Lehman Brothers Asset Management in 2005. Previously, Mr. Riecke was a money market portfolio manager with Neuberger Berman.

The Portfolio Managers of MUNICIPAL PORTFOLIO, NEW YORK MUNICIPAL PORTFOLIO and
TAX-EXEMPT PORTFOLIO are:

INVESTMENT MANAGER

YOUR INVESTMENT

o ELIGIBLE ACCOUNTS

o PURCHASING SHARES

Every purchase order you place will be processed at the next share price calculated after your order has been accepted.

Portfolio investors whose payments are converted to "federal funds" before 6:00
p.m., Eastern time on the day of purchase, will accrue a dividend the same day.

PURCHASING SHARES BY TELEPHONE

Lehman Brothers Shareholder Service Group 605 Third Avenue 2nd Floor New York, NY 10158-0180

or faxing it to 781-796-3327. Upon approval of the application, you may purchase Service Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade and wiring Federal Funds to the Fund immediately thereafter. (Investors must call Lehman Brothers Shareholder Service Group before effecting any purchase.) The Fund reserves the right to suspend the telephone order privilege.

Federal Funds should be wired to:

State Street Bank
ABA 011-000028
DDA 9905-710-1

Attn: Lehman Brothers Deposit Account
Ref: (Portfolio Name, Portfolio Number, Account Name
and Account Number)

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

PURCHASING SHARES BY INTERNET

Once you have opened an account, you may place a purchase order for additional shares online through www.LehmanBrothersINSTFunds.com. You will need to submit

online authorization documents prior to purchasing shares online. Additionally, you are responsible for transmitting payments for shares purchased via the Internet in a timely fashion as set forth within this prospectus.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

PURCHASING SHARES BY E-MAIL

Subject to appropriate agreement with the Fund's principal underwriter, the Fund may accept orders by e-mail.

REDEEMING SHARES

REDEEMING SHARES BY TELEPHONE

You may sell Service Class Shares of the Portfolios by calling Lehman Brothers Shareholder Service Group at 888-556-9030 to place your trade. Please provide your name, account number, the Portfolio name, the dollar amount or number of shares you want to sell, and any other instructions. This option is not available if you have declined the telephone option. The Fund reserves the right to suspend the telephone order privilege.

REDEEMING SHARES BY FAX

REDEEMING SHARES THROUGH A FINANCIAL INTERMEDIARY

REDEEMING SHARES BY INTERNET

You may place a redemption order online through www.LehmanBrothersINSTFunds.com. You will need to submit online authorization documents prior to redeeming shares online.

This option is not currently available, but will be in the near future. For more information, call Lehman Brothers Shareholder Service Group at 888-556- 9030.

GENERAL SHAREHOLDER INFORMATION

EXCHANGING SHARES. You can exchange a Portfolio's Service Class Shares for Service Class Shares of other available Portfolios of the Fund based on their respective NAVs (normally, $1 per share) at no additional cost. If you purchased Portfolio shares through a financial intermediary, certain Portfolios of the Fund may be unavailable for exchange. Contact your financial intermediary to determine which Portfolios are available for exchange.

To exchange shares, contact Lehman Brothers Shareholder Service Group at 888- 556-9030 if you purchased the shares directly. Otherwise, please contact your financial intermediary.

DISTRIBUTION AND SERVICE FEE

Each Portfolio has adopted a Distribution and Services Plan on behalf of the Service Class pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Service Class of each Portfolio pays the Portfolio's distributor, NBMI, a maximum of 0.15% of the average net assets of the Portfolio's Service Class each year to compensate financial intermediaries (also referred to as service organizations) for providing distribution-related services to the Portfolio and/or administrative or shareholder services to Portfolio shareholders.

NBMI also may retain part of this fee as compensation for providing these services. These fees increase the cost of investment. Over the long term, they could result in higher overall costs than other types of sales charges.

SHAREHOLDER SERVICING FEE

Each Portfolio has also implemented a Shareholder Servicing Fee for its Service Class shares to pay the Fund's shareholder servicing agent, NBMI, to provide for, or to compensate certain financial intermediaries (also referred to as service organizations) for providing personal and account maintenance services and administrative services to shareholders. Under this arrangement, each Portfolio pays the Fund's shareholder servicing agent a monthly or quarterly servicing fee which shall not exceed during any one year 0.25% each Portfolio's average daily net assets of Service Class shares which are owned beneficially by the customers of such service organizations during such period.

OTHER PAYMENTS TO THIRD PARTIES

MEDALLION SIGNATURE GUARANTEES

You may need a Medallion signature guarantee when you sell shares directly or through a financial intermediary. A Medallion signature guarantee is a guarantee that your signature is authentic.

Most banks, brokers, and other financial institutions can provide you with one. Some may charge a fee; others may not, particularly if you are a customer of theirs.

A notarized signature from a notary public is not a Medallion signature guarantee.

INFORMATION REQUIRED FROM NEW ACCOUNTS

require other identifying documents. If we cannot verify the information you supply to us or if it is incomplete, we may be required to return your funds or redeem your account.

SHARE PRICES

Because Service Class shares of each Portfolio do not have front-end sales charges, the price you pay for each share of a Portfolio is the net asset value per share. Similarly, because there are no fees for selling shares, a Portfolio pays you the full share price when you sell shares. Remember that your financial intermediary may charge fees for its services.

SHARE PRICE CALCULATIONS

DISTRIBUTIONS AND TAXES

TAXES AND YOU

For non-retirement plan account holders, the taxes you actually owe on distributions can vary with many factors, such as your tax bracket.

Most importantly, consult your tax professional. Everyone's tax situation is different, and your professional should be able to help you answer any questions you might have.

PORTFOLIO HOLDINGS POLICY

PORTFOLIO STRUCTURE

LEHMAN BROTHERS ASSET MANAGEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY SERIES

o No load
o No front-end sales charges

If you would like further details on these Portfolios, you can request a free copy of the following documents:

OBTAINING INFORMATION

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

STATEMENT OF ADDITIONAL INFORMATION

DATED: December 19, 2006

MONEY MARKET PORTFOLIO
PRIME PORTFOLIO
GOVERNMENT PORTFOLIO
GOVERNMENT RESERVES PORTFOLIO
TREASURY PORTFOLIO
TREASURY RESERVES PORTFOLIO
TAX-EXEMPT PORTFOLIO
MUNICIPAL PORTFOLIO
NEW YORK MUNICIPAL PORTFOLIO

605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll Free 888-556-9030

MONEY MARKET Portfolio, PRIME Portfolio, GOVERNMENT Portfolio, GOVERNMENT RESERVES Portfolio, TREASURY Portfolio, TREASURY RESERVES Portfolio, TAX-EXEMPT Portfolio, MUNICIPAL Portfolio and NEW YORK MUNICIPAL Portfolio (each a "Portfolio") are mutual funds that offer shares pursuant to Prospectuses dated December 19, 2006. Each Portfolio invests all of its net investable assets in MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY Master Series, TREASURY RESERVES Master Series, TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series (each a "Master Series"), respectively, each a series of Institutional Liquidity Trust.

This Statement of Additional Information ("SAI") is not a prospectus and should be read in conjunction with the Portfolios' Prospectuses.

The Portfolios' Prospectus for your share class provides more information about the Portfolios that you should know before investing. You can get a free copy of the Prospectus for your share class from Neuberger Berman Management Inc. ("NB Management"), 605 Third Avenue, 2nd Floor, New York, NY 10158-0180, or by calling 888-556-9030. You should read that Prospectus carefully before investing.

No person has been authorized to give any information or to make any representations not contained in the Prospectuses or in this SAI in connection with the offering made by the Prospectuses, and, if given or made, such information or representations must not be relied upon as having been authorized by a Portfolio or its distributor. The Prospectuses and this SAI do not constitute an offering by a Portfolio or its distributor in any jurisdiction in which such offering may not lawfully be made.

The "Neuberger Berman" name and logo are registered service marks of Neuberger Berman, LLC. "Neuberger Berman Management Inc." and the fund names in this SAI are either service marks or registered service marks of Neuberger Berman Management Inc. (C)2006 Neuberger Berman Management Inc. All rights reserved.

                                TABLE OF CONTENTS
                                -----------------

INVESTMENT INFORMATION.........................................................1

     Investment Policies and Limitations.......................................1

     Cash Management and Temporary Defensive Positions (GOVERNMENT
     Master Series, GOVERNMENT RESERVES Master Series, TAX-EXEMPT
     Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL
     Master Series)............................................................7

     Additional Investment Information.........................................8

SPECIAL RISK CONSIDERATIONS FOR NEW YORK MUNICIPAL PORTFOLIO..................29

CERTAIN RISK CONSIDERATIONS...................................................38

PERFORMANCE INFORMATION.......................................................38

     Yield Calculations.......................................................38

     Tax Equivalent Yield.....................................................39

TRUSTEES AND OFFICERS.........................................................41

     Information about the Board of Trustees..................................41

     Information about the Officers of the Trust..............................47

     Ownership of Securities..................................................55

     Independent Portfolio Trustees Ownership of Securities...................55

INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES.............................56

     Investment Manager and Administrator.....................................56

     Management and Administration Fees.......................................57

     Expense Limitations......................................................58

     Sub-Adviser..............................................................60

     Investment Companies Managed.............................................61

     Codes of Ethics..........................................................62

     Management and Control of NB Management and Lehman
     Brothers Asset Management................................................62

SHAREHOLDER SERVICING ARRANGEMENTS............................................62

DISTRIBUTION ARRANGEMENTS.....................................................65

ADDITIONAL PURCHASE INFORMATION...............................................69

     Share Prices and Net Asset Value.........................................70

ADDITIONAL EXCHANGE INFORMATION...............................................70

ADDITIONAL REDEMPTION INFORMATION.............................................70

     Suspension of Redemptions................................................70

     Redemptions in Kind......................................................71

DIVIDENDS AND OTHER DISTRIBUTIONS.............................................71

ADDITIONAL TAX INFORMATION....................................................72

     Taxation of the Portfolios...............................................72

     Taxation of the Master Series............................................73

     Taxation of the Portfolios' Shareholders.................................75

VALUATION OF PORTFOLIO SECURITIES.............................................76

PORTFOLIO TRANSACTIONS........................................................76

     Portfolio Holdings Disclosure Policy.....................................79

     Portfolio Holdings Disclosure Procedures.................................79

     Portfolio Holdings Approved Recipients...................................80

     Expense Offset Arrangement...............................................81

     Proxy Voting.............................................................81

REPORTS TO SHAREHOLDERS.......................................................82

ORGANIZATION, CAPITALIZATION AND OTHER MATTERS................................82

     The Portfolios...........................................................82

     Master Series............................................................83

CUSTODIAN AND TRANSFER AGENT..................................................85

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................................85

LEGAL COUNSEL.................................................................85

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................85

REGISTRATION STATEMENT........................................................85

FINANCIAL STATEMENTS..........................................................86

APPENDIX A RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER...................A-1

INVESTMENT INFORMATION

Each Portfolio is a separate operating series of Lehman Brothers Institutional Liquidity Funds ("Trust"), a Delaware statutory trust that is registered with the Securities and Exchange Commission ("SEC") as a diversified, open-end management investment company. Each Portfolio seeks its investment objective by investing all of its net investable assets in a Master Series of Institutional Liquidity Trust ("Master Trust") that has an investment objective identical to, and a name similar to, that of each Portfolio. Each Master Series, in turn, invests in securities in accordance with an investment objective, policies and limitations identical to those of the Portfolio that invests therein. (The Trust and Master Trust are together referred to below as the "Trusts.") Each Master Series is advised by NB Management and sub-advised by Lehman Brothers Asset Management LLC ("Lehman Brothers Asset Management").

The following information supplements the discussion in the Prospectuses of the investment objective, policies and limitations of each Portfolio and Master Series. The investment objective and, unless otherwise specified, the investment policies and limitations of each Portfolio and Master Series are not fundamental. Any investment objective, policy, or limitation that is not fundamental may be changed by the trustees of the Trust ("Portfolio Trustees") or of the Master Trust ("Master Series Trustees") without shareholder approval. The fundamental investment policies and limitations of a Portfolio or Master Series may not be changed without the approval of the lesser of:

(1) 67% of the total units of beneficial interest ("shares") of the Portfolio or Master Series represented at a meeting at which more than 50% of the outstanding Portfolio or Master Series shares are represented, or

(2) a majority of the outstanding shares of the Portfolio or Master Series.

These percentages are required by the Investment Company Act of 1940, as amended ("1940 Act"), and are referred to in this SAI as a "1940 Act majority vote." Whenever a Portfolio is called upon to vote on a change in a fundamental investment policy or limitation of its corresponding Master Series, a Portfolio casts its votes thereon in proportion to the votes of its shareholders at a meeting thereof called for that purpose.

Investment Policies and Limitations

Each Portfolio has the following fundamental investment policy, to enable it to invest in a Master Series:

Notwithstanding any other investment policy of the Portfolio, the Portfolio may invest all of its investable assets (cash, securities, and receivables relating to securities) in an open-end management investment company having substantially the same investment objective, policies, and limitations as the Portfolio.

A Feeder Fund's policy on "Investments in Any One Issuer" does not limit a Feeder Fund's ability to invest up to 100% of its total assets in a Master Series with the same investment objectives, policies and limitations as the Feeder Fund.

All other fundamental investment policies and limitations and the non-fundamental investment policies and limitations of each Portfolio are identical to those of its corresponding Master Series. Therefore, although the following discusses the investment policies and limitations of each Master Series, it applies equally to each corresponding Portfolio.

A Master Series determines the "issuer" of a municipal obligation for purposes of its policy on industry concentration in accordance with the principles of Rule 2a-7 under the 1940 Act ("Rule 2a-7"). Also for purposes of the investment limitation on concentration in a particular industry, mortgage-backed and asset-backed securities are grouped according to the nature of their collateral and certificates of deposit ("CDs") are interpreted to include similar types of time deposits.

Except as set forth in the limitation on borrowing and the limitation on illiquid securities, any investment policy or limitation that involves a maximum percentage of securities or assets will not be considered exceeded unless the percentage limitation is exceeded immediately after, and because of, a transaction by a Master Series. If events subsequent to a transaction result in a Master Series exceeding the percentage limitation on borrowing or illiquid securities, NB Management will take appropriate steps to reduce the percentage of borrowings or the percentage held in illiquid securities, as may be required by law, within a reasonable amount of time.

The following investment policies and limitations are fundamental and apply to MONEY MARKET Master Series and PRIME Master Series

1. BORROWING. No Master Series may borrow money, except that it may (i) borrow money from banks for temporary or emergency purposes and not for leveraging or investment, and (ii) enter into reverse repurchase agreements; provided that (i) and (ii) in combination do not exceed 33-1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings). If at any time borrowings exceed 33-1/3% of the value of a Master Series' total assets, that Master Series will reduce its borrowings within three business days to the extent necessary to comply with the 33-1/3% limitation. In addition to the foregoing, each Master Series may borrow from any person for temporary purposes in an amount not exceeding 5% of that Master Series' total assets at the time the loan is made.

2. COMMODITIES. No Master Series may purchase commodities or contracts thereon, but this restriction shall not prohibit a Master Series from purchasing the securities of issuers that own interests in any of the foregoing.

3. DIVERSIFICATION. No Master Series may with respect to 75% of the value of its total assets purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S. Government and Agency Securities"), or securities issued by other investment companies) if, as a result, (i) more than 5% of the value of the Master Series' total assets would be invested in the securities of that issuer or (ii) the Master Series would hold more than 10% of the outstanding voting securities of that issuer. (Although not a fundamental limitation, each Master Series is subject to the diversification requirements under Rule 2a-7.)

4. INDUSTRY CONCENTRATION. No Master Series may purchase any security if, as a result, 25% or more of its total assets (taken at current value) would be invested in the securities of issuers having their principal business activities in the same industry, except that each Master Series normally will invest more than 25% of its total assets in the obligations of issuers having their principal business activities in the financial services industries or repurchase agreements on such obligations. There is no investment limitation with respect to (i) U.S. Government and Agency Securities or in repurchase agreements involving such securities; (ii) obligations issued by domestic branches of U.S. banks or U.S. branches of foreign banks subject to the same regulations as U.S. banks; or (iii) tax-exempt securities issued by government or political subdivisions of governments.

5. LENDING. No Master Series may lend any security or make any other loan if, as a result, more than 33-1/3% of its total assets (taken at current value) would be lent to other parties, except in accordance with its investment objective, policies, and limitations, (i) through the purchase of a portion of an issue of debt securities or (ii) by engaging in repurchase agreements.

6. REAL ESTATE. No Master Series may purchase real estate unless acquired as a result of the ownership of securities or instruments, but this restriction shall not prohibit a Master Series from purchasing securities issued by entities or investment vehicles that own or deal in real estate or interests therein, or instruments secured by real estate or interests therein.

7. SENIOR SECURITIES. No Master Series may issue senior securities, except as permitted under the 1940 Act.

8. UNDERWRITING. No Master Series may engage in the business of underwriting securities of other issuers, except to the extent that a Master Series, in disposing of portfolio securities, may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended ("1933 Act").

The following investment policies and limitations are fundamental and apply to GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series and TREASURY Master Series, TREASURY RESERVES Master Series, except as indicated:

1. BORROWING. No Master Series may borrow money, except that a Master Series may (i) borrow money from banks for temporary or emergency purposes and not for leveraging or investment, and (ii) enter into reverse repurchase agreements for any purpose; provided that (i) and (ii) in combination do not exceed 33-1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings). In addition to the foregoing, each Master Series may borrow from any person for temporary purposes in an amount not exceeding 5% of that Master Series' total assets at the time the loan is made.

2. COMMODITIES AND REAL ESTATE. No Master Series may purchase or sell commodities, commodity contracts, foreign exchange, or real estate, including interests in real estate investment trusts and real estate mortgage loans, except securities issued by the Government National Mortgage Association ("GNMA").

3. LENDING. (GOVERNMENT MASTER SERIES, GOVERNMENT RESERVES MASTER SERIES AND TREASURY MASTER SERIES) No Master Series may lend any security or make any other loan if, as a result, more than 33-1/3% of its total assets

(taken at current value) would be lent to other parties, provided, however that in accordance with its investment objective, policies, and limitations, each Master Series can (i) purchase debt securities and (ii) engage in repurchase agreements.

LENDING. (TREASURY RESERVES MASTER SERIES) No Master Series may lend any security or make any other loan if, as a result, more than 33-1/3% of its total assets (taken at current value) would be lent to other parties, provided, however that in accordance with its investment objective, policies, and limitations, each Master Series can purchase debt securities.

4. INDUSTRY CONCENTRATION. No Master Series may purchase any security if, as a result, 25% or more of its total assets (taken at current value) would be invested in the securities of issuers having their principal business activities in the same industry. This limitation does not apply to (i) purchases of U.S. Government and Agency Securities or (ii) investments in CDs or banker's acceptances issued by domestic branches of U.S. banks.

5. DIVERSIFICATION. No Master Series may, with respect to 75% of the value of its total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities, or securities issued by other investment companies) if, as a result, (i) more than 5% of the value of the Master Series' total assets would be invested in the securities of that issuer or (ii) the Master Series would hold more than 10% of the outstanding voting securities of that issuer. (Although not a fundamental limitation, each Master Series is subject to the diversification requirements under Rule 2a-7.)

6. SENIOR SECURITIES. No Master Series may issue senior securities, except as permitted under the 1940 Act.

7. UNDERWRITING. No Master Series may underwrite securities of other issuers, except to the extent that the Master Series, in disposing of portfolio securities, may be deemed to be an underwriter within the meaning of the 1933 Act.

8. SHORT SALES AND PUTS, CALLS, STRADDLES, OR SPREADS. No Master Series may effect short sales of securities or write or purchase any puts, calls, straddles, spreads, or any combination thereof.

The following investment policies and limitations are fundamental and apply to TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series:

1. BORROWING. No Master Series may borrow money, except that a Master Series may (i) borrow money from banks for temporary or emergency purposes and not for leveraging or investment, and (ii) enter into reverse repurchase agreements; provided that (i) and (ii) in combination do not exceed 33-1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings). If at any time borrowings exceed 33-1/3% of the value of a Master Series' total assets, that Master Series will reduce its borrowings within three days (excluding Sundays and holidays) to the extent necessary to comply with the 33-1/3% limitation.

2. COMMODITIES. No Master Series may purchase commodities or contracts thereon, but this restriction shall not prohibit each Master Series from purchasing the securities of issuers that own interests in any of the foregoing.
3. INDUSTRY CONCENTRATION. No Master Series may invest 25% or more of its total assets (taken at current value) in the securities of issuers having their principal business activities in the same industry, except that this limitation does not apply to (i) U.S. Government and Agency Securities, (ii) investments by a Master Series in CDs or banker's acceptances issued by domestic branches of U.S. banks, (iii) investments by a Master Series in municipal securities.

4. DIVERSIFICATION. No Master Series may, with respect to 75% of the value of its total assets, purchase the securities of any issuer (other than U.S. Government and Agency Securities or securities issued by other investment companies) if, as a result, (i) more than 5% of the value of the Master Series' total assets would be invested in the securities of that issuer or (ii) the Master Series would hold more than 10% of the outstanding voting securities of that issuer. (Although not a fundamental limitation, each Master Series is subject to the diversification requirements under Rule 2a-7.)

5. LENDING. No Master Series may lend any security or make any other loan if, as a result, more than 33-1/3% of its total assets (taken at current value) would be lent to other parties, except, in accordance with its investment objective, policies, and limitations, (i) through the purchase of a portion of an issue of debt securities or (ii) by engaging in repurchase agreements.

7. SENIOR SECURITIES. No Master Series may issue senior securities, except as permitted under the 1940 Act.

Senior Securities: The SEC has taken the position that certain instruments that create future obligations may be considered senior securities subject to provisions of the 1940 Act that limit the ability of investment companies to issue senior securities. Common examples include reverse repurchase agreements, short futures and options positions, forward contracts and when-issued securities. However, the SEC has clarified that, if a fund segregates cash or liquid securities sufficient to cover such obligations or holds off-setting positions (or, in some cases, uses a combination of such strategies), the SEC will not raise senior securities issues under the 1940 Act.

The following investment policies and limitations are non-fundamental and apply to MONEY MARKET Master Series and PRIME Master Series:

1. INVESTMENTS IN ANY ONE ISSUER. No Master Series may purchase the securities of any one issuer (other than U.S. Government and Agency Securities or securities subject to a guarantee issued by a non-controlled person as defined in Rule 2a-7) if, as a result, more than 5% of the Master Series' total assets would be invested in the securities of that issuer.

2. ILLIQUID SECURITIES. No Master Series may purchase any security if, as a result, more than 10% of its net assets would be invested in illiquid securities. Illiquid securities include securities that cannot be sold within seven days in the ordinary course of business for approximately the amount at which the Master Series has valued the securities, such as repurchase agreements maturing in more than seven days.

3. BORROWING. No Master Series will invest more than 33-1/3% of total assets in reverse repurchase agreements. Investments in reverse repurchase agreements and securities lending transactions will be aggregated for purposes of the 33-1/3% limit. As an operating policy, the Master Series does not currently intend to invest more than 20% of its total assets in reverse repurchase agreements. Investments in reverse repurchase agreements and securities lending transactions will be aggregated for purposes of the 20% limit.

4. LENDING. Except for the purchase of debt securities and engaging in repurchase agreements, no Master Series may make any loans other than securities loans.

5. MARGIN TRANSACTIONS. No Master Series may purchase securities on margin from brokers or other lenders, except that a Master Series may obtain such short-term credits as are necessary for the clearance of securities transactions.

The following investment policies and limitations are non-fundamental and apply to GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY Master Series and TREASURY RESERVES Master Series, except as indicated:

1. BORROWING AND SECURITIES LENDING. No Master Series will invest more than 33-1/3% of total assets in reverse repurchase agreements. Investments in reverse repurchase agreements and securities lending transactions will be aggregated for purposes of the 33-1/3% limit. As an operating policy, the Master Series does not currently intend to invest more than 20% of its total assets in reverse repurchase agreements. Investments in reverse repurchase agreements and securities lending transactions will be aggregated for purposes of the 20% limit.

2. ILLIQUID SECURITIES (GOVERNMENT MASTER SERIES, GOVERNMENT RESERVES MASTER SERIES AND TREASURY MASTER SERIES). No Master Series may purchase any security if, as a result, more than 10% of its net assets would be invested in illiquid securities. Illiquid securities include securities that cannot be sold within seven days in the ordinary course of business for approximately the amount at which the Master Series has valued the securities, such as repurchase agreements maturing in more than seven days.

ILLIQUID SECURITIES (TREASURY RESERVES MASTER SERIES). No Master Series may purchase any security if, as a result, more than 10% of its net assets would be invested in illiquid securities. Illiquid securities include securities that cannot be sold within seven days in the ordinary course of business for approximately the amount at which the Master Series has valued the securities.

3. INVESTMENTS IN ANY ONE ISSUER. No Master Series may purchase the securities of any one issuer (other than U.S. Government and Agency Securities or securities subject to a guarantee issued by a non-controlled person as defined in Rule 2a-7 under the 1940 Act) if, as a result, more than 5% of the Master Series' total assets would be invested in the securities of that issuer.

4. LENDING. (GOVERNMENT MASTER SERIES, GOVERNMENT RESERVES MASTER SERIES AND TREASURY MASTER SERIES) Except for the purchase of debt securities and engaging in repurchase agreements, no Master Series may make any loans other than securities loans.

LENDING. (TREASURY RESERVES MASTER SERIES) Except for the purchase of debt securities, the Master Series may not make any loans other than securities loans.

The following investment policies and limitations are non-fundamental and apply to TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series, unless otherwise indicated:

1. GEOGRAPHIC CONCENTRATION (TAX-EXEMPT MASTER SERIES AND MUNICIPAL MASTER SERIES) No Master Series will invest 25% or more of its total assets in securities issued by governmental units located in any one state, territory, or possession of the United States (but this limitation does not apply to project notes backed by the full faith and credit of the United States).

3. BORROWING. No Master Series intends to borrow, including any reverse repurchase agreements, an amount equal to more than 5% of its total assets, except for short-term credits to facilitate the clearance of redemptions.

4. LENDING. Except for the purchase of debt securities, engaging in repurchase agreements and other customary uses, no Master Series may make any loans other than securities loans.

CASH MANAGEMENT AND TEMPORARY DEFENSIVE POSITIONS (ALL MASTER SERIES)

For temporary defensive purposes, each Master Series may invest up to 100% of its total assets in cash or cash equivalents, U.S. Government and Agency Securities, commercial paper (except for GOVERNMENT Master Series and GOVERNMENT

RESERVES Master Series), other money market funds (except for GOVERNMENT RESERVES Master Series and TREASURY RESERVES Master Series), and certain other money market instruments, as well as repurchase agreements on U.S. Government and Agency Securities, the income from which generally will be subject to federal, state, and local income taxes, and may adopt shorter than normal weighted average maturities or durations. These investments may produce taxable income and after-tax yields for TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series that are lower than the tax-equivalent yields available on municipal securities at the time.

Borrowing (All Master Series)

If at any time borrowings exceed 33 1/3% of the value of a Master Series' total assets, that Master Series will reduce its borrowings within three business days to the extent necessary to comply with the 33 1/3% limitation.

Additional Investment Information

Each Master Series may make the following investments, among others, some of which are part of the Master Series' principal investment strategies and some of which are not. The principal risks of each Master Series' principal investment strategies are discussed in the Prospectuses. The Master Series will not necessarily buy all of the types of securities or use all of the investment techniques that are described. In addition, certain strategies and investments (e.g., repurchase agreements and securities lending) may produce taxable income for the Master Series.

FINANCIAL SERVICES OBLIGATIONS. (MONEY MARKET MASTER SERIES, PRIME MASTER SERIES, TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES) Obligations of issuers in the financial services industries include, but are not limited to, CDs, time deposits, bankers' acceptances, and other short-term and long-term debt obligations and repurchase agreements on such obligations issued by domestic and foreign banks, savings institutions, consumer and industrial finance companies, issuers of asset-backed securities, securities brokerage companies and a variety of firms in the insurance field. Because the MONEY MARKET Master Series and PRIME Master Series normally will concentrate more than 25% of their respective total assets in the obligations of companies in the financial services industries, they will have greater exposure to the risks associated with those industries, such as adverse interest rate trends, increased credit defaults, potentially burdensome government regulation, the availability and cost of capital funds, and general economic conditions.

CDs are receipts for funds deposited for a specified period of time at a specified rate of return; time deposits generally are similar to CDs, but are uncertificated. Bankers' acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international commercial transactions. The CDs, time deposits and bankers' acceptances in which a Master Series invests typically are not covered by deposit insurance.

POLICIES AND LIMITATIONS. MONEY MARKET Master Series and PRIME Master Series normally each will invest more than 25% of their respective total assets in the obligations of companies in the financial services industries and repurchase agreements on such obligations. PRIME Master Series does not invest in foreign

debt securities except for certificates of deposit, commercial paper, unsecured bank promissory notes, bankers' acceptances, fixed time deposits and other obligations issued by foreign branches of U.S. banks.

RISKS OF FIXED INCOME SECURITIES. (ALL MASTER SERIES) Fixed income securities are subject to the risk of an issuer's inability to meet principal and interest payments on its obligations ("credit risk") and are subject to price volatility due to such factors as interest rate sensitivity ("interest rate risk"), market perception of the creditworthiness of the issuer, and market liquidity ("market risk").

Lower-rated securities which are more likely to react to developments affecting market and credit risk than are more highly rated securities, which react primarily to movements in the general level of interest rates. Some debt securities in which a Master Series may invest are also subject to the risk that the issuer might repay them early ("call risk").

CALL RISK. Some debt securities in which a Master Series may invest are also subject to the risk that the issuer might repay them early ("call risk"). When market interest rates are low, issuers generally call securities paying higher interest rates. For this reason, a Master Series holding a callable security may not enjoy the increase in the security's market price that usually accompanies a decline in rates. Furthermore, the Master Series would have to reinvest the proceeds formthe called security at the current, lower rates.

RATINGS OF FIXED INCOME SECURITIES. Each Master Series may purchase securities rated by Standard & Poor's ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch, Inc. or any other nationally recognized statistical rating organization ("NRSRO") (please see the Master Series' prospectuses for further information). The ratings of an NRSRO represent its opinion as to the quality of securities it undertakes to rate. Ratings are not absolute standards of quality; consequently, securities with the same maturity, duration, coupon, and rating may have different yields. Although a Master Series may rely on the ratings of any NRSRO, a Master Series mainly refers to ratings assigned by S&P, Moody's and Fitch, Inc. which are described in Appendix A. Each Master Series may also invest in unrated securities that are deemed comparable in quality by Lehman Brothers Asset Management to the rated securities in which the Master Series may permissibly invest.

HIGH-QUALITY DEBT SECURITIES. High-quality debt securities are securities that have received a rating from at least one NRSRO, such as S&P, Moody's or Fitch, Inc. in one of the two highest rating categories (the highest category in the case of commercial paper) or, if not rated by any NRSRO, such as U.S. Government and Agency Securities, have been determined by Lehman Brothers Asset Management to be of comparable quality.

For TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series if two or more NRSROs have rated a security, at least two of them must rate it as high quality if the security is to be eligible for purchase by a Master Series.

RATINGS DOWNGRADES. Subsequent to its purchase by a Master Series, the rating of an issue of debt securities may be reduced, so that the securities would no longer be eligible for purchase by that Master Series. In such a case, Lehman Brothers Asset Management will consider the need to dispose of such securities in accordance with the requirements of Rule 2a-7.

DURATION. Duration of an individual portfolio security is a measure of the security's price sensitivity taking into account expected cash flow and prepayments under a wide range of interest rate scenarios. In computing the duration a Master Series will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influences of interest rates on prepayments and coupon flow.

MATURITY. Each Master Series has a policy of investing in instruments with maturities of 397 days or less with the exception of variable rate U.S. Government securities, which will be limited to a final maturity of 762 days at the time of purchase. For purposes of complying with this policy, a Master Series will determine the maturity of an instrument in accordance with the requirements of Rule 2a-7. Rule 2a-7 permits a Master Series to shorten the maturity of a particular instrument in circumstances in which the instrument is subject to certain types of demand features or interest-rate-reset provisions. MONEY MARKET Master Series is required to maintain a dollar-weighted average portfolio maturity of no more than 90 days. PRIME Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY Master Series, TREASURY RESERVES Master Series, MUNICIPAL Master Series, NEW YORK MUNICIPAL Master Series and TAX-EXEMPT Master Series each has a stricter standard for maturity and seeks to maintain a dollar-weighted average portfolio maturity of no more than 60 days.

U.S. GOVERNMENT AND AGENCY SECURITIES. (ALL MASTER SERIES) "U.S. Government Securities" are obligations of the U.S. Treasury backed by the full faith and credit of the United States.

"U.S. Government Agency Securities" are issued or guaranteed by U.S. Government agencies, or by instrumentalities of the U.S. Government, such as the GNMA, Fannie Mae (also known as the "Federal National Mortgage Association"), Freddie Mac (also known as the "Federal Home Loan Mortgage Corporation"), Sallie Mae (formerly known as the "Student Loan Marketing Association"), Federal Home Loan Banks ("FHLB"), and Tennessee Valley Authority. Some U.S. Government Agency Securities are supported by the full faith and credit of the United States, while others may be supported by the issuer's ability to borrow from the U.S. Treasury, subject to the Treasury's discretion in certain cases, or only by the credit of the issuer. Accordingly, there is at least a theoretical possibility of default. U.S. Government Agency Securities include U.S. Government agency mortgage-backed securities. (See "Mortgage-Backed Securities," below.) The market prices of U.S. Government Agency Securities are not guaranteed by the U.S. Government and generally fluctuate inversely with changing interest rates.

U.S. Government Agency Securities are deemed to include (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. Government, its agencies, authorities or instrumentalities and (ii) participations in loans made to foreign governments or their agencies that are so guaranteed. The secondary market for certain of these participations is extremely limited. In the absence of a suitable secondary market, such participations may therefore be regarded as illiquid.

Each Series (except the TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series) may invest in separately traded principal and interest components of securities issued or guaranteed by the U.S. Treasury. The principal and interest components of selected securities are 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 individually numbered and separately issued by the U.S. Treasury at the request of depository financial institutions, which then trade the component parts independently. [The market prices of STRIPS generally are more volatile than that of United States Treasury bills with comparable maturities.]

POLICIES AND LIMITATIONS. MONEY MARKET Master Series and PRIME Master Series each may invest 25% or more of its total assets in U.S. Government and Agency Securities.

Each of GOVERNMENT Master Series and GOVERNMENT RESERVES Master Series normally invests all of its assets in U.S. Government and Agency Securities and, in the case of GOVERNMENT Master Series, repurchase agreements relating to such securities. Neither Master Series nor its corresponding Portfolio will change this strategy without providing shareholders at least 60 days' advance notice.

Each of TREASURY Master Series and TREASURY RESERVES Master Series invests all of its assets in direct obligations of the U.S. Treasury and, in the case of TREASURY Master Series, repurchase agreements relating to such securities. Neither Master Series nor its corresponding Portfolio will change this strategy without providing shareholders at least 60 days' advance notice.

TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series, each has no specific limits or requirements relating to the amount of assets invested in U.S. Government and Agency Securities; however, each Master Series must invest according to its investment objective and policies.

ILLIQUID SECURITIES. (ALL MASTER SERIES) Illiquid securities are securities that cannot be expected to be sold within seven days at approximately the price at which they are valued. These may include unregistered or other restricted securities and repurchase agreements maturing in greater than seven days. Illiquid securities may also include commercial paper under section 4(2) of the 1933 Act, and Rule 144A securities (restricted securities that may be traded freely among qualified institutional buyers pursuant to an exemption from the registration requirements of the securities laws); these securities are considered illiquid unless Lehman Brothers Asset Management, acting pursuant to guidelines established by the Trustees, determines they are liquid. Generally, foreign securities freely tradable in their principal market are not considered restricted or illiquid, even if they are not registered in the United States. Illiquid securities may be difficult for a Master Series to value or dispose of due to the absence of an active trading market. The sale of some illiquid securities by the Master Series may be subject to legal restrictions which could be costly to the Master Series.

POLICIES AND LIMITATIONS. Each Master Series may invest up to 10% of its net assets in illiquid securities. PRIME Master Series may not invest in illiquid securities that are foreign debt securities, except to the extent that certificates of deposit, commercial paper, unsecured bank promissory notes,

bankers' acceptances, fixed time deposits and other obligations issued by foreign branches of U.S. banks would be deemed illiquid securiteis. TREASURY RESERVES Master Series may not invest in repurchase agreements.

REPURCHASE AGREEMENTS. (ALL MASTER SERIES EXCEPT TREASURY RESERVES MASTER SERIES). In a repurchase agreement, a Master Series purchases securities from a bank that is a member of the Federal Reserve System or from a securities dealer that agrees to repurchase the securities from the Master Series at a higher price on a designated future date. Repurchase agreements generally are for a short period of time, usually less than a week. Costs, delays, or losses could result if the selling party to a repurchase agreement becomes bankrupt or otherwise defaults. Lehman Brothers Asset Management monitors the creditworthiness of sellers.

The Master Series may invest in repurchase agreements backed by non-traditional collateral. Non-traditional collateral may consist of corporate bonds, foreign sovereign debt, equity securities, and may be volatile.

POLICIES AND LIMITATIONS. Repurchase agreements with a maturity or demand feature of more than seven days are considered to be illiquid securities; no Master Series may enter into a repurchase agreement with a maturity or put feature of more than seven days if, as a result, more than 10% of the value of its net assets would then be invested in such repurchase agreements and other illiquid securities. A Master Series may enter into a repurchase agreement only if (1) the market value of the underlying securities, including accrued interest, at all times equals or exceeds the repurchase price, and (2) payment for the underlying securities is made only upon satisfactory evidence that the securities are being held for the Master Series' account by its custodian or a bank acting as the Master Series' agent.

GOVERNMENT RESERVES Master Series may not invest in repurchase agreements under normal circumstances. GOVERNMENT Master Series and GOVERNMENT RESERVES Master Series may only invest in repurchase agreements relating to U.S. Government and Agency Securities. TREASURY Master Series may only invest in repurchase agreements relating to direct obligations of the U.S. Treasury.

SECURITIES LOANS. (ALL MASTER SERIES) Each Master Series may lend portfolio securities to banks, brokerage firms, and other institutional investors judged creditworthy by Lehman Brothers Asset Management, provided that cash or equivalent collateral, equal to at least 102% (105% in the case of foreign securities for MONEY MARKET Master Series and 105% in the case of securities issued by foreign branches of U.S. banks for PRIME Master Series) of the market value of the loaned securities, is continuously maintained by the borrower with a Master Series. A Master Series may invest the cash collateral and earn income, or it may receive an agreed-upon amount of interest income from a borrower who has delivered equivalent collateral. During the time securities are on loan, the borrower will pay a Master Series an amount equivalent to any dividends or interest paid on such securities. These loans are subject to termination at the option of the Master Series or the borrower. A Master Series may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. A Master Series does not have the right to vote securities on loan, but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. Lehman Brothers Asset Management believes the risk of loss on these

transactions is slight because, if a borrower were to default for any reason, the collateral should satisfy the obligation. However, as with other extensions of secured credit, loans of portfolio securities involve some risk of loss of rights in the collateral should the borrower fail financially. Subject to compliance with the conditions of an SEC exemptive order, each Master Series can loan securities through a separate operating unit of Neuberger Berman, LLC ("Neuberger Berman") or an affiliate of Neuberger Berman, acting as agent. Each Master Series also can loan securities to Neuberger Berman and its affiliates (other than NB Management), subject to the conditions of the SEC order. Each Master Series may also loan securities through eSecLending, which provides securities loans to principal borrowers arranged through a bidding process managed by eSecLending.

POLICIES AND LIMITATIONS. In order to realize income, each Master Series may lend portfolio securities with a value not exceeding 33-1/3% of its total assets to banks, brokerage firms, or other institutional investors judged creditworthy by Lehman Brothers Asset Management. Borrowers are required continuously to secure their obligations to return securities on loan from a Master Series by depositing collateral in a form determined to be satisfactory by the Portfolio Trustees. The collateral, which must be marked to market daily, must be equal to at least 102% (105% in the case of foreign securities for MONEY MARKET Master Series and 105% in the case of securities issued by foreign branches of U.S. banks for PRIME Master Series) of the market value of the loaned securities, which will also be marked to market daily.

For all Master Series (except TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series) investments in reverse repurchase agreements and securities lending transactions will be aggregated for purposes of the 33-1/3% limitation. However, as an operating policy, each of these Master Series does not currently intend to invest more than 20% of its total assets in securities lending transactions.

Borrowers are required continuously to secure their obligations to return securities on loan from a Master Series by depositing collateral in a form determined to be satisfactory by the Master Series Trustees. A Master Series does not count the collateral for purposes of any investment policy or limitation that requires that Master Series to invest specific percentages of its assets in accordance with its principal investment program.

RESTRICTED SECURITIES AND RULE 144A SECURITIES. (ALL MASTER SERIES) A Master Series may invest in restricted securities, which are securities that may not be sold to the public without an effective registration statement under the 1933 Act. Before they are registered, such securities may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. In recognition of the increased size and liquidity of the institutional market for unregistered securities and the importance of institutional investors in the formation of capital, the SEC has adopted Rule 144A under the 1933 Act. Rule 144A is designed to facilitate efficient trading among institutional investors by permitting the sale of certain unregistered securities to qualified institutional buyers. To the extent privately placed securities held by a Master Series qualify under Rule 144A and an institutional market develops for those securities, a Master Series likely will be able to dispose of the securities without registering them under the 1933 Act. To the extent that institutional buyers become, for a time, uninterested in purchasing these securities, investing in Rule 144A securities could increase the level of a Master Series' illiquidity. Lehman Brothers Asset Management, acting under guidelines established by the Master Series Trustees, may determine that certain securities

qualified for trading under Rule 144A are liquid. Regulation S under the 1933 Act permits the sale abroad of securities that are not registered for sale in the United States.

Where registration is required, a Master Series may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the decision to sell and the time a Master Series may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Master Series might obtain a less favorable price than prevailed when it decided to sell. Restricted securities for which no market exists are priced by a method that the Master Series Trustees believe accurately reflects fair value.

POLICIES AND LIMITATIONS. To the extent restricted securities, including Rule 144A securities, are illiquid, purchases thereof will be subject to each Master Series' 10% limit on investments in illiquid securities.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. (ALL MASTER SERIES) These transactions involve a commitment by each Master Series to purchase securities that will be issued at a future date ordinarily within two months, although a Master Series may agree to a longer settlement period. For GOVERNMENT Master Series and GOVERNMENT RESERVES Master Series, these transactions may involve mortgage-backed securities such as GNMA, Fannie Mae and Freddie Mac certificates. The price of the underlying securities (usually expressed in terms of yield) and the date when the securities will be delivered and paid for (the settlement date) are fixed at the time the transaction is negotiated. When-issued purchases are negotiated directly with the other party, and such commitments are not traded on exchanges.

When-issued and delayed delivery transactions enable a Master Series to "lock in" what Lehman Brothers Asset Management believes to be an attractive price or yield on a particular security for a period of time, regardless of future changes in interest rates. In periods of falling interest rates and rising prices, a Master Series might purchase a security on a when-issued or delayed delivery basis and sell a similar security to settle such purchase, thereby obtaining the benefit of currently higher yields. When-issued and delayed-delivery transactions are subject to the risk that a counterparty may fail to complete the sale of the security. If this occurs, a Master Series may lose the opportunity to purchase or sell the security at the agreed upon price. To reduce this risk, each Master Series will enter into transactions with established counterparties and the managers will monitor the creditworthiness of such counterparties.

The value of securities purchased on a when-issued or delayed delivery basis and any subsequent fluctuations in their value are reflected in the computation of a Master Series' NAV starting on the date of the agreement to purchase the securities. Because a Master Series has not yet paid for the securities, this produces an effect similar to leverage. A Master Series does not earn interest on securities it has committed to purchase until the securities are paid for and delivered on the settlement date. Because a Master Series is committed to buying them at a certain price, any change in the value of these securities, even prior to their issuance, affects the value of the Master Series' interests. The purchase of securities on a when-issued basis also involves a risk of loss if the value of the security to be purchased declines before the settlement date.

When-issued and delayed-delivery transactions may cause a Master Series to liquidate positions when it may not be advantageous to do so in order to satisfy its purchase obligations.

POLICIES AND LIMITATIONS. Each of TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series may not invest more than 10% of its total assets in when-issued securities. A Master Series will purchase securities on a when-issued or delayed delivery basis only with the intention of completing the transaction and actually taking delivery of the securities. If deemed advisable as a matter of investment strategy, however, a Master Series may dispose of or renegotiate a commitment after it has been entered into. A Master Series also may sell securities it has committed to purchase before those securities are delivered to the Portfolio on the settlement date. A Master Series may realize capital gains or losses in connection with these transactions.

When a Master Series purchases securities on a when-issued or delayed delivery basis, the Master Series will deposit in a segregated account with its custodian, until payment is made, appropriate liquid securities having an aggregate market value (determined daily) at least equal to the amount of the Master Series' purchase commitments. This procedure is designed to ensure that the Master Series maintains sufficient assets at all times to cover its obligations under when-issued and delayed delivery purchases.

COMMERCIAL PAPER. (MONEY MARKET MASTER SERIES, PRIME MASTER SERIES, TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES) Commercial paper is a short-term debt security issued by a corporation, bank, municipality or other issuer, usually for purposes such as financing current operations. A Master Series may invest in commercial paper that cannot be resold to the public without an effective registration statement under the 1933 Act. While restricted commercial paper normally is deemed illiquid, Lehman Brothers Asset Management may in certain cases determine that such paper is liquid, pursuant to guidelines established by the Master Series Trustees.

POLICIES AND LIMITATIONS. To the extent restricted commercial paper is deemed illiquid, purchases thereof will be subject to each Master Series' 10% limit on investments in illiquid securities.

REVERSE REPURCHASE AGREEMENTS. (ALL MASTER SERIES) In a reverse repurchase agreement, a Master Series sells portfolio securities subject to its agreement to repurchase the securities at a later date for a fixed price reflecting a market rate of interest. Reverse repurchase agreements may increase fluctuations in a Master Series' and Portfolios' net asset value ("NAV") and may be viewed as a form of leverage. There is a risk that the counter-party to a reverse repurchase agreement will be unable or unwilling to complete the transaction as scheduled, which may result in losses to a Master Series. Lehman Brothers Asset Management monitors the creditworthiness of counterparties to reverse repurchase agreements.

A Master Series' investment of the proceeds of a reverse repurchase agreement involves the speculative factor known as leverage. A Master Series generally will enter into a reverse repurchase agreement only if Lehman Brothers Asset Management anticipates that the interest income from investment of the

proceeds will be greater than the interest expense of the transaction and the proceeds are invested for a period no longer than the term of the agreement. In certain circumstances, the proceeds from the reverse repurchase agreement may be invested for a longer period of time than the term of the agreement, such as where a Master Series receives a large-scale redemption near 5:00 p.m., Eastern time for MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series or TREASURY Master Series, 2:00 p.m., Eastern time for GOVERNMENT RESERVES Master Series or TREASURY RESERVES Master Series, 3:00 p.m. Eastern time for TAX-EXEMPT Master Series, MUNICIPAL Master Series or NEW YORK Master Series.

POLICIES AND LIMITATIONS. Reverse repurchase agreements are considered borrowings for purposes of a Master Series' investment policies and limitations concerning borrowings. While a reverse repurchase agreement is outstanding, a Master Series will deposit in a segregated account with its custodian cash or appropriate liquid securities, marked to market daily, in an amount at least equal to a Master Series' obligations under the agreement.

Each of MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY Master Series and TREASURY RESERVES Master Series may invest up to one-third of its total assets in reverse repurchase agreements. Investments in reverse repurchase agreements and securities lending transactions will be aggregated for purposes of this investment limitation. As an operating policy, each of these Master Series do not currently intend to invest more than 20% of its total assets in reverse repurchase agreements. Investments in reverse repurchase agreements and securities lending transactions will be aggregated for purposes of the 20% limit.

BANKING AND SAVINGS INSTITUTION SECURITIES. (MONEY MARKET MASTER SERIES, PRIME MASTER SERIES, TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES) These include CDs, time deposits, bankers' acceptances and other short-term and long-term debt obligations issued by commercial banks and savings institutions. The CDs, time deposits, and bankers' acceptances in which a Master Series invests typically are not covered by deposit insurance.

A CD is a short-term negotiable certificate issued by a commercial bank against funds deposited in the bank and is either interest-bearing or purchased on a discount basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction. The borrower is liable for payment as is the bank, which unconditionally guarantees to pay the draft at its face amount on the maturity date. Fixed time deposits are obligations of branches of U.S. banks or foreign banks that are payable at a stated maturity date and bear a fixed rate of interest. Although fixed time deposits do not have a market, there are no contractual restrictions on the right to transfer a beneficial interest in the deposit to a third party. Deposit notes are notes issued by commercial banks that generally bear fixed rates of interest and typically have original maturities ranging from eighteen months to five years.

Banks are subject to extensive governmental regulations that may limit both the amounts and types of loans and other financial commitments that may be made and the interest rates and fees that may be charged. The profitability of this industry is largely dependent upon the availability and cost of capital

funds for the purpose of financing lending operations under prevailing money market conditions. Also, general economic conditions play an important part in the operations of this industry and exposure to credit losses arising from possible financial difficulties of borrowers might affect a bank's ability to meet its obligations. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by government regulation.

POLICIES AND LIMITATIONS. PRIME Master Series may not invest in banking and savings institution securities that are foreign debt securities except for certificates of deposit, commercial paper, unsecured bank promissory notes, bankers' acceptances, fixed time deposits and other obligations issued by foreign branches of U.S. banks.

VARIABLE OR FLOATING RATE SECURITIES; DEMAND AND PUT FEATURES. (ALL MASTER SERIES) Variable rate securities provide for automatic adjustment of the interest rate at fixed intervals (e.g., daily, monthly, or semi-annually); floating rate securities provide for automatic adjustment of the interest rate whenever a specified interest rate or index changes. The interest rate on variable and floating rate securities (collectively, "Adjustable Rate Securities") ordinarily is determined by reference to a particular bank's prime rate, the 90-day U.S. Treasury Bill rate, the rate of return on commercial paper or bank CDs, an index of short-term tax-exempt rates or some other objective measure.

Adjustable Rate Securities frequently permit the holder to demand payment of the obligations' principal and accrued interest at any time or at specified intervals not exceeding one year. The demand feature usually is backed by a credit instrument (e.g., a bank letter of credit) from a creditworthy issuer and sometimes by insurance from a creditworthy insurer. Without these credit enhancements, some Adjustable Rate Securities might not meet a Master Series' quality standards. Accordingly, in purchasing these securities, each Master Series relies primarily on the creditworthiness of the credit instrument issuer or the insurer. A Master Series can also buy fixed rate securities accompanied by a demand feature or by a put option, which permits the Master Series to sell the security to the issuer or third party at a specified price. A Master Series may rely on the creditworthiness of issuers of the credit enhancements in purchasing these securities.

The Adjustable Rate Securities in which TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series invest are municipal obligations.

POLICIES AND LIMITATIONS. A Master Series each may invest in securities subject to demand features or guarantees as permitted by Rule 2a-7.

For purposes of determining its dollar-weighted average maturity, a Master Series calculates the remaining maturity of variable and floating rate instruments as provided in Rule 2a-7. In calculating its dollar-weighted average maturity and duration, a Master Series is permitted to treat certain Adjustable Rate Securities as maturing on a date prior to the date on which the final repayment of principal must unconditionally be made. In applying such maturity shortening devices, Lehman Brothers Asset Management considers whether the interest rate reset is expected to cause the security to trade at approximately its par value.

FUNDING AGREEMENTS. (MONEY MARKET MASTER SERIES AND PRIME MASTER SERIES) Each Master Series may invest in funding agreements. A funding agreement is, in substance, an obligation of indebtedness negotiated privately between an investor and an insurance company. Funding agreements often have maturity-shortening features, such as an unconditional put, that permit the investor to require the insurance company to return the principal amount of the funding agreement, together with accrued interest, within one year or less. Most funding agreements are not transferable by the investor and, therefore, are illiquid, except to the extent the funding agreement is subject to a demand feature of seven days or less. An insurance company may be subject to special protections under state insurance laws, which protections may impair the ability of the investor to require prompt performance by the insurance company of its payment obligations under the funding agreement.

POLICIES AND LIMITATIONS. Funding Agreements are generally regarded as illiquid. Thus, each Master Series may not invest in such Funding Agreements if, as a result, more than 10% of the value of its net assets would then be invested in illiquid securities.

EXTENDIBLE SECURITIES. (MONEY MARKET MASTER SERIES AND PRIME MASTER SERIES) Each Master Series may invest in extendible securities including Extendible Commercial Notes ("ECNs"), Extendible Medium-Term Notes ("XMTNs"), Trust Liquidity Notes ("TLNs") and Secured Liquidity Notes ("SLNs"). ECNs are short-term (90 days or less) securities that automatically extend to a 390-day maximum maturity if the issuer does not redeem the ECNs on Initial Redemption Date (the equivalent of a commercial paper maturity). Investors receive a premium for giving the issuer the option to extend the maturity and a stepped-up coupon if the maturity is extended. ECNs carry the same credit rating(s) as the issuer's commercial paper. XMTNs are short-term securities with the majority having a one month floating rate coupon. Each month the investor has the option to put the security back to the issuer creating an extended 390-day maturity. If the security is not put back to the issuer it is rolled over every month with a 3-10 year stated final maturity. Investors receive a stepped-up coupon each year the security is held. XMTNs carry the same credit rating(s) as the issuer's commercial paper. TLNs are short-term securities with an expected maturity of 1 to 270 days that, if extended, have a final maturity of 397 days. TLNs are backed by a single asset, typically credit cards, and are supported by third-party liquidity. Upon extension, the investor receives a stepped-up coupon and the trust goes into early amortization with any payments to the trust flowing to the TLN investor. SLNs are short-term securities with an expected maturity of 1 to 270 days that, if extended, have a final maturity of 397 days. SLNs are backed by a diverse set of assets and are supported by a market value or total return swap which eliminates market value and liquidity risks associated with the assets. The market value swap makes up any difference between the sale of non-delinquent/non-defaulted collateral and the amount needed to repay investors. The total rate of return swap provides both liquidity support and credit risk coverage to the investors. Upon extension, the investor receives a stepped-up coupon and the assets backing the SLNs are auctioned off with the proceeds flowing to the SLN investor.

LOAN PARTICIPATIONS. (MONEY MARKET MASTER SERIES AND PRIME MASTER SERIES) Each Master Series may invest in loan participations, which represent a participation in a corporate loan of a commercial bank. Such loans must be to corporations in whose obligations the Master Series may invest. Since the issuing bank does not guarantee the participations in any way, they are subject to the credit risks generally associated with the underlying corporate borrower. It may be necessary under the terms of the loan participation for a Master

Series to assert through the issuing bank such rights as may exist against the corporate borrower, in the event the underlying corporate borrower fails to pay principal and interest when due. In such circumstances, a Master Series may be subject to delays, expenses and risks that are greater than if the Master Series had purchased a direct obligation (such as commercial paper) of such borrower. Further, under the terms of the loan participation, the Master Series may be regarded as a creditor of the issuing bank (rather than the underlying corporate borrower), so that the Master Series may also be subject to the risk that the issuing bank may become insolvent. The secondary market for loan participations is extremely limited, and therefore loan participations purchased by a Master Series are generally regarded as illiquid.

MONEY MARKET FUNDS. (ALL MASTER SERIES EXCEPT GOVERNMENT RESERVES MASTER SERIES AND TREASURY RESERVES MASTER SERIES) Each Master Series may invest in the shares of money market funds that are consistent with its investment objectives and policies. MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series and TREASURY Master Series may each invest up to 10% of its total assets in the securities of other money market funds.

The shares of money market funds are subject to the management fees and other expenses of those funds. Therefore, investments in other investment companies will cause a Master Series to bear proportionately the costs incurred by the other investment companies' operations. At the same time, the Master Series will continue to pay its own management fees and expenses with respect to all of its assets, including any portion invested in the shares of other investment companies. No Master Series intends to invest in such investment companies unless, in the judgment of Lehman Brothers Asset Management, the potential benefits of such investment justify the payment of any applicable premium or sales charge.

POLICIES AND LIMITATIONS. A Master Series' investment in securities of other investment companies is generally limited to (i) 3% of the total voting stock of any one investment company, (ii) 5% of the Master Series' total assets with respect to any one investment company and (iii) 10% of the Master Series' total assets in all investment companies in the aggregate.

Additionally, in reliance on an SEC exemptive rule, a Master Series may invest an unlimited amount of its uninvested cash in a money market fund if the Master Series pays no sales charge, as defined in rule 2830(b)(8) of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD")("sales charge"), or service fee, as defined in rule 2830(b)(9) of the Conduct Rules of the NASD, charged in connection with the purchase, sale, or redemption of securities issued by a money market fund ("service fee"); or the Master Series' investment adviser waives its advisory fee in an amount necessary to offset any sales charge or service fee. None of the Master Series has any current intention to make use of this authority.

ASSET-BACKED SECURITIES. (MONEY MARKET MASTER SERIES AND PRIME MASTER SERIES) Asset-backed securities directly or indirectly represent a participation interest in, or are secured by and payable from, a stream of payments generated by particular assets such as motor vehicle or credit card receivables. Payments of principal and interest may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution unaffiliated with the entities issuing the securities. The asset-backed securities in which a Master Series may invest are subject to the Master Series'

overall credit requirements. Asset-backed securities in general, however, are subject to certain risks. Most of these risks are related to limited interests in applicable collateral. For example, credit card debt receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts on credit card debt, thereby reducing the balance due. Additionally, if the letter of credit is exhausted, holders of asset-backed securities may also experience delays in payments or losses if the full amounts due on underlying sales contracts are not realized.

U.S. DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES. (MONEY MARKET MASTER SERIES, PRIME MASTER SERIES, TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES) These are securities of foreign issuers (including banks, governments and quasi-governmental organizations) and foreign branches of U.S. banks, including negotiable CDs, bankers' acceptances and commercial paper. While investments in foreign securities are intended to reduce risk by providing further diversification, such investments involve sovereign and other risks, in addition to the credit and market risks normally associated with domestic securities. These additional risks include the possibility of adverse political and economic developments (including political instability, nationalization, expropriation and confiscatory taxation) and the potentially adverse effects of unavailability of public information regarding issuers, less governmental supervision and regulation of financial markets, reduced liquidity of certain financial markets, and the lack of uniform accounting, auditing, and financial reporting standards or the application of standards that are different or less stringent than those applied in the United States. It may be difficult to invoke legal process or to enforce contractual obligations abroad, and it may be especially difficult to sue a foreign government in the courts of that country.

POLICIES AND LIMITATIONS. These investments are subject to each Master Series' quality, maturity and duration standards.

PRIME Master Series may not invest in foreign debt securities except for certificates of deposit, commercial paper, unsecured bank promissory notes, bankers' acceptances, fixed time deposits and other obligations issued by foreign branches of U.S. banks.

TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series may not invest in foreign debt securities except for domestic municipal instruments backed by letters of credit or other forms of credit enhancement issued by foreign banks which have a branch, agency or subsidiary in the U.S.

MUNICIPAL OBLIGATIONS (MONEY MARKET MASTER SERIES, PRIME MASTER SERIES, TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES) Municipal obligations are issued by or on behalf of states, the District of Columbia, and U.S. territories and possessions and their political subdivisions, agencies, and instrumentalities. The interest on municipal obligations is generally exempt from federal income tax. The tax-exempt status of any issue of municipal obligations is determined on the basis of an opinion of the issuer's bond counsel at the time the obligations are issued.

Municipal obligations include "general obligation" securities, which are backed by the full taxing power of a municipality, and "revenue" securities, which are backed only by the income from a specific project, facility, or tax. Municipal obligations also include private activity bonds, which are issued by or on behalf of public authorities, but are not backed by the credit of any governmental or public authority. "Anticipation notes" are issued by municipalities in expectation of future proceeds from the issuance of bonds or from taxes or other revenues and are payable from those bond proceeds, taxes, or revenues. Municipal obligations also include tax-exempt commercial paper, which is issued by municipalities to help finance short-term capital or operating requirements.

The value of municipal obligations depends on the continuing payment of interest and principal when due by the issuers of the municipal obligations (or, in the case of private activity bonds, the revenues generated by the facility financed by the bonds or, in certain other instances, the provider of the credit facility backing the bonds). As with other fixed income securities, an increase in interest rates generally will reduce the value of a Master Series' investments in municipal obligations, whereas a decline in interest rates generally will increase that value.

Periodic efforts to restructure the federal budget and the relationship between the federal government and state and local governments may adversely impact the financing of some issuers of municipal securities. Some states and localities may experience substantial deficits and may find it difficult for political or economic reasons to increase taxes. Efforts are periodically undertaken that may result in a restructuring of the federal income tax system. These developments could reduce the value of all municipal securities, or the securities of particular issuers.

Unlike other types of investments, municipal obligations have traditionally not been subject to the registration requirements of the federal securities laws, although there have been proposals to provide for such registration. This lack of SEC regulation has adversely affected the quantity and quality of information available to the bond markets about issuers and their financial condition. The SEC has responded to the need for such information with Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (the "Rule"). The Rule requires that underwriters must reasonably determine that an issuer of municipal securities undertakes in a written agreement for the benefit of the holders of such securities to file with a nationally recognized municipal securities information repository certain information regarding the financial condition of the issuer and material events relating to such securities. The SEC's intent in adopting the Rule was to provide holders and potential holders of municipal securities with more adequate financial information concerning issuers of municipal securities. The Rule provides exemptions for issuances with a principal amount of less than $1,000,000 and certain privately placed issuances.

The federal bankruptcy statutes provide that, in certain circumstances, political subdivisions and authorities of states may initiate bankruptcy proceedings without prior notice to or consent of their creditors. These proceedings could result in material and adverse changes in the rights of holders of their obligations.

From time to time, federal legislation has affected the availability of municipal obligations for investment by any Master Series. There can be no assurance that legislation adversely affecting the tax-exempt status of

municipal obligations will not be enacted in the future. If such legislation were enacted, TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series would reevaluate its investment objective, policies and limitations. The Internal Revenue Service ("Service") occasionally challenges the tax-exempt status of the interest on particular municipal securities. If the Service determined that interest a Master Series earned was taxable, that interest could be deemed taxable retroactive to the time the Master Series purchased the relevant security.

Listed below are different types of municipal obligations:

GENERAL OBLIGATION BONDS. A general obligation bond is backed by the governmental issuer's pledge of its full faith and credit and power to raise taxes for payment of principal and interest under the bond. The taxes or special assessments that can be levied for the payment of debt service may be limited or unlimited as to rate or amount. Many jurisdictions face political and economic constraints on their ability to raise taxes. These limitations and constraints may adversely affect the ability of the governmental issuer to meet its obligations under the bonds in a timely manner.

REVENUE BONDS. Revenue bonds are backed by the income from a specific project, facility or tax. Revenue bonds are issued to finance a wide variety of public projects, including (1) housing, (2) electric, gas, water, and sewer systems, (3) highways, bridges, and tunnels, (4) port and airport facilities,
(5) colleges and universities, and (6) hospitals. In some cases, repayment of these bonds depends upon annual legislative appropriations; in other cases, if the issuer is unable to meet its legal obligation to repay the bond, repayment becomes an unenforceable "moral obligation" of a related governmental unit. Revenue bonds issued by housing finance authorities are backed by a wider range of security, including partially or fully insured mortgages, rent subsidized and/or collateralized mortgages, and net revenues from housing projects.

Most private activity bonds are revenue bonds, in that principal and interest are payable only from the net revenues of the facility financed by the bonds. These bonds generally do not constitute a pledge of the general credit of the public issuer or private operator or user of the facility. In some cases, however, payment may be secured by a pledge of real and personal property constituting the facility.

RESOURCE RECOVERY BONDS. Resource recovery bonds are a type of revenue bond issued to build facilities such as solid waste incinerators or waste-to-energy plants. Typically, a private corporation will be involved on a temporary basis during the construction of the facility, and the revenue stream will be secured by fees or rents paid by municipalities for use of the facilities. The credit and quality of resource recovery bonds may be affected by the viability of the project itself, tax incentives for the project, and changing environmental regulations or interpretations thereof.

MUNICIPAL LEASE OBLIGATIONS. These obligations, which may take the form of a lease, an installment purchase or a conditional sale contract, are issued by a state or local government or authority to acquire land and a wide variety of equipment and facilities. A Master Series will usually invest in municipal lease obligations through certificates of participation ("COPs"), which give the

Master Series a specified, undivided interest in the obligation. For example, a COP may be created when long-term revenue bonds are issued by a governmental corporation to pay for the acquisition of property. The payments made by the municipality under the lease are used to repay interest and principal on the bonds. Once these lease payments are completed, the municipality gains ownership of the property. These obligations are distinguished from general obligation or revenue bonds in that they typically are not backed fully by the municipality's credit, and their interest may become taxable if the lease is assigned. The lease subject to the transaction usually contains a "non-appropriation" clause. A non-appropriation clause states that, while the municipality will use its best efforts to make lease payments, the municipality may terminate the lease without penalty if its appropriating body does not allocate the necessary funds. Such termination would result in a significant loss to a Master Series.

MUNICIPAL NOTES (TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND

NEW YORK MUNICIPAL MASTER SERIES). Municipal notes include the following:

1. PROJECT NOTES are issued by local issuing agencies created under the laws of a state, territory, or possession of the United States to finance low-income housing, urban redevelopment, and similar projects. These notes are backed by an agreement between the local issuing agency and the Department of Housing and Urban Development ("HUD"). Although the notes are primarily obligations of the local issuing agency, the HUD agreement provides the full faith and credit of the United States as additional security.

2. TAX ANTICIPATION NOTES are issued to finance working capital needs of municipalities. Generally, they are issued in anticipation of future seasonal tax revenues, such as property, income and sales taxes, and are payable from these future revenues.

3. REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other types of revenue, such as that available under federal revenue-sharing programs. Because of proposed measures to reform the federal budget and alter the relative obligations of federal, state, and local governments, many revenue-sharing programs are in a state of uncertainty.

4. BOND ANTICIPATION NOTES are issued to provide interim financing until long-term bond financing can be arranged. In most cases, the long-term bonds provide the funds for the repayment of the notes.

5. CONSTRUCTION LOAN NOTES are sold to provide construction financing. After completion of construction, many projects receive permanent financing from Fannie Mae or Ginnie Mae.

6. TAX-EXEMPT COMMERCIAL PAPER is a short-term obligation issued by a state or local government or an agency thereof to finance seasonal working capital needs or as short-term financing in anticipation of longer-term financing.

7. PRE-REFUNDED AND "ESCROWED" MUNICIPAL BONDS are bonds with respect to which the issuer has deposited, in an escrow account, an amount of securities and cash, if any, that will be sufficient to pay the periodic interest on and principal amount of the bonds, either at their stated maturity date or on the date the issuer may call the bonds for payment. This arrangement gives the investment a quality equal to the securities in the account, usually U.S. Government Securities (defined below). Each Master Series can also purchase

bonds issued to refund earlier issues. The proceeds of these refunding bonds are often used for escrow to support refunding.

TENDER OPTION BONDS (TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES). Tender option bonds are created by coupling an intermediate- or long-term fixed rate tax-exempt bond (generally held pursuant to a custodial arrangement) with a tender agreement that gives the holder the option to tender the bond at its face value. As consideration for providing the tender option, the sponsor (usually a bank, broker-dealer, or other financial institution) receives periodic fees equal to the difference between the bond's fixed coupon rate and the rate (determined by a remarketing or similar agent) that would cause the bond, coupled with the tender option, to trade at par on the date of such determination. After payment of the tender option fee, a Master Series effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. Lehman Brothers Asset Management considers the creditworthiness of the issuer of the underlying bond, the custodian, and the third party provider of the tender option. In certain instances, a sponsor may terminate a tender option if, for example, the issuer of the underlying bond defaults on interest payments or the bond's rating falls below investment grade.

YIELD AND PRICE CHARACTERISTICS OF MUNICIPAL OBLIGATIONS (ALL MASTER SERIES). Municipal obligations generally have the same yield and price characteristics as other debt securities. Yields depend on a variety of factors, including general conditions in the money and bond markets and, in the case of any particular securities issue, its amount, maturity, duration, and rating. Market prices of fixed income securities usually vary upward or downward in inverse relationship to market interest rates.

Municipal obligations with longer maturities or durations tend to produce higher yields. They are generally subject to potentially greater price fluctuations, and thus greater appreciation or depreciation in value, than obligations with shorter maturities or durations and lower yields. An increase in interest rates generally will reduce the value of a Master Series' investments, whereas a decline in interest rates generally will increase that value. The ability of each Master Series to achieve its investment objective also is dependent on the continuing ability of the issuers of the municipal obligations in which a Master Series invest (or, in the case of private activity bonds, the revenues generated by the facility financed by the bonds or, in certain other instances, the provider of the credit facility backing the bonds) to pay interest and principal when due.

POLICIES AND LIMITATIONS. As a fundamental policy, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series each normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in municipal securities. As a fundamental policy, TAX-EXEMPT Master Series normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in securities the interest income on which is exempt from federal income tax and is not a tax preference item for purposes of the federal alternative minimum tax ("Tax Preference Item"). MONEY MARKET Master Series and PRIME Master Series may invest in municipal obligations that otherwise meet its criteria for quality and maturity.

Except as otherwise provided in the Prospectuses for the Portfolios and this SAI, each Master Series' investment portfolio may consist of any combination of the types of municipal obligations described in the Prospectuses

or in this SAI. The proportions in which each Master Series invests in various types of municipal obligations will vary from time to time.

PURCHASES WITH A STANDBY COMMITMENT TO REPURCHASE (PRIME MASTER SERIES, MONEY MARKET MASTER SERIES, TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES). When a Master Series purchases municipal obligations, it also may acquire a standby commitment obligating the seller to repurchase the obligations at an agreed upon price on a specified date or within a specified period. A standby commitment is the equivalent of a nontransferable "put" option held by a Master Series that terminates if the Master Series sells the obligations to a third party.

The Master Series may enter into standby commitments only with banks and (if permitted under the 1940 Act) securities dealers determined to be creditworthy. A Master Series' ability to exercise a standby commitment depends on the ability of the bank or securities dealer to pay for the obligations on exercise of the commitment. If a bank or securities dealer defaults on its commitment to repurchase such obligations, a Master Series may be unable to recover all or even part of any loss it may sustain from having to sell the obligations elsewhere.

Although each Master Series currently does not intend to invest in standby commitments, each reserves the right to do so. By enabling a Master Series to dispose of municipal obligations at a predetermined price prior to maturity, this investment technique allows the Master Series to be fully invested while preserving the flexibility to make commitments for when-issued securities, take advantage of other buying opportunities, and meet redemptions.

Standby commitments are valued at zero in determining NAV. The maturity or duration of municipal obligations purchased by a Master Series is not shortened by a standby commitment. Therefore, standby commitments do not affect the dollar-weighted average maturity or duration of the Master Series' investment portfolio.

POLICIES AND LIMITATIONS. A Master Series will not invest in standby commitments unless it receives an opinion of counsel or a ruling of the Service that the interest the Master Series earns on municipal obligations subject to a standby commitment will be exempt from federal income tax (and, in the case of NEW YORK MUNICIPAL Master Series, from New York State and New York City personal income taxes).

Each Master Series will not acquire standby commitments with a view to exercising them when the exercise price exceeds the current value of the underlying obligations; a Master Series will do so only to facilitate portfolio liquidity.

PARTICIPATION INTERESTS (MONEY MARKET MASTER SERIES, PRIME MASTER SERIES, TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES). The Master Series may purchase from banks participation interests in all or part of specific holdings of short-term municipal obligations. Each participation interest is backed by an irrevocable letter of credit issued by a selling bank determined by Lehman Brothers Asset Management to be creditworthy. A Master Series has the right to sell the participation interest back to the bank, usually after seven days' notice, for the full principal amount of its participation, plus accrued interest, but only (1) to provide portfolio liquidity, (2) to maintain portfolio quality, or (3) to avoid

losses when the underlying municipal obligations are in default. Although no Master Series currently intends to acquire participation interests, each reserves the right to do so in the future.

POLICIES AND LIMITATIONS. Each Master Series will not purchase participation interests unless it receives an opinion of counsel or a ruling of the Service that the interest the Master Series earns on municipal obligations in which it holds participation interests is exempt from federal income tax (and, in the case of NEW YORK MUNICIPAL Master Series, from New York State and New York City personal income taxes).

MORTGAGE-BACKED SECURITIES (MONEY MARKET MASTER SERIES, PRIME MASTER SERIES, GOVERNMENT MASTER SERIES AND GOVERNMENT RESERVES MASTER SERIES). Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, pools of mortgage loans. They may be issued or guaranteed by a U.S. Government agency or instrumentality (such as GNMA, Fannie Mae, and Freddie Mac), though not necessarily backed by the full faith and credit of the United States, or may be issued by private issuers. Private issuers are generally originators of and investors in mortgage loans and include savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities. Private mortgage-backed securities may be supported by U.S. Government agency mortgage-backed securities or some form of non-governmental credit enhancement.

Government-related guarantors (I.E., not backed by the full faith and credit of the U.S. Government) include Fannie Mae and Freddie Mac. Fannie Mae is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of HUD. Fannie Mae purchases conventional (I.E., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers that include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by Fannie Mae are guaranteed as to timely payment of principal and interest by Fannie Mae but are not backed by the full faith and credit of the United States Government.

Freddie Mac is a government-sponsored corporation formerly owned by the twelve Federal Home Loan Banks and now owned entirely by private stockholders. Freddie Mac issues Participation Certificates ("PCs"), which represent interests in conventional mortgages from Freddie Mac's national portfolio. Freddie Mac guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the United States Government.

Mortgage-backed securities may have either fixed or adjustable interest rates. Tax or regulatory changes may adversely affect the mortgage securities market. In addition, changes in the market's perception of the issuer may affect the value of mortgage-backed securities. The rate of return on mortgage-backed securities may be affected by prepayments of principal on the underlying loans, which generally increase as market interest rates decline; as a result, when interest rates decline, holders of these securities normally do not benefit from appreciation in market value to the same extent as holders of other non-callable debt securities.

Because many mortgages are repaid early, the actual maturity and duration of mortgage-backed securities are typically shorter than their stated final maturity and their duration calculated solely on the basis of the stated life and payment schedule. In calculating its dollar-weighted average maturity and duration, a Master Series may apply certain industry conventions regarding the maturity and duration of mortgage-backed instruments. Different analysts use different models and assumptions in making these determinations. The Master Series use an approach that Lehman Brothers Asset Management believes is reasonable in light of all relevant circumstances. If this determination is not borne out in practice, it could positively or negatively affect the value of the Master Series when market interest rates change. Increasing market interest rates generally extend the effective maturities of mortgage-backed securities, increasing their sensitivity to interest rate changes.

Mortgage-backed securities may be issued in the form of collateralized mortgage obligations ("CMOs") or collateralized mortgage-backed bonds ("CBOs"). CMOs are obligations that are fully collateralized, directly or indirectly, by a pool of mortgages; payments of principal and interest on the mortgages are passed through to the holders of the CMOs, although not necessarily on a PRO RATA basis, on the same schedule as they are received. CBOs are general obligations of the issuer that are fully collateralized, directly or indirectly, by a pool of mortgages. The mortgages serve as collateral for the issuer's payment obligations on the bonds, but interest and principal payments on the mortgages are not passed through either directly (as with mortgage-backed "pass-through" securities issued or guaranteed by U.S. Government agencies or instrumentalities) or on a modified basis (as with CMOs). Accordingly, a change in the rate of prepayments on the pool of mortgages could change the effective maturity or the duration of a CMO but not that of a CBO, (although, like many bonds, CBOs may be callable by the issuer prior to maturity). To the extent that rising interest rates cause prepayments to occur at a slower than expected rate, a CMO could be converted into a longer-term security that is subject to greater risk of price volatility.

Governmental, government-related, and private entities (such as commercial banks, savings institutions, private mortgage insurance companies, mortgage bankers, and other secondary market issuers, including securities broker-dealers and special purpose entities that generally are affiliates of the foregoing established to issue such securities) may create mortgage loan pools to back CMOs and CBOs. Such issuers may be the originators and/or servicers of the underlying mortgage loans, as well as the guarantors of the mortgage-backed securities. Pools created by non-governmental issuers generally offer a higher rate of interest than governmental and government-related pools because of the absence of direct or indirect government or agency guarantees. Various forms of insurance or guarantees, including individual loan, title, pool, and hazard insurance and letters of credit, may support timely payment of interest and principal of non-governmental pools. Governmental entities, private insurers, and mortgage poolers issue these forms of insurance and guarantees. Lehman Brothers Asset Management considers such insurance and guarantees, as well as the creditworthiness of the issuers thereof, in determining whether a mortgage-backed security meets a Master Series' investment quality standards. There can be no assurance that private insurers or guarantors can meet their obligations under insurance policies or guarantee arrangements. A Master Series may buy mortgage-backed securities without insurance or guarantees, if Lehman Brothers Asset Management determines that the securities meet the Master Series' quality standards. Lehman Brothers Asset Management will, consistent with the Master Series' investment objectives, policies and limitations and quality

standards, consider making investments in new types of mortgage-backed securities as such securities are developed and offered to investors.

POLICIES AND LIMITATIONS. A Master Series may not purchase mortgage-backed securities that, in Lehman Brothers Asset Management's opinion, are illiquid if, as a result, more than 10% of the Master Series' net assets would be invested in illiquid securities. A Master Series may invest in U.S. Government agency mortgage-backed securities only if they are backed by the full faith and credit of the United States.

ZERO COUPON (ALL MASTER SERIES EXCEPT TREASURY MASTER SERIES AND

TREASURY RESERVES MASTER SERIES).

Each Master Series may invest in zero coupon securities. These securities are debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity or that specify a future date when the securities begin to pay current interest. Zero coupon securities are issued and traded at a significant discount from their face amount or par value. This discount varies depending on prevailing interest rates, the time remaining until cash payments begin, the liquidity of the security, and the perceived credit quality of the issuer.

Zero coupon securities are redeemed at face value when they mature. The discount on zero coupon must be taken into income ratably by each Master Series prior to the receipt of any actual payments.

Because each Master Series must distribute to its shareholders substantially all of its net investment income (including non-cash income attributable to zero coupon securities) each year for income and excise tax purposes, a Master Series may have to dispose of portfolio securities under disadvantageous circumstances to generate cash, or may be required to borrow, to satisfy its distribution requirements. See "Additional Tax Information -- Taxation of the Funds."

The market prices of zero coupon securities generally are more volatile than the prices of securities that pay cash interest periodically. Zero coupon securities are likely to respond to changes in interest rates to a greater degree than other types of debt securities having a similar maturity and credit quality.

LEVERAGE. (ALL MASTER SERIES) A Master Series may make investments while borrowings are outstanding and may engage in transactions that have the effect of leverage. Leverage creates an opportunity for increased total return but, at the same time, creates special risk considerations. For example, leverage may amplify changes in a Master Series' NAV. Although the principal of such borrowings will be fixed, a Master Series' assets may change in value during the time the borrowing is outstanding. Leverage from borrowing creates interest expenses for a Master Series. To the extent the income derived from securities purchased with borrowed funds exceeds the interest a Master Series will have to pay, that Master Series' total return will be greater than it would be if leverage were not used. Conversely, if the income from the assets obtained with borrowed funds is not sufficient to cover the cost of leveraging, the net income of a Master Series will be less than it would be if leverage were not used, and therefore the amount available for distribution to that Master Series' shareholders as dividends will be reduced. Reverse repurchase agreements,

securities lending transactions and when-issued and delayed delivery transactions may create leverage.

POLICIES AND LIMITATIONS. Each Master Series may borrow money from banks for temporary or emergency purposes or enter into reverse repurchase agreements for any purpose, as long as such borrowings do not exceed 33-1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings).

However, for MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY Master Series and TREASURY RESERVES Master Series, as an operating policy, a Master Series will not invest more than 20% of its total assets in reverse repurchase agreements and securities lending transactions in the aggregate.

Each of MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY Master Series and TREASURY RESERVES Master Series may also borrow up to 5% of its total assets for temporary purposes, e.g., for the purpose of settling purchase and sale transactions; these temporary borrowings are not subject to the 33-1/3% limitation.

TERRORISM RISKS. (All Master Series) Some of the U.S. securities markets were closed for a four-day period as a result of the terrorist attacks on the World Trade Center and Pentagon on September 11, 2001. These terrorist attacks, the war with Iraq and its aftermath, continuing occupation of Iraq by coalition forces and related events have led to increased short-term market volatility and may have long-term effects on U.S. and world economies and markets. Those events could also have an acute effect on individual issuers or related groups of issuers or issuers concentrated in a single geograpic area. A similar disruption of the financial markets or other terrorist attacks could adversely impact interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to portfolio securities and adversely affect Master Series service providers and the Master Series' operations.

SPECIAL RISK CONSIDERATIONS FOR NEW YORK MUNICIPAL PORTFOLIO

SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS. The New York Master Series will have considerable investments in New York municipal obligations. Accordingly, the Master Series will be more susceptible to certain factors which could adversely affect issuers of New York municipal obligations than a mutual fund which does not have as great a concentration in New York municipal obligations. The ability of issuers to pay interest on, and repay principal of, New York municipal obligations may be affected by: (1) amendments to the New York Constitution and other statutes that limit the taxing and spending authority of New York government entities; (2) the general financial and economic profile as well as the political climate of the State of New York, its public authorities, and political subdivisions; and (3) a change in New York laws and regulations or subsequent court decisions that may affect, directly or indirectly, New York municipal obligations. The Master Series' yield and share price are sensitive to these factors as one or more of such factors could undermine New York issuers' efforts to borrow, inhibit secondary market liquidity and erode credit ratings.

Summarized below are important financial concerns relating to the Master Series' investments in New York municipal obligations. This section is not intended to be an entirely comprehensive description of all risks involved in investing in New York municipal obligations. The information contained in this section is intended to give a recent historical description and is not intended to indicate future or continuing trends in the financial or other positions of the State of New York (the "State") and the City of New York (the "City"). It should be noted that the creditworthiness of obligations issued by local New York issuers may be unrelated to the creditworthiness of obligations issued by the State and the City, and that there is no obligation on the part of the State to make payment on such local obligations in the event of default.

STATE ECONOMY. The State has a varied economy with a comparatively large share of the nation's financial activities, information and employment in education and health services, but a very small share of the nation's farming and mining activity. The State has the third largest population in the nation, and its residents have a relatively high level of personal wealth. Its location, airport facilities and natural harbors have made it a vital link in international commerce and tourism comprises a significant part of the economy. The State is likely to be less affected than the nation as a whole during an economic recession that is concentrated in manufacturing and construction, but likely to be more affected during a recession that is concentrated in the services sector. New York City, which is the most populous city in the nation and the center of the nation's largest metropolitan area, accounts for a large portion of the State's population and personal income.

The State economy continues to expand, as recent above-trend growth rates reinforce the strength of the State economy. Nonetheless, there can be no assurance that the State economy will not experience worse-than-predicted results in the 2006-07 fiscal year (April 1, 2006 through March 31, 2007) or subsequent fiscal years, with corresponding material and adverse effects on the State's projections of receipts and disbursements. The State's economic recovery is securely in the middle of its third year. The low interest rates and rising home prices have supported the State's financial and housing sectors, while the professional and business services sector has benefited from robust growth in U.S. corporate profits. Also, the tourism boom in New York City appears to be continuing. Although the New York State Leading Index indicates continued growth going forward, the rate of growth is expected to slow because the most recent data indicates that the State's economic momentum may have already peaked. The private sector employment growth is projected to slow to 0.9 percent in 2006, which is consistent with Executive and Legislative economic forecasting prior to the enactment of the State's 2006-07 Budget.

Data regarding employment dynamics at the firm level continue to support a positive outlook for growth because the gross rate of job creation comfortably exceeds the gross rate of job destruction. However, the recent upturn in the job destruction index may be an indicator of slowing State economic growth. The recent Federal Reserve policy appears to be aimed at engineering a soft landing for the U.S. economy.

Although the housing market is expected to continue to grow going forward, the growth will likely not be as healthy as observed in prior years as prices have appeared to plateau, especially so outside of Manhattan. Furthermore, with the improvement in the stock market during recent years, the securities industry continues to experience solid profit levels. Personal income

growth for 2006 has been slightly revised upward due to revisions by the U.S. Bureau of Economic Analysis in the nonwage components of income, and the total New York wage and salary growth for the State are predicted to remain constant at 4.9 percent.

Many uncertainties exist in any forecast of the national and State economies. Given recent events, such uncertainties are particularly pronounced at this time. The State and City of New York are particularly vulnerable to an unexpectedly poor performance by the financial markets, which could reduce securities industry rates of profit and bonus payment growth. General global instability along with increasing energy prices and interest rates could also adversely impact the equity markets resulting in a disproportionate impact to the economy.

STATE BUDGET. Each year, the Governor is required to provide the State Legislature with a balanced executive budget (the "Executive Budget") which constitutes the proposed State financial plan for the ensuing fiscal year. The State's fiscal year for 2006-07 ends on March 31, 2007. (New York State's fiscal year for 2007-08 will run from April 1, 2007 to March 31, 2008.) All Government Funds receipts are projected to be $111.2 billion in 2006-07, an increase of 3.9% from 2005-06. All Government Funds spending is projected to be $112.5 billion in 2006-07, an increase of 4.4% from 2005-06. Spending increases were primarily due to increased expenses, larger disbursements for Medicaid, school aid and higher education, among other things.

Assuming improved economic performance and growth in both personal income and sales taxes, the financial plan projects a closing balance in the State's largest and principal operating fund, the General Fund, of $3.3 billion at the end of the 2006-07 fiscal year. As a result of a significant revenue increase due to a range of positive economic developments and tax stimuli, total General Fund receipts and transfers from other funds are projected to be approximately $50.9 billion recorded in 2006-07. Because of higher spending on grants to local governments, state operations, and general state charges, partially offset by lower spending on capital projects and transfers to other funds, total General Fund disbursements, including transfers to other funds, are projected to be $50.8 billion for 2006-07, an increase of 7.8% from 2005-06.

NON-RECURRING ACTIONS. The 2006-07 budget includes a total of $900 million in non-recurring actions. Two of those actions are $90 million in additional revenues from abandoned property revenue, and $112 million in additional sweeps of available fund balances.

GENERAL FUND OUTYEAR BUDGET GAP PROJECTIONS. As the State prepared the budget cycle it projected budget gaps in the General Fund of $5.8 billion in 2006-2007 and $5.6 billion in 2007-2008. However, because of the recurring savings realized in the 2005-2006 Executive Budget, the gaps of both were reduced to $2.5 billion. When compared to the Executive Budget projections, the General Fund budget gaps for the 2006-2007 and 2007-2008 budgets have increased and are now estimated at $3.2 billion and $4.1 billion, respectively. These estimates reflect the use of the Fiscal Stability Reserve to reduce the out year gaps in equal amounts and are principally the result of anticipated spending increases which exceed growth in revenue collections and the loss of nonrecurring resources.

Future budget gaps are subject to substantial revision as additional information becomes available about the national and State economies, financial sector activity, entitlement spending and social service caseloads, and State reimbursement obligations that are driven by local government activity. Key factors include: end-of-year business tax collections; calendar year economic results; year-end financial sector bonus income data; the school aid database update in November; and quarterly Medicaid cycle trend analysis.

OTHER CONSIDERATIONS. Many complex political, social and economic forces influence the State's economy and finances, which may in turn affect the Budget. These factors may affect the State unpredictably from fiscal year to fiscal year and are influenced by governments, institutions and events that are not subject to the State's control. It is also necessarily based upon forecasts of national and State economic activity. Economic forecasts have frequently failed to predict accurately the timing and magnitude of changes in the national and State economies. There can be no assurance that the State's actual results will not differ materially and adversely from the current forecast.

The State anticipates its general reserves will total $893 million, including $872 million in the rainy day reserve (the "tax stabilization reserve") and $21 million in the Contingency Reserve Fund for litigation risks. An additional $601 million has been set aside in a fiscal stability reserve which is intended to be dispersed in equal installments in 2006-07 and 2007-08 to help lower the projected budget gaps. The State also has restricted fund balances that are set aside for the payment existing liabilities for the Community Projects Fund ($287 million).

Aside from the $21 million in the Contingency Reserve Fund, specific reserves have not been set aside to cover potential costs that could materialize as a result of adverse rulings in pending litigation, the cost of collective bargaining agreements with State employee unions, federal actions that could adversely affect the State's projections of receipts and disbursements, or other federal disallowances.

The fiscal health of the State is closely linked to the fiscal health of its localities, particularly the City, which has required historically significant financial assistance from the State. National recession, the September 11, 2001 terrorist attacks and stock market declines have yielded substantive credit pressure, although rating stability has been exhibited throughout these events. The State's disproportionate dependency upon the financial services sector exposes the State to volatility during periods of financial market weakness. Furthermore, upstate municipalities do not necessarily benefit from strong financial market performance as do the City and surrounding areas and, therefore, economic improvement may not be uniform across the State. Furthermore, if the global economies have slower growth than expected, demand for State goods and services would be lower than projected, which would again diminish employment and income growth relative to the forecast.

The United States Congress often considers making changes to federal income tax law. Since the State uses federal taxable income as the starting point for calculating taxable income, such changes in federal law could adversely impact State tax revenues.

RECENT STATE FISCAL YEARS. The Division of the Budget ("DOB") reported that the State ended the 2005-06 fiscal year on March 31, 2006 with a General Fund operating surplus of $2.0 billion. Total receipts, including transfers from

other funds, were $47.2 billion. Disbursements, including transfers to other funds, totaled $46.5 billion. The General Fund ended the fiscal year with a balance of $3.3 billion, which included $944 million in the Tax Stabilization Reserve Fund (after a $72 million deposit at the close of 2005-06), the Contingency Reserve Fund ($21 million), and the Community Projects Fund ($251 million). The closing fund balance includes $2.0 billion in a spending stabilization reserve fund.

STATE DEBT. Included in state financing activities are general obligation debt as well as State-guaranteed debt, to which the full faith and credit of the State has been pledged. Also included in the State's financing activities are lease-purchase and contractual-obligation financings and other financings through public authorities and municipalities, where the State's obligation to make payments for debt service is generally subject to annual appropriation by the Legislature.

As of March 31, 2006, the State had approximately $3.6 billion outstanding in general obligation debt, $27.1 billion in debt relating to lease-purchase and contractual-obligation financing of State capital programs, $6.3 billion in state personal income tax revenue bond financing, and $4.3 billion in debt from the Local Government Assistance Corporation, a public benefit corporation empowered to issue long-term obligations to fund certain payments to local governments traditionally funded through the State's annual seasonal borrowing, as of March 31, 20056 The State's 2006-07 borrowing plan projects that $236 million in general obligation bonds will be issued, along with $720 million to finance capital projects for transportation and approximately $3 billion of bonds to restructure outstanding bonds. Further expected issuances include $21 million in DOH Revenue Bonds to support a portion of the costs to construct a new veteran's nursing home, $4.77 billion in state personal income tax revenue bonds to finance other capital programs, $312 million to finance capital projects at mental health facilities, and $92 million to finance capital projects for student dormitories at State educational institutions.

The total amount of State debt outstanding is projected to increase from 5.30 percent of personal income in fiscal year 2005-06 to 5.52 percent in fiscal year 2006-07. Total debt outstanding is projected to increase from $42.6 billion in 2005-06 to $45.2 billion in 2006-07. Total state-supported debt service costs as a percent of total governmental fund receipts is estimated to be 3.69 percent in fiscal year 2006-07.

New State-supported debt issued on or after April 1, 2000 is subject to the Debt Reform Act of 2000 ("Debt Reform Act"). This Act imposes caps on new debt outstanding and new debt service costs, restricts the use of debt to capital purposes only and restricts the maximum term of debt issuances to no more than 30 years.

As of September 30, 2006, Fitch, Inc., Moody's and S&P rated the State's outstanding general obligation bonds AA-, A1 and AA, respectively. Ratings reflect only the respective views of such organizations, and an explanation of the significance of such ratings may be obtained from the rating agency furnishing the same. There is no assurance that a particular rating will continue for any given period of time or that any such rating will not be revised downward or withdrawn entirely, if in the judgment of the agency originally establishing the rating, circumstances so warrant.

LITIGATION. The State is currently involved in certain litigation where adverse decisions could have a material impact on State finances. Included in this litigation are the following matters, although not exhaustive of all pending matters:

In FREEDOM HOLDINGS INC. ET AL. V. SPITZER ET ANO., two cigarette importers in 2002 challenged laws enacted by the State under the 1998 Tobacco Master Settlement Agreement ("MSA"). The trial court granted the State's motion to dismiss for failure to state a cause of action. Plaintiffs appealed and, on January 6, 2004, the appellate court (1) affirmed the dismissal of the Commerce Clause violation; (2) reversed the dismissal of anti-trust violations; and (3) remanded the equal protection violations relating to selective enforcement of State laws on Native American reservations to the trial court for further proceedings. Plaintiffs have filed an amended complaint that also challenges the MSA itself (as well as other related State statutes) primarily on preemption grounds. Plaintiffs also sought preliminary injunctive relief which was denied by the trial court except that portion of the ability of tobacco manufacturers to obtain the release of certain funds from escrow. Plaintiffs appealed and the appellate court affirmed the trial court's denial.

In CAMPAIGN FOR FISCAL EQUITY, INC., ET AL. V. STATE, ET AL., plaintiffs claimed that the State's method of determining funding levels for New York City public schools has a disparate impact on plaintiffs in violation of Title VI of the Civil Rights Act of 1964 and does not provide a "sound basic education" as required by the State Constitution. By a decision dated June 26, 2003, the New York State Court of Appeals held that the evidence supported the trial court's conclusion that New York City school children were not receiving the constitutionally mandated opportunity for a sound basic education, and remitted the case to the trial court for further proceedings in accordance with its decision. In August 2004, the Supreme Court, New York County, referred this case to a panel of three referees to make recommendations as to how the State should satisfy the Court of Appeals holding. On November 30, 2004, the panel recommended that the State pay New York City Schools a total of $14.1 billion over the next four years in additional operations funding and $9.2 billion over the next five years for capital improvements. On March 15, 2005, the Supreme Court, New York County, issued an order confirming the panel's report. This order was vacated on March 23, 2006 by the Appellate Division, First Department. The Appellate Division directed the Governor and Legislature to consider between a range of $4.7 billion and $5.63 billion over four years to appropriate to the New York City Schools for operational funding and to implement a capital improvement plan that expends $9.179 billion over 5 years or another amount that satisfies the New York City School's capital needs. Both the plaintiff and defendants have appealed the Supreme Court's decision to the Court of Appeals.

There are currently multiple Indian land claims before the courts which include ONEIDA INDIAN NATION OF NEW YORK ET AL. V. COUNTY OF ONEIDA, CAYUGA INDIAN NATION OF NEW YORK V. CUOMO, ET AL., CANADIAN ST. REGIS BAND OF MOHAWK INDIANS, ET AL., V. STATE OF NEW YORK, ET AL., and SENECA NATION OF INDIANS, ET AL V. STATE, ET AL. in which the State may be liable for monetary damages or transfer of property among other damages.

In CONSUMERS UNION OF U.S., INC. V. STATE, plaintiffs challenge the constitutionality of statutes relating to the authorization of the conversion of Empire Health Choice, d/b/a Empire Blue Cross and Blue Shield from a not-for-profit corporation to a for-profit corporation. Upon such conversion,

the law requires, in part, that assets representing 95 percent of the fair market value of the not-for-profit corporation be transferred to a fund designated as the "public asset fund" to be used for the purpose set forth in the Insurance Law. The State and private defendants have separately moved to dismiss the complaint. On November 6, 2002, the Supreme Court, New York County, granted a temporary restraining order, directing that the proceeds from the initial public offering of the for-profit corporation be deposited with the State Comptroller in an interest-bearing account, pending the hearing of a motion for a preliminary injunction, which was returnable simultaneously with the motions to dismiss, on November 26, 2002. On May 20, 2004, the Appellate Division, First Department affirmed the dismissal of plaintiff's original complaint but also affirmed the denial of defendants' motion to dismiss the amended claim. The State, the other defendants and the plaintiffs have been granted leave to appeal to the Court of Appeals.

Other significant litigation includes statutory challenges related to Medicaid payment reimbursement methodology.

STATE RETIREMENT SYSTEMS. The State and Local Retirement Systems ("Systems") provide coverage for public employees of the State and its localities (except employees of the City and teachers, who are covered by separate plans). The State Constitution considers membership in any State pension or retirement system to be a contractual relationship, the benefits of which shall not be diminished or impaired. The present value of anticipated benefits for current members, retirees, and beneficiaries as of April 1, 2006 was $145.4 billion (including $53.4 billion for current retirees and beneficiaries), and the net assets available for benefits as of March 31, 2006 were $128 billion (including $2.3 billion in receivables). Under the funding method used by the Systems, the anticipated benefits of current members, retirees and beneficiaries are expected to be sufficiently covered by the net assets, plus future actuarially determined contributions.

AUTHORITIES. Generally, the fiscal stability of the State is partially dependent upon the fiscal stability of its public authorities ("Authorities"). Such Authorities are responsible for financing, constructing, and operating revenue-producing public benefit facilities. Authorities may issue bonds and notes within the amounts and restrictions set forth in their legislative authorization and are not subject to the constitutional restrictions on the incurrence of debt that apply to the State itself. Not surprisingly, if any of the Authorities were to default on their respective obligations, particularly with respect to debt that is State-supported or State-related, the State's access to the public credit markets could be impaired, and consequently, the market price of its outstanding debt could be negatively affected. As of December 31, 2006, the aggregate outstanding debt, including refunding bonds, of all the Authorities was $120.4 billion, and there were 19 public authorities that had outstanding debt of $100 million or more.

In order to pay their operating expenses and debt service costs, public authorities generally use revenues generated by the projects they finance or operate, such as tolls charged for the use of highways, bridges or tunnels, rentals charged for housing units, charges for occupancy at medical care facilities, and charges for public power, electric, and gas utility services. In recent years, however, the State has provided financial assistance through appropriations, in some cases of a recurring nature, to certain of the Authorities for operating and other expenses and, in fulfillment of its commitments on moral obligation indebtedness or otherwise, for debt service.

This operating assistance is expected to continue to be required in future years. Moreover, certain statutory arrangements provide for State local assistance payments otherwise payable to localities to be made under certain circumstances to certain Authorities. The State has no obligation to provide additional assistance to localities whose local assistance payments have been paid to Authorities under these arrangements, but understandably, the affected localities could seek additional State funds in the event that local assistance payments are diverted to Authorities.

METROPOLITAN TRANSPORTATION AUTHORITY ("MTA"). In February 2006, the MTA released an update to the MTA financial plan for the years 2006-09 and the 2006 MTA Adopted Budget for itself and its affiliates and subsidiaries, which operate various rail, subway and bus services in New York City and the surrounding area. It is expected that the plan will enable all such entities to maintain their respective operations on a self-sustaining basis through 2006 with a closing cash balance estimated at $462 million in 2005 and a closing cash balance of $217 million forecast for 2006. There are anticipated budget gaps of $154 million in 2007, $797 million in 2008 and $934 million in 2009.

On September 29, 2004, the MTA Board approved a $27.791 billion capital program for the 2005-09 period. The Capital Program Review Board ("CPRB") reviewed the transit and commuter rail portions of the program on October 1, 2004, but disapproved the submission on December 21, 2004 in order to allow time for funding issues related to the proposal to be resolved. In April 2005, the MTA Board approved a revised 2005-09 plan based on the 2005-09 State Budget, which provided for additional tax revenues for the MTA that allowed the MTA to advance a revised five-year plan totaling $21.145 billion. The CPRB approved the transit and commuter portions of this plan totaling $17.987 billion with minor program modifications in July 2005. The revised 2005-09 Capital Program assumes the issuance of an estimated $5.1 billion in new money MTA bonds. It is projected that the remainder of the plan will be financed with assistance from the federal government, the State, the City of New York, and from various other revenues generated from actions taken by the MTA. However, the MTA has proposed an amendment to revise the five-year program to total $21.285 billion.

When a final plan is adopted there is no guarantee that all the necessary governmental actions for the current or future capital programs will be taken or that funding sources currently identified will not be decreased or eliminated. As appropriate, the MTA and the CPRB may amend the 2005-09 Capital Program from time to time due to the level of available funding. If the 2005-09 Capital Plan is delayed or reduced, ridership and fare revenue may decline, which could impair the MTA's ability to meet its operating expenses without additional State assistance.

The official financial disclosure of the MTA and its subsidiaries is available by contacting the Metropolitan Transportation Authority, Finance Department, 347 Madison Avenue, 6th Floor, New York, New York 10017 or by visiting the MTA website at www.mta.info.

NEW YORK CITY. The fiscal demands on the State may be affected by the fiscal condition of the City, which relies in part on State aid to balance its budget and meet its cash requirements. It is also possible that the State's finances may be affected by the ability of the City, and certain entities

issuing debt for the benefit of the City, to market securities successfully in the public credit markets.

The official financial disclosure of The City of New York and the financing entities issuing debt on its behalf is available by contacting Raymond J. Orlando, Director of Investor Relations, (212) 788-5875 or contacting the Office of Management and Budget, 75 Park Place, 6th Floor, New York, NY 10007.

NEW YORK CITY FINANCIAL PLAN. On January 31, 2006, the City released a modification to its financial plan for 2006-10 ("January Financial Plan"). The January Financial Plan projected revenues and expenditures for the 2006 and 2007 fiscal years are balanced, in accordance with generally accepted accounting principles, and projects gaps of $3.4 billion, $3.5 billion and $2.7 billion for fiscal years 2007, 2008 and 2009, respectively. The 2006-2009 financial plan's projections for total revenues for each of these gap outyears is approximately $53 billion, $54.3 billion and $56.2 billion.

On May 4, 2006, the Mayor issued the Executive budget for fiscal year 2007 and an updated four-year financial plan for 2006 through 2010. The City projects a balanced budget for the current fiscal year, a budget gap of $3.6 billion, $4.2 billion and $3.6 billion for fiscal years 2008, 2009 and 2010 respectively.

The staffs of the New York State Financial Control Board ("FCB"), Office of the State Deputy Comptroller for the City of New York ("OSDC"), the City Comptroller and the Independent Budget Office ("IBO"), issue periodic reports on the City's financial plans. Copies of the most recent reports are available by contacting: FCB, 123 William Street, 23rd Floor, New York, NY 10038, Attention: Executive Director; OSDC, 59 Maiden Lane, 29th Floor, New York, NY 10038, Attention: Deputy Comptroller; City Comptroller, Municipal Building, 6th Floor, One Centre Street, New York, NY 10007-2341, Attention:
Deputy Comptroller for Budget; and IBO, 110 William Street, 14th Floor, New York, NY 10038, Attention: Director.

NEW YORK CITY FINANCING PROGRAM. Successful execution of the January Financial Plan depends upon the City's ability to market its securities successfully. The City's program for financing capital projects for fiscal years 2006 through 2010 projects $31.6 billion of long-term borrowing to support the City's current capital program. With the exception of a very small portion of the financing, the program will be implemented through General Obligation ("GO") bonds of the City and bonds of the New York City Municipal Water Finance Authority ("NYW"), unless bonding capacity of the New York City Transitional Finance Authority ("TFA") is increased.

The City's total debt outstanding (excluding approximately $15.9 billion in debt of the NYW) for fiscal year 2006 is expected to be approximately $53.1 billion, which equals 14.9% of total City personal income. The City's financial plan is predicated on numerous assumptions, including the condition of the City's and the region's economies and the associated receipt of economically sensitive tax revenues in the projected amounts. The plan is also subject to a variety of other factors.

In addition to borrowings related to capital projects, the City issues both revenue and tax anticipation notes to finance its seasonal working capital requirements. The success of projected public sales of City, NYW, TFA, TSASC and other bonds and notes will be subject to prevailing market conditions. The City's planned capital and operating expenditures are dependent upon the sale of its general obligation debt, as well as debt of the NYW, TFA, Dormitory Authority of the State of New York and TSASC.

Since 1981, the City has repaid all short-term obligations within their fiscal year of issuance, fully satisfying its seasonal financing needs in the public credit markets. At times, the City has been obligated to issue short-term notes in amounts exceeding those expected earlier in the fiscal year because of delays in adopting the State's budget.

OTHER LOCALITIES. Historically, the State has provided unrestricted financial assistance to cities, counties, towns and villages outside of the City. Certain localities outside the City have experienced financial problems and have consequently requested and received additional State assistance during the last several State fiscal years. Not included in the projections of the State's receipts and disbursements for the State's 2005-06 fiscal year or thereafter is the potential impact of any future requests by localities for additional financial assistance.

CERTAIN RISK CONSIDERATIONS

A Portfolio's investment in its corresponding Master Series may be affected by the actions of other large investors in the Master Series, if any. For example, if a large investor in a Master Series (other than a Portfolio) redeemed its interest in the Master Series, the Master Series' remaining investors (including the Portfolio) might, as a result, experience higher PRO RATA operating expenses, thereby producing lower returns.

Each of TAX-EXEMPT Master Series', MUNICIPAL Master Series' and NEW YORK MUNICIPAL Master Series' ability to achieve its investment objective is dependent on the continuing ability of the issuers of municipal obligations in which the Master Series invests (and, in certain circumstances, of banks issuing letters of credit or insurers issuing insurance backing those obligations) to pay interest and principal when due.

Although each Master Series seeks to reduce risk by investing in a diversified portfolio of securities, diversification does not eliminate all risk. There can, of course, be no assurance that each Master Series will achieve its investment objective.

PERFORMANCE INFORMATION

Each Portfolio's performance figures are based on historical results and are not intended to indicate future performance. The yield and total return of each Portfolio will vary. Although each Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio.

Yield Calculations

Each of the Portfolios may advertise its "current yield" and "effective yield" in the financial press and other publications. A Portfolio's CURRENT YIELD is based on the return for a recent seven-day period and is computed by

determining the net change (excluding capital changes) in the value of a hypothetical account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period. The result is a "base period return," which is then annualized -- that is, the amount of income generated during the seven-day period is assumed to be generated each week over a 52-week period -- and shown as an annual percentage of the investment.

The EFFECTIVE YIELD of each Portfolio is calculated similarly, but the base period return is assumed to be reinvested. The assumed reinvestment is calculated by adding 1 to the base period return, raising the sum to a power equal to 365 divided by seven, and subtracting one from the result, according to the following formula:

Effective Yield = [(Base Period Return + 1)365/7] - 1.

Tax Equivalent Yield

GOVERNMENT PORTFOLIO AND GOVERNMENT RESERVES PORTFOLIO. Much of the dividends these Portfolios pay may represent income it received on direct obligations of the U.S. Government and, as a result, is not subject to income tax in most states and localities. From time to time, these Portfolios may advertise a "tax equivalent yield" for one or more of those states or localities that reflects the taxable yield that an investor subject to the highest marginal rate of state or local income tax would have had to receive in order to realize the same level of after-tax yield produced by an investment in a Portfolio. TAX EQUIVALENT YIELD is calculated according to the following formula:

Tax Equivalent Yield = Y1 + Y2

1-MR

where Y1 equals the portion of a Portfolio's current or effective yield that is not subject to state or local income tax, Y2 equals that portion of a Portfolio's current or effective yield that is subject to that tax, and MR equals the highest marginal tax rate of the state or locality for which the tax equivalent yield is being calculated.

The calculation of tax equivalent yield can be illustrated by the following example. If the current yield for a 7-day period was 5%, and during that period 100% of the income was attributable to interest on direct obligations of the U.S. Government and, therefore, was not subject to income taxation in most states and localities, a taxpayer residing in New York and subject to that state's highest marginal 2006 tax rate of 6.85% would have to have received a taxable current yield of 8.26% in order to equal the 5% after-tax yield. Moreover, if that taxpayer also were subject to income taxation by New York City at a marginal 2006 rate of 3.65%, the taxpayer would have to have received a taxable current yield of 8.6% to equal the 5% after-tax yield.

The use of a 5% yield in this example is for illustrative purposes only and is not indicative of the Portfolio's recent or future performance. Of course, all dividends paid by GOVERNMENT Portfolio and GOVERNMENT RESERVES Portfolio are subject to federal income taxation at applicable rates.

NEW YORK MUNICIPAL PORTFOLIO. This Portfolio may advertise a "tax equivalent yield" that reflects the taxable yield that an investor subject to the highest combined marginal rate of federal income tax and New York state and New York city personal income taxes (41.8% during 2006) would have had to receive in order to realize the same level of after-tax yield produced by an investment in the Fund. TAX EQUIVALENT YIELD is calculated according to the following formula:

Tax Equivalent Yield = Y1 + Y2 + Y3

1-MR 1-MRNY

where Y1 equals the portion of the Portfolio's current or effective yield that is not subject to federal, New York state and New York city personal income taxes, Y2 equals the portion of the Portfolio's current or effective yield that is subject to New York state and New York city personal income taxes, Y3 equals the portion of the Portfolio's current or effective yield that is subject to federal income tax and New York state and New York city personal income taxes, MRNY equals New York's highest marginal tax rate in 2006, and MR equals the highest combined marginal tax rate.

For example, if the tax-free yield is 4%, there is no interest subject to federal, New York state and New York city personal income taxes, and the maximum combined tax rate is 41.8% during 2006, the computation is:

4% / (1 - .418) = 4 / .582 = 6.87% Tax Equivalent Yield

In this example, the after-tax yield (of a taxable investment) will be lower than the 4% tax-free investment if available taxable yields are below 6.87%; conversely, the taxable investment will provide a higher after-tax yield when taxable yields exceed 6.87%. This example assumes that all of the income from the investment is tax-exempt.

The use of a 4% yield in these examples is for illustrative purposes only and is not indicative of the Portfolio's future performance.

TAX-EXEMPT PORTFOLIO AND MUNICIPAL PORTFOLIO. Each Portfolio may advertise a "tax equivalent yield" that reflects the taxable yield that an investor subject to the highest marginal rate of federal income tax (35% during 2006) would have had to receive in order to realize the same level of after-tax yield produced by an investment in a Portfolio. TAX EQUIVALENT YIELD is calculated according to the following formula:

Tax Equivalent Yield = Y1 + Y2

1-MR

where Y1 equals the portion of a Portfolio's current or effective yield that is not subject to federal income tax, Y2 equals the portion of a Portfolio's current or effective yield that is subject to that tax, and MR equals the highest marginal federal tax rate.

For example, if the tax-free yield is 4%, there is no interest subject to federal income tax, and the maximum federal income tax rate is 35% during 2006, the computation is:

4% / (1 - .35) = 4 / .65 = 6.15% Tax Equivalent Yield

In this example, the after-tax yield (of a taxable investment) will be lower than the 4% tax-free investment if available taxable yields are below 6.15%; conversely, the taxable investment will provide a higher after-tax yield when taxable yields exceed 6.15%. This example assumes that all of the income from the investment is tax-exempt.

The use of a 4% yield in these examples is for illustrative purposes only and is not indicative of the Portfolios' future performance.

NB Management may from time to time reimburse a Portfolio for a portion of its expenses. Such action has the effect of increasing yield and total return. Actual reimbursements are described in the Prospectus and in "Investment Management and Administration Services" below.

TRUSTEES AND OFFICERS

The following tables set forth information concerning the trustees and officers of the Trust. All persons named as trustees and officers also serve in similar capacities for other funds and their corresponding portfolios administered or managed by NB Management.

INFORMATION ABOUT THE BOARD OF TRUSTEES

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                                                                                NUMBER OF
                                                                              PORTFOLIOS IN
                                                                              FUND COMPLEX     OTHER DIRECTORSHIPS
                         POSITION AND                                          OVERSEEN BY      HELD OUTSIDE FUND
NAME, AGE, AND          LENGTH OF TIME                                          PORTFOLIO      COMPLEX BY PORTFOLIO
ADDRESS (1)                SERVED (2)        PRINCIPAL OCCUPATION(S) (3)       TRUSTEE (4)            TRUSTEE
-----------                ----------        ---------------------------       -----------            -------

INDEPENDENT PORTFOLIO TRUSTEES
---------------------------------------------------------------------------------------------------------------------
John Cannon (76)         Trustee since    Consultant; formerly, Chairman,           64         Independent Trustee
                           inception      CDC Investment Advisers                              or Director of three
                                          (registered investment adviser),                     series of
                                          1993 to January 1999; formerly,                      Oppenheimer Funds:
                                          President and Chief Executive                        Limited Term New
                                          Officer, AMA Investment                              York Municipal Fund,
                                          Advisors, an affiliate of the                        Rochester Fund
                                          American Medical Association.                        Municipals, and
                                                                                               Oppenheimer
                                                                                               Convertible
                                                                                               Securities Fund
                                                                                               since 1992.

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

---------------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF
                                                                              PORTFOLIOS IN
                                                                              FUND COMPLEX     OTHER DIRECTORSHIPS
                         POSITION AND                                          OVERSEEN BY      HELD OUTSIDE FUND
NAME, AGE, AND          LENGTH OF TIME                                          PORTFOLIO      COMPLEX BY PORTFOLIO
ADDRESS (1)                SERVED (2)        PRINCIPAL OCCUPATION(S) (3)       TRUSTEE (4)            TRUSTEE
-----------                ----------        ---------------------------       -----------            -------
---------------------------------------------------------------------------------------------------------------------
Faith Colish (71)        Trustee since    Counsel, Carter Ledyard &                 64         Advisory Director,
                           inception      Milburn LLP (law firm) since                         ABA Retirement Funds
                                          October 2002; formerly,                              (formerly, American
                                          Attorney-at-Law and President,                       Bar Retirement
                                          Faith Colish, A Professional                         Association (ABRA))
                                          Corporation, 1980 to 2002.                           since 1997
                                                                                               (not-for-profit
                                                                                               membership
                                                                                               association).

---------------------------------------------------------------------------------------------------------------------
C. Anne Harvey (69)      Trustee since    President, C.A. Harvey                    64         Formerly, President,
                           inception      Associates since October 2001;                       Board of Associates
                                          formerly, Director, AARP, 1978                       to The National
                                          to December 2001.                                    Rehabilitation
                                                                                               Hospital's Board of
                                                                                               Directors, 2001 to
                                                                                               2002; formerly,
                                                                                               Member, Individual
                                                                                               Investors Advisory
                                                                                               Committee to the New
                                                                                               York Stock Exchange
                                                                                               Board of Directors,
                                                                                               1998 to June 2002.

---------------------------------------------------------------------------------------------------------------------
Robert A. Kavesh (79)    Trustee since    Marcus Nadler Professor Emeritus          64         Director, The Caring
                           inception      of Finance and Economics, New                        Community
                                          York University Stern School of                      (not-for-profit);
                                          Business; formerly, Executive                        formerly, Director,
                                          Secretary-Treasurer, American                        DEL Laboratories,
                                          Finance Association, 1961 to                         Inc. (cosmetics and
                                          1979.                                                pharmaceuticals),
                                                                                               1978 to 2004;
                                                                                               formerly, Director,
                                                                                               Apple Bank for
                                                                                               Savings, 1979 to
                                                                                               1990; formerly,
                                                                                               Director, Western
                                                                                               Pacific Industries,
                                                                                               Inc., 1972 to 1986
                                                                                               (public company).


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

---------------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF
                                                                              PORTFOLIOS IN
                                                                              FUND COMPLEX     OTHER DIRECTORSHIPS
                         POSITION AND                                          OVERSEEN BY      HELD OUTSIDE FUND
NAME, AGE, AND          LENGTH OF TIME                                          PORTFOLIO      COMPLEX BY PORTFOLIO
ADDRESS (1)                SERVED (2)        PRINCIPAL OCCUPATION(S) (3)       TRUSTEE (4)            TRUSTEE
-----------                ----------        ---------------------------       -----------            -------
---------------------------------------------------------------------------------------------------------------------
Howard A. Mileaf (69)    Trustee since    Retired; formerly, Vice                   64         Director,
                           inception      President and General Counsel,                       Webfinancial
                                          WHX Corporation (holding                             Corporation (holding
                                          company), 1993 to 2001.                              company) since
                                                                                               December 2002;
                                                                                               formerly, Director
                                                                                               WHX Corporation
                                                                                               (holding company),
                                                                                               January 2002 to June
                                                                                               2005; formerly,
                                                                                               Director, State
                                                                                               Theatre of New Jersey
                                                                                               (not-for-profit
                                                                                               theater), 2000 to
                                                                                               2005; formerly,
                                                                                               Director, Kevlin
                                                                                               Corporation
                                                                                               (manufacturer of
                                                                                               microwave and other
                                                                                               products).
---------------------------------------------------------------------------------------------------------------------
Edward I. O'Brien (78)   Trustee since    Formerly, Member, Investment              64         Director, Legg
                           inception      Policy Committee, Edward Jones,                      Mason, Inc.
                                          1993 to 2001; President,                             (financial services
                                          Securities Industry Association                      holding company)
                                          ("SIA") (securities industry's                       since 1993;
                                          representative in government                         formerly, Director,
                                          relations and regulatory matters                     Boston Financial
                                          at the federal and state                             Group (real estate
                                          levels),  1974 to 1992; Adviser                      and tax shelters),
                                          to SIA, November 1992 to                             1993 to 1999.
                                          November 1993.

---------------------------------------------------------------------------------------------------------------------
William E. Rulon (74)    Trustee since    Retired; formerly, Senior Vice            64         Formerly, Director,
                           inception      President, Foodmaker, Inc.                           Pro-Kids Golf and
                                          (operator and franchiser of                          Learning Academy
                                          restaurants) until January 1997.                     (teach golf and
                                                                                               computer usage to
                                                                                               "at risk" children),
                                                                                               1998 to 2006;
                                                                                               formerly, Director,
                                                                                               Prandium, Inc.
                                                                                               (restaurants), March
                                                                                               2001 to  July 2002.

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

---------------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF
                                                                              PORTFOLIOS IN
                                                                              FUND COMPLEX     OTHER DIRECTORSHIPS
                         POSITION AND                                          OVERSEEN BY      HELD OUTSIDE FUND
NAME, AGE, AND          LENGTH OF TIME                                          PORTFOLIO      COMPLEX BY PORTFOLIO
ADDRESS (1)                SERVED (2)        PRINCIPAL OCCUPATION(S) (3)       TRUSTEE (4)            TRUSTEE
-----------                ----------        ---------------------------       -----------            -------
---------------------------------------------------------------------------------------------------------------------
Cornelius T. Ryan (74)   Trustee since    Founding General Partner, Oxford          64         None.
                           inception      Partners and Oxford Bioscience
                                          Partners  (venture capital  investing)
                                          and President, Oxford Venture
                                          Corporation since 1981.

---------------------------------------------------------------------------------------------------------------------
Tom D. Seip (56)         Trustee since    General Partner, Seip                     64         Director, H&R Block,
                        inception; Lead   Investments LP (a private                            Inc. (financial
                          Independent     investment partnership);                             services company)
                            Trustee       formerly, President and CEO,                         since May 2001;
                        beginning 2006    Westaff, Inc. (temporary                             Director, America
                                          staffing), May 2001 to January                       One Foundation since
                                          2002; formerly, Senior Executive                     1998; formerly,
                                          at the Charles Schwab                                Director, Forward
                                          Corporation, 1983 to 1999,                           Management, Inc.
                                          including Chief Executive                            (asset management
                                          Officer, Charles Schwab                              company), 1999 to
                                          Investment Management, Inc. and                      2006; formerly
                                          Trustee, Schwab Family of Funds                      Director, E-Bay
                                          and Schwab Investments, 1997 to                      Zoological Society,
                                          1998, and Executive Vice                             1999 to 2003;
                                          President-Retail Brokerage,                          formerly, Director,
                                          Charles Schwab Investment                            General Magic (voice
                                          Management,1994 to 1997.                             recognition
                                                                                               software), 2001 to
                                                                                               2002; formerly,
                                                                                               Director, E-Finance
                                                                                               Corporation (credit
                                                                                               decisioning
                                                                                               services), 1999 to
                                                                                               2003; formerly,
                                                                                               Director,
                                                                                               Save-Daily.com (micro
                                                                                               investing services),
                                                                                               1999 to 2003.

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

---------------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF
                                                                              PORTFOLIOS IN
                                                                              FUND COMPLEX     OTHER DIRECTORSHIPS
                         POSITION AND                                          OVERSEEN BY      HELD OUTSIDE FUND
NAME, AGE, AND          LENGTH OF TIME                                          PORTFOLIO      COMPLEX BY PORTFOLIO
ADDRESS (1)                SERVED (2)        PRINCIPAL OCCUPATION(S) (3)       TRUSTEE (4)            TRUSTEE
-----------                ----------        ---------------------------       -----------            -------
---------------------------------------------------------------------------------------------------------------------
Candace L. Straight      Trustee since    Private investor and consultant           64         Director, Montpelier
(59)                       inception      specializing in the insurance                        Re (reinsurance
                                          industry; formerly, Advisory                         company) since 2006;
                                          Director, Securitas Capital LLC                      Director, National
                                          (a global private equity                             Atlantic Holdings
                                          investment firm dedicated to                         Corporation
                                          making investments in the                            (property and
                                          insurance sector), 1998 to                           casualty insurance
                                          December 2003.                                       company) since 2004;
                                                                                               Director, The
                                                                                               Proformance Insurance
                                                                                               Company (personal
                                                                                               lines property and
                                                                                               casualty insurance
                                                                                               company) since March
                                                                                               2004; formerly,
                                                                                               Director, Providence
                                                                                               Washington Insurance
                                                                                               Company (property and
                                                                                               casualty insurance
                                                                                               company), December
                                                                                               1998 to March 2006;
                                                                                               formerly, Director,
                                                                                               Summit Global
                                                                                               Partners (insurance
                                                                                               brokerage firm), 2000
                                                                                               to 2005.

---------------------------------------------------------------------------------------------------------------------
Peter P. Trapp (61)      Trustee since    Regional Manager for                      64         None.
                           inception      Mid-Southern Region, Ford Motor
                                          Credit Company since September
                                          1997; formerly, President, Ford
                                          Life Insurance Company, April
                                          1995 to August 1997.

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

---------------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF
                                                                              PORTFOLIOS IN
                                                                              FUND COMPLEX     OTHER DIRECTORSHIPS
                         POSITION AND                                          OVERSEEN BY      HELD OUTSIDE FUND
NAME, AGE, AND          LENGTH OF TIME                                          PORTFOLIO      COMPLEX BY PORTFOLIO
ADDRESS (1)                SERVED (2)        PRINCIPAL OCCUPATION(S) (3)       TRUSTEE (4)            TRUSTEE
-----------             --------------       ---------------------------      --------------   ---------------------
---------------------------------------------------------------------------------------------------------------------

PORTFOLIO TRUSTEES WHO ARE "INTERESTED PERSONS"
---------------------------------------------------------------------------------------------------------------------
Jack L. Rivkin* (66)     President and    Executive Vice President and              64         Director, Dale
                         Trustee since    Chief Investment Officer,                            Carnegie and
                           inception      Neuberger Berman Inc. (holding                       Associates, Inc.
                                          company) since 2002 and 2003,                        (private company)
                                          respectively; Managing Director                      since 1998;
                                          and Chief Investment Officer,                        Director, Solbright,
                                          Neuberger Berman since December                      Inc. (private
                                          2005 and 2003, respectively;                         company) since 1998.
                                          formerly, Executive Vice
                                          President, Neuberger Berman,
                                          December 2002 to 2005; Director
                                          and Chairman, NB Management
                                          since December 2002; formerly,
                                          Executive Vice President,
                                          Citigroup Investments, Inc.,
                                          September 1995 to February 2002;
                                          formerly, Executive Vice
                                          President, Citigroup Inc.,
                                          September 1995 to February 2002.

---------------------------------------------------------------------------------------------------------------------
Peter E. Sundman* (47)  Chairman of the   Executive Vice President,                 64         Director and Vice
                          Board, Chief    Neuberger Berman Inc. (holding                       President,
                           Executive      company) since 1999; Head of                         Neuberger & Berman
                          Officer and     Neuberger Berman Inc.'s Mutual                       Agency, Inc. since
                         Trustee since    Funds Business (since 1999) and                      2000; formerly,
                           inception      Institutional Business (1999 to                      Director, Neuberger
                                          October 2005); responsible for                       Berman Inc. (holding
                                          Managed Accounts Business and                        company), October
                                          intermediary distribution since                      1999 to March 2003;
                                          October 1999; President and                          Trustee, Frost
                                          Director, NB Management since                        Valley YMCA;
                                          1999; Managing Director,                             Trustee, College of
                                          Neuberger Berman since 2005;                         Wooster.
                                          formerly, Executive Vice
                                          President, Neuberger Berman,
                                          1999 to December 2005; formerly,
                                          Principal, Neuberger Berman,
                                          1997 to 1999; formerly, Senior
                                          Vice President, NB Management,
                                          1996 to 1999.
---------------------------------------------------------------------------------------------------------------------
(1)      The business address of each listed person is 605 Third Avenue, New York, New York 10158.

(2)      Pursuant to the Trust's Trust Instrument, each Portfolio Trustee shall hold office for life
         or until his or her  successor  is elected  or the Trust  terminates;  except  that (a) any
         Portfolio Trustee may resign by delivering a written resignation; (b) any Portfolio Trustee
         may be removed with or without cause at any time by a written instrument signed by at least
         two-thirds of the other Portfolio  Trustees;  (c) any Portfolio  Trustee who requests to be
         retired,  or who has become unable to serve, may be retired by a written  instrument signed
         by a majority of the other Portfolio Trustees; and (d) any Portfolio Trustee may be removed
         at any shareholder meeting by a vote of at least two-thirds of the outstanding shares.

(3)      Except as otherwise  indicated,  each  individual has held the positions shown for at least
         the last five years.

(4)      For  funds  organized  in a  master-feeder  structure,  we count  the  master  fund and its
         associated feeder funds as a single portfolio.

*        Indicates a Portfolio Trustee who is an "interested  person" within the meaning of the 1940
         Act. Mr. Sundman and Mr. Rivkin are  interested  persons of the Trust by virtue of the fact
         that they are officers and/or directors of NB Management and Neuberger Berman.

Information About the Officers of the Trust
-------------------------------------------

NAME, AGE, AND ADDRESS (1)                    POSITION AND LENGTH OF                   PRINCIPAL OCCUPATION(S) (3)
--------------------------                    -----------------------                  ---------------------------
                                                  TIME SERVED (2)
                                                  ---------------
Andrew B. Allard (45)                     Anti-Money Laundering Compliance    Senior Vice President, Neuberger Berman
                                              Officer since inception         since 2006; Deputy General Counsel,
                                                                              Neuberger Berman since 2004; formerly,
                                                                              Vice President, Neuberger Berman, 2000
                                                                              to 2006; formerly, Associate General
                                                                              Counsel, Neuberger Berman, 1999 to 2004;
                                                                              Anti-Money Laundering Compliance Officer,
                                                                              fifteen registered  investment  companies
                                                                              for   which   NB   Management   acts   as
                                                                              investment   manager  and   administrator
                                                                              (seven since 2002, three since 2003, four
                                                                              since  2004 and one  since  2005) and one
                                                                              registered  investment  company for which
                                                                              Lehman  Brothers  Asset  Management  Inc.
                                                                              acts as investment adviser (since 2006).

Michael J. Bradler (36)                 Assistant Treasurer since inception   Vice President, Neuberger Berman since 2006;
                                                                              Employee, NB Management since 1997;
                                                                              Assistant Treasurer, fifteen registered
                                                                              investment companies for which NB Management
                                                                              acts as investment manager and administrator
                                                                              (fifteen since 2005) and one registered
                                                                              investment company for which Lehman Brothers
                                                                              Asset Management Inc. acts as investment
                                                                              adviser (since 2006).


                                                          47

NAME, AGE, AND ADDRESS (1)                    POSITION AND LENGTH OF                   PRINCIPAL OCCUPATION(S) (3)
--------------------------                    -----------------------                  ---------------------------
                                                  TIME SERVED (2)
                                                  ---------------

Claudia A. Brandon (49)                      Secretary since inception        Vice President-Mutual Fund Board Relations,
                                                                              NB Management since 2000 and Assistant
                                                                              Secretary since 2004; Vice President,
                                                                              Neuberger Berman since 2002 and Employee
                                                                              since 1999; Secretary, fifteen registered
                                                                              investment   companies   for   which   NB
                                                                              Management acts as investment manager and
                                                                              administrator  (three  since  1985,  four
                                                                              since 2002,  three since 2003, four since
                                                                              2004  and  one   since   2005)   and  one
                                                                              registered  investment  company for which
                                                                              Lehman  Brothers  Asset  Management  Inc.
                                                                              acts as investment adviser (since 2006).

Robert Conti (50)                          Vice President since inception     Senior Vice President, Neuberger Berman
                                                                              since 2003; formerly, Vice President,
                                                                              Neuberger Berman, 1999 to 2003; Senior Vice
                                                                              President, NB Management since 2000;
                                                                              Vice   President,    fifteen   registered
                                                                              investment   companies   for   which   NB
                                                                              Management acts as investment manager and
                                                                              administrator  (three  since  2000,  four
                                                                              since 2002,  three since 2003, four since
                                                                              2004  and  one   since   2005)   and  one
                                                                              registered  investment  company for which
                                                                              Lehman  Brothers  Asset  Management  Inc.
                                                                              acts as investment adviser (since 2006).

Brian J. Gaffney (53)                      Vice President since inception     Managing Director, Neuberger Berman since
                                                                              1999; Senior Vice President, NB Management
                                                                              since  2000;  Vice   President,   fifteen
                                                                              registered investment companies for which
                                                                              NB Management acts as investment  manager
                                                                              and administrator (three since 2000, four
                                                                              since 2002,  three since 2003, four since
                                                                              2004  and  one   since   2005)   and  one
                                                                              registered  investment  company for which
                                                                              Lehman  Brothers  Asset  Management  Inc.
                                                                              acts as investment adviser (since 2006).

                                                             48

NAME, AGE, AND ADDRESS (1)                    POSITION AND LENGTH OF                   PRINCIPAL OCCUPATION(S) (3)
--------------------------                    -----------------------                  ---------------------------
                                                  TIME SERVED (2)
                                                  ---------------

Maxine L. Gerson (55)                   Chief Legal Officer since inception   Senior Vice President, Neuberger Berman
                                        (only for purposes of sections 307    since 2002; Deputy General Counsel and
                                        and 406 of the Sarbanes-Oxley Act     Assistant Secretary, Neuberger Berman since
                                        of 2002)                              2001; formerly, Vice President, Neuberger
                                                                              Berman, 2001 to 2002; formerly, Associate
                                                                              General Counsel, Neuberger Berman, 2001;
                                                                              formerly, Counsel, Neuberger Berman, 2000;
                                                                              Secretary and General Counsel, NB Management
                                                                              since 2004; Chief Legal Officer (only for
                                                                              purposes of sections 307 and 406 of the
                                                                              Sarbanes-Oxley Act of 2002), fifteen
                                                                              registered investment companies for which NB
                                                                              Management acts as investment manager and
                                                                              administrator (fifteen since 2005) and one
                                                                              registered investment company for which Lehman
                                                                              Brothers Asset Management Inc. acts as
                                                                              investment adviser (since 2006).

Sheila R. James (41)                    Assistant Secretary since inception   Employee,  Neuberger  Berman  since 1999;
                                                                              Assistant  Secretary,  fifteen registered
                                                                              investment   companies   for   which   NB
                                                                              Management acts as investment manager and
                                                                              administrator  (seven  since 2002,  three
                                                                              since 2003, four since 2004 and one since
                                                                              2005)  and  one   registered   investment
                                                                              company for which Lehman  Brothers  Asset
                                                                              Management   Inc.   acts  as   investment
                                                                              adviser (since 2006).

Kevin Lyons (51)                        Assistant Secretary since inception   Employee, Neuberger Berman since 1999;
                                                                              Assistant  Secretary,  fifteen registered
                                                                              investment   companies   for   which   NB
                                                                              Management acts as investment manager and
                                                                              administrator (ten since 2003, four since
                                                                              2004  and  one   since   2005)   and  one
                                                                              registered  investment  company for which
                                                                              Lehman  Brothers  Asset  Management  Inc.
                                                                              acts as investment adviser (since 2006).

                                                             49

NAME, AGE, AND ADDRESS (1)                    POSITION AND LENGTH OF                   PRINCIPAL OCCUPATION(S) (3)
--------------------------                    -----------------------                  ---------------------------
                                                  TIME SERVED (2)
                                                  ---------------

John M. McGovern (36)                    Treasurer and Principal Financial    Vice President, Neuberger Berman since 2004;
                                            and Accounting Officer since      Employee, NB Management since 1993;
                                                     inception                Treasurer and Principal Financial and
                                                                              Accounting Officer, fifteen registered
                                                                              investment companies for which NB Management
                                                                              acts as investment manager and administrator
                                                                              (fifteen since 2005) and one registered
                                                                              investment company for which Lehman Brothers
                                                                              Asset Management Inc. acts as investment
                                                                              adviser (since 2006); formerly, Assistant
                                                                              Treasurer, fifteen registered investment
                                                                              companies for which NB Management acts as
                                                                              investment manager and administrator, 2002
                                                                              to 2005.

Frank Rosato (35)                       Assistant Treasurer since inception   Vice President, Neuberger Berman since 2006;
                                                                              Employee, NB Management since 1995;
                                                                              Assistant Treasurer, fifteen registered
                                                                              investment companies for which NB Management
                                                                              acts as investment manager and administrator
                                                                              (fifteen since 2005) and one registered
                                                                              investment company for which Lehman Brothers
                                                                              Asset Management Inc. acts as investment
                                                                              adviser (since 2006).

Frederic B. Soule (60)                     Vice President since inception     Senior Vice President, Neuberger Berman
                                                                              since 2003; formerly, Vice President,
                                                                              Neuberger  Berman,  1999  to  2003;  Vice
                                                                              President,  fifteen registered investment
                                                                              companies for which NB Management acts as
                                                                              investment   manager  and   administrator
                                                                              (three since 2000, four since 2002, three
                                                                              since 2003, four since 2004 and one since
                                                                              2005)  and  one   registered   investment
                                                                              company for which Lehman  Brothers  Asset
                                                                              Management   Inc.   acts  as   investment
                                                                              adviser (since 2006).

                                                             50

NAME, AGE, AND ADDRESS (1)                    POSITION AND LENGTH OF                   PRINCIPAL OCCUPATION(S) (3)
--------------------------                    -----------------------                  ---------------------------
                                                  TIME SERVED (2)
                                                  ---------------

Chamaine Williams (35)                     Chief Compliance Officer since     Vice President, Lehman Brothers Inc. since
                                                     inception                2003; Chief Compliance Officer, fifteen
                                                                              registered investment companies for which NB
                                                                              Management acts as investment manager and
                                                                              administrator (fifteen since 2005) and one
                                                                              registered investment company for which Lehman
                                                                              Brothers Asset Management Inc. acts as
                                                                              investment adviser (since 2005); Chief
                                                                              Compliance Officer, Lehman Brothers Asset
                                                                              Management Inc. since 2003; Chief Compliance
                                                                              Officer, Lehman Brothers Alternative
                                                                              Investment Management LLC since 2003;
                                                                              formerly, Vice President, UBS Global Asset
                                                                              Management (US) Inc. (formerly, Mitchell
                                                                              Hutchins Asset Management, a wholly-owned
                                                                              subsidiary of PaineWebber Inc.), 1997 to 2003.

(1)      The business address of each listed person is 605 Third Avenue, New York, New York 10158.

(2)      Pursuant  to the  By-Laws of the  Trust,  each  officer  elected by the
         Portfolio  Trustees shall hold office until his or her successor  shall
         have been  elected and  qualified  or until his or her  earlier  death,
         inability to serve, or  resignation.  Officers serve at the pleasure of
         the  Portfolio  Trustees and may be removed at any time with or without
         cause.

(3)      Except as otherwise indicated, each individual has held the positions shown for at least the last five years.

The Board of Trustees

The Board of Trustees is responsible for managing the business and affairs of the Trust. Among other things, the Board of Trustees generally oversees the portfolio management of each Portfolio and reviews and approves each Portfolio's advisory and sub-advisory contracts and other principal contracts. It is the Portfolios' policy that at least three quarters of the Board of Trustees shall be comprised of Portfolio Trustees who are not "interested persons" of NB Management (including its affiliates) or the Trust ("Independent Portfolio Trustees"). The Board of Trustees has established several standing committees to oversee particular aspects of the Portfolios' management. The standing committees of the Board of Trustees are described below.

AUDIT COMMITTEE. The Audit Committee's purposes are (a) to oversee the Portfolio's accounting and financial reporting processes, their internal control over financial reporting and, as the Committee deems appropriate, to inquire into the internal control over financial reporting of certain third-party service providers; (b) to oversee the quality and integrity of the Portfolios' financial statements and the independent audit thereof; (c) to oversee, or, as appropriate, assist Board oversight of, the Portfolios' compliance with legal and regulatory requirements that relate to the Funds' accounting and financial reporting, internal control over financial reporting and independent audits; (d) to approve prior to appointment the engagement of the Portfolios' independent registered public accounting firms and, in connection therewith, to review and

evaluate the qualifications, independence and performance of the Portfolios' independent registered public accounting firms; and (e) to act as a liaison between the Portfolios' independent registered public accounting firms and the full Board. Its members are John Cannon, Howard A. Mileaf, Cornelius T. Ryan (Chairman), Tom D. Seip, and Peter P. Trapp. All members are Independent Portfolio Trustees. At the date of this SAI, the Trust was new and therefore the Committee has not yet met.

ETHICS AND COMPLIANCE COMMITTEE. The Ethics and Compliance Committee generally oversees: (a) the Trust's program for compliance with Rule 38a-1 and the Trust's implementation and enforcement of its compliance policies and procedures; (b) the compliance with the Trust's Code of Ethics, which restricts the personal securities transactions, including transactions in Portfolio shares, of employees, officers, and trustees; and (c) the activities of the Trust's Chief Compliance Officer ("CCO"). The Committee shall not assume oversight duties to the extent that such duties have been assigned by the Board expressly to another Committee of the Board (such as oversight of internal controls over financial reporting, which has been assigned to the Audit Committee.) The Committee's primary function is oversight. Each investment adviser, subadviser, principal underwriter, administrator and transfer agent (collectively, "Service Providers") is responsible for its own compliance with the federal securities laws and for devising, implementing, maintaining and updating appropriate policies, procedures and codes of ethics to ensure compliance with applicable laws and regulations. The CCO is responsible for administering each Portfolio's Compliance Program, including devising and implementing appropriate methods of testing compliance by the Portfolio and its Service Providers. Its members are John Cannon (Chairman), Faith Colish, C. Anne Harvey and Edward I. O'Brien. All members are Independent Portfolio Trustees. At the date of this SAI, the Trust was new and therefore the Committee has not yet met. The entire Board will receive at least annually a report on the compliance programs of the Trust and service providers and the required annual reports on the administration of the Code of Ethics and the required annual certifications from the Trust, Neuberger Berman, NB Management and Lehman Brothers Asset Management.

CONTRACT REVIEW COMMITTEE. The Contract Review Committee is responsible for overseeing and guiding the process by which the Independent Portfolio Trustees annually consider whether to renew the Trust's principal contractual arrangements and Rule 12b-1 plans. Its members are Faith Colish (Chairwoman), Robert A. Kavesh, William E. Rulon and Candace L. Straight. All members are Independent Portfolio Trustees. At the date of this SAI, the Trust was new and therefore the Committee has not yet met.

EXECUTIVE COMMITTEE. The Executive Committee is responsible for acting in an emergency when a quorum of the Board of Trustees is not available; the Committee has all the powers of the Board of Trustees when the Board is not in session to the extent permitted by Delaware law. Its members are John Cannon, Howard A. Mileaf, Edward I. O'Brien, Tom D. Seip and Peter E. Sundman (Chairman). All members except for Mr. Sundman are Independent Portfolio Trustees. At the date of this SAI, the Trust was new and therefore the Committee has not yet met.

GOVERNANCE AND NOMINATING COMMITTEE. The Governance and Nominating Committee is responsible for: (a) considering and evaluating the structure, composition and operation of the Board of Trustees and each committee thereof,

including the operation of the annual self-evaluation by the Board; (b) evaluating and nominating individuals to serve as Portfolio Trustees including as Independent Portfolio Trustees, as members of committees, as Chair of the Board and as officers of the Trust; and (c) considering and making recommendations relating to the compensation of Independent Portfolio Trustees and of those officers as to whom the Board is charged with approving compensation. Its members are C. Anne Harvey (Chairwoman), Robert A. Kavesh, Howard A. Mileaf, and Tom D. Seip. All members are Independent Portfolio Trustees. The Committee will consider nominees recommended by shareholders; shareholders may send resumes of recommended persons to the attention of Claudia
A. Brandon, Secretary, Lehman Brothers Institutional Liquidity Series, 605 Third Avenue, 2nd Floor, New York, NY, 10158-0180. At the date of this SAI, the Trust was new and therefore the Committee has not yet met.

PORTFOLIO TRANSACTIONS AND PRICING COMMITTEE. The Portfolio Transactions and Pricing Committee: (a) monitors the operation of policies and procedures reasonably designed to ensure that each portfolio holding is valued in an appropriate and timely manner, reflecting information known to the manager about current market conditions ("Pricing Procedures"); (b) considers and evaluates, and recommends to the Board when the Committee deems it appropriate, amendments to the Pricing Procedures proposed by management, counsel, the auditors and others; (c) from time to time, as required or permitted by the Pricing Procedures, establishes or ratifies a method of determining the fair value of portfolio securities for which market pricing is not readily available;
(d) generally oversees the program by which the manager seeks to monitor and improve the quality of execution for portfolio transactions; and (e) oversees the adequacy and fairness of the arrangements for securities lending; in each case with special emphasis on any situations in which a Portfolio deals with the manager or any affiliate of the manager as principal or agent. Its members are Faith Colish, Jack L. Rivkin (Vice Chairman), William E. Rulon, Cornelius T. Ryan and Candace L. Straight (Chairwoman). All members except for Mr. Rivkin are Independent Portfolio Trustees. At the date of this SAI, the Trust was new and therefore the Committee has not yet met.

INVESTMENT PERFORMANCE COMMITTEE. The Investment Performance Committee is responsible for overseeing and guiding the process by which the Board reviews fund performance. Its members are Robert A. Kavesh, Edward I. O'Brien, Jack L. Rivkin (Vice Chairman), Cornelius T. Ryan and Peter P. Trapp (Chairman). All members except for Mr. Rivkin are Independent Portfolio Trustees. At the date of this SAI, the Trust was new and therefore the Committee has not yet met.

The Trust's Trust Instrument and Master Trust's Declaration of Trust provide that the Trust will indemnify its trustees and officers against liabilities and expenses reasonably incurred in connection with litigation in which they may be involved because of their offices with the Trust, unless it is adjudicated that they (a) engaged in bad faith, willful misfeasance, gross negligence, or reckless disregard of the duties involved in the conduct of their offices, or (b) did not act in good faith in the reasonable belief that their action was in the best interest of the Trust. In the case of settlement, such indemnification will not be provided unless it has been determined (by a court or other body approving the settlement or other disposition, by a majority of disinterested trustees based upon a review of readily available facts, or in a written opinion of independent counsel) that such officers or trustees have not

engaged in willful misfeasance, bad faith, gross negligence, or reckless disregard of their duties.

Officers and trustees who are interested persons of the Trust, as defined in the 1940 Act, receive no salary or fees from the Trust. Effective July 1, 2005, the compensation of each Independent Portfolio Trustee has been restructured. For serving as a trustee of the Neuberger Berman Funds, each Independent Portfolio Trustee receives an annual retainer of $60,000, paid quarterly, and a fee of $7,500 for each of the six regularly scheduled meetings he or she attends in-person or by telephone. For any additional special in-person meeting of the Board, the Independent Portfolio Trustees will determine whether a fee is warranted, provided, however, that no fee is normally authorized for any special meeting attended by telephone. To compensate for the additional time commitment, the Chair of the Board's Audit Committee receives $5,000 per year and each member of the Audit Committee, including the Chair, receives $1,000 for each Audit Committee meeting he or she attends in-person or by telephone. No additional compensation is provided for service on any other Board committee. The Lead Independent Trustee receives an additional $20,000 per year. The Neuberger Berman Funds continue to reimburse Independent Portfolio Trustees for their travel and other out-of-pocket expenses related to attendance at Board meetings. The Independent Portfolio Trustee compensation is allocated to each Neuberger Berman Fund based on a method the Board of Trustees finds reasonable.

The following table sets forth information concerning the compensation of the Portfolio Trustees. The Trust does not have any retirement plan for its trustees.

                                             TABLE OF COMPENSATION
                                     FOR FISCAL YEAR ENDED* MARCH 31, 2008

                                                                            Total Compensation from Investment
                                              Aggregate Compensation         Companies in the Neuberger Berman
NAME AND POSITION WITH THE TRUST                  FROM THE TRUST                      FUND COMPLEX**
---------------------------------                 --------------                      --------------
INDEPENDENT PORTFOLIO TRUSTEES
John Cannon                                     $19,900                                 $111,000
Trustee

Faith Colish                                    $18,825                                 $105,000
Trustee

C. Anne Harvey                                  $18,825                                 $105,000
Trustee

Robert A. Kavesh                                $18,825                                 $105,000
Trustee

Howard A. Mileaf                                $19,900                                 $111,000
Trustee

Edward I. O'Brien                               $18,825                                 $105,000
Trustee

William E. Rulon                                $18,825                                 $105,000
Trustee


                                                      54

                                                                            Total Compensation from Investment
                                              Aggregate Compensation         Companies in the Neuberger Berman
NAME AND POSITION WITH THE TRUST                  FROM THE TRUST                      FUND COMPLEX**
---------------------------------                 --------------                      --------------

Cornelius T. Ryan                               $20,797                                 $116,000
Trustee

Tom Decker Seip                                 $23,486                                 $131,000
Trustee

Candace L. Straight                             $18,825                                 $105,000
Trustee

Peter P. Trapp                                  $19,900                                 $111,000
Trustee

PORTFOLIO TRUSTEES WHO ARE "INTERESTED PERSONS"

Jack L. Rivkin                                          $0                                  $0
President and Trustee

Peter E. Sundman                                        $0                                  $0
Chairman of the Board, Chief Executive
Officer and Trustee

*As of the date of this SAI, the Trust was new and therefore the amounts shown in the table are estimates for the Trust's first full fiscal year ended March 31, 2008.

**On June 22, 2005, the Board voted to increase compensation for members not affiliated with NB Management.

As the Portfolios were not operational prior to the date of this SAI, the Portfolio Trustees and officers of the Trust, as a group, did not own any of the outstanding shares of the Portfolios.

Ownership of Securities
-----------------------

         As of the date of this  SAI,  the  Portfolios  were new and had not yet
issued any shares.

         The  following  table  shows  the  aggregate  dollar  range  that  each

Portfolio Trustee held in all the funds in the Neuberger Berman Fund Family as of December 31, 2005.

-----------------------------------------------------------------------------------------------------------------------
                                         AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT
NAME OF TRUSTEE                          COMPANIES OVERSEEN BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES*
-----------------------------------------------------------------------------------------------------------------------
INDEPENDENT PORTFOLIO TRUSTEES
-----------------------------------------------------------------------------------------------------------------------
John Cannon                                                                                Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Faith Colish                                                                               Over $100,000
-----------------------------------------------------------------------------------------------------------------------
C. Anne Harvey                                                                          $50,001-$100,000
-----------------------------------------------------------------------------------------------------------------------
Robert A. Kavesh                                                                         $10,001-$50,000
-----------------------------------------------------------------------------------------------------------------------
Howard A. Mileaf                                                                           Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Edward I. O'Brien                                                                          Over $100,000
-----------------------------------------------------------------------------------------------------------------------
William E. Rulon                                                                              $1-$10,000
-----------------------------------------------------------------------------------------------------------------------

                                                           55

-----------------------------------------------------------------------------------------------------------------------
                                         AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT
NAME OF TRUSTEE                          COMPANIES OVERSEEN BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES*
-----------------------------------------------------------------------------------------------------------------------
INDEPENDENT PORTFOLIO TRUSTEES
-----------------------------------------------------------------------------------------------------------------------
Cornelius T. Ryan                                                                       $50,001-$100,000
-----------------------------------------------------------------------------------------------------------------------
Tom D. Seip                                                                                Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Candace L. Straight                                                                        Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Peter P. Trapp                                                                          $50,001-$100,000
-----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TRUSTEES WHO ARE "INTERESTED PERSONS"
-----------------------------------------------------------------------------------------------------------------------
Jack L. Rivkin                                                                           $10,001-$50,000
-----------------------------------------------------------------------------------------------------------------------
Peter E. Sundman                                                                           Over $100,000
-----------------------------------------------------------------------------------------------------------------------
     * Valuation as of December 31, 2005.

Independent Portfolio Trustees Ownership of Securities

No Independent Portfolio Trustee (including his/her immediate family members) owns any securities (not including shares of registered investment companies) in any Neuberger Berman entity, Lehman Brothers Asset Management or Lehman Brothers Holdings Inc., which controls the Neuberger Berman entities.

INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES

Investment Manager and Administrator

Because all of the Portfolios' net investable assets are invested in their corresponding Master Series, the Portfolios do not need an investment manager. NB Management serves as the investment manager to each Master Series pursuant to a management agreement with Master Trust, on behalf of each Master Series, dated as of December 23, 2004 (the "Management Agreement"). The Management Agreement was approved by the holders of the interests in PRIME Master Series, MONEY MARKET Master Series and TREASURY Master Series on December 23, 2004 and by the holders of the interests in TREASURY RESERVES Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, MUNICIPAL Master Series, TAX-EXEMPT Master Series and NEW YORK MUNICIPAL Master Series on December 15, 2006.

The Management Agreement provides in substance that NB Management will make and implement investment decisions for the Master Series in its discretion and will continuously develop an investment program for the Master Series' assets. The Management Agreement permits NB Management to effect securities transactions on behalf of the Master Series through associated persons of NB Management. The Management Agreement also specifically permits NB Management to compensate, through higher commissions, brokers and dealers who provide investment research and analysis to the Master Series, although NB Management has no current plans to pay a material amount of such compensation.

NB Management has sub-contracted certain of its responsibilities under the Management Agreement to Lehman Brothers Asset Management, which is responsible for the day-to-day investment management of the Portfolios; NB Management is responsible for overseeing the investment activities of Lehman Brothers Asset Management with respect to its management of the Portfolios.

Under the Management Agreement, NB Management provides to each Master Series, without separate cost, office space, equipment, and facilities and the personnel necessary to perform executive, administrative and clerical functions. NB Management pays all salaries, expenses, and fees of the officers, trustees, and employees of Master Trust who are officers, directors, or employees of NB Management. Two persons who are directors and officers and five persons who are officers of NB Management (all of whom are officers of Neuberger Berman), presently serve as trustees and/or officers of the Trusts. See "Trustees and Officers." Each Master Series pays NB Management a management fee based on the Master Series' average daily net assets, as described in the Prospectus.

NB Management provides similar facilities, services, and personnel to each Portfolio pursuant to an administration agreement with the Trust, dated December __, 2006 (the "Administration Agreement"). For such administrative services, each Portfolio pays NB Management a fee based on the Portfolio's average daily net assets, as described in the Prospectus.

[Under the Administration Agreement, NB Management also provides to each Portfolio and its shareholders certain shareholder, shareholder-related, and other services that are not furnished by the Portfolio's shareholder servicing agent. NB Management provides the direct shareholder services specified in the Administration Agreement, assists the shareholder servicing agent in the development and implementation of specified programs and systems to enhance overall shareholder servicing capabilities, solicits and gathers shareholder proxies, performs services connected with the qualification of each Portfolio's shares for sale in various states, and furnishes other services the parties agree from time to time should be provided under the Administration Agreement. ]

From time to time, NB Management or a Portfolio may enter into arrangements with registered broker-dealers or other third parties pursuant to which it pays the broker-dealer or third party a per account fee or a fee based on a percentage of the aggregate net asset value of Portfolio shares purchased by the broker-dealer or third party on behalf of its customers, in payment for administrative and other services rendered to such customers.

Management and Administration Fees

For investment management services, MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY Master Series and TREASURY RESERVES Master Series each pay NB Management a fee at the annual rate of 0.08% of its average daily net assets.

For investment management services, TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK Master Series each pay NB Management a fee at the annual rate of 0.25% of its average daily net assets. NB Management has contractually undertaken to forgo and/or reimburse its management fee in the amount of 0.17% of the average net assets of Tax-Exempt Master Series, Municipal Master Series and New York Master Series.

[NB Management provides administrative services to each Portfolio that include furnishing facilities and personnel for the Portfolio and performing accounting, recordkeeping, and other services. For such administrative services, each Portfolio pays NB Management at the annual rate of 0.10% of that Portfolio's average daily net assets [, plus certain out-of-pocket expenses for technology used for shareholder servicing and shareholder communications subject to the prior approval of an annual budget by the Board of Trustees, including a majority of the Independent Portfolio Trustees, and periodic reports to the Board of Trustees on actual expenses]. With a Portfolio's consent NB Management may subcontract to third parties, including investment providers, some of its responsibilities to that Portfolio under the Administration Agreement and may compensate such third parties, including investment providers, broker-dealers, banks, third-party administrators and other institutions, that provide such services. (A portion of this payment may be derived from the Rule 12b-1 fee paid to NB Management by the Service and Premier Class of the Portfolios; see "Distribution Arrangements" below.)]

Expense Limitations

NB Management has undertaken to forgo current payment of certain fees or provide certain reimbursements of Portfolio expenses, as described below. With respect to any Portfolio, the appropriateness of any such undertaking is determined on a portfolio-by-portfolio basis.

NB Management has contractually undertaken to forgo current payment of fees and/or reimburse certain expenses of the Institutional Class of each Portfolio so that its total operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) do not exceed in the aggregate, 0.20% per annum of that Portfolio's Institutional Class' average daily net assets. This contractual undertaking lasts until March 31, 2010. Each Portfolio has contractually agreed that its Institutional Class will reimburse NB Management for fees and expenses foregone or reimbursed by NB Management, provided the reimbursements do not cause its total operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed an annual rate of 0.20% of its average daily net assets and the reimbursements are made within three years after the year in which NB Management incurred the expense.

NB Management has contractually undertaken to forgo current payment of fees and/or reimburse certain expenses of the Cash Management Class of each Portfolio so that its total operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) do not exceed in the aggregate, 0.25% per annum of that Portfolio's Cash Management Class' average daily net assets. This contractual undertaking lasts until March 31, 2010. Each Portfolio has contractually agreed that its Cash Management Class will reimburse NB Management for fees and expenses foregone or reimbursed by NB Management, provided the reimbursements do not cause its total operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed an annual rate of 0.25% of its average daily net assets and the reimbursements are made within three years after the year in which NB Management incurred the expense.

NB Management has contractually undertaken to forgo current payment of fees and/or reimburse certain expenses of the Capital Class of each Portfolio so that its total operating expenses (exclusive of taxes, interest, brokerage

commissions and extraordinary expenses) do not exceed in the aggregate, 0.30% per annum of that Portfolio's Capital Class' average daily net assets. This contractual undertaking lasts until March 31, 2010. Each Portfolio has contractually agreed that its Capital Class will reimburse NB Management for fees and expenses foregone or reimbursed by NB Management, provided the reimbursements do not cause its total operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed an annual rate of 0.30% of its average daily net assets and the reimbursements are made within three years after the year in which NB Management incurred the expense.

NB Management has contractually undertaken to forgo current payment of fees and/or reimburse certain expenses of the Select Class of each Portfolio so that its total operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) do not exceed in the aggregate, 0.35% per annum of that Portfolio's Select Class' average daily net assets. This contractual undertaking lasts until March 31, 2010. Each Portfolio has contractually agreed that its Select Class will reimburse NB Management for fees and expenses foregone or reimbursed by NB Management, provided the reimbursements do not cause its total operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed an annual rate of 0.35% of its average daily net assets and the reimbursements are made within three years after the year in which NB Management incurred the expense.

NB Management has contractually undertaken to forgo current payment of fees and/or reimburse certain expenses of the Administrative Class of each Portfolio so that its total operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) do not exceed in the aggregate, 0.45% per annum of that Portfolio's Administrative Class' average daily net assets. This contractual undertaking lasts until March 31, 2010. Each Portfolio has contractually agreed that its Administrative Class will reimburse NB Management for fees and expenses foregone or reimbursed by NB Management, provided the reimbursements do not cause its total operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed an annual rate of 0.45% of its average daily net assets and the reimbursements are made within three years after the year in which NB Management incurred the expense.

NB Management has contractually undertaken to forgo current payment of fees and/or reimburse certain expenses of the Service Class of each Portfolio so that its total operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) do not exceed in the aggregate, 0.60% per annum of that Portfolio's Service Class' average daily net assets. This contractual undertaking lasts until March 31, 2010. Each Portfolio has contractually agreed that its Service Class will reimburse NB Management for fees and expenses foregone or reimbursed by NB Management, provided the reimbursements do not cause its total operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed an annual rate of 0.60% of its average daily net assets and the reimbursements are made within three years after the year in which NB Management incurred the expense.

NB Management has contractually undertaken to forgo current payment of fees and/or reimburse certain expenses of the Premier Class of each Portfolio so that its total operating expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses) do not exceed in the aggregate, 0.70% per annum of that Portfolio's Premier Class' average daily net assets. This

contractual undertaking lasts until March 31, 2010. Each Portfolio has contractually agreed that its Premier Class will reimburse NB Management for fees and expenses foregone or reimbursed by NB Management, provided the reimbursements do not cause its total operating expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) to exceed an annual rate of 0.70% of its average daily net assets and the reimbursements are made within three years after the year in which NB Management incurred the expense.

The Management Agreement continues with respect to each Master Series for a period of two years after the date the Master Series became subject thereto. The Management Agreement is renewable thereafter from year to year with respect to each Master Series, so long as its continuance is approved at least annually (1) by the vote of a majority of the Master Series Trustees who are not "interested persons" of NB Management or the Trust ("Independent Master Series Trustees"), cast in person at a meeting called for the purpose of voting on such approval, and (2) by the vote of a majority of the Master Series Trustees or by a 1940 Act majority vote of the outstanding interests in that Master Series. The Administration Agreement continues with respect to each Portfolio for a period of two years after the date the Portfolio became subject thereto. The Administration Agreement is renewable from year to year with respect to each Portfolio, so long as its continuance is approved at least annually (1) by the vote of a majority of the Independent Portfolio Trustees, cast in person at a meeting called for the purpose of voting on such approval and (2) by the vote of a majority of the Portfolio Trustees or by a 1940 Act majority vote of the outstanding shares in that Portfolio.

The Management Agreement is terminable, without penalty, with respect to a Master Series on 60 days' written notice either by the Trust or by NB Management. The Administration Agreement is terminable, without penalty, with respect to a Portfolio on 60 days' written notice either by NB Management or by the Trust. Each Agreement terminates automatically if it is assigned.

Sub-adviser

NB Management retains Lehman Brothers Asset Management, 399 Park Avenue, New York, NY 10022, as sub-adviser with respect to MONEY MARKET Master Series, PRIME Master Series and TREASURY Master Series pursuant to a sub-advisory agreement dated December 23, 2004, and an assignment and assumption agreement dated December 15, 2006, and with respect to GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series, TREASURY RESERVES Master Series, TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK Master Series pursuant to a sub-advisory agreement dated December 15, 2006 (each, a "Sub-Advisory Agreement").

Pursuant to each Sub-Advisory Agreement, NB Management has delegated responsibility for the Master Series' day-to-day management to Lehman Brothers Asset Management. Each Sub-Advisory Agreement provides in substance that Lehman Brothers Asset Management will make and implement investment decisions for each Master Series in its discretion and will continuously develop an investment program for each Master Series' assets. Each Sub-Advisory Agreement permits Lehman Brothers Asset Management to effect securities transactions on behalf of the Master Series through associated persons of Lehman Brothers Asset Management. Each Sub-Advisory Agreement also specifically permits Lehman Brothers Asset Management to compensate, through higher commissions, brokers and dealers who provide investment research and analysis to the Master Series,

although Lehman Brothers Asset Management has no current plans to pay a material amount of such compensation.

Each Sub-Advisory Agreement continues with respect to each Master Series for a period of two years after the date the Master Series became subject thereto, and is renewable from year to year, subject to approval of their continuance in the same manner as the Management Agreement. Each Sub-Advisory Agreement is subject to termination, without penalty, with respect to each Portfolio by Portfolio Trustees or a 1940 Act majority vote of the outstanding interests in that Portfolio, by NB Management, or by Lehman Brothers Asset Management on not less than 30 nor more than 60 days' prior written notice. Each

Sub-Advisory  Agreement  also  terminates  automatically  with  respect  to each
Portfolio if they are assigned or if the Management  Agreement  terminates  with
respect to that Portfolio.

         Most money managers that come to the Lehman Brothers  organization have
at least fifteen years  experience.  Lehman  Brothers  Asset  Management  and NB
Management  employ   experienced   professionals  that  work  in  a  competitive
environment.

Investment Companies Managed

The investment decisions concerning the Master Series and the other registered investment companies managed by NB Management or Lehman Brothers Asset Management (collectively, "Other Funds") have been and will continue to be made independently of one another. In terms of their investment objectives, most of the Other Funds differ from the Portfolios. Even where the investment objectives are similar, however, the methods used by the Other Funds and the Master Series to achieve their objectives may differ. The investment results achieved by all of the registered investment companies managed by NB Management or Lehman Brothers Asset Management have varied from one another in the past and are likely to vary in the future.

There may be occasions when a Master Series and one or more of the Other Funds or other accounts managed by NB Management or Lehman Brothers Asset Management are contemporaneously engaged in purchasing or selling the same securities from or to third parties. When this occurs, the transactions are averaged as to price and allocated, in terms of amount, in accordance with a formula considered to be equitable to the funds involved. Although in some cases this arrangement may have a detrimental effect on the price or volume of the securities as to a Portfolio, in other cases it is believed that a Portfolio's ability to participate in volume transactions may produce better executions for it. In any case, it is the judgment of the Portfolio Trustees that the desirability of the Portfolios' having their advisory arrangements with NB Management and Lehman Brothers Asset Management outweighs any disadvantages that may result from contemporaneous transactions.

The Master Series are subject to certain limitations imposed on all advisory clients of NB Management and Lehman Brothers Asset Management (including the Master Series, the Other Funds, and other managed accounts) and personnel of NB Management and Lehman Brothers Asset Management and their affiliates. These include, for example, limits that may be imposed in certain industries or by certain companies, and policies of NB Management and Lehman Brothers Asset Management that limit the aggregate purchases, by all accounts under management, of the outstanding shares of public companies.

Codes of Ethics

The Portfolios, NB Management and Lehman Brothers Asset Management have personal securities trading policies that restrict the personal securities transactions of employees, officers, and Trustees. Their primary purpose is to ensure that personal trading by these individuals does not disadvantage any fund managed by NB Management. The Portfolio managers and other investment personnel who comply with the policies' preclearance and disclosure procedures may be permitted to purchase, sell or hold certain types of securities which also may be or are held in the funds they advise, but are restricted from trading in close conjunction with their Portfolios or taking personal advantage of investment opportunities that may belong to the Portfolios. Text-only versions of the Codes of Ethics can be viewed online or downloaded from the EDGAR Database on the SEC's internet web site at www.sec.gov. You may also review and copy those documents by visiting the SEC's Public Reference Room in Washington,
DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-942-8090. In addition, copies of the Codes of Ethics may be obtained, after mailing the appropriate duplicating fee, by writing to the SEC's Public Reference Section, 100 F Street, N.E., Washington, DC 20549-0102 or by e-mail request at publicinfo@sec.gov.

Management and Control of Nb Management and Lehman Brothers Asset Management

NB Management and Lehman Brothers Asset Management are wholly owned by Lehman Brothers Holdings Inc., a publicly-owned holding company. The directors, officers and/or employees of NB Management, Neuberger Berman, LLC and Neuberger Berman Inc. who are deemed "control persons," all of whom have offices at the same address as NB Management, are: Kevin Handwerker, Jeffrey B. Lane, Jack L. Rivkin and Peter E. Sundman. Mr. Sundman and Mr. Rivkin are Portfolio Trustees and officers of the Trust. The directors, officers and/or employees of Lehman Brothers Asset Management who are deemed "control persons," all of whom have offices at the same address as Lehman Brothers Asset Management, are: Joseph Amato, Richard W. Knee, Lori A. Loftus and Bradley C. Tank.

Lehman Brothers Holdings Inc. is one of the leading global investment banks serving the financial needs of corporations, governments and municipalities, institutional clients, and high-net-worth individuals worldwide. Founded in 1850, Lehman Brothers Holdings Inc. maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private equity, and private client services. The firm is headquartered in New York, London, and Tokyo and operates in a network of offices around the world. Lehman Brothers Holdings Inc.'s address is 745 Seventh Avenue, New York, New York 10019.

SHAREHOLDER SERVICING ARRANGEMENTS

The Trust, on behalf of each Portfolio, has entered into a Shareholder Servicing Agreement with NB Management with respect to each Class of shares (except the Institutional Class shares) of each Portfolio ("Shareholder Servicing Agreement"). Pursuant to the Shareholder Servicing Agreement, NB Management provides to the shareholders and beneficial owners of each Class

(except the Institutional Class) the shareholder services listed below for each Class, some or all of which may be provided by banks, trust companies or other institutions that provide such shareholder services to their accounts ("Accounts") and their Account holders and which have entered into a service agreement with NB Management (each, a "Service Organization"). NB Management may compensate a Service Organization for the shareholder services it provides to Accounts and Account holders pursuant to such service agreement. The Shareholder Servicing Agreement requires each Class to compensate NB Management for the shareholder services provided to that Class, as described below.

NB Management receives from the Cash Management Class of each Portfolio a fee at an annual rate of 0.05% of the Portfolio's Cash Management Class's average daily net assets. Under the Shareholder Servicing Agreement, NB Management (or a Service Organization) shall provide the following services to the shareholders and beneficial owners of Cash Management Class shares of a Portfolio: (i) acting, directly or through an agent, as the shareholder of record and nominee for customers, (ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Cash Management shares, (iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions; and (iv) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

NB Management receives from the Capital Class of each Portfolio a fee at an annual rate of 0.10% of the Portfolio's Capital Class's average daily net assets. Under the Shareholder Servicing Agreement, NB Management (or a Service Organization) shall provide the following services to the shareholders and beneficial owners of Capital Class shares of a Portfolio: (i) acting, directly or through an agent, as the shareholder of record and nominee for customers;
(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Capital shares; (iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions; (iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Capital shares; and (v) such other similar services as a Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

NB Management receives from the Select Class of each Portfolio a fee at an annual rate of 0.15% of the Portfolio's Select Class's average daily net assets. Under the Shareholder Servicing Agreement, NB Management (or a Service Organization) shall provide the following services to the shareholders and beneficial owners of Select Class shares of a Portfolio: (i) acting, directly or through an agent, as the shareholder of record and nominee for customers; (ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Select shares; (iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions; (iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Select shares; (v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through the service organization, for example, retirement, asset allocation, bank trust or private banking programs or services; and (vi) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

         NB Management receives from the Administrative  Class of each Portfolio
a fee at an  annual  rate of 0.25%  of the  Portfolio's  Administrative  Class's
average  daily  net  assets.  Under  the  Shareholder  Servicing  Agreement,  NB

Management (or a Service Organization) shall provide the following services to the shareholders and beneficial owners of Administrative Class shares of a Portfolio: (i) acting, directly or through an agent, as the shareholder of record and nominee for customers; (ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Administrative shares; (iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions; (iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Administrative shares; (v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through service organizations; (vi) processing, or assisting in processing, dividend payments on behalf of customers; and (vii) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

NB Management receives from the Service Class of each Portfolio a fee at an annual rate of 0.25% of the Portfolio's Service Class's average daily net assets. Under the Shareholder Servicing Agreement, NB Management (or a Service Organization) shall provide the following services to the shareholders and beneficial owners of Service Class shares of a Portfolio: (i) acting, directly or through an agent, as the shareholder of record and nominee for customers;
(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Service shares; (iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions; (iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Service shares; (v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through service organizations; (vi) processing, or assisting in processing, dividend payments on behalf of customers; and (vii) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

NB Management receives from the Premier Class of each Portfolio a fee at an annual rate of 0.25% of the Portfolio's Premier Class's average daily net assets. Under the Shareholder Servicing Agreement, NB Management (or a Service Organization) shall provide the following services to the shareholders and beneficial owners of Premier Class shares of a Portfolio: (i) acting, directly or through an agent, as the shareholder of record and nominee for customers;
(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Premier shares; (iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions; (iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Premier shares; (v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through service organizations; (vi) processing, or assisting in processing, dividend payments on behalf of customers; and (vii) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

The Shareholder Servicing Agreement continues until October 31, 2007. The Shareholder Servicing Agreement is renewable from year to year with respect to each Class, so long as its continuance is approved at least annually (1) by

the vote of a majority of the Independent Portfolio Trustees and (2) by the vote of a majority of the Portfolio Trustees. The Shareholder Servicing Agreement is terminable, without penalty, with respect to a Portfolio on 60 days' written notice either by NB Management or by the Trust. The Shareholder Servicing Agreement terminates automatically if it is assigned.

DISTRIBUTION ARRANGEMENTS

Distributor

NB Management serves as the distributor ("Distributor") in connection with the offering of each Portfolio's shares. The shares of each Portfolio are offered on a no-load basis.

In connection with the sale of its shares, each Portfolio has authorized the Distributor to give only the information, and to make only the statements and representations, contained in the Prospectus and this SAI or that properly may be included in sales literature and advertisements in accordance with the 1933 Act, the 1940 Act, and applicable rules of self-regulatory organizations. Sales may be made only by the Prospectus, which may be delivered personally, through the mails, or by electronic means. The Distributor is the Portfolios' "principal underwriter" within the meaning of the 1940 Act and, as such, acts as agent in arranging for the sale of each Portfolio's shares without sales commission or other compensation and bears all advertising and promotion expenses incurred in the sale of those shares.

For each Portfolio's shares, the Distributor or one of its affiliates may, from time to time, deem it desirable to offer to shareholders of the Portfolio, through use of its shareholder lists, the shares of other mutual funds for which the Distributor acts as distributor or other products or services. Any such use of the Portfolio's shareholder lists, however, will be made subject to terms and conditions, if any, approved by a majority of the Independent Portfolio Trustees. These lists will not be used to offer the Portfolio's shareholders any investment products or services other than those managed or distributed by NB Management, Neuberger Berman or Lehman Brothers Asset Management.

From time to time, NB Management may enter into arrangements pursuant to which it compensates a registered broker-dealer or other third party for services in connection with the distribution of shares of a certain Class.

The Trust, on behalf of each Portfolio, and the Distributor are parties to a Distribution Agreement with respect to the Institutional Class, the Cash Management Class, the Capital Class, the Select Class and the Administrative Class, and a Distribution and Service Agreement with respect to the Service Class and the Premier Class of each Portfolio ("Distribution Agreements"). The Distribution Agreements continue until October 31, 2007. The Distribution Agreements may be renewed annually if specifically approved by (1) the vote of a majority of the Portfolio Trustees or a 1940 Act majority vote of the Portfolio's outstanding shares and (2) the vote of a majority of the Independent Portfolio Trustees, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreements may be terminated by either party and will terminate automatically on their assignment, in the same manner as the Management Agreement.

Distribution Plan (Service Class Only)

The Trust, on behalf of each Portfolio, has also adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Service Class of each Portfolio. The Plan permits the Service Class of a Portfolio to pay NB Management fees for (1) providing services related to the sales and distribution of shares and/or (2) providing administrative and shareholder services to holders of those shares. Under the Plan, NB Management receives from the Service Class of a Portfolio a fee at the annual rate of a maximum of 0.15% of that Class's average daily net assets. Payments with respect to the Service Class of a Portfolio are made only from assets attributable to that Class of a Portfolio. NB Management may pay up to the full amount of the distribution fee it receives to broker-dealers, banks, trust companies, third-party administrators and other institutions that support the sale and distribution of shares or provide administrative and shareholder services to the Service Class of a Portfolio and its shareholders. The fee paid to such institutions is based on the level of such services provided. Distribution activities for which such payments may be made include, but are not limited to, compensation to persons who engage in or support distribution and redemption of shares, printing of prospectuses and reports for persons other than existing shareholders, advertising, preparation and distribution of sales literature, overhead, travel and telephone expenses. In addition, payments may also be made to such institutions to compensate them for administrative and shareholder services provided to the Service Class of a Portfolio and its shareholders. The amount of fees paid by the Service Class of a Portfolio during any year may be more or less than the cost of distribution and other services provided to that Class and its investors. NASD rules limit the amount of annual distribution and service fees that may be paid by a mutual fund and impose a ceiling on the cumulative distribution fees paid.

Distribution Plan (Premier Class Only)

The Trust, on behalf of each Portfolio, has also adopted a Plan with respect to the Premier Class of each Portfolio. The Plan permits the Premier Class of a Portfolio to pay NB Management fees for (1) providing services related to the sales and distribution of shares and/or (2) providing administrative and shareholder services to holders of those shares. Under the Plan, NB Management receives from the Premier Class of a Portfolio a fee at the annual rate of a maximum of 0.25% of that Class's average daily net assets. Payments with respect to the Premier Class of a Portfolio are made only from assets attributable to that Class of a Portfolio. NB Management may pay up to the full amount of the distribution fee it receives to broker-dealers, banks, trust companies, third-party administrators and other institutions that support the sale and distribution of shares or provide administrative and shareholder services to the Premier Class of a Portfolio and its shareholders. The fee paid to such institutions is based on the level of such services provided. Distribution activities for which such payments may be made include, but are not limited to, compensation to persons who engage in or support distribution and redemption of shares, printing of prospectuses and reports for persons other than existing shareholders, advertising, preparation and distribution of sales literature, overhead, travel and telephone expenses. In addition, payments may also be made to such institutions to compensate them for administrative and shareholder services provided to the Premier Class of a Portfolio and its shareholders. The amount of fees paid by the Premier Class of a Portfolio during any year may be more or less than the cost of distribution and other services provided to that Class and its investors. NASD rules limit the amount of annual

distribution and service fees that may be paid by a mutual fund and impose a ceiling on the cumulative distribution fees paid.

Each Plan requires that NB Management provide the Portfolio Trustees, for their review, a quarterly written report identifying the amounts expended by each Class of a Portfolio and the purposes for which such expenditures were made.

Prior to approving each Plan, the Portfolio Trustees considered various factors relating to the implementation of each Plan and determined that there is a reasonable likelihood that each Plan will benefit the Class of a Portfolio and their shareholders. To the extent each Plan allows the Portfolios to penetrate markets to which they would not otherwise have access, a Plan may result in additional sales of Portfolio shares; this, in turn, may enable the Portfolios to achieve economies of scale that could reduce expenses. In addition, certain on-going shareholder services may be provided more effectively by institutions with which shareholders have an existing relationship.

Each Plan continues for one year from the date of its execution. Each Plan is renewable thereafter from year to year with respect to each Portfolio, so long as its continuance is approved at least annually (1) by the vote of a majority of the Portfolio Trustees and (2) by a vote of the majority of those Independent Portfolio Trustees who have no direct or indirect financial interest in the Distribution Agreement or the Distribution Plan ("Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of voting on such approval. The Plans may not be amended to increase materially the amount of fees paid by any Portfolio thereunder unless such amendment is approved by a 1940 Act majority vote of the outstanding shares of the Portfolio and by the Portfolio Trustees in the manner described above. Each Plan is terminable with respect to a Portfolio at any time by a vote of a majority of the Rule 12b-1 Trustees or by a 1940 Act majority vote of the outstanding shares of the Portfolio.

From time to time, one or more of the Portfolios may be closed to new investors. Because each Plan pays for ongoing shareholder and account services, the Board may determine that it is appropriate for a Portfolio to continue paying a 12b-1 fee, even though the Portfolio is closed to new investors.

Revenue Sharing

[NB Management and/or its affiliates may pay additional compensation and/or provide incentives (out of their own resources and not as an expense of the Funds) to certain brokers, dealers, or other financial intermediaries ("Financial Intermediaries") in connection with the sale, distribution, retention and/or servicing of Fund shares ("revenue sharing payments").

Such payments are intended to provide additional compensation to Financial Intermediaries for various services, including without limitation, participating in joint advertising with a Financial Intermediary, granting NB Management personnel reasonable access to a Financial Intermediary's financial advisors and consultants, and allowing NB Management personnel to attend conferences. NB Management and its affiliates may make other payments or allow other promotional

incentives to Financial Intermediaries to the extent permitted by SEC and NASD rules and by other applicable laws and regulations.

Placing the Funds on the Financial Intermediary's sales system, preferred or recommended fund list, providing periodic and ongoing education and training of Financial Intermediary personnel regarding the Funds; disseminating to Financial Intermediary personnel information and product marketing materials regarding the Funds; explaining to clients the features and characteristics of the Funds; conducting due diligence regarding the Funds; providing reasonable access to sales meetings, sales representatives and management representatives of a Financial Intermediary; furnishing marketing support and other services. Additional compensation also may include non-cash compensation, financial assistance to Financial Intermediaries in connection with conferences, seminars for the public and advertising campaigns, technical and systems support and reimbursement of ticket charges (fees that a Financial Intermediary charges its representatives for effecting transactions in Fund shares) and other similar charges.

The level of revenue sharing payments made to Financial Intermediaries may be a fixed fee or based upon one or more of the following factors: reputation in the industry, ability to attract and retain assets, target markets, customer relationships, quality of service, gross sales, current assets and/or number of accounts of the Fund attributable to the Financial Intermediary, the particular Fund or fund type or other measures as agreed to by NB Management and/or their affiliates and the Financial Intermediaries or any combination thereof. The amount of these payments is determined at the discretion of NB Management and/or its affiliates from time to time, may be substantial, and may be different for different Financial Intermediaries based on, for example, the nature of the services provided by the Financial Intermediary.

Receipt of, or the prospect of receiving, this additional compensation, may influence a Financial Intermediary's recommendation of the Funds or of any particular share class of the Funds. These payment arrangements, however, will not change the price that an investor pays for Fund shares or the amount that a Fund receives to invest on behalf of an investor and will not increase Fund expenses. You should review your Financial Intermediary's compensation disclosure and/or talk to your Financial Intermediary to obtain more information on how this compensation may have influenced your Financial Intermediary's recommendation of a Fund.

In addition to the compensation described above, the Funds and/or NB Management may pay fees to Financial Intermediaries and their affiliated persons for maintaining Fund share balances and/or for subaccounting, administrative or transaction processing services related to the maintenance of accounts for retirement and benefit plans and other omnibus accounts ("subaccounting fees"). Such subaccounting fees paid by the Funds may differ depending on the Fund and are designed to be equal to or less than the fees the Funds would pay to their transfer agent for similar services. [Because some subaccounting fees are directly related to the number of accounts and assets for which a Financial Intermediary provides services, these fees will increase with the success of the Financial Intermediary's sales activities.]

NB Management and its affiliates are motivated to make the payments described above since they promote the sale of Fund shares and the retention of those investments by clients of Financial Intermediaries. To the extent

Financial Intermediaries sell more shares of the Funds or retain shares of the Funds in their clients' accounts, NB Management and/or its affiliates benefit from the incremental management and other fees paid to NB Management and/or its affiliates by the Funds with respect to those assets.]

ADDITIONAL PURCHASE INFORMATION

Share Prices and Net Asset Value

Each Class of a Portfolio's shares are bought or sold at a price that is that Class of the Portfolio's NAV per share. The NAV for each Class of a Portfolio and its corresponding Master Series is calculated by subtracting total liabilities of that Class of the Portfolio from total assets attributable to that Class of the Portfolio (in the case of a Master Series, the market value of the securities the Master Series holds plus cash and other assets; in the case of a Portfolio, its percentage interest in its corresponding Master Series, multiplied by the Master Series' NAV, plus any other assets). Each Class of a Portfolio's per share NAV is calculated by dividing its NAV by the number of that Class' Portfolio shares outstanding and rounding the result to the nearest full cent.

Each Portfolio tries to maintain a stable NAV of $1.00 per share. Each Master Series values securities at their cost at the time of purchase and assumes a constant amortization to maturity of any discount or premium. MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series and TREASURY Master Series and each corresponding Portfolio price their shares at 5:00 p.m., Eastern time each day the New York Stock Exchange ("NYSE") and the Federal Reserve Wire System ("Federal Reserve") are open ("Business Day"). GOVERNMENT RESERVES Master Series and TREASURY RESERVES Master Series and each corresponding Portfolio price their shares at 2:00 p.m., Eastern time on each Business Day. TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series price their shares at 3:00 p.m., Eastern time on each Business Day.

If there is no reported sale of a security on a particular day, the security is valued at the mean between its closing bid and asked prices on that day. The Master Series values all other securities and assets, including restricted securities, by a method that the Portfolio Trustees believe accurately reflects fair value.

If NB Management believes that the price of a security obtained under a Portfolio's valuation procedures (as described above) does not represent the amount that the Master Series reasonably expects to receive on a current sale of the security, the Master Series will value the security based on a method that the Portfolio Trustees believe accurately reflects fair value. Numerous factors may be considered when determining the fair value of a security, including available analyst, media or other reports, trading in futures or ADRs and whether the issuer of the security being fair valued has other securities outstanding.

ADDITIONAL EXCHANGE INFORMATION

As more fully set forth in the section of the Prospectus entitled "Shareholder Services -- Exchange Privilege," shareholders may redeem a Portfolio's shares and invest the proceeds in shares of another Portfolio described herein, provided that the minimum investment requirements of the other portfolio(s) are met. See the section of the Prospectus entitled "General Shareholder Information - Exchanging Shares" for the minimum amount required for an exchange.

The Portfolios described herein may terminate or modify their exchange privileges in the future.

Before effecting an exchange, Portfolio shareholders must obtain and should review a currently effective prospectus of the Portfolio into which the exchange is to be made. An exchange is treated as a sale for federal income tax purposes, and, depending on the circumstances, a short- or long-term capital gain or loss may be realized.

There can be no assurance that any Portfolio herein, each of which is a money market fund that seeks to maintain a constant purchase and redemption share price of $1.00, will be able to maintain that price. An investment in any other mutual fund, is neither insured nor guaranteed by the U.S. Government.

ADDITIONAL REDEMPTION INFORMATION

Suspension of Redemptions

The right to redeem Portfolio shares may be suspended or payment of the redemption price postponed as permitted pursuant to Section 22(e). Generally, under that section, redemption requests or payments may be postponed or suspended if the NYSE is closed for trading, or trading is restricted, an emergency exists which makes the disposal of securities owned by a Portfolio or the fair determination of the value of the Portfolio's net assets not reasonably practicable, or the SEC, by order, permits the suspension of the right of redemption. Redemption payments may also be delayed in the event of the closing of the Federal Reserve. In addition, when the NYSE, bond market or Federal Reserve closes early, payments with respect to redemption requests received subsequent to the close will be made the next business day. If the right of redemption is suspended, shareholders may withdraw their offers of redemption, or they will receive payment at the NAV per share in effect at the close of business on the first Business Day after termination of the suspension.

MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series and TREASURY Master Series and each corresponding Portfolio price their shares at 5:00 p.m., Eastern time on each Business Day; GOVERNMENT RESERVES Master Series and TREASURY RESERVES Master Series and each corresponding Portfolio price their shares at 2:00 p.m., Eastern time on each Business Day; and TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK Municipal Master Series price their shares at 3:00 p.m., Eastern time on each Business Day. When the Exchange, bond market or Federal Reserve Wire System closes early, payments with respect to redemption requests received subsequent to the recommended close will be made the next business day.

Redemptions in Kind

Each Portfolio reserves the right, to honor any request for redemption by making payment in whole or in part in securities valued as described in "Share Prices and Net Asset Value" above. If payment is made in securities, a shareholder generally will incur brokerage expenses or other transaction costs in converting those securities into cash and will be subject to fluctuation in the market prices of those securities until they are sold. The Portfolios do not redeem in kind under normal circumstances, but would do so when the Portfolio Trustees determined that it was in the best interests of a Portfolio's shareholders as a whole.

DIVIDENDS AND OTHER DISTRIBUTIONS

Each Portfolio distributes to its shareholders substantially all of its net investment income (after deducting its expenses) and any net capital gains (both long-term and short-term) it earns or realizes (including, in each case, its proportionate share of its corresponding Master Series' net investment income and gains). A Master Series' net investment income consists of all income accrued on its assets less accrued expenses but does not include capital gains and losses. Net investment income and net gains and losses are reflected in each Master Series' NAV (and hence, its corresponding Portfolio's NAV) until they are distributed.

MONEY MARKET Master Series, PRIME Master Series, GOVERNMENT Master Series, and TREASURY Master Series and each corresponding Portfolio normally calculate their respective net investment income and NAV per share as of 5:00
p.m., Eastern time, on each Business Day. GOVERNMENT RESERVES Master Series and TREASURY RESERVES Master Series and each corresponding Portfolio normally calculate their respective net investment income and NAV per share as of 2:00
p.m., Eastern time, on each Business Day. TAX-EXEMPT Master Series, MUNICIPAL Master Series and NEW YORK MUNICIPAL Master Series normally calculate their respective net investment income and NAV per share as of 3:00 p.m., Eastern time, on each Business Day.

Income dividends are declared daily; dividends declared for each month are paid on the last Business Day of the month. Portfolio shares begin earning income dividends on the Business Day on which the proceeds of the purchase order are converted to "federal funds" and continue to earn dividends through the Business Day before they are redeemed. Distributions of net realized capital gains, if any, normally are paid once annually, in December.

Each Portfolio's dividends and other distributions are automatically reinvested in additional shares of the Portfolio's class on which the distribution is made, unless the shareholder elects to receive them in cash ("cash election"). Shareholders may make a cash election on the account application or at a later date by writing to State Street Bank and Trust Company ("State Street"), c/o Boston Service Center, P.O. Box 8403, Boston, MA 02266-8403. Cash distributions can be paid by check or through an electronic transfer to a bank account or used to purchase shares of a Lehman Brothers Fund,

designated in the shareholder's account application. To the extent dividends and other distributions are subject to federal, state, or local income taxation, they are taxable to the shareholders whether received in cash or reinvested in additional Portfolio shares.

A shareholder's cash election with respect to any Portfolio remains in effect until the shareholder notifies State Street in writing to discontinue the election. If the U.S. Postal Service cannot properly deliver a Portfolio's mailings to a shareholder for 180 days, the Portfolio will terminate the shareholder's cash election. Thereafter, the shareholder's dividends and other distributions will automatically be reinvested in additional Portfolio shares until the shareholder requests in writing to State Street or the Portfolio that the cash election be reinstated.

Dividend or other distribution checks that are not cashed or deposited within 180 days from being issued will be reinvested in additional shares of the Portfolio's class on which the distribution is made at their NAV per share on the day the check is reinvested. No interest will accrue on amounts represented by uncashed dividend or other distribution checks.

ADDITIONAL TAX INFORMATION

Taxation of the Portfolios

To qualify for treatment as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"), each Portfolio (which is treated as a separate corporation for federal tax purposes) must distribute to its shareholders for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income and the excess of net short-term capital gain over net long-term capital loss, all determined without regard to any deduction for dividends paid) -- in the case of TAX-EXEMPT Portfolio, MUNICIPAL Portfolio, and NEW YORK MUNICIPAL Portfolio (each a "Municipal Portfolio"), at least 90% of the sum of that income plus its net interest income excludable from gross income under section 103(a) of the Code -- ("Distribution Requirement"), and must meet several additional requirements. With respect to each Portfolio, these requirements include the following: (1) the Portfolio must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of securities, or other income derived with respect to its business of investing in securities; and (2) at the close of each quarter of the Portfolio's taxable year, (i) at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs, and other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Portfolio's total assets, and (ii) not more than 25% of the value of its total assets may be invested in securities (other than U.S. Government securities or securities of other RICs) of any one issuer.

By qualifying for treatment as a RIC, a Portfolio (but not its shareholders) will be relieved of federal income tax on the part of its investment company taxable income and net capital gain (I.E., the excess of net long-term capital gain over net short-term capital loss), if any, that it distributes to its shareholders. If a Portfolio failed to qualify for treatment as a RIC for any taxable year, (1) it would be taxed on the full amount of its taxable income for that year without being able to deduct the distributions it makes to its shareholders and (2) the shareholders would treat all those distributions as dividends (taxable as ordinary income) to the extent of the

Portfolio's earnings and profits. In addition, the Portfolio could be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial distributions before requalifying for RIC treatment.

Series of other registered investment companies that previously invested in master-feeder structures and were managed by NB Management received rulings from the Service that each series thereof, as an investor in its corresponding master portfolio, would be deemed to own a proportionate share of the portfolio's assets, and to earn a proportionate share of the portfolio's income, for purposes of determining whether the series satisfies all of the requirements described above to qualify as a RIC. Although the Portfolios may not rely on these rulings as precedent, NB Management believes the reasoning thereof and, hence, their conclusions apply to the Portfolios as well.

Each Portfolio will be subject to a nondeductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary taxable income for that year and capital gain net income for the one-year period ended on October 31 of that year, plus certain other amounts. Each Portfolio intends to make sufficient distributions for each calendar year to avoid liability for the Excise Tax.

See the next section for a discussion of the tax consequences to a Portfolio of distributions to it from a Master Series, investments by the Master Series in certain securities, and certain other transactions engaged in by the Master Series.

Taxation of the Master Series

Series of other registered investment companies that previously invested in master-feeder structures and were managed by NB Management received rulings from the Service to the effect that, among other things, each master portfolio would be treated as a separate partnership for federal tax purposes and would not be a "publicly traded partnership." Although the Master Series may not rely on these rulings as precedent, NB Management believes the reasoning thereof and, hence, their conclusions apply to the Master Series as well. As a result, no Master Series is subject to federal income tax; instead, each investor in a Master Series, such as a Portfolio, is required to take into account in determining its federal income tax liability its share of the Master Series' income, gains, losses, deductions, and Tax Preference Items, without regard to whether it has received any cash distributions from the Master Series. Each Master Series also is not subject to Delaware or New York income or franchise tax.

Because each Portfolio is deemed to own a proportionate share of its corresponding Master Series' assets and income for purposes of determining whether the Portfolio satisfies the requirements to qualify as a RIC and to pay exempt-interest dividends (as described below under "Taxation of the Portfolios' Shareholders - Municipal Portfolios' Shareholders"), each Master Series intends to conduct its operations so that its corresponding Portfolio will be able to satisfy all those requirements.

Distributions to a Portfolio from its corresponding Master Series (whether pursuant to a partial or complete withdrawal or otherwise) will not result in the Portfolio's recognition of any gain or loss for federal income tax purposes, except that (1) gain will be recognized to the extent any distributed

cash exceeds the Portfolio's basis for its interest in the Master Series before the distribution, (2) income or gain will be recognized if the distribution is in liquidation of the Portfolio's entire interest in the Master Series and includes a disproportionate share of any unrealized receivables the Master Series holds, and (3) loss may be recognized if a liquidation distribution consists solely of cash and/or unrealized receivables. A Portfolio's basis in its interest in its corresponding Master Series generally equals the amount of cash and the basis of any property the Portfolio invests in the Master Series, increased by the Portfolio's share of the Master Series' net income and capital gains and decreased by (a) the amount of cash and the basis of any property the Master Series distributes to the Portfolio and (b) the Portfolio's share of the Master Series' losses.

Interest a Master Series receives, and gains it realizes, on foreign securities may be subject to income, withholding, or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield and/or total return on its securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.

TAX-EXEMPT MASTER SERIES, MUNICIPAL MASTER SERIES AND NEW YORK MUNICIPAL MASTER SERIES ("MUNICIPAL MASTER SERIES"). A Municipal Master Series may acquire zero coupon or other municipal securities issued with original issue discount ("OID"). As a holder of those securities, a Municipal Master Series (and hence its corresponding Municipal Portfolio) must take into account the OID that accrues on them during the taxable year, even if it receives no corresponding payment thereon during the year. Because each Municipal Portfolio annually must distribute substantially all of its investment company taxable income (determined without regard to any deduction for dividends paid) and net tax-exempt income, including any tax-exempt OID, to satisfy the Distribution Requirement, a Municipal Portfolio may be required in a particular taxable year to distribute as a dividend an amount that is greater than the total amount of its share of cash its corresponding Municipal Master Series actually receives. Those distributions will be made from the Municipal Portfolio's cash assets, if any, or from redemption of part of its interest in the Municipal Master Series, which may have to sell portfolio securities. The Municipal Master Series may realize capital gains or losses from those sales, which would increase or decrease the Municipal Portfolio's investment company taxable income and/or taxable capital gain.

A Municipal Master Series may invest in municipal bonds that are purchased, generally not on their original issue, with "market discount" (that is, at a price less than the principal amount of the bond adjusted for any accrued OID) ("municipal market discount bonds"). Market discount less than the product of (1) 0.25% of the redemption price at maturity times (2) the number of complete years to maturity after the Municipal Master Series acquired the bond is disregarded. Market discount generally is accrued ratably, on a daily basis, over the period from the acquisition date to the date of maturity. Gain on the disposition of a municipal market discount bond (other than a bond with a fixed maturity date within one year from its issuance) generally is treated as ordinary (taxable) income, rather than capital gain, to the extent of the bond's accrued market discount at the time of disposition; in lieu of such treatment, an election may be made to include market discount in gross income currently, for each taxable year to which it is attributable.

Taxation of the Portfolios' Shareholders

MUNICIPAL PORTFOLIOS' SHAREHOLDERS. Dividends a Municipal Portfolio pays will qualify as "exempt-interest dividends," as defined in the Prospectuses, and thus will be excludable from its shareholders' gross income for federal income tax purposes, if the Municipal Portfolio satisfies the requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets (I.E., its share of its corresponding Municipal Master Series' total assets) consists of securities the interest on which is excludable from gross income under section 103(a) of the Code; each Municipal Portfolio and each Municipal Master Series intends to satisfy this requirement. The aggregate dividends a Municipal Portfolio designates as exempt-interest dividends for any taxable year may not exceed its share of its corresponding Municipal Master Series' net tax-exempt income for the year. Shareholders' treatment of dividends from a Municipal Portfolio under state and local income tax laws may differ from the treatment thereof under the Code. Investors should consult their tax advisers concerning this matter.

Interest on indebtedness incurred or continued by a shareholder to purchase or carry Municipal Portfolio shares is not deductible for federal income tax purposes.

Entities or persons who are "substantial users" (or persons related to "substantial users") of facilities financed by private activity bonds should consult their tax advisers before purchasing Municipal Portfolio shares because, for users of certain of these facilities, the interest on those bonds is not exempt from federal income tax. For these purposes, "substantial user" is defined to include a "non-exempt person" who regularly uses in a trade or business a part of a facility financed from the proceeds of private activity bonds.

Up to 85% of social security and railroad retirement benefits may be included in taxable income for a taxable year for recipients whose modified adjusted gross income (including income from tax-exempt sources such as a Municipal Portfolio) plus 50% of their benefits for the year exceeds certain base amounts. Exempt-interest dividends from a Municipal Portfolio still would be tax-exempt to the extent described above; they would only be included in the calculation of whether a recipient's income exceeded the established amounts.

If a Municipal Master Series invests in instruments that generate taxable interest income, under the circumstances described in the Prospectuses and this SAI, the portion of any Municipal Portfolio dividend attributable to the interest earned thereon will be taxable to its shareholders as ordinary income to the extent of its earnings and profits, and only the remaining portion will qualify as an exempt-interest dividend. Moreover, if a Municipal Master Series realizes capital gain as a result of market transactions, any distributions of the gain by its corresponding Municipal Portfolio will be taxable to its shareholders.

Pursuant to the Tax Increase Prevention and Reconciliation Act of 2005 (enacted in May 2006), tax-exempt interest, including exempt-interest dividends, paid after December 31, 2005, is subject to information reporting. Accordingly, the amount of exempt-interest dividends -- and, to the extent possible after reasonable effort, the part thereof constituting interest that is a Tax Preference Item -- that the Municipal Portfolios pay to their shareholders will be reported to them annually on Forms 1099-INT (or substitutes therefor). The foregoing will not apply, however, with respect to the part of those dividends

attributable to OID on municipal bonds and interest on tax-exempt "bearer" bonds until the Service provides future guidance.

OTHER. Each Portfolio is required to withhold 28% of all taxable dividends payable to any individuals and certain other non-corporate shareholders who do not provide the Portfolio with a correct taxpayer identification number or who otherwise are subject to backup withholding.

The income dividends each Portfolio pays to a non-resident alien individual or foreign corporation (I.E., a non-U.S. person) generally are subject to a 30% (or lower treaty rate) federal withholding tax ("withholding tax"). Pursuant to the American Jobs Creation Act of 2004, Portfolio distributions that are (1) made to a beneficial owner of its shares that certifies that it is a non-U.S. person, with certain exceptions, (2) attributable to the Portfolio's (including its share of the Master Series') "qualified net interest income" and/or short-term capital gain, and (3) with respect to a taxable year before January 1, 2008, are exempt from withholding tax.

VALUATION OF PORTFOLIO SECURITIES

Each Master Series relies on Rule 2a-7 to use the amortized cost method of valuation to enable its corresponding Portfolio to stabilize the purchase and redemption price of its shares at $1.00 per share. This method involves valuing portfolio securities at their cost at the time of purchase and thereafter assuming a constant amortization (or accretion) to maturity of any premium (or discount), regardless of the impact of interest rate fluctuations on the market value of the securities. Although the Master Series' reliance on Rule 2a-7 and use of the amortized cost valuation method should enable the Portfolios, under most conditions, to maintain a stable $1.00 share price, there can be no assurance they will be able to do so. An investment in either of these Portfolios, as in any mutual fund, is neither insured nor guaranteed by the U.S. Government.

PORTFOLIO TRANSACTIONS

Purchases and sales of portfolio securities generally are transacted with issuers, underwriters, or dealers that serve as primary market-makers, who act as principals for the securities on a net basis. The Master Series typically do not pay brokerage commissions for such purchases and sales. Instead, the price paid for newly issued securities usually includes a concession or discount paid by the issuer to the underwriter, and the prices quoted by market-makers reflect a spread between the bid and the asked prices from which the dealer derives a profit.

In effecting securities transactions, each Master Series generally seeks to obtain the best price and execution of orders. Commission rates, being a component of price, are considered along with other relevant factors. Each Master Series plans to continue to use Neuberger Berman and/or Lehman Brothers, Inc. ("Lehman Brothers") as its broker where, in the judgment of Lehman Brothers Asset Management, that firm is able to obtain a price and execution at least as favorable as other qualified brokers. To the Portfolio's knowledge, no affiliate of the Master Series receives give-ups or reciprocal business in connection with its securities transactions.

During the fiscal year ended March 31, 2006, Money Market Master Series acquired securities of the following of its "regular brokers or dealers":
Merrill, Lynch, Pierce, Fenner, & Smith, Inc., Credit Suisse First Boston Corp., Morgan Stanley, J.P. Morgan Chase, Goldman Sachs & Co., Barclays Bank Plc., Banc of America Securities, Inc. At March 31, 2006, that Master Series held the

securities of its "regular brokers or dealers" with an aggregate value as follows: Merrill, Lynch, Pierce, Fenner, & Smith, Inc., $120,538,109; Credit Suisse First Boston Corp., $65,587,282; Morgan Stanley, $60,252,392; J.P. Morgan Chase, $55,000,000; Goldman, Sachs & Co., $50,000,000; Barclays Bank Plc., $49,696,435; Banc of America Securities, Inc., $25,000,000.

During the fiscal year ended March 31, 2006, Prime Master Series acquired securities of the following of its "regular brokers or dealers":
Merrill, Lynch, Pierce, Fenner, & Smith, Inc., Barclays Bank Plc., Credit Suisse First Boston Corp., Goldman Sachs & Co., Morgan Stanley, Citigroup Global Markets, Inc., Banc of America Securities, Inc. At March 31, 2006, that Master Series held the securities of its "regular brokers or dealers" with an aggregate value as follows: Merrill, Lynch, Pierce, Fenner, & Smith, Inc., $330,012,568; Barclays Bank Plc., $67,118,820,; Credit Suisse First Boston Corp., $51,487,061; Goldman, Sachs & Co., $40,000,000; Morgan Stanley, $30,000,000; Citigroup Global Markets, Inc., $19,891,033; Banc of America Securities, Inc., $15,000,000.

The Master Series may, from time to time, loan portfolio securities to Neuberger Berman and Lehman Brothers and to other affiliated broker-dealers ("Affiliated Borrowers") in accordance with the terms and conditions of an order issued by the SEC. The order exempts such transactions from the provisions of the 1940 Act that would otherwise prohibit these transactions, subject to certain conditions. In accordance with the order, securities loans made by a Master Series to Affiliated Borrowers are fully secured by cash collateral. Each loan to an Affiliated Borrower by a Master Series will be made on terms at least as favorable to the Master Series as comparable loans to unaffiliated borrowers, and no loans will be made to an Affiliated Borrower unless the Affiliated Borrower represents that the terms are at least as favorable to the Portfolio as those it provides to unaffiliated lenders in comparable transactions. All affiliated loans will be made with spreads that are not lower than those provided for in a schedule of spreads established by the Independent Portfolio Trustees. The schedule of spreads will set the lowest spread that can apply with respect to a loan and will permit the spread for each individual loan to be adjusted to cover costs and realize net income for the Master Series. All transactions with Affiliated Borrowers will be reviewed periodically by officers of the Trust and reported to the Board of Trustees.

The use of Neuberger Berman and Lehman Brothers as brokers for each Master Series is subject to the requirements of Section 11(a) of the Securities Exchange Act of 1934. Section 11(a) prohibits members of national securities exchanges from retaining compensation for executing exchange transactions for accounts which they or their affiliates manage, except where they have the authorization of the persons authorized to transact business for the account and comply with certain annual reporting requirements. The Trust and NB Management have expressly authorized Neuberger Berman and Lehman Brothers to retain such compensation, and Neuberger Berman and Lehman Brothers have agreed to comply with the reporting requirements of Section 11(a).

Under the 1940 Act, commissions paid by a Master Series to Neuberger Berman and Lehman Brothers in connection with a purchase or sale of securities on a securities exchange may not exceed the usual and customary broker's commission. Accordingly, it is each Master Series' policy that the commissions paid to Neuberger Berman and Lehman Brothers must be (1) at least as favorable

as commissions contemporaneously charged by each of Neuberger Berman and Lehman Brothers on comparable transactions for its most favored unaffiliated customers, except for accounts for which Neuberger Berman or Lehman Brothers acts as a clearing broker for another brokerage firm and customers of Neuberger Berman and Lehman Brothers considered by a majority of the Independent Portfolio Trustees not to be comparable to the Master Series and (2) at least as favorable as those charged by other brokers having comparable execution capability in Lehman Brothers Asset Management's judgment. The Master Series do not deem it practicable and in their best interests to solicit competitive bids for commissions on each transaction effected by Neuberger Berman and Lehman Brothers. However, consideration regularly is given to information concerning the prevailing level of commissions charged by other brokers on comparable transactions during comparable periods of time. The 1940 Act generally prohibits Neuberger Berman and Lehman Brothers from acting as principal in the purchase of portfolio securities from, or the sale of portfolio securities to, a Master Series unless an appropriate exemption is available.

A committee of Independent Portfolio Trustees from time to time reviews, among other things, information relating to the commissions charged by Neuberger Berman and Lehman Brothers to the Portfolios and to their other customers and information concerning the prevailing level of commissions charged by other brokers having comparable execution capability. In addition, the procedures pursuant to which Neuberger Berman and Lehman Brothers effect brokerage transactions for the Portfolios must be reviewed and approved no less often than annually by a majority of the Independent Portfolio Trustees.

To ensure that accounts of all investment clients, including a Master Series, are treated fairly in the event that Neuberger Berman or Lehman Brothers receives transaction instructions regarding the same security for more than one investment account at or about the same time, Neuberger Berman and Lehman Brothers may combine orders placed on behalf of clients, including advisory accounts in which affiliated persons have an investment interest, for the purpose of negotiating brokerage commissions or obtaining a more favorable price. Where appropriate, securities purchased or sold may be allocated, in terms of amount, to a client according to the proportion that the size of the order placed by that account bears to the aggregate size of orders contemporaneously placed by the other accounts, subject to de minimis exceptions. All participating accounts will pay or receive the same price when orders are combined.

Under policies adopted by the Board of Trustees, Neuberger Berman and Lehman Brothers may enter into agency cross-trades on behalf of a Master Series. An agency cross-trade is a securities transaction in which the same broker acts as agent on both sides of the trade and the broker or an affiliate has discretion over one of the participating accounts. In this situation, Neuberger Berman or Lehman Brothers might receive brokerage commissions from both participants in the trade. The other account participating in an agency cross-trade with the Master Series cannot be an account over which Neuberger Berman or Lehman Brothers exercises investment discretion. A member of the Board of Trustees who is not affiliated with Neuberger Berman or Lehman Brothers reviews information about each agency cross-trade that the Master Series participate in.

Portfolio Holdings Disclosure Policy

Each Master Series prohibits the disclosure of information about their portfolio holdings, before such information is publicly disclosed, to any outside parties, including individual investors, institutional investors, intermediaries, third party service providers to NB Management or the Master Series, rating and ranking organizations, and affiliated persons of the Master Series or NB Management (the "Potential Recipients") unless such disclosure is consistent with a Master Series' legitimate business purposes and is in the best interests of its shareholders (the "Best Interests Standard").

NB Management and each Master Series have determined that the only categories of Potential Recipients that meet the Best Interests Standard are certain mutual fund rating and ranking organizations and third party service providers to NB Management or the Master Series with a specific business reason to know the portfolio holdings of that Master Series (e.g., securities lending agents) (the "Allowable Recipients"). As such, certain procedures must be adhered to before the Allowable Recipients may receive the portfolio holdings prior to their being made public. Allowable Recipients that get approved for receipt of the portfolio holdings are known as "Approved Recipients." The President or a Senior Vice President of NB Management may determine to expand the categories of Allowable Recipients only if he or she first determines that the Best Interests Standard has been met (e.g., for disclosure to a newly hired investment adviser or sub-adviser to the Master Series prior to commencing its duties), and only with the written concurrence of NB Management's legal and compliance department.

Portfolio Holdings Disclosure Procedures

Disclosure of portfolio holdings may be requested only by an officer of NB Management or a Master Series by completing a holdings disclosure form. The completed form must be submitted to the President or a Senior Vice President of NB Management (who may not be the officer submitting the request) for review and approval. If the Proposed Recipient is an affiliated person of a Master Series or NB Management, the reviewer must ensure that the disclosure is in the best interests of Portfolio shareholders and that no conflict of interest exists between the shareholders and the respective Master Series or NB Management. Following this approval, the form is submitted to NB Management's legal and compliance department or to the Chief Compliance Officer of NB Management for review, approval and processing.

Neither a Master Series, NB Management nor any affiliate of either may receive any compensation or consideration for the disclosure of portfolio holdings, although usual and customary compensation may be paid in connection with a service delivered, such as securities lending. Each Allowable Recipient must sign a non-disclosure agreement before they may become an Approved Recipient. Pursuant to a duty of confidentiality set forth in the non-disclosure agreement, Allowable Recipients are (1) required to keep all portfolio holdings information confidential and (2) prohibited from trading based on such information. In consultation with the Master Series' Chief Compliance Officer, the Board of Directors reviews each Master Series' portfolio holdings disclosure policy and procedures annually to determine their effectiveness and to adopt changes as necessary.

Pursuant to Codes of Ethics adopted by each Master Series, NB Management and Lehman Brothers Asset Management ("Code"), Investment Personnel, Access Persons and employees of each are prohibited from revealing information relating to current or anticipated investment intentions, portfolio holdings, portfolio transactions or activities of that Master Series except to persons whose responsibilities are determined to require knowledge of the information in accordance with procedures established by the Legal and Compliance Department in the best interests of the Master Series' shareholders. The Codes also prohibit any person associated with a Master Series, NB Management or Lehman Brothers Asset Management, in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired by a Master Series from engaging in any transaction in a security while in possession of material nonpublic information regarding the security or the issuer of the security.

Portfolio Holdings Approved Recipients

Each Master Series currently has ongoing arrangements to disclose portfolio holdings information prior to their being made public with the following Approved Recipients:

STATE STREET BANK AND TRUST COMPANY ("STATE STREET"). Each Master Series has selected State Street as custodian for its securities and cash. Pursuant to a custodian contract, each Portfolio employs State Street as the custodian of its assets. As custodian, State Street creates and maintains all records relating to each Master Series' activities and supplies each Master Series with a daily tabulation of the securities it owns and that are held by State Street. Pursuant to such contract, State Street agrees that all books, records, information and data pertaining to the business of each Master Series which are exchanged or received pursuant to the contract shall remain confidential, shall not be voluntarily disclosed to any other person, except as may be required by law, and shall not be used by State Street for any purpose not directly related to the business of any Master Series, except with such Master Series' written consent. State Street receives reasonable compensation for its services and expenses as custodian.

SECURITIES LENDING AGENT. One or more of the Master Series may enter into a securities lending agency agreement with eSecLending under which eSecLending provides securities loans to principal borrowers arranged through a bidding process managed by eSecLending. Those principal borrowers may receive the Master Series' portfolio holdings daily. Each such principal borrower that receives such information is or will be subject to an agreement, that all financial, statistical, personal, technical and other data and information related to a Master Series' operations that is designated by that Master Series as confidential will be protected from unauthorized use and disclosure by the principal borrower. Each Master Series participating in the agreement pays eSecLending a fee for agency and/or administrative services related to its role as lending agent. Each Master Series also pays the principal borrowers a fee with respect to the cash collateral that it receives and retains the income earned on reinvestment of that cash collateral.

OTHER THIRD-PARTY SERVICE PROVIDERS TO THE MASTER SERIES. Each Master Series may also disclose portfolio holdings information prior to their being made public to their independent registered public accounting firms, legal counsel, financial printers, proxy voting firms and other third-party service providers to that Master Series who require access to this information to fulfill their duties to the Master Series. In all cases the third-party service provider receiving the information has agreed in writing (or is otherwise

required by professional and/or written confidentiality requirements or fiduciary duty) to keep the information confidential, to use it only for the agreed-upon purpose(s) and not to trade securities on the basis of such information.

RATING, RANKING AND RESEARCH AGENCIES. Each Master Series sends its complete portfolio holdings information to the following rating, ranking and research agencies for the purpose of having such agency develop a rating, ranking or specific research product for each Master Series. Each Master Series provides its complete portfolio holdings to: Vestek each day and Lipper, a Reuters company on the second business day of each month. Each Master Series also provides its complete month-end portfolio holdings to Data Communique International ("DCI"), a company that provides automated data publishing, printing, and distribution technologies to financial services companies, on the first business day of each following month so that DCI can create a list of each Master Series' top 10 holdings. No compensation is received by any Master Series, NB Management, Neuberger Berman or any other person in connection with the disclosure of this information. NB Management either has or expects to enter shortly into a written confidentiality agreement, with each rating, ranking or research agency in which the agency agrees or will agree to keep each Master Series' portfolio holdings confidential and to use such information only in connection with developing a rating, ranking or research product for each Master Series.

Expense Offset Arrangement

Each Master Series also has an expense offset arrangement in connection with its custodian contract.

Proxy Voting

The Board has delegated to NB Management the responsibility to vote proxies related to the securities held in a Master Series. Under this authority, NB Management is required by the Board to vote proxies related to portfolio securities in the best interests of the Portfolios and their shareholders. The Board permits NB Management to contract with a third party to obtain proxy voting and related services, including research of current issues.

NB Management has implemented written Proxy Voting Policies and Procedures ("Proxy Voting Policy") that are designed to reasonably ensure that NB Management votes proxies prudently and in the best interest of its advisory clients for whom NB Management has voting authority, including the Portfolios. The Proxy Voting Policy also describes how NB Management addresses any conflicts that may arise between its interests and those of its clients with respect to proxy voting.

NB Management's Proxy Committee is responsible for developing, authorizing, implementing and updating the Proxy Voting Policy, overseeing the proxy voting process and engaging and overseeing any independent third-party vendors as voting delegate to review, monitor and/or vote proxies. In order to apply the Proxy Voting Policy noted above in a timely and consistent manner, NB Management utilizes Institutional Shareholder Services Inc. ("ISS") to vote proxies in accordance with NB Management's voting guidelines.

NB Management's guidelines adopt the voting recommendations of ISS. NB Management retains final authority and fiduciary responsibility for proxy voting. NB Management believes that this process is reasonably designed to address material conflicts of interest that may arise between NB Management and a client as to how proxies are voted.

In the event that an investment professional at NB Management believes that it is in the best interests of a client or clients to vote proxies in a manner inconsistent with NB Management's proxy voting guidelines or in a manner inconsistent with ISS recommendations, the Proxy Committee will review information submitted by the investment professional to determine that there is no material conflict of interest between NB Management and the client with respect to the voting of the proxy in that manner.

If the Proxy Committee determines that the voting of a proxy as recommended by the investment professional present a material conflict of interest between NB Management and the client or clients with respect to the voting of the proxy, the Proxy Committee shall: (i) take no further action, in which case ISS shall vote such proxy in accordance with the proxy voting guidelines or as ISS recommends; (ii) disclose such conflict to the client or clients and obtain written direction from the client as to how to vote the proxy; (iii) suggest that the client or clients engage another party to determine how to vote the proxy; or (iv) engage another independent third party to determine how to vote the proxy.

Information regarding how the Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge by calling 1-888-556-9030 (toll-free) or visiting www.nb.com or the website of the SEC, www.sec.gov.

REPORTS TO SHAREHOLDERS

Shareholders of each Portfolio will receive unaudited semi-annual financial statements, as well as year-end financial statements audited by the independent registered public accounting firms for the Portfolios. Each Portfolio's statements show the investments owned by it and the market values thereof and provide other information about the Portfolio and its operations.

ORGANIZATION, CAPITALIZATION AND OTHER MATTERS

The Portfolios

Each Portfolio is a separate ongoing series of the Trust, a Delaware statutory trust organized pursuant to a Trust Instrument dated as of October 1, 2004. The Trust is registered under the 1940 Act as a diversified, open-end management investment company, commonly known as a mutual fund. The Trust has nine separate operating series (the Portfolios). The Portfolio Trustees may establish additional series or classes of shares without the approval of shareholders. The assets of each series belong only to that series, and the liabilities of each series are borne solely by that series and no other.

DESCRIPTION OF SHARES. Each Portfolio is authorized to issue an unlimited number of shares of beneficial interest (par value $0.001 per share). Shares of each Portfolio represent equal proportionate interests in the assets of that Portfolio only and have identical voting, dividend, redemption,

liquidation, and other rights. All shares issued are fully paid and non-assessable, and shareholders have no preemptive or other rights to subscribe to any additional shares.

SHAREHOLDER MEETINGS. The Portfolio Trustees do not intend to hold annual meetings of shareholders of the Portfolios. The Portfolio Trustees will call special meetings of shareholders of a Portfolio only if required under the 1940 Act or in their discretion or upon the written request of holders of 10% or more of the outstanding shares of that Portfolio entitled to vote at the meeting.

CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the shareholders of each Portfolio will not be personally liable for the obligations of that Portfolio; a shareholder is entitled to the same limitation of personal liability extended to shareholders of a Delaware corporation. To guard against the risk that Delaware law might not be applied in other states, the Trust Instrument requires that every written obligation of the Trust or a Portfolio contain a statement that such obligation may be enforced only against the assets of the Trust or Portfolio and provides for indemnification out of Trust or Portfolio property of any shareholder nevertheless held personally liable for Trust or Portfolio obligations, respectively, merely on the basis of being a shareholder.

Master Series

Each Master Series is a separate operating series of the Master Trust, a Delaware statutory trust organized as of October 1, 2004. The Master Trust is registered under the 1940 Act as a diversified, open-end management investment company and has nine separate portfolios (the nine Master Series). The assets of each Master Series belong only to that Master Series, and the liabilities of each Master Series are borne solely by that Master Series and no other.

PORTFOLIOS' INVESTMENTS IN MASTER SERIES. Each Portfolio is a "feeder fund" that seeks to achieve its investment objective by investing all of its net investable assets in its corresponding Master Series, which is a "master fund." Each Master Series, which has the same investment objective, policies, and limitations as the Portfolio that invests in it, in turn invests in securities; the Portfolio thus acquires an indirect interest in those securities.

Each Portfolio's investment in its corresponding Master Series is in the form of a non-transferable beneficial interest. Members of the general public may not purchase a direct interest in a Master Series.

Each Master Series may also permit other investment companies and/or other institutional investors to invest in the Master Series. All investors will invest in a Master Series on the same terms and conditions as a Portfolio and will pay a proportionate share of the Master Series' expenses. Other investors in a Master Series are not required to sell their shares at the same public offering price as a Portfolio, could have a different administration fee and expenses than a Portfolio, and might charge a sales commission. Therefore, shareholders of a Class of the Portfolio may have different returns than shareholders in another investment company that invests exclusively in the Master Series. Information regarding any Portfolio that invests in a Master Series is available from NB Management by calling 888-556-9030.

The Portfolio Trustees believe that investment in a Master Series by other potential investors in addition to the Portfolios may enable the Master Series to realize economies of scale that could reduce its operating expenses,

thereby producing higher returns and benefiting all shareholders. However, a Portfolio's investment in its corresponding Master Series may be affected by the actions of other large investors in a Master Series, if any. For example, if a large investor in a Master Series (other than a Portfolio) redeemed its interest in the Master Series, the Master Series' remaining investors (including the Portfolio) might, as a result, experience higher pro rata operating expenses, thereby producing lower returns.

Each Portfolio may withdraw its entire investment from its corresponding Master Series at any time, if the Portfolio Trustees determine that it is in the best interests of the Portfolio and its shareholders to do so. A Portfolio might withdraw, for example, if there were other investors in a Master Series with power to, and who did by a vote of all investors (including the Portfolio), change the investment objective, policies, or limitations of the Master Series in a manner not acceptable to the Portfolio Trustees. A withdrawal could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the Master Series to the Portfolio. That distribution could result in a less diversified portfolio of investments for the Portfolio and could affect adversely the liquidity of the Portfolio's investment portfolio. If a Portfolio decided to convert those securities to cash, it usually would incur brokerage fees or other transaction costs. If the Portfolio withdrew its investment from a Master Series, the Portfolio Trustees would consider what actions might be taken, including the investment of all of the Portfolio's net investable assets in another pooled investment entity having substantially the same investment objective as the Portfolio or the retention by the Portfolio of its own investment manager to manage its assets in accordance with its investment objective, policies, and limitations. The inability of the Portfolio to find a suitable replacement could have a significant impact on shareholders.

INVESTOR MEETINGS AND VOTING. Each Master Series normally will not hold meetings of investors except as required by the 1940 Act. Each investor in a Master Series will be entitled to vote in proportion to its relative beneficial interest in the Master Series. On most issues subjected to a vote of Master Series investors, a Portfolio will solicit proxies from its shareholders and will vote its interest in the Master Series in proportion to the votes cast by the Portfolio's shareholders. If there are other investors in a Master Series, there can be no assurance that any issue that receives a majority of the votes cast by Portfolio shareholders will receive a majority of votes cast by all Master Series investors; indeed, if other investors hold a majority interest in a Master Series, they could have voting control of the Master Series.

CERTAIN PROVISIONS. Under Delaware law, the shareholders of a Master Series will not be personally liable for the obligations of the Master Series; a shareholder is entitled to the same limitation of personal liability extended to shareholders of a Delaware corporation. To guard against the risk that Delaware law might not be applied in other states, the Trust Instrument requires that every written obligation of the Master Trust or a Master Series contain a statement that such obligation may be enforced only against the assets of the Master Trust or Master Series and provides for indemnification out of Master Trust or Master Series property of any shareholder nevertheless held personally liable for Master Trust or Master Series obligations, respectively, merely on the basis of being a shareholder.

OTHER. For Portfolio shares that can be bought, owned and sold through an intermediary, a client of an intermediary may be unable to purchase additional shares and/or may be required to redeem shares (and possibly incur a

tax liability) if the client no longer has a relationship with the intermediary or if the intermediary no longer has a contract with NB Management to perform services. Depending on the policies of the intermediary involved, an investor may be able to transfer an account from one intermediary to another.

CUSTODIAN AND TRANSFER AGENT

Each Portfolio and Master Series has selected State Street, 225 Franklin Street, Boston, MA 02110, as custodian for its securities and cash. State Street also serves as each Portfolio's transfer and shareholder servicing agent, administering purchases, redemptions, and transfers of Portfolio shares and the payment of dividends and other distributions through its Boston Service Center. All correspondence should be mailed to Lehman Brothers Institutional Liquidity Series, c/o Boston Service Center, P.O. Box 8403, Boston, MA 02266-8403.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

MONEY MARKET Master Series, GOVERNMENT Master Series, GOVERNMENT RESERVES Master Series and MUNICIPAL Master Series and their corresponding portfolios, MONEY MARKET Portfolio, GOVERNMENT Portfolio, GOVERNMENT RESERVES Portfolio and MUNICIPAL Portfolio, respectively, have selected Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116, as the Independent Registered Public Accounting Firm that will audit its financial statements.

PRIME Master Series, TREASURY Master Series, TREASURY RESERVES Master Series, TAX-EXEMPT Master Series and NEW YORK Municipal Master Series and their corresponding portfolios, PRIME Portfolio, TREASURY Portfolio, TREASURY RESERVES Portfolio, TAX-EXEMPT Portfolio and NEW YORK Municipal Portfolio, respectively, have selected Tait, Weller & Baker LLP, 1818 Market Street, Suite 2400, Philadelphia, PA, 19103, as the Independent Registered Public Accounting Firm that will audit their financial statements.

LEGAL COUNSEL

The Trusts have selected Kirkpatrick & Lockhart Nicholson Graham LLP, 1601 K Street, NW, Washington, DC 20006-1600, as their legal counsel.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

The Master Series have not yet commenced operations as of the date of this SAI and therefore had no beneficial and record owners of more than 5%.

REGISTRATION STATEMENT

This SAI and the Prospectus do not contain all the information included in the Trust's registration statement filed with the SEC under the 1933 Act with respect to the securities offered by the Prospectus. The registration statement, including the exhibits filed therewith, may be examined at the SEC's offices in Washington, D.C. The SEC maintains a website (http://www.sec.gov) that contains this SAI, material incorporated by reference, and other information regarding the Portfolios and Master Series.

Statements contained in this SAI and in the Prospectus as to the contents of any contract or other document referred to are not necessarily complete. In each instance where reference is made to a contract or other document a copy of which is filed as an exhibit to the registration statement, each such statement is qualified in all respects by such reference.

FINANCIAL STATEMENTS

The following financial statements and related documents are incorporated herein by reference from the Lehman Brothers Institutional Liquidity Series Annual Report to shareholders dated March 31, 2006:

The audited financial statements of MONEY MARKET Master Series (formerly Institutional Liquidity Portfolio), notes thereto, and the reports of Ernst & Young LLP, Independent Registered Public Accounting Firm, with respect to such audited financial statements.

The audited financial statements of PRIME Master Series (formerly, Prime Portfolio), notes thereto, and the reports of Tait, Weller & Baker LLP, Independent Registered Public Accounting Firm, with respect to such audited financial statements.

Additionally, the following financial statements and related documents are incorporated herein by reference from the Lehman Brothers Institutional Liquidity Series Semi-Annual Report to shareholders dated September 30, 2006:

The unaudited financial statements of MONEY MARKET Master Series (formerly, Institutional Liquidity Portfolio) and notes thereto.

The unaudited financial statements of PRIME Master Series (formerly, Prime Portfolio) and notes thereto.

The following seed capital financial statements of the Government Portfolio for the one-day period ended December 4, 2006, have been audited by Ernst & Young, Independent Registered Public Accounting Firm to the Portfolio.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees of Lehman Brothers Institutional Liquidity Funds and the Shareholders of Government Portfolio

We have audited the accompanying statement of assets and liabilities of Government Portfolio, one of the portfolios comprising the Lehman Brothers Institutional Liquidity Funds, (the "Portfolio") as of December 4, 2006. This statement of assets and liabilities is the responsibility of the Portfolio's management. Our responsibility is to express an opinion on this statement of assets and liabilities based on our audit.

reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets and liabilities, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement of assets and liabilities presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statement of assets and liabilities referred to above presents fairly, in all material respects, the financial position of Government Portfolio, a portfolio of Lehman Brothers Institutional Liquidity Funds, at December 4, 2006, in conformity with U.S. generally accepted accounting principles.

                                        /s/ ERNST & YOUNG LLP


Boston, Massachusetts
December 7, 2006

GOVERNMENT PORTFOLIO
INSTITUTIONAL CLASS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 4, 2006

ASSETS

Investment in Government Master Series                   $100,000
                                                     -----------------
Total Assets                                              100,000
                                                     -----------------

NET ASSETS AT VALUE                                      $100,000
                                                     =================

Net Assets consist of:
Paid-in capital                                          $100,000
                                                     =================

SHARES OUTSTANDING ($.001 PAR VALUE;
   UNLIMITED SHARES AUTHORIZED)                           100,000
                                                     =================
NET ASSET VALUE, PER SHARE                                  $1.00
                                                     =================

See Notes to Financial Statement

GOVERNMENT PORTFOLIO
INSTITUTIONAL CLASS
NOTES TO FINANCIAL STATEMENT
DECEMBER 4, 2006

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. ORGANIZATION:

Government Portfolio (the "Portfolio") is a separate operating series of Lehman Brothers Institutional Liquidity Funds (the "Trust"), a Delaware statutory trust organized pursuant to a Trust Instrument dated October 1, 2004. The Trust is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended, (the "1940 Act") and it has filed a registration statement to register its shares under the Securities Act of 1933, as amended (the "1933 Act"). The Portfolio offers Institutional Class shares, Cash Management Class shares, Capital Class shares, Select Class shares, Administrative Class shares, Service Class shares, and Premier Class shares. The Portfolio has had no operations to date, other than the sale to Neuberger Berman Management Inc., the Portfolio's investment manager ("Management"), on December 4, 2006 of 100,000 shares of beneficial interest of the Institutional Class for $100,000 ($1.00 per share).

The Portfolio seeks to achieve its investment objective by investing all of its net investable assets in Government Master Series (the "Master Series") of Institutional Liquidity Trust, a Delaware statutory trust organized pursuant to a Trust Instrument dated October 1, 2004, having the same investment objective and policies as the Portfolio. The performance of the Portfolio is directly affected by the performance of the Master Series.

2. ACCOUNTING POLICIES:

The assets of the Portfolio belong only to that Portfolio, and the liabilities of the Portfolio are borne solely by that Portfolio and no other series of the Trust.

It is the policy of the Portfolio for the Institutional Class to maintain a continuous net asset value per share of $1.00; the Portfolio has adopted certain investment, valuation, and dividend and distribution policies, which conform to general industry practice, to enable it to do so. However, there is no assurance the Portfolio will be able to maintain a stable net asset value per share.

The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires Management to make estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates.

3. EXPENSE ALLOCATION:

Certain expenses are applicable to multiple funds. Expenses directly attributable to a Portfolio are charged to the Portfolio. Expenses of the Trust that are not directly attributed to the Portfolio are allocated among the Portfolios in the Trust, on the basis of relative net assets, except where a more appropriate allocation of expenses to each of the Portfolios can otherwise be made fairly. Expenses borne by the complex of related investment companies, which includes open-end and closed-end investment companies for which Management serves as investment manager, that are not directly attributed to the Portfolio or the Trust, are allocated among the funds and the other investment companies in the complex or series thereof, on the basis of relative net assets, except where a more appropriate allocation of expenses to each investment company in the complex or series thereof can otherwise be made fairly.

The Portfolio bears its proportionate share of Master Series expenses. The Portfolio's expenses (other than those allocated to a class of the Portfolio) are allocated proportionally each day among the classes based on the relative net assets of each class. Expenses attributable to a specific class are allocated to that class.

4. INDEMNIFICATIONS:

Like many other companies, the Trust's organizational documents provide that its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, both in some of its principal service contracts and in the normal course of its business, the Trust enters into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Trust's maximum exposure under these arrangements is unknown as this could involve future claims against the Trust.

5. OTHER:

All net investment income and realized and unrealized capital gains and losses of the Master Series are allocated pro rata among the Portfolio and other investment companies that invest in the Master Series.

NOTE B -- INVESTMENT MANAGEMENT AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES:

Under the terms of a Management Agreement, the Master Series pays Management a fee at the annual rate of 0.08% of average daily net assets.

Pursuant to an Administration Agreement between Management and the Portfolio, the Institutional Class of the Portfolio has agreed to pay Management an administration fee payable on a monthly basis at the annual rate of 0.10% of the Portfolio's average daily net assets.

Management has contractually undertaken to reimburse the Institutional Class of the Portfolio so that the total operating expenses of the Institutional Class of the Portfolio which include the Portfolio's proportionate share of Master Series expenses and the Institutional Class' proportionate share of the Portfolio's expenses (exclusive of taxes, interest, brokerage commissions, and extraordinary expenses) ("Operating Expenses") are limited to 0.20% of its Institutional Class' average daily net assets. This undertaking lasts until March 31, 2010. The Institutional Class of the Portfolio has contractually undertaken to reimburse Management for the excess Operating Expenses paid by Management, provided the reimbursement does not cause its total Operating Expenses to exceed an annual rate of 0.20% of the Institutional Class of the Portfolio's average daily net assets and the reimbursement is made within three years after the year in which Management incurred the expense.

Management and Lehman Brothers Asset Management ("LBAM"), the sub-adviser to the Master Series, are wholly owned subsidiaries of Lehman Brothers Holdings Inc., a publicly-owned holding company. Several individuals who are officers and/or trustees of the Portfolio are also employees of Management and/or LBAM.

The Portfolio also has a distribution agreement with Management with respect to each Class of shares. Management receives no compensation therefor and no commissions for sales or redemptions of shares of beneficial interest of the Portfolio.

NOTE C -- ORGANIZATION EXPENSES:

Costs incurred by the Portfolio in connection with its organization and offering will be borne by Management.

NOTE D - FEDERAL INCOME TAXES:

The Portfolio intends to qualify as a "regulated investment company" and to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, such that it will not be subject to Federal income tax.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees of Institutional Liquidity Trust and the Shareholders of Government Master Series

We have audited the accompanying statement of assets and liabilities of Government Master Series, one of the series comprising Institutional Liquidity Trust, (the "Master Series") as of December 4, 2006. This statement of assets and liabilities is the responsibility of the Master Series' management. Our responsibility is to express an opinion on this statement of assets and liabilities based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of assets and liabilities is free of material misstatement. We were not engaged to perform an audit of the Master Series' internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Master Series' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets and liabilities, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement of assets and liabilities presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statement of assets and liabilities referred to above presents fairly, in all material respects, the financial position of Government Master Series, a series of Institutional Liquidity Trust, at December 4, 2006, in conformity with U.S. generally accepted accounting principles.

                                        /s/ ERNST & YOUNG LLP


Boston, Massachusetts
December 7, 2006

GOVERNMENT MASTER SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 4, 2006

ASSETS

Cash                                                           $101,000
                                                         -----------------
Total Assets                                                   $101,000
                                                         -----------------

LIABILITIES                                                           --
                                                         -----------------

NET ASSETS Applicable to Investors'
  Beneficial Interests                                         $101,000
                                                         =================

NET ASSETS CONSIST OF:
Paid-in capital                                                $101,000
                                                         =================

See Notes to Financial Statement

GOVERNMENT MASTER SERIES
NOTES TO FINANCIAL STATEMENT
DECEMBER 4, 2006

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. ORGANIZATION:

Government Master Series (the "Master Series") is a separate operating series of Institutional Liquidity Trust (the "Trust"), a Delaware statutory trust organized pursuant to a Trust Instrument dated October 1, 2004. The Trust is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended, (the "1940 Act"). The Master Series has had no operations to date, other than the contribution of beneficial interest from the Government Portfolio and Neuberger Berman Management Inc., the Master Series' investment manager ("Management") of $100,000 and $1,000, respectively, on December 4, 2006.

2. ACCOUNTING POLICIES:

The assets of the Master Series belong only to the Master Series, and the liabilities of the Master Series are borne solely by the Master Series and no other series of the Trust.

3. EXPENSE ALLOCATION:

Certain expenses are applicable to multiple portfolios. Expenses directly attributable to the Master Series are charged to the Master Series. Expenses of the Trust that are not directly attributed to the Master Series are allocated among each of the series of the Trust, on the basis of relative net assets, except where a more appropriate allocation of expenses to each of the series of the Trust can otherwise be made fairly. Expenses borne by the complex of related investment companies, which includes open-end and closed-end investment companies for which Management serves as investment manager, that are not directly attributed to the Master Series or the Trust, are allocated among the Master Series' and the other investment companies in the complex or series thereof, on the basis of relative net assets, except where a more appropriate allocation of expenses to each investment company in the complex or series thereof can otherwise be made fairly.

4. INDEMNIFICATIONS:

NOTE B -- INVESTMENT MANAGEMENT AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES:

Under the terms of a Management Agreement, the Master Series pays Management a fee at the annual rate of 0.08% of average daily net assets.

Lehman Brothers Asset Management Inc. ("LBAM"), as sub-adviser to the Master Series, receives a monthly fee for its services paid by Management. The Master Series does not pay a fee directly to LBAM for such services.

Management and LBAM are wholly-owned subsidiaries of Lehman Brothers Holdings, Inc., a publicly-owned holding company. Several individuals who are officers and/or trustees of the Master Series are also employees of Management and/or LBAM.

NOTE C -- ORGANIZATION EXPENSES:

All costs incurred by the Master Series in connection with its organization and offering are being paid by Management.

NOTE D - FEDERAL INCOME TAXES:

The Master Series intends to comply with the requirements of the Internal Revenue Code. The Master Series also intends to conduct its operations so that each of its investors will be able to qualify as a regulated investment company. The Master Series will be treated as a partnership for U.S. Federal income tax purposes and is therefore not subject to U.S. Federal income tax.

Appendix A

RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER

S&P CORPORATE BOND RATINGS:

AAA - Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.

AA - Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the higher rated issues only in small degree.

A - Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in higher rated categories.

BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

CI - The rating CI is reserved for income bonds on which no interest is being paid.

D - Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears.

PLUS (+) OR MINUS (-) - The ratings above may be modified by the addition of a plus or minus sign to show relative standing within the major categories.

MOODY'S CORPORATE BOND RATINGS:

Aaa - Bonds rated Aaa 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 an exceptionally stable margin, and principal is secure. Although the various protective elements are likely to change, the changes that can be visualized are most unlikely to impair the fundamentally strong position of the issuer.

Aa - Bonds rated Aa 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-rated securities, fluctuation of

protective elements may be of greater amplitude, or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa-rated securities.

A - Bonds rated A possess many favorable investment attributes and are considered to be upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as 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. These bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.

B - Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa - Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

C - Bonds rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Modifiers - Moody's may apply numerical modifiers 1, 2, and 3 in each generic rating classification described above. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.

FITCH CORPORATE BOND RATINGS:

THE FOLLOWING DESCRIPTIONS OF FITCH'S LONG-TERM DEBT RATINGS HAVE BEEN

PUBLISHED BY FITCH'S IBCA INVESTORS SERVICE.

AAA - Highest credit quality. 'AAA' ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

AA - Very high credit quality. 'AA' ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

A - High credit quality. 'A' ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.

BBB - Good credit quality. 'BBB' ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions is more likely to impair this capacity. This is the lowest investment-grade category.

BB - Speculative. 'BB' ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.

B - Highly speculative. 'B' ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.

CCC, CC, C - High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A 'CC' rating indicates that default of some kind appears probable. 'C' ratings signal imminent default.

DDD, DD, D - Default. Entities rated in this category have defaulted on some or all of their obligations. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. 'DDD' obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest. 'DD' indicates potential recoveries in the range of 50%-90% and 'D' the lowest recovery potential, i.e., below 50%.

PLUS (+) OR MINUS (-) - The ratings above may be modified by the addition of a plus or minus sign to show relative standing within the major categories.

DBRS CORPORATE BOND RATINGS:

THE FOLLOWING DESCRIPTIONS OF DBRS SHORT-TERM DEBT RATINGS HAVE BEEN

PUBLISHED BY DOMINION BOND RATING SERVICE.

AAA - Long-term debt rated AAA is considered to be of the highest credit quality, with exceptionally strong protection for the timely repayment of principal and interest.

AA - Long-term debt rated AA is considered to be of superior credit quality, and protection of interest and principal is considered high. In many cases, debt rated AA differs from debt rated AAA only to a small degree.

A - Long-term debt rated A is considered to be of satisfactory credit quality. Protection of interest and principal is still substantial, but the degree of strength is less than that of AA rated entities. While "A" is a respectable rating, entities in this category are considered to be more susceptible to adverse economic conditions and have greater cyclical tendencies than higher rated securities.

BBB - Long-term debt rated BBB is of adequate credit quality. Protection of interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities.

BB - Long-term debt rated BB is defined to be speculative and non investment-grade, where the degree of protection afforded interest and principal is uncertain, particularly during periods of economic recession. Entities in the BB range typically have limited access to capital markets and additional liquidity support. In many cases, deficiencies in critical mass, diversification, and competitive strength are additional negative considerations.

B - Long-term debt rated B is considered highly speculative and there is a reasonably high level of uncertainty as to the ability of the entity to pay interest and principal on a continuing basis in the future, especially in periods of economic recession or industry adversity.

CCC,CC,C - Long-term debt rated in any of these categories is very highly speculative and is in danger of default of interest and principal. The degree of adverse elements present is more severe than long-term debt rated B. Long-term debt rated below B often have features which, if not remedied, may lead to default. In practice, there is little difference between these three categories, with CC and C normally used for lower ranking debt of companies for which the senior debt is rated in the CCC to B range.

D - A security rated D implies the issuer has either not met a scheduled payment of interest or principal or that the issuer has made it clear that it will miss such a payment in the near future. In some cases, DBRS may not assign a D rating under a bankruptcy announcement scenario, as allowances for grace periods may exist in the underlying legal documentation. Once assigned, the D rating will continue as long as the missed payment continues to be in arrears, and until such time as the rating is suspended, discontinued, or reinstated by DBRS.

HIGH OR LOW - The ratings above may be modified by the addition of "high" or "low" to show relative standing within the major categories. The absence of either indicates the rating is in the "middle" of a category. The AAA and D categories do not utilize "high", "middle", and "low" as differential grades.

S&P COMMERCIAL PAPER RATINGS:

A-1 - This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+).

MOODY'S COMMERCIAL PAPER RATINGS:

Issuers rated Prime-1 (or related supporting institutions), also known as P-1, have a superior capacity for repayment of short-term promissory obligations. Prime-1 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 earnings coverage of fixed financial charges and high internal cash generation.

- Well-established access to a range of financial markets and assured sources of alternate liquidity.

FITCH COMMERCIAL PAPER RATINGS:

THE FOLLOWING DESCRIPTIONS OF FITCH SHORT-TERM DEBT RATINGS HAVE BEEN

PUBLISHED BY FITCH'S IBCA INVESTORS SERVICE.

F1 - Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature.

F2 - Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.

DBRS COMMERCIAL PAPER RATINGS:

THE FOLLOWING DESCRIPTIONS OF DBRS SHORT-TERM DEBT RATINGS HAVE BEEN

PUBLISHED BY DOMINION BOND RATING SERVICE.

R-1 (HIGH) - Commercial paper rated R-1 (high) is of the highest credit quality, and indicates an entity which possesses unquestioned ability to repay current liabilities as they fall due.

R-1 (MIDDLE) - Commercial paper rated R-1 (middle) is of superior credit quality and, in most cases, are also considered strong credits which typically exemplify above average strength in key areas of consideration for debt protection.

PART C

OTHER INFORMATION

Item 23. Exhibits

(a) (1) Restated Certificate of Trust. (Incorporated by Reference to Pre-Effective Amendment No. 1 to the Registrant's Registration statement, File Nos. 333-122847 and 811-21715, filed on October 24, 2006).

(2) Trust Instrument, Amended and Restated. (Filed herewith).

(b) By-Laws, Amended and Restated. (Filed herewith).

(c) Trust Instrument, Amended and Restated, Articles IV, V, and VI and By-Laws, Amended and Restated, Articles V, VI, and VIII (Incorporated by Reference to Exhibits (a)(2) and (b)).

(d) (1) (i) Management Agreement between Institutional Liquidity Trust and Neuberger Berman Management Inc. ("NB Management"). (Incorporated by Reference to Pre-Effective Amendment No. 1 to the Registration statement of Lehman Brothers Institutional Liquidity Series, File Nos. 333-120167 and 811-21648, filed on December 23, 2004).

(ii) Amended Schedule A listing the current series of Institutional Liquidity Trust subject to the Management Agreement. (Filed herewith).

(2) (i) Investment Advisory Agreement between NB Management and Lehman Brothers Asset Management, Inc. with respect to Money Market Master Series, Prime Master Series and Treasury Master Series. (Incorporated by Reference to Pre-Effective Amendment No. 1 to the Registration statement of Lehman Brothers Institutional Liquidity Series, File Nos. 333-120167 and 811-21648, filed on December 23, 2004).

(ii) Assignment and Assumption Agreement between NB Management and Lehman Brothers Asset Management LLC ("LBAM"). (Filed herewith).

(iii) Investment Advisory Agreement between NB Management and LBAM with respect to Government Master Series, Government Reserves Master Series, Municipal Master Series, New York Municipal Master Series, Tax-Exempt Master Series and Treasury Reserves Master Series, (Filed herewith).

(e) (1) Distribution and Services Agreement between Registrant and NB Management with respect to Premier Class and Service Class. (Filed herewith).

(2) Distribution Agreement between Registrant and NB Management with respect to Administrative Class, Capital Class, Cash Management Class, Institutional Class and Select Class. (Filed herewith).

(f) Bonus, Profit Sharing Contracts. (Not applicable).

(g) (1) Custodian Contract Between Registrant and State Street Bank and Trust Company. (Filed herewith).

(h) (1) Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company. (Incorporated by Reference to Post Effective Amendment No. 116 to the Registration Statement of Neuberger Berman Equity Funds, File Nos. 2-11357 and 811-00582, filed on June 2, 2006).

(2) Administration Agreement between Registrant and NB Management. (Incorporated by Reference to Pre-Effective Amendment No. 1 to the Registration Statement of Lehman Brothers Reserve Liquidity Series, File Nos. 333-122846 and 811-21716, filed on April 8, 2005).

(3) Expense Limitation Agreement Between Registrant and NB Management. (Filed herewith).

(4) Expense Limitation Agreement Between Institutional Liquidity Trust and NB Management. (Filed herewith).

(5) Shareholder Servicing Agreement. (Filed herewith).

(i) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to legality of securities being registered. (Filed herewith).

(j) (1) Consent of Ernst & Young LLP. (Filed herewith).

(2) Consent of Tait, Weller & Baker LLP (Filed herewith).

(k) Financial Statements Omitted from Prospectus. (Not applicable).

(l) Letter of Investment Intent. (Filed herewith).

(m) Plan Pursuant to Rule 12b-1 with respect to Premier Class and Service class shares of the Registrant. (Filed herewith).

(n) Plan Pursuant to Rule 18f-3 under the 1940 Act. (Filed herewith).

(o) (1) Powers of Attorney for Institutional Liquidity Trust. (Filed herewith).

(2) Powers of Attorney for Lehman Brothers Institutional Liquidity Funds. (Filed herewith).

(p) (1) Code of Ethics for Registrant and NB Management. (Incorporated by Reference to Pre-Effective Amendment No. 1 to the Registration Statement of Lehman Brothers Reserve Liquidity Series, File Nos. 333-122846 and 811-21716, filed on April 8, 2005).

(2) Code of Ethics for LBAM. (Incorporated by Reference to Post-Effective Amendment No. 45 to to the Registration Statement of Neuberger Berman Income Funds on Form N-1A, File Nos. 2-85229 and 811-3802, filed on March 18, 2005.)

Item 24. Persons Controlled By or Under Common Control with Registrant.

No person is controlled by or under common control with the Registrant.

Item 25. Indemnification.

A Delaware business trust may provide in its governing instrument for indemnification of its officers and trustees from and against any and all claims and demands whatsoever. Article IX, Section 2 of the Trust Instrument provides that "every person who is, or has been, a Trustee or an officer, employee or agent of the Trust ("Covered Person") shall be indemnified by the Trust or the appropriate Series to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Covered Person and against amounts paid or incurred by him in the settlement thereof{ellipsis}". Indemnification will not be provided to a person adjudicated by a court or other body to be liable to the Registrant or its shareholders by reason of "willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office" ("Disabling Conduct"), or not to have acted in good faith in the reasonable belief that his or her action was in the best interest of the Registrant. In the event of a settlement, no indemnification may be provided unless there has been a determination that the officer or trustee did not engage in Disabling Conduct (i) by the court or other body approving the settlement; (ii) by at least a majority of those trustees who are neither interested persons, as that term is defined in the Investment Company Act of 1940, as amended ("1940 Act"), of the Registrant ("Independent Trustees"), nor parties to the matter based upon a review of readily available facts; or (iii) by written opinion of independent legal counsel based upon a review of readily available facts.

Pursuant to Article IX, Section 3 of the Trust Instrument, if any present or former shareholder of any series ("Series") of the Registrant shall be held personally liable solely by reason of his or her being or having been a shareholder and not because of his or her acts or omissions or for some other reason, the present or former shareholder (or his or her heirs, executors, administrators or other legal representatives or in the case of any entity, its general successor) shall be entitled out of the assets belonging to the applicable Series to be held harmless from and indemnified against all loss and expense arising from such liability. The Registrant, on behalf of the affected Series, shall, upon request by such shareholder, assume the defense of any claim made against such shareholder for any act or obligation of the Series and satisfy any judgment thereon from the assets of the Series.

Section 9 of the Management Agreement between NB Management and Institutional Liquidity Trust (the "Master Trust") provides that neither NB Management nor any director, officer or employee of NB Management performing services for any series of the Master Trust at the direction or request of NB Management in connection with NB Management's discharge of its obligations under the Agreement shall be liable for any error of judgment or mistake of law or for any loss suffered by a series in connection with any matter to which the Agreement relates; provided, that nothing in the Agreement shall be construed
(i) to protect NB Management against any liability to the Master Trust or any series thereof or its interest holders to which NB Management would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of NB Management's reckless disregard of its obligations and duties under the Agreement, or (ii) to protect any director, officer or employee of NB Management who is or was a trustee or officer of the Master Trust against any liability to the Master Trust or any series thereof or its interest holders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with the Master Trust.

Section 6 of the Investment Advisory Agreement between NB Management and LBAM, with respect to the Master Trust or any series thereof, provides that neither LBAM nor any director, officer or employee of LBAM performing services for any series of the Master Trust shall be liable for any error of judgment or mistake of law or for any loss suffered by NB Management or the Master Trust or a series thereof in the absence of willful misfeasance, bad faith or gross negligence in the performance of its duties or reckless disregard of its duties and obligations under the Agreement.

Section 12 of the Administration Agreement between the Registrant and NB Management on behalf of each series of the Registrant provides that the Registrant shall indemnify NB Management and hold it harmless from and against any and all losses, damages and expenses, including reasonable attorneys' fees and expenses, incurred by NB Management that result from: (i) any claim, action, suit or proceeding in connection with NB Management's entry into or performance of this Agreement with respect to such series; or (ii) any action taken or omission to act committed by NB Management in the performance of its obligations under the Agreement with respect to such series; or (iii) any action of NB Management upon instructions believed in good faith by it to have been executed by a duly authorized officer or representative of the Registrant with respect to such series; provided, that NB Management shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or misconduct on the part of NB Management or that of its employees, agents or contractors. Before confessing any claim against it which may be subject to indemnification by a series under the Agreement, NB Management shall give such series reasonable opportunity to defend against such claim in its own name or in the name of NB Management. Section 13 of the Administration Agreement provides that NB Management will indemnify the Registrant and hold it harmless from and against any and all losses, damages and expenses, including reasonable attorneys' fees and expenses, incurred by the Registrant that result from: (i) NB Management's failure to comply with the terms of the Agreement; or (ii) NB Management's lack of good faith in performing its obligations under the Agreement; or (iii) the negligence or misconduct of NB Management, or its employees, agents or contractors in connection with the Agreement. The Registrant shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or misconduct on the part of the Registrant or its employees, agents or contractors other than NB Management, unless such negligence or misconduct results from or is accompanied by negligence or misconduct on the part of NB Management, any affiliated person of NB Management, or any affiliated person of an affiliated person of NB Management.

Section 11 of the Distribution Agreement between the Registrant and NB Management provides that NB Management shall look only to the assets of a class of a series for the performance of the Agreement by the Registrant on behalf of such series, and neither the Shareholders, the Trustees nor any of the Registrant's officers, employees or agents, whether past, present or future, shall be personally liable therefore.

Section 14 of the Distribution and Services Agreement between the Registrant and NB Management provides that NB Management shall look only to the assets of a class of a series for the performance of the Agreement by the Registrant on behalf of such series, and neither the Shareholders, the Trustees nor any of the Registrant's officers, employees or agents, whether past, present or future, shall be personally liable therefore.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended ("1933 Act"), may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a

claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person, the 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 1933 Act and will be governed by the final adjudication of such issue. The Registrant also maintains Directors and Officers Insurance.

Item 26. Business and Other Connections of Investment Adviser and Sub-Adviser.

There is set forth below information as to any other business, profession, vocation or employment of a substantial nature in which each director or officer of NB Management is, or at any time during the past two years has been, engaged

for his or her own account or in  the  capacity  of director, officer, employee,
partner or trustee.

NAME                                BUSINESS AND OTHER CONNECTIONS
----                                ------------------------------

Ann H. Benjamin                     Portfolio Manager, High Income Bond
Vice President, NB Management       Portfolio, a series of Neuberger Berman
                                    Advisers Management Trust; Portfolio
                                    Manager, Neuberger Berman High Income Bond
                                    Fund and Neuberger Berman Strategic Income
                                    Fund, each a series of Neuberger Berman
                                    Income Funds; Portfolio Manager, Neuberger
                                    Berman Income Opportunity Fund Inc.

Michael L. Bowyer                   Associate Portfolio Manager, Neuberger
Vice President, NB Management       Berman Genesis Fund, a series of Neuberger
                                    Berman Equity Funds.

Claudia A. Brandon                  Vice President, Neuberger Berman, LLC since
Vice President/Mutual Fund Board    2002; Employee, Neuberger Berman, LLC since
Relations and Assistant             1999; Secretary, Neuberger Berman Advisers
Secretary, NB Management.           Management Trust; Secretary, Neuberger
                                    Berman Equity Funds; Secretary, Neuberger
                                    Berman Income Funds; Secretary, Neuberger
                                    Berman Real Estate Income Fund Inc.;
                                    Secretary, Neuberger Berman Intermediate
                                    Municipal Fund Inc.; Secretary, Neuberger
                                    Berman New York Intermediate Municipal Fund
                                    Inc.; Secretary, Neuberger Berman California
                                    Intermediate Municipal Fund Inc.; Secretary,
                                    Neuberger Berman Realty Income Fund Inc.;
                                    Secretary, Neuberger Berman Income
                                    Opportunity Fund Inc.; Secretary, Neuberger
                                    Berman Real Estate Securities Income Fund
                                    Inc.; Secretary, Neuberger Berman Dividend
                                    Advantage Fund Inc.; Secretary, Neuberger
                                    Berman Institutional Liquidity Series;
                                    Secretary, Lehman Brothers Institutional
                                    Liquidity Series; Secretary, Institutional
                                    Liquidity Trust; Secretary, Lehman Brothers
                                    Reserve Liquidity Series.

Thomas J. Brophy                    Managing Director, Neuberger Berman, LLC;
Vice President, NB Management.      Portfolio Manager, Neuberger Berman
                                    California Intermediate Municipal Fund Inc.;
                                    Portfolio Manager, Neuberger Berman
                                    Intermediate Municipal Fund Inc.; Portfolio
                                    Manager, Neuberger Berman New York
                                    Intermediate Municipal Fund Inc.; Portfolio
                                    Manager, Neuberger Berman Municipal
                                    Securities Trust, a series of Neuberger
                                    Berman Income Funds.

4

NAME                                BUSINESS AND OTHER CONNECTIONS
----                                ------------------------------


Steven R. Brown                     Managing Director, Neuberger Berman, LLC;
Vice President, NB Management.      Portfolio Manager, Neuberger Berman Real
                                    Estate Income Fund Inc.; Portfolio Manager,
                                    Neuberger Berman Realty Income Fund Inc.;
                                    Portfolio Manager, Neuberger Berman Income
                                    Opportunity Fund Inc.; Portfolio Manager,
                                    Neuberger Berman Real Estate Securities
                                    Income Fund Inc.; Portfolio Manager,
                                    Neuberger Berman Dividend Advantage Fund
                                    Inc.; Portfolio Manager, Neuberger Berman
                                    Real Estate Fund, a series of Neuberger
                                    Berman Equity Funds; Portfolio Manager, Real
                                    Estate Portfolio, a series of Neuberger
                                    Berman Advisers Management Trust; Portfolio
                                    Manager, Neuberger Berman Strategic Income
                                    Fund, a series of Neuberger Berman Income
                                    Funds.

David H. Burshtan                   Portfolio Manager, Neuberger Berman
Vice President, NB Management.      Millennium Fund, a series of Neuberger
                                    Berman Equity Funds.

Lori B. Canell                      Managing Director, Neuberger Berman, LLC;
Vice President, NB Management.      Portfolio Manager, Neuberger Berman
                                    California Intermediate Municipal Fund Inc.;
                                    Portfolio Manager, Neuberger Berman
                                    Intermediate Municipal Fund Inc.; Portfolio
                                    Manager, Neuberger Berman New York
                                    Intermediate Municipal Fund Inc.; Portfolio
                                    Manager, Neuberger Berman Municipal
                                    Securities Trust, a series of Neuberger
                                    Berman Income Funds.

Robert Conti                        Senior Vice President of Neuberger Berman,
Senior Vice President,              LLC, since 2003; Vice President, Neuberger
NB Management.                      Berman, LLC, from 1999 to 2003; Vice
                                    President, Neuberger Berman Income Funds;
                                    Vice President, Neuberger Berman Equity
                                    Funds; Vice President, Neuberger Berman
                                    Advisers Management Trust; Vice President,
                                    Neuberger Berman Real Estate Income Fund
                                    Inc.; Vice President, Neuberger Berman
                                    Intermediate Municipal Fund Inc.; Vice
                                    President, Neuberger Berman New York
                                    Intermediate Municipal Fund Inc.; Vice
                                    President, Neuberger Berman California
                                    Intermediate Municipal Fund Inc.; Vice
                                    President, Neuberger Berman Realty Income
                                    Fund Inc.; Vice President, Neuberger Berman
                                    Income Opportunity Fund Inc.; Vice
                                    President, Neuberger Berman Real Estate
                                    Securities Income Fund Inc.; Vice President,
                                    Neuberger Berman Dividend Advantage Fund
                                    Inc.; Vice President, Neuberger Berman
                                    Institutional Liquidity Series; Vice
                                    President, Lehman Brothers Institutional
                                    Liquidity Series; Vice President,
                                    Institutional Liquidity Trust; Vice
                                    President, Lehman Brothers Reserve Liquidity
                                    Series.

Robert B. Corman                    Managing Director, Neuberger Berman, LLC;
Vice President, NB Management.      Portfolio Manager, Neuberger Berman Focus
                                    Fund, a series of Neuberger Berman Equity
                                    Funds; Portfolio Manager, Focus Portfolio, a
                                    series of Neuberger Berman Advisers
                                    Management Trust.

Robert W. D'Alelio                  Managing Director, Neuberger Berman, LLC;
Vice President, NB Management.      Portfolio Manager, Neuberger Berman Genesis
                                    Fund, a series of Neuberger Berman Equity
                                    Funds.


John E. Dugenske                    Portfolio Manager, Balanced Portfolio and
Vice President, NB Management.      Limited Maturity Bond Portfolio, each a
                                    series of Neuberger Berman Advisers
                                    Management Trust; Portfolio Manager,
                                    Neuberger Berman Cash Reserves, Neuberger
                                    Berman Government Money Fund and Neuberger
                                    Berman Limited Maturity Bond Fund, each a
                                    series of Neuberger Berman Income Funds.

5

NAME                                BUSINESS AND OTHER CONNECTIONS
----                                ------------------------------

Ingrid Dyott                        Vice President, Neuberger Berman, LLC;
Vice President, NB Management.      Associate Portfolio Manager, Guardian
                                    Portfolio, a series of Neuberger Berman
                                    Advisers Management Trust; Portfolio
                                    Manager, Socially Responsive Portfolio, a
                                    series of Neuberger Berman Advisers
                                    Management Trust; Associate Portfolio
                                    Manager, Neuberger Berman Guardian Fund, a
                                    series of Neuberger Berman Equity Funds;
                                    Portfolio Manager, Neuberger Berman Socially
                                    Responsive Fund, a series of Neuberger
                                    Berman Equity Funds.

Michael F. Fasciano                 Managing Director, Neuberger Berman, LLC
Vice President, NB Management.      since March 2001; Portfolio Manager,
                                    Neuberger Berman Fasciano Fund, a series of
                                    Neuberger Berman Equity Funds; Portfolio
                                    Manager, Fasciano Portfolio, a series of
                                    Neuberger Berman Advisers Management Trust.

Janet A. Fiorenza                   Portfolio Manager, Lehman Brothers Municipal
Vice President, NB Management.      Money Fund, National Municipal Money Fund,
                                    Lehman Brothers New York Municipal Money
                                    Fund and Tax-Free Money Fund, each a series
                                    of Neuberger Berman Income Funds.

William J. Furrer                   Portfolio Manager, Lehman Brothers Municipal
Vice President, NB Management.      Money Fund, National Municipal Money Fund,
                                    Lehman Brothers New York Municipal Money
                                    Fund and Tax-Free Money Fund, each a series
                                    of Neuberger Berman Income Funds.

Brian J. Gaffney                    Managing Director, Neuberger Berman, LLC
Senior Vice President,              since 1999; Vice President, Neuberger Berman
NB Management.                      Income Funds; Vice President, Neuberger
                                    Berman Equity Funds; Vice President,
                                    Neuberger Berman Advisers Management Trust;
                                    Vice President, Neuberger Berman Real Estate
                                    Income Fund Inc.; Vice President, Neuberger
                                    Berman Intermediate Municipal Fund Inc.;
                                    Vice President, Neuberger Berman New York
                                    Intermediate Municipal Fund Inc.; Vice
                                    President, Neuberger Berman California
                                    Intermediate Municipal Fund Inc.; Vice
                                    President, Neuberger Berman Realty Income
                                    Fund Inc.; Vice President, Neuberger Berman
                                    Income Opportunity Fund Inc.; Vice
                                    President, Neuberger Berman Real Estate
                                    Securities Income Fund Inc.; Vice President,
                                    Neuberger Berman Dividend Advantage Fund
                                    Inc.; Vice President, Neuberger Berman
                                    Institutional Liquidity Series; Vice
                                    President, Lehman Brothers Institutional
                                    Liquidity Series; Vice President,
                                    Institutional Liquidity Trust; Vice
                                    President, Lehman Brothers Reserve Liquidity
                                    Series.

6

NAME                                BUSINESS AND OTHER CONNECTIONS
----                                ------------------------------

Maxine L. Gerson                    Senior Vice President, Neuberger Berman, LLC
Secretary and General Counsel,      since 2002; Deputy General Counsel and
NB Management.                      Assistant Secretary, Neuberger Berman, LLC
                                    since 2001; Chief Legal Officer, Neuberger
                                    Berman Income Funds; Chief Legal Officer,
                                    Neuberger Berman Equity Funds; Chief Legal
                                    Officer, Neuberger Berman Advisers
                                    Management Trust; Chief Legal Officer,
                                    Neuberger Berman Real Estate Income Fund
                                    Inc.; Chief Legal Officer, Neuberger Berman
                                    Intermediate Municipal Fund Inc.; Chief
                                    Legal Officer, Neuberger Berman New York
                                    Intermediate Municipal Fund Inc.; Chief
                                    Legal Officer, Neuberger Berman California
                                    Intermediate Municipal Fund Inc.; Chief
                                    Legal Officer, Neuberger Berman Realty
                                    Income Fund Inc.; Chief Legal Officer,
                                    Neuberger Berman Income Opportunity Fund
                                    Inc.; Chief Legal Officer, Neuberger Berman
                                    Real Estate Securities Income Fund Inc.;
                                    Chief Legal Officer, Neuberger Berman
                                    Dividend Advantage Fund Inc.; Chief Legal
                                    Officer, Neuberger Berman Institutional
                                    Liquidity Series; Chief Legal Officer,
                                    Lehman Brothers Institutional Liquidity
                                    Series; Chief Legal Officer, Institutional
                                    Liquidity Trust; Chief Legal Officer, Lehman
                                    Brothers Reserve Liquidity Series.


Edward S. Grieb                     Senior Vice President and Treasurer,
Treasurer and Chief Financial       Neuberger Berman, LLC; Treasurer, Neuberger
Officer, NB Management.             Berman Inc.

Michael J. Hanratty                 None.
Vice President, NB Management.


Milu E. Komer                       Associate Portfolio Manager, International
Vice President, NB Management.      Portfolio, a series of Neuberger Berman
                                    Advisers Management Trust; Associate
                                    Portfolio Manager, Neuberger Berman
                                    International Fund, Neuberger Berman
                                    International Institutional Fund and
                                    Neuberger Berman International Large Cap
                                    Fund, each a series of Neuberger Berman
                                    Equity Funds.

Sajjad S. Ladiwala                  Associate Portfolio Manager, Guardian
Vice President, NB Management.      Portfolio and Socially Responsive Portfolio,
                                    each a series of Neuberger Berman Advisers
                                    Management Trust; Associate Portfolio
                                    Manager, Neuberger Berman Guardian Fund and
                                    Neuberger Berman Socially Responsive Fund,
                                    each a series of Neuberger Berman Equity
                                    Funds.

Kelly M. Landron                    Portfolio Manager, Lehman Brothers Municipal
Vice President, NB Management Inc.  Money Fund, National Municipal Money Fund,
                                    Lehman Brothers New York Municipal Money
                                    Fund and Tax-Free Money Fund, each a series
                                    of Neuberger Berman Income Funds.

Jeffrey B. Lane                     President and Chief Operating Officer,
Director, NB Management.            Neuberger Berman, LLC; Director and
                                    President, Neuberger Berman Inc.

Richard S. Levine                   Portfolio Manager, Neuberger Berman
Vice President, NB Management.      Strategic Income Fund, a series of Neuberger
                                    Berman Income Funds; Portfolio Manager,
                                    Neuberger Berman Dividend Advantage Fund
                                    Inc.

John A. Lovito                      Portfolio Manager, Neuberger Berman
Vice President, NB Management.      Strategic Income Fund, a series of Neuberger
                                    Berman Income Funds.

7

NAME                                BUSINESS AND OTHER CONNECTIONS
----                                ------------------------------

Arthur Moretti                      Managing Director, Neuberger Berman, LLC
Vice President, NB Management.      since June 2001; Portfolio Manager,
                                    Neuberger Berman Guardian Fund and Neuberger
                                    Berman Socially Responsive Fund, each a
                                    series of Neuberger Berman Equity Funds;
                                    Portfolio Manager, Guardian Portfolio and
                                    Socially Responsive Portfolio, each a series
                                    of Neuberger Berman Advisers Management
                                    Trust.

S. Basu Mullick                     Managing Director, Neuberger Berman, LLC;
Vice President, NB Management.      Portfolio Manager, Neuberger Berman Partners
                                    Fund and Neuberger Berman Regency Fund, each
                                    a series of Neuberger Berman Equity Funds;
                                    Portfolio Manager, Partners Portfolio and
                                    Regency Portfolio, each a series of
                                    Neuberger Berman Advisers Management Trust.

Thomas P. O'Reilly                  Portfolio Manager, Neuberger Berman Income
Vice President, NB Management.      Opportunity Fund Inc.; Portfolio Manager,
                                    Neuberger Berman Strategic Income Fund and
                                    Neuberger Berman High Income Bond Fund, each
                                    a series of Neuberger Berman Income Funds;
                                    Portfolio Manager, High Income Bond
                                    Portfolio, a series of Neuberger Berman
                                    Advisers Management Trust.

Loraine Olavarria                   None.
Assistant Secretary,
NB Management.

Elizabeth Reagan                    None.
Vice President, NB Management.

Brett S. Reiner                     Associate Portfolio Manager, Neuberger
Vice President, NB Management.      Berman Genesis Fund, a series of Neuberger
                                    Berman Equity Funds. Executive Vice
                                    President, Neuberger Berman, LLC; Executive

Jack L. Rivkin                      Vice President, Neuberger Berman Inc.;
Chairman and Director, NB           President and Director, Neuberger Berman
Management.                         Real Estate Income Fund Inc; President and
                                    Director, Neuberger Berman Intermediate
                                    Municipal Fund Inc.; President and Director,
                                    Neuberger Berman New York Intermediate
                                    Municipal Fund Inc.; President and Director,
                                    Neuberger Berman California Intermediate
                                    Municipal Fund Inc.; President and Trustee,
                                    Neuberger Berman Advisers Management Trust;
                                    President and Trustee, Neuberger Berman
                                    Equity Funds; President and Trustee,
                                    Neuberger Berman Income Funds; President and
                                    Director, Neuberger Berman Realty Income
                                    Fund Inc.; President and Director, Neuberger
                                    Berman Income Opportunity Fund Inc.;
                                    President and Director, Neuberger Berman
                                    Real Estate Securities Income Fund Inc.;
                                    President, Director and Portfolio Manager,
                                    Neuberger Berman Dividend Advantage Fund
                                    Inc.; President and Trustee, Neuberger
                                    Berman Institutional Liquidity Series;
                                    President and Trustee, Lehman Brothers
                                    Institutional Liquidity Series; President
                                    and Trustee, Institutional Liquidity Trust;
                                    President and Trustee, Lehman Brothers
                                    Reserve Liquidity Series; Portfolio Manager,
                                    Neuberger Berman Strategic Income Fund, a
                                    series of Neuberger Berman Income Funds;
                                    Director, Dale Carnegie and Associates, Inc.
                                    since 1998; Director, Solbright, Inc. since
                                    1998.

8

NAME                                BUSINESS AND OTHER CONNECTIONS
----                                ------------------------------

Benjamin E. Segal                   Managing Director, Neuberger Berman, LLC
Vice President, NB Management.      since November 2000, prior thereto, Vice
                                    President, Neuberger Berman, LLC; Portfolio
                                    Manager, Neuberger Berman International
                                    Fund, Neuberger Berman International
                                    Institutional Fund and Neuberger Berman
                                    International Large Cap Fund, each a series
                                    of Neuberger Berman Equity Funds; Portfolio
                                    Manager, International Portfolio, a series
                                    of Neuberger Berman Advisers Management
                                    Trust.

Michelle B. Stein                   Portfolio Manager, Neuberger Berman Dividend
Vice President, NB Management.      Advantage Fund Inc.

Peter E. Sundman                    Executive Vice President, Neuberger Berman
President and Director,             Inc. since 1999; Head of Neuberger Berman
NB Management.                      Inc.'s Mutual Funds Business (since 1999)
                                    and Institutional Business (1999 to October
                                    2005); responsible for Managed Accounts
                                    Business and intermediary distribution since
                                    October 1999; Managing Director, Neuberger
                                    Berman since 2005; formerly, Executive Vice
                                    President, Neuberger Berman, 1999 to
                                    December 2005; Director and Vice President,
                                    Neuberger & Berman Agency, Inc. since 2000;
                                    Chairman of the Board, Chief Executive
                                    Officer and Trustee, Neuberger Berman Income
                                    Funds; Chairman of the Board, Chief
                                    Executive Officer and Trustee, Neuberger
                                    Berman Advisers Management Trust; Chairman
                                    of the Board, Chief Executive Officer and
                                    Trustee, Neuberger Berman Equity Funds;
                                    Chairman of the Board, Chief Executive
                                    Officer and Director, Neuberger Berman Real
                                    Estate Income Fund Inc.; Chairman of the
                                    Board, Chief Executive Officer and Director,
                                    Neuberger Berman Intermediate Municipal Fund
                                    Inc.; Chairman of the Board, Chief Executive
                                    Officer and Director, Neuberger Berman New
                                    York Intermediate Municipal Fund Inc.;
                                    Chairman of the Board, Chief Executive
                                    Officer and Director, Neuberger Berman
                                    California Intermediate Municipal Fund Inc.;
                                    Chairman of the Board, Chief Executive
                                    Officer and Director, Neuberger Berman
                                    Realty Income Fund Inc.; Chairman of the
                                    Board, Chief Executive Officer and Director,
                                    Neuberger Berman Income Opportunity Fund
                                    Inc.; Chairman of the Board, Chief Executive
                                    Officer and Director, Neuberger Berman Real
                                    Estate Securities Income Fund Inc.; Chairman
                                    of the Board, Chief Executive Officer and
                                    Director, Neuberger Berman Dividend
                                    Advantage Fund Inc.; Chairman of the Board,
                                    Chief Executive Officer and Trustee,
                                    Neuberger Berman Institutional Liquidity
                                    Series; Chairman of the Board, Chief
                                    Executive Officer and Trustee, Lehman
                                    Brothers Institutional Liquidity Series;
                                    Chairman of the Board, Chief Executive
                                    Officer and Trustee, Institutional Liquidity
                                    Trust; Chairman of the Board, Chief
                                    Executive Officer and Trustee, Lehman
                                    Brothers Reserve Liquidity Series; Trustee,
                                    College of Wooster.

Kenneth J. Turek                    Portfolio Manager, Balanced Portfolio,
Vice President, NB Management.      Growth Portfolio and Mid-Cap Growth
                                    Portfolio, each a series of Neuberger Berman
                                    Advisers Management Trust; Portfolio
                                    Manager, Neuberger Berman Century Fund and
                                    Neuberger Berman Manhattan Fund, each a
                                    series of Neuberger Berman Equity Funds.

Judith M. Vale                      Managing Director, Neuberger Berman, LLC;
Vice President, NB Management.      Portfolio Manager, Neuberger Berman Genesis
                                    Fund, a series of Neuberger Berman Equity
                                    Funds.

9

NAME                                BUSINESS AND OTHER CONNECTIONS
----                                ------------------------------

John T. Zielinsky                   Portfolio Manager, Neuberger Berman Century
Vice President, NB Management.      Fund, a series of Neuberger Berman Equity
                                    Funds.

The principal address of NB Management, Neuberger Berman, LLC and of each of the investment companies named above, is 605 Third Avenue, New York, New York 10158.

The description of LBAM under the caption "Investment Management and Administration Services" in the Statement of Additional Information constituting Part B of this Registration Statement is incorporated herein by reference. Information on the directors and officers of LBAM set forth in its Form ADV filed with the Securities and Exchange Commission (File No. 801-42006) is incorporated herein by reference.

Item 27. Principal Underwriters.

(a) NB Management, the principal underwriter distributing securities of the Registrant, is also the principal underwriter and distributor for each of the following investment companies:

Neuberger Berman Advisers Management Trust Neuberger Berman Equity Funds Neuberger Berman Income Funds Neuberger Berman Institutional Liquidity Series Lehman Brothers Institutional Liquidity Series Lehman Brothers Reserve Liquidity Series

(b) Set forth below is information concerning the directors and officers of the Registrant's principal underwriter. The principal business address of each of the persons listed is 605 Third Avenue, New York, New York 10158-0180, which is also the address of the Registrant's principal underwriter.

                      POSITIONS AND OFFICES               POSITIONS AND OFFICES
NAME                  WITH UNDERWRITER                    WITH REGISTRANT
----                  ----------------                    ---------------

Ann H. Benjamin       Vice President                      None
Michael L. Bowyer     Vice President                      None
Claudia A. Brandon    Vice President/Mutual Fund Board    Secretary
                      Relations & Assistant Secretary
Thomas J. Brophy      Vice President                      None

Steven R. Brown       Vice President                      None
David H. Burshtan     Vice President                      None
Lori B. Canell        Vice President                      None
Robert Conti          Senior Vice President               Vice President
Robert B. Corman      Vice President                      None
Robert W. D'Alelio    Vice President                      None

John E. Dugenske      Vice President                      None
Ingrid Dyott          Vice President                      None
Michael F. Fasciano   Vice President                      None
Janet A. Fiorenza     Vice President                      None
William J. Furrer     Vice President                      None
Brian J. Gaffney      Senior Vice President               Vice President
Maxine L. Gerson      Secretary                           Chief Legal Officer
                                                          (only for purposes of
                                                          sections 307 and 406
                                                          of the Sarbanes -
                                                          Oxley Act of 2002)

10

                      POSITIONS AND OFFICES               POSITIONS AND OFFICES
NAME                  WITH UNDERWRITER                    WITH REGISTRANT
----                  ----------------                    ---------------


Edward S. Grieb       Treasurer and Chief Financial       None
                      Officer
Michael J. Hanratty   Vice President                      None

Milu E. Komer         Vice President                      None
Sajjad S. Ladiwala    Vice President                      None
Richard S. Levine     Vice President                      None
John A. Lovito        Vice President                      None
Kelly M. Landron      Vice President                      None
Jeffrey B. Lane       Director                            None
Arthur Moretti        Vice President                      None
S. Basu Mullick       Vice President                      None
Thomas P. O'Reilly    Vice President                      None
Loraine Olavarria     Assistant Secretary                 None
Elizabeth Reagan      Vice President                      None
Brett S. Reiner       Vice President                      None
Jack L. Rivkin        Chairman and Director               President and Trustee
Benjamin E. Segal     Vice President                      None
Michelle B. Stein     Vice President                      None
Kenneth J. Turek      Vice President                      None
Peter E. Sundman      President and Director              Chairman of the Board,
                                                          Chief Executive
                                                          Officer and Trustee
Judith M. Vale        Vice President                      None
Chamaine Williams     Chief Compliance Officer            Chief Compliance
                                                          Officer
John T. Zielinsky     Vice President                      None

(c) No commissions or other compensation were received directly or indirectly from the Registrant by any principal underwriter who was not an affiliated person of the Registrant.

Item 28. Location of Accounts and Records.

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, as amended, and the rules promulgated thereunder with respect to the Registrant are maintained at the offices of State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, except for the Registrant's Trust Instrument and By-Laws, minutes of meetings of the Registrant's Trustees and shareholders and the Registrant's policies and contracts, which are maintained at the offices of the Registrant, 605 Third Avenue, New York, New York 10158.

Item 29. Management Services.

Other than as set forth in Parts A and B of this Registration Statement, the Registrant is not a party to any management-related service contract.

Item 30. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) under the Securities Act of 1933, as amended (the "1933 Act"), the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new Registration Statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.

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 Pre-Effective Amendment No. 2 to its Registration Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City and State of New York on the 15th day of December 2006.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY
FUNDS

By: /s/ Jack L. Rivkin
    ------------------
Name:  Jack L. Rivkin*
Title:  President and Trustee

As required by the Securities Act of 1933, as amended, this Pre-Effective Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature                                 Title                     Date
---------                                 -----                     ----

                               Chairman of the Board, Chief
/s/ Peter E. Sundman          Executive Officer and Trustee    December 15, 2006
-------------------------
Peter E. Sundman*

/s/ Jack L. Rivkin                President and Trustee        December 15, 2006
-------------------------
Jack L. Rivkin*
                                 Treasurer and Principal
                                 Financial and Accounting      December 15, 2006
/s/ John M. McGovern                     Officer
-------------------------
John M. McGovern

/s/ John Cannon                          Trustee               December 15, 2006
-------------------------
John Cannon*

/s/ Faith Colish                         Trustee               December 15, 2006
-------------------------
Faith Colish*

/s/ C. Anne Harvey                       Trustee               December 15, 2006
-------------------------
C. Anne Harvey*

/s/ Robert A. Kavesh                     Trustee               December 15, 2006
-------------------------
Robert A. Kavesh*

/s/ Howard A. Mileaf                     Trustee               December 15, 2006
-------------------------
Howard A. Mileaf*

/s/ Edward I. O'Brien                    Trustee               December 15, 2006
-------------------------
Edward I. O'Brien*

/s/ William E. Rulon                     Trustee               December 15, 2006
-------------------------
William E. Rulon*

/s/ Cornelius T. Ryan                    Trustee               December 15, 2006
-------------------------
Cornelius T. Ryan*

/s/ Tom Decker Seip                      Trustee               December 15, 2006
-------------------------
Tom Decker Seip*

/s/ Candace L. Straight                  Trustee               December 15, 2006
-------------------------
Candace L. Straight*

/s/ Peter P. Trapp                       Trustee               December 15, 2006
-------------------------
Peter P. Trapp*

*Signatures affixed by Lori L. Schneider on December 15, 2006 pursuant to power of attorney, which is filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, Institutional Liquidity Trust has duly caused this Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City and State of New York on the 15th day of December 2006.

INSTITUTIONAL LIQUIDITY TRUST

By:   /s/ Jack L. Rivkin
      ------------------------
Name:  Jack L. Rivkin*
Title: President and Trustee

Signature                                 Title                      Date
---------                                 -----                      ----

                               Chairman of the Board, Chief    December 15, 2006
/s/ Peter E. Sundman          Executive Officer and Trustee
---------------------------
Peter E. Sundman*

/s/ Jack L. Rivkin                President and Trustee        December 15, 2006
---------------------------
Jack L. Rivkin*

                                 Treasurer and Principal       December 15, 2006
                                 Financial and Accounting
/s/ John M. McGovern                     Officer
---------------------------
John M. McGovern

/s/ John Cannon                          Trustee               December 15, 2006
---------------------------
John Cannon*

/s/ Faith Colish                         Trustee               December 15, 2006
---------------------------
Faith Colish*

/s/ C. Anne Harvey                       Trustee               December 15, 2006
---------------------------
C. Anne Harvey*

/s/ Robert A. Kavesh                     Trustee               December 15, 2006
---------------------------
Robert A. Kavesh *

/s/ Howard A. Mileaf                     Trustee               December 15, 2006
---------------------------
Howard A. Mileaf*

/s/ Edward I. O'Brien                    Trustee               December 15, 2006
---------------------------
Edward I. O'Brien*

/s/ William E. Rulon                     Trustee               December 15, 2006
---------------------------
William E. Rulon*

/s/ Cornelius T. Ryan                    Trustee               December 15, 2006
---------------------------
Cornelius T. Ryan*

/s/ Tom Decker Seip                      Trustee               December 15, 2006
---------------------------
Tom Decker Seip*

/s/ Candace L. Straight                  Trustee               December 15, 2006
---------------------------
Candace L. Straight*

/s/ Peter P. Trapp                       Trustee               December 15, 2006
---------------------------
Peter P. Trapp*

*Signatures affixed by Lori L. Schneider on December 15, 2006 pursuant to power of attorney, which is filed herewith.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

650 Third Ave 2nd Fl.
NEW YORK, NY 10158
212.476.8817

AMENDED AND RESTATED TRUST INSTRUMENT

                                TABLE OF CONTENTS
                                -----------------

ARTICLE I  DEFINITIONS.......................................................1
ARTICLE II  THE TRUSTEES.....................................................2
  Section 1.   MANAGEMENT OF THE TRUST.......................................2
  Section 2.   INITIAL TRUSTEES; ELECTION AND NUMBER OF TRUSTEES.............2
  Section 3.   TERM OF OFFICE OF TRUSTEES....................................2
  Section 4.   VACANCIES; APPOINTMENT OF TRUSTEES............................3
  Section 5.   TEMPORARY VACANCY OR ABSENCE..................................3
  Section 6.   CHAIRMAN......................................................3
  Section 7.   ACTION BY THE TRUSTEES........................................3
  Section 8.   OWNERSHIP OF TRUST PROPERTY...................................3
  Section 9.   EFFECT OF TRUSTEES NOT SERVING................................4
  Section 10.  TRUSTEES AND OTHERS AS SHAREHOLDERS...........................4
ARTICLE III  POWERS OF THE TRUSTEES..........................................4
  Section 1.   POWERS........................................................4
  Section 2.   CERTAIN TRANSACTIONS..........................................6
ARTICLE IV  SERIES; CLASSES; SHARES..........................................7
  Section 1.   ESTABLISHMENT OF SERIES AND CLASSES...........................7
  Section 2.   SHARES........................................................7
  Section 3.   INVESTMENTS IN THE TRUST......................................8
  Section 4.   ASSETS AND LIABILITIES OF SERIES..............................8
  Section 5.   OWNERSHIP AND TRANSFER OF SHARES..............................9
  Section 6.   STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY.........9
ARTICLE V  DISTRIBUTIONS AND REDEMPTIONS.....................................9
  Section 1.   DISTRIBUTIONS.................................................9
  Section 2.   REDEMPTIONS..................................................10
  Section 3.   DETERMINATION OF NET ASSET VALUE PER SHARE...................10
  Section 4.   SUSPENSION OF RIGHT OF REDEMPTION............................10
ARTICLE VI  SHAREHOLDERS' VOTING POWERS AND MEETINGS........................10
  Section 1.   VOTING POWERS................................................10
  Section 2.   MEETINGS OF SHAREHOLDERS.....................................11
  Section 3.   QUORUM; REQUIRED VOTE........................................11
ARTICLE VII  CONTRACTS WITH SERVICE PROVIDERS...............................12
  Section 1.   INVESTMENT ADVISER...........................................12
  Section 2.   PRINCIPAL UNDERWRITER........................................12
  Section 3.   TRANSFER AGENCY, SHAREHOLDER SERVICES AND ADMINISTRATION.....12
  Section 4.   CUSTODIAN....................................................12
  Section 5.   PARTIES TO CONTRACTS WITH SERVICE PROVIDERS..................12
ARTICLE VIII  EXPENSES OF THE TRUST AND SERIES..............................13
ARTICLE IX  LIMITATION OF LIABILITY AND INDEMNIFICATION.....................13
  Section 1.   LIMITATION OF LIABILITY......................................13
  Section 2.   INDEMNIFICATION..............................................14
  Section 3.   INDEMNIFICATION OF SHAREHOLDERS..............................15
ARTICLE X  MISCELLANEOUS....................................................15
  Section 1.   TRUST NOT A PARTNERSHIP......................................15

                                       i

  Section 2.   TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY.............16
  Section 3.   RECORD DATES.................................................16
  Section 4.   TERMINATION OF THE TRUST.....................................16
  Section 5.   REORGANIZATION...............................................17
  Section 6.   TRUST INSTRUMENT.............................................18
  Section 7.   APPLICABLE LAW...............................................18
  Section 8.   AMENDMENTS...................................................18
  Section 9.   FISCAL YEAR..................................................19
  Section 10.  SEVERABILITY.................................................19
  Section 11.  INTERPRETATION...............................................19

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

TRUST INSTRUMENT

This AMENDED AND RESTATED TRUST INSTRUMENT is made as of October 23, 2006, by the Trustees to establish a statutory trust for the investment and reinvestment of funds contributed to the Trust by investors. It hereby amends the Trust Instrument dated February 15, 2005. The Trustees declare that all money and property contributed to the Trust shall be held and managed in trust pursuant to this Trust Instrument. The name of the Trust created by this Trust Instrument is "Lehman Brothers Institutional Liquidity Funds" (formerly, "Lehman Brothers Investor Liquidity Series").

ARTICLE I

DEFINITIONS

Unless otherwise provided or required by the context:

(a) "Assets belonging to" a Series has the meaning set forth in Article IV, Section 4;

(b) "By-laws" means the By-laws of the Trust adopted by the Trustees, as amended from time to time;

(d) "Commission," "Interested Person" and "Principal Underwriter" have the meanings provided in the 1940 Act;

(e) "Covered Person" means a person so defined in Article IX, Section 2;

(f) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code, entitled "Treatment of Delaware Statutory Trusts," as amended from time to time;

(g) "Liabilities" means liabilities, debts, obligations, expenses, costs, charges and reserves;

(h) "Majority Shareholder Vote" means "the vote of a majority of the outstanding voting securities" as defined in the 1940 Act;

(i) "Net Asset Value per Share" means, with respect to each Series at any time, the value of the Assets belonging to that Series less the Liabilities chargeable to that Series pursuant to Article IV, Section 4, divided by the number of Outstanding Shares, all determined as provided in Article V, Section 3;

(j) "Outstanding Shares" means Shares shown in the books of the Trust or its transfer agent as then issued and outstanding but does not include Shares that have been repurchased or redeemed by the Trust and that are held in the treasury of the Trust;

(k) "Series" means a series of Shares established pursuant to Article IV;

(l) "Shareholder" means a record owner of Outstanding Shares;

(m) "Shares" means the equal proportionate transferable units of interest into which the beneficial interest of each Series or Class is divided from time to time (including whole Shares and fractions of Shares);

(n) "Trust" means "Lehman Brothers Institutional Liquidity Funds," the trust established hereby;

(o) "Trust Property" means any and all property, real or personal, tangible or intangible, that is owned or held by or for the Trust or any Series or the Trustees on behalf of the Trust or any Series;

(p) "Trustees" means the persons who have signed this Trust Instrument, so long as they continue in office in accordance with the terms hereof, and all other persons who may from time to time be duly qualified and serving as Trustees in accordance with Article II, in all cases in their capacities as Trustees hereunder;

(q) "1940 Act" means the Investment Company Act of 1940, as amended from time to time.

ARTICLE II

THE TRUSTEES

Section 1. MANAGEMENT OF THE TRUST. The business and affairs of the Trust shall be managed by or under the direction of the Trustees, and they shall have all powers necessary or desirable to carry out that responsibility. The Trustees may execute all instruments and take all action they deem necessary or desirable to promote the interests of the Trust. Any determination made by the Trustees in good faith as to what is in the interests of the Trust shall be conclusive.

Section 2. INITIAL TRUSTEES; ELECTION AND NUMBER OF TRUSTEES. The initial Trustees shall be the persons initially signing this Trust Instrument. The number of Trustees (other than the initial Trustees) shall be fixed from time to time by a majority of the Trustees; provided, that there shall be at least two Trustees. The Shareholders shall elect the Trustees (other than the initial Trustees) on such dates as the Trustees may fix from time to time.

Section 3. TERM OF OFFICE OF TRUSTEES. Each Trustee shall hold office for life or until his successor is elected or the Trust terminates; except that (a) any Trustee may resign by delivering to the other Trustees or to any Trust officer a written resignation effective upon such delivery or a later date specified therein, (b) any Trustee may be removed with or without cause at any, time by a written instrument signed by at least two-thirds of the other Trustees, specifying the effective date of removal, (c) any Trustee who requests to be retired, or who has become physically or mentally incapacitated or is otherwise unable to serve, may be retired by a written instrument signed by a majority of the other Trustees, specifying the effective date of retirement and

(d) any Trustee may be removed at any meeting of the Shareholders by a vote of at least two-thirds of the Outstanding Shares.

Section 4. VACANCIES; APPOINTMENT OF TRUSTEES. Whenever a vacancy exists in the Board of Trustees, regardless of the reason for such vacancy, the remaining Trustees shall appoint any person as they determine in their sole discretion to fill that vacancy, consistent with the limitations under the 1940 Act. Such appointment shall be made by a written instrument signed by a majority of the Trustees or by a resolution of the Trustees, duly adopted and recorded in the records of the Trust, specifying the effective date of the appointment. The Trustees may appoint a new Trustee as provided above in anticipation of a vacancy expected to occur because of the retirement, resignation or removal of a Trustee, or an increase in number of Trustees, provided that such appointment shall become effective only at or after the expected vacancy occurs. As soon as any such Trustee has accepted his appointment in writing, the trust estate shall vest in the new Trustee, together with the continuing Trustees, without any further act or conveyance, and he shall be deemed a Trustee hereunder. The power of appointment is subject to Section 16(a) of the 1940 Act.

Section 5. TEMPORARY VACANCY OR ABSENCE. Whenever a vacancy in the Board of Trustees occurs, until such vacancy is filled, or while any Trustee is absent from his domicile (unless that Trustee has made arrangements to be informed about, and to participate in, the affairs of the Trust during such absence), or is physically or mentally incapacitated, the remaining Trustees shall have all the powers hereunder and their certificate as to such vacancy, absence or incapacity shall be conclusive. Any Trustee may, by power of attorney, delegate his powers as Trustee for a period not exceeding six months at any one time to any other Trustee or Trustees:

Section 6. CHAIRMAN. The Trustees shall appoint one of their number to be Chairman of the Board of Trustees. The Chairman shall preside at all meetings of the Trustees and may, without limitation, be the chief executive, financial and/or accounting officer of the Trust.

Section 7. ACTION BY THE TRUSTEES. The Trustees shall act by majority vote at a meeting duly called (including at a telephonic meeting, unless the 1940 Act requires that a particular action be taken only at a meeting of Trustees in person) at which a quorum is present or by written consent of a majority of Trustees (or such greater number as may be required by applicable law) without a meeting. A majority of the Trustees shall constitute a quorum at any meeting. Meetings of the Trustees may be called orally or in writing by the Chairman of the Board of Trustees or by any two other Trustees. Notice of the time, date and place of all Trustees meetings shall be given to each Trustee by telephone, facsimile or other electronic mechanism sent to his home or business address at least twenty-four hours in advance of the meeting or by written notice mailed to his home or business address at least seventy-two hours in advance of the meeting. Notice need not be given to any Trustee who attends the meeting without objecting to the lack of notice or who signs a waiver of notice either before or after the meeting. Subject to the requirements of the 1940 Act, the Trustees by majority vote may delegate to any Trustee or Trustees authority to approve particular matters or take particular actions on behalf of the Trust. Any written consent or waiver may be provided and delivered to the Trust by facsimile or other similar electronic mechanism.

Section 8. OWNERSHIP OF TRUST PROPERTY. The Trust Property shall be held separate and apart from any assets now or hereafter held by the Trustees or any successor Trustees in any capacity other than as Trustee hereunder. All of the Trust Property and legal title thereto shall at all times be considered as vested in the Trustees on behalf of the Trust, except that the Trustees may cause legal title to any Trust Property to be held by or in the name of the Trust or in the name of any person (including a custodian appointed pursuant to Article VII, Section 4) as nominee. No Shareholder shall be deemed to have a severable ownership in any individual asset of the Trust or of any Series or any right of partition or possession thereof, but each Shareholder shall have, as provided in Article IV, a proportionate undivided beneficial interest in the Trust or Series represented by Shares.

Section 9. EFFECT OF TRUSTEES NOT SERVING. The death, resignation, retirement, removal, incapacity or inability or refusal to serve of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Trust Instrument.

Section 10. TRUSTEES AND OTHERS AS SHAREHOLDERS. Subject to any restrictions in the By-laws, any Trustee, officer, agent or independent contractor of the Trust may acquire, own and dispose of Shares to the same extent as any other Shareholder; the Trustees may issue and sell Shares to and buy Shares from any such person or any firm or company in which such person is interested, subject only to any general limitations herein.

ARTICLE III

POWERS OF THE TRUSTEES

Section 1. POWERS. The Trustees in all instances shall act as principals, free of the control of the Shareholders. The Trustees shall have full power and authority to take or refrain from taking any action and to execute any contracts and instruments that they may consider necessary or desirable in the management of the Trust. The Trustees shall not in any way be bound or limited by current or future laws or customs applicable to trust investments, but shall have full power and authority to make any investments which they, in their sole discretion, deem proper to accomplish the purposes of the Trust. The Trustees may exercise all of their powers without recourse to any court or other authority. Subject to any applicable express limitation herein or in the By-laws or resolutions of the Trust, the Trustees shall have power and authority, without limitation:

(a) To invest and reinvest cash and other property, and to hold cash or other property uninvested, without in any event being bound or limited by any current or future law or custom concerning investments by trustees, and to sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the Trust Property; to invest in obligations and securities of any kind, and without regard to whether they may mature before the possible termination of the Trust; and without limitation to invest all or any part of its cash and other property in securities issued by an investment company registered under the 1940 Act or series thereof, subject to the provisions of the 1940 Act;

(b) To operate as and carry on the business of an investment company registered under the 1940 Act, and exercise all the powers necessary and proper to conduct such a business;

(c) To adopt By-laws not inconsistent with this Trust Instrument providing for the conduct of the business of the Trust and to amend and repeal them;

(d) To elect and remove such officers and appoint and terminate such agents as they deem appropriate;

(e) To employ as custodian of any assets of the Trust, subject to any provisions herein or in the By-laws, one or more banks, trust companies or companies that are members of a national securities exchange or other entities permitted by the Commission to serve as such;

(f) To retain one or more transfer agents and Shareholder servicing agents, or both;

(g) To provide for the distribution of Shares either through a Principal Underwriter as provided herein or by the Trust itself, or both, or pursuant to a distribution plan of any kind;

(h) To set record dates in the manner provided for herein or in the By-laws;

(i) To delegate such authority as they consider desirable to any officers of the Trust and to any agent, independent contractor, manager, investment adviser, custodian or underwriter;

(j) To sell or exchange any or all of the assets of the Trust, subject to Article X, Section 4;

(k) To vote or give assent, or exercise any rights of ownership, with respect to securities or other property, and to execute and deliver powers of attorney delegating such power to other persons;

(1) To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities;

(m) To hold any security or other property (i) in a form not indicating any trust, whether in bearer, book entry, unregistered or other negotiable form or (ii) either in the Trust's or Trustees' own name or in the name of a custodian or a nominee or nominees, subject to safeguards according to the usual practice of business or statutory trusts or investment companies;

(n) To establish separate and distinct Series with separately defined investment objectives and policies, distinct investment purposes and separate Shares representing beneficial interests in such Series, and to establish separate Classes, all in accordance with the provisions of Article IV;

(o) To the full extent permitted by Section 3804 of the Delaware Act, to allocate assets and Liabilities of the Trust to a particular Series, and Liabilities to a particular Class, or to apportion the same between or among two

or more Series or Classes, provided that any Liabilities incurred by a particular Series or Class shall be payable solely out of the Assets belonging to that Series or Class, respectively, as provided for in Article IV, Section 4;

(p) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or concern whose securities are held by the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or concern; and to pay calls or subscriptions with respect to any security held in the Trust;

(q) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy including, but not limited to, claims for taxes;

(r) To make distributions of income and of capital gains to Shareholders in the manner hereinafter provided for;

(s) To borrow money;

(t) To establish, from time to time, a minimum total investment for Shareholders and to require the redemption of the Shares of any Shareholders whose investment is less than such minimum upon giving notice to such Shareholder;

(u) To establish committees for such purposes, with such membership, and with such responsibilities as the Trustees may consider proper, including a committee consisting of fewer than all of the Trustees then in office, which may act for and bind the Trustees and the Trust with respect to the institution, prosecution, dismissal, settlement, review or investigation of any legal action, suit or proceeding, pending or threatened;

(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold, resell, reissue, dispose of and otherwise deal in Shares; to establish terms and conditions regarding the issuance, sale, repurchase, redemption, cancellation, retirement, acquisition, holding, resale, reissuance, disposition of or dealing in Shares; and, subject to Articles IV and V, to apply to any such repurchase, redemption, retirement, cancellation or acquisition of Shares any funds or property of the Trust or of the particular Series with respect to which such Shares are issued; and

(w) To carry on any other business in connection with or incidental to any of the foregoing powers, to do everything necessary or desirable to accomplish any purpose or to further any of the foregoing powers, and to take every other action incidental to the foregoing business or purposes, objects or powers.

The powers and authorities enumerated in the preceding clauses shall be construed as objects and powers, and the enumeration of specific powers shall not limit in any way the general powers of the Trustees. Any action by one or more of the Trustees in their capacity as such hereunder shall be deemed an action on behalf of the Trust or the applicable Series and not an action in an individual capacity. No one dealing with the Trustees shall be under any obligation to make any inquiry concerning the authority of the Trustees or to see to the application of any payments made or property transferred to the Trustees or upon their order. In construing this Trust Instrument, the presumption shall be in favor of a grant of power to the Trustees.

Section 2. CERTAIN TRANSACTIONS. Except as prohibited by applicable law, the Trustees may, on behalf of the Trust, buy any securities from or sell any securities to, or lend any assets of the Trust to, any Trustee or officer of the Trust or any firm of which any such Trustee or officer is a member acting as principal, or have any such dealings with any investment adviser, administrator, distributor or transfer agent for the Trust or with any Interested Person of such person. The Trust may employ any such person or entity in which such person is an Interested Person, as broker, legal counsel, registrar, investment adviser, administrator, distributor, transfer agent, dividend disbursing agent, custodian or in any other capacity upon customary terms.

ARTICLE IV

SERIES; CLASSES; SHARES

Section 1. ESTABLISHMENT OF SERIES AND CLASSES. The Trust shall consist of one or more separate and distinct Series created and maintained in accordance with Article III, Section 1(n), and this Article IV. The Trustees hereby establish the Series listed in Schedule A attached hereto and made a part hereof. Each additional Series shall be established by the adoption of a resolution of the Trustees. The Trustees may designate the rights and preferences of the Shares of each Series relative to the Shares of any other Series. The Trustees may divide the Shares of any Series into any number of Classes representing interests in the Assets belonging to that Series, each Share of each such Class having an equal beneficial interest in such assets and identical voting, dividend, liquidation and other rights and subject to the same terms and conditions, except that (a) expenses allocated to a Class may be borne solely by that Class as determined by the Trustees and (b) a Class may have exclusive voting rights with respect to matters affecting only that Class. The Trust shall maintain separate and distinct records for each Series and shall hold and account for the Assets belonging thereto separately from the other assets of the Trust or Assets belonging to any other Series. A Series may issue any number of Shares and need not issue Shares. Each holder of Shares of a Series shall be entitled to receive his PRO RATA share of all distributions made with respect to such Series. Upon redemption of Shares of a Series, the redeeming Shareholder shall be paid solely out of the Assets belonging to that Series. The Trustees may change the name of any Series or Class in their sole discretion.

Section 2. SHARES. The beneficial interest in each Series shall be divided into Shares of one or more Classes. The number of Shares of each Series and Class shall be unlimited, and each Share shall have a par value of $0.001. All Shares issued hereunder shall be fully paid and nonassessable. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust. The Trustees shall have full power and authority, in their sole discretion and without obtaining Shareholder approval,
(1) to issue original or additional Shares at such times and on such terms and conditions as they deem appropriate, (2) to issue fractional Shares and Shares held in the Trust's treasury, (3) to establish and to change in any manner Shares of any Series or Classes with such preferences, terms of conversion, voting powers, rights and privileges as the Trustees may determine (but the Trustees may not change Outstanding Shares in a manner materially adverse to the Shareholders of such Shares), (4) to divide or combine the Shares of any Series or Classes into a greater or lesser number, (5) to classify or reclassify any unissued Shares of any Series or Classes into one or more Series or Classes, (6) to abolish any one or more Series or Classes, (7) to issue Shares to acquire

other assets (including assets subject to, and in connection with, the assumption of liabilities) and businesses and (8) to take such other action with respect to the Shares as the Trustees may deem desirable. Shares held in the Trust's treasury shall not confer any voting rights on the Trustees and shall not be entitled to any dividends or other distributions declared with respect to the Shares.

Section 3. INVESTMENTS IN THE TRUST. The Trustees shall accept investments in any Series from such persons and on such terms as they may from time to time authorize. At the Trustees' sole discretion, such investments in a Series, subject to applicable law, may be in the form of cash or securities in which that Series is authorized to invest, valued as provided in Article V, Section 3. Investment in a Series shall be credited to the investing Shareholder's account in the form of full Shares at the Net Asset Value per Share next determined after the investment is received or accepted as may be determined by the Trustees; provided, however, that the Trustees may, in their sole discretion,
(a) impose a sales charge upon investments in any Series or Class, (b) issue fractional Shares or (c) determine the Net Asset Value per Share of the initial capital contribution for any Series. The Trustees shall have the right to refuse to accept investments in any Series at any time without any cause or reason therefor whatsoever.

Section 4. ASSETS AND LIABILITIES OF SERIES. All consideration received by the Trust for the issue or sale of Shares of a particular Series, together with all assets in which such consideration is invested or reinvested and all income, earnings, profits and proceeds thereof (including any proceeds derived from the sale, exchange or liquidation of such assets and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be) (collectively "Assets belonging to" that Series), shall be held and accounted for separately from the other assets of the Trust and Assets belonging to every other Series. The Assets belonging to a Series shall belong only to that Series for all purposes and to no other Series, subject only to the rights of creditors of that Series. Any assets, income, earnings, profits and proceeds thereof, funds and/or payments that are not readily identifiable as belonging to any particular Series shall be allocated by the Trustees between or among one or more Series as the Trustees deem fair and equitable. Each such allocation shall be conclusive and binding upon the Shareholders of all Series for all purposes, and the assets, income, earnings, profits, proceeds, funds and payments so allocated to a Series shall be treated for all purposes as Assets belonging to that Series. The Assets belonging to a Series shall be so recorded upon the books of the Trust and shall be held by the Trustees in trust for the benefit of the Shareholders of that Series. The Assets belonging to a Series shall be charged with all Liabilities of and/or attributable to that Series, except that Liabilities allocated solely to a particular Class shall be borne by that Class. Any Liabilities of the Trust that are not readily identifiable as chargeable to any particular Series or Class shall be allocated and charged by the Trustees between or among any one or more Series or Classes in such manner as the Trustees deem fair and equitable. Each such allocation shall be conclusive and binding upon the Shareholders of all Series and Classes for all purposes.

Without limiting the foregoing, but subject to the right of the Trustees to allocate Liabilities as herein provided, the Liabilities incurred, contracted for or otherwise existing with respect to a particular Series shall be enforceable only against the Assets belonging to that Series and not against the assets of the Trust generally or the Assets belonging to any other Series.

Notice of this contractual limitation on Liabilities among Series may, in the Trustees' sole discretion, be set forth in the Trust's certificate of trust (whether originally or by amendment) as filed or to be filed in the office of the Secretary of State of the State of Delaware pursuant to the Delaware Act, and upon the giving of such notice in the certificate of trust, the provisions of Section 3804(a) of the Delaware Act relating to limitations on Liabilities among Series (and the statutory effect under Section 3804 of setting forth such notice in the certificate of trust) shall become applicable to the Trust and each Series. Any person extending credit to, contracting with or having any claim against any Series may look only to the Assets belonging to that Series to satisfy or enforce any Liability with respect to that Series. No Shareholder or former Shareholder of any Series shall have a claim on or any right to any Assets belonging to any other Series.

Section 5. OWNERSHIP AND TRANSFER OF SHARES. The Trust shall maintain a register containing the names and addresses of the Shareholders of each Series and Class thereof, the number of Shares of each Series and Class held by such Shareholders and a record of all Share transfers. The register shall be conclusive as to the identity of Shareholders of record and the number of Shares held by them from time to time. The Trustees may authorize the issuance of certificates representing Shares and adopt rules governing their use. The Trustees may make rules governing the transfer of Shares, whether or not represented by certificates.

Section 6. STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY. Shares shall be deemed to be personal property giving Shareholders only the rights provided in this Trust Instrument. Every Shareholder, by virtue of having acquired a Share, shall be held expressly to have assented to and agreed to be bound by the terms of this Trust Instrument and to have become a party hereto. No Shareholder shall be personally liable for the Liabilities incurred by, contracted for or otherwise existing with respect to the Trust or any Series. Neither the Trust nor the Trustees shall have any power to bind any Shareholder personally or to demand payment from any Shareholder for anything, other than as agreed by the Shareholder. Shareholders shall have the same limitation of personal liability as is extended to shareholders of a private corporation for profit incorporated in the State of Delaware. Every written obligation of the Trust or any Series shall contain a statement to the effect that such obligation may be enforced only against the assets of the Trust or Assets belonging to such Series; however, the omission of such statement shall not operate to bind, or create personal liability for, any Shareholder or Trustee.

ARTICLE V

DISTRIBUTIONS AND REDEMPTIONS

Section 1. DISTRIBUTIONS. The Trustees may declare and pay dividends and other distributions, including dividends on Shares of a particular Series and other distributions from the Assets belonging to that Series. The amount and payment of dividends or distributions and their form, whether they are in cash, Shares or other Trust Property, shall be determined by the Trustees. Dividends and other distributions may be paid pursuant to a standing resolution adopted once or more often as the Trustees determine. All dividends and other distributions on Shares of a particular Series shall be distributed pro rata to the Shareholders of that Series in proportion to the number of Shares of that Series they held on the record date established for such payment, except that such dividends and distributions shall appropriately reflect expenses allocated

to a particular Class of such Series. The Trustees may adopt and offer to Shareholders such dividend reinvestment plans, cash dividend payout plans or similar plans as the Trustees deem appropriate.

Section 2. REDEMPTIONS. Each Shareholder of a Series shall have the right, at such times as may be permitted by the Trustees, subject to applicable law (including the 1940 Act), to require the Series to redeem all or any part of his Shares thereof at a redemption price per Share equal to the Net Asset Value per Share. In the absence of such resolution, the redemption price per Share of a Series shall be the Net Asset Value per Share next determined after receipt by the Series of a request for redemption in proper form less charges determined by the Trustees and described in the Trust's Registration Statement for that Series under the Securities Act of 1933, as amended. The Trustees may specify conditions, prices and places of redemption and may specify binding requirements for the proper form or forms of requests for redemption. Payment of the redemption price may be wholly or partly in securities or other assets at their value used in such determination of Net Asset Value per Share or may be in cash. After redemption, Shares may be reissued from time to time. The Trustees may require Shareholders to redeem Shares for any reason under terms set by the Trustees, including the failure of a Shareholder to supply a taxpayer identification number if required to do so, or to have the minimum investment required, or to pay when due for the purchase of Shares issued to him. To the extent permitted by law, the Trustees may retain the proceeds of any redemption of Shares required by them for payment of amounts due and owing by a Shareholder to the Trust or any Series. Notwithstanding the foregoing, the Trustees may postpone payment of the redemption price and may suspend the right of the Shareholders to require any Series to redeem Shares during any period of time when and to the extent permissible under the 1940 Act.

Section 3. DETERMINATION OF NET ASSET VALUE PER SHARE. The Trustees shall cause the Net Asset Value per Share of each Series and Class to be determined from time to time in a manner consistent with applicable laws and regulations. The Trustees may delegate the power and duty to determine the Net Asset Value per Share to one or more Trustees or officers of the Trust or to a custodian, depository or other agent appointed for such purpose. The Net Asset Value per Share shall be determined separately for each Series and Class at times prescribed by the Trustees or, in the absence of action by the Trustees, as of the close of regular trading on the New York Stock Exchange on each day for all or part of which such exchange is open for unrestricted trading.

Section 4. SUSPENSION OF RIGHT OF REDEMPTION. If, as referred to in
Section 2 of this Article, the Trustees suspend the right of Shareholders to redeem their Shares, such suspension shall take effect at the time the Trustees shall specify, but not later than the close of business on the business day next following the declaration of suspension. Thereafter Shareholders shall have no right of redemption or payment until the Trustees declare the end of the suspension. If the right of redemption is suspended, a Shareholder may either withdraw his request for redemption or receive payment based on the Net Asset Value per Share next determined after the suspension terminates.

ARTICLE VI

SHAREHOLDERS' VOTING POWERS AND MEETINGS

Section 1. VOTING POWERS. The Shareholders shall have power to vote only with respect to (a) the election of Trustees as provided in Section 2 of this Article, (b) the removal of Trustees as provided in Article II, Section 3(d),
(c) any investment advisory or management contract as provided in Article VII,
Section 1, (d) any termination of the Trust as provided in Article X, Section 4,
(e) the amendment of this Trust Instrument to the extent and as provided in Article X, Section 8, and (f) such additional matters relating to the Trust as may be required or authorized by law, this Trust Instrument or the By-laws or any registration of the Trust with the Commission or any State, or as the Trustees may consider desirable.

On any matter submitted to a vote of the Shareholders, all Shares shall be voted by individual Series or Class, except (a) when required by the 1940 Act, Shares shall be voted in the aggregate and not by individual Series or Class, and (b) when the Trustees have determined that the matter affects the interests of more than one Series or Class, then the Shareholders of all such Series or Classes shall be entitled to vote thereon. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote, and each fractional Share shall be entitled to a proportionate fractional vote. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy or in any manner provided for in the By-laws, which may provide that proxies may be given by any electronic or telecommunications device or in any other manner, either in all cases or in certain cases described in the Bylaws or in a resolution of the Trustees. Until Shares of a Series are issued, as to that Series the Trustees may exercise all rights of Shareholders and may take any action required or permitted to be taken by Shareholders by law, this Trust Instrument or the By-laws:

Section 2. MEETINGS OF SHAREHOLDERS. The first Shareholders' meeting shall be held to elect Trustees at such time and place as the Trustees designate. Special meetings of the Shareholders of any Series or Class may be called by the Trustees and shall be called by the Trustees upon the written request of Shareholders owning at least ten percent of the Outstanding Shares of such Series or Class entitled to vote. Shareholders shall be entitled to at least fifteen days' notice of any meeting, given as determined by the Trustees.

Section 3. QUORUM; REQUIRED VOTE. One-third of the Outstanding Shares of each Series or Class, or one-third of the Outstanding Shares of the Trust, entitled to vote in person or by proxy shall be a quorum for the transaction of business at a Shareholders' meeting with respect to such Series or Class, or with respect to the entire Trust, respectively. Any lesser number shall be sufficient for adjournments. Any adjourned session of a Shareholders' meeting may be held within a reasonable time without further notice. Except when a larger vote is required by law, this Trust Instrument or the By-laws, a majority of the Outstanding Shares voted in person or by proxy shall decide any matters to be voted upon with respect to the entire Trust and a plurality of such Outstanding Shares shall elect a Trustee; provided, that if this Trust Instrument or applicable law permits or requires that Shares be voted on any matter by individual Series or Classes, then a majority of the outstanding Shares of that Series or Class (or, if required by law, a Majority Shareholder Vote of that Series or Class) voted in person or by proxy voted on the matter shall decide that matter insofar as that Series or Class is concerned. Shareholders may act as to the Trust or any Series or Class by the written

consent of a majority (or such greater amount as may be required by applicable law) of the Outstanding Shares of the Trust or of such Series or Class, as the case may be.

ARTICLE VII

CONTRACTS WITH SERVICE PROVIDERS

Section 1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote when required by law, the Trustees may enter into one or more investment advisory contracts on behalf of the Trust or any Series, providing for investment advisory services, statistical and research facilities and services, and other facilities and services to be furnished to the Trust or Series on terms and conditions acceptable to the Trustees. Any such contract may provide for the investment adviser to effect purchases, sales or exchanges of portfolio securities or other Trust Property on behalf of the Trustees or may authorize any officer or agent of the Trust to effect such purchases, sales or exchanges pursuant to recommendations of the investment adviser. The Trustees may authorize the investment adviser to employ one or more sub-advisers.

Section 2. PRINCIPAL UNDERWRITER. The Trustees may enter into contracts on behalf of the Trust or any Series or Class, providing for the distribution and sale of Shares by the other party, either directly or as sales agent, on terms and conditions acceptable to the Trustees. The Trustees may adopt a plan or plans of distribution with respect to Shares of any Series or Class and enter into any related agreements, whereby the Series or Class finances directly or indirectly any activity that is primarily intended to result in sales of its Shares, subject to applicable rules and regulations.

Section 3. TRANSFER AGENCY, SHAREHOLDER SERVICES AND ADMINISTRATION AGREEMENTS. The Trustees, on behalf of the Trust or any Series or Class, may enter into transfer agency agreements, Shareholder service agreements and administration and management agreements with any party or parties on terms and conditions acceptable to the Trustees.

Section 4. CUSTODIAN. The Trustees shall at all times place and maintain the securities and similar investments of the Trust and of each Series in custody meeting the requirements of Section 17(f) of the 1940 Act and the rules thereunder. The Trustees, on behalf of the Trust or any Series, may enter into an agreement with a custodian on terms and conditions acceptable to the Trustees, providing for the custodian, among other things, to (a) hold the securities owned by the Trust or any Series and deliver the same upon written order or oral order confirmed in writing, (b) to receive and receipt for any moneys due to the Trust or any Series and deposit the same in its own banking department or elsewhere, (c) to disburse such funds upon orders or vouchers and
(d) to employ one or more sub-custodians.

Section 5. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS. The Trustees may enter into any contract referred to in this Article with any entity, although one or more of the Trustees or officers of the Trust may be an officer, director, trustee, partner, shareholder or member of such entity, and no such contract shall be invalidated or rendered void or voidable because of such

relationship. No person having such a relationship shall be disqualified from voting on or executing a contract in his capacity as Trustee and/or Shareholder, or be liable merely by reason of such relationship for any loss or expense to the Trust with respect to such a contract or accountable for any profit realized directly or indirectly therefrom; provided, that the contract was reasonable and fair and not inconsistent with this Trust Instrument or the By-laws. Any contract referred to in Sections 1 or 2 of this Article shall be consistent with and subject to the applicable requirements of Section 15 of the 1940 Act and the rules and orders thereunder with respect to its continuance in effect, its termination and the method of authorization and approval of such contract or its renewal. No amendment to a contract referred to in Section 1 of this Article shall be effective unless assented to in a manner consistent with the requirements of Section 15 of the 1940 Act and the rules and orders thereunder.

ARTICLE VIII

EXPENSES OF THE TRUST AND SERIES

Subject to Article IV, Section 4, the Trust or a particular Series shall pay, or shall reimburse the Trustees from the Trust estate or the Assets belonging to the particular Series, for their expenses and disbursements, including, but not limited to, the following: interest charges, taxes, brokerage fees and commissions; expenses of issuing, repurchasing and redeeming Shares; certain insurance premiums; applicable fees, interest charges and expenses of third parties, including the Trust's investment advisers, managers, administrators, distributors, custodians, transfer agents and fund accountants; fees of pricing, interest, dividend credit and other reporting services; costs of membership in trade associations; telecommunications expenses; funds transmission expenses; auditing, legal and compliance expenses; costs of forming the Trust and its Series and maintaining its existence; costs of preparing and printing the prospectuses of the Trust and each Series, statements of additional information and Shareholder reports and delivering them to Shareholders; expenses of meetings of Shareholders and proxy solicitations therefor; costs of maintaining books and accounts; costs of reproduction, stationery and supplies; fees and expenses of the Trustees; compensation of the Trust's officers and employees and costs of other personnel performing services for the Trust or any Series; costs of Trustee meetings; Commission registration fees and related expenses; state or foreign securities laws registration fees and related expenses; and for such non-recurring items as may arise, including litigation to which the Trust or a Series (or a Trustee or officer of the Trust acting as such) is a party, and for all losses and liabilities BY them incurred in administering the Trust. The Trustees shall have a lien on the Assets belonging to the appropriate Series, or in the case of an expense allocable to more than one Series, on the Assets belonging to each such Series, prior to any rights or interests of the Shareholders thereto, for the reimbursement to them of such expenses, disbursements, losses and liabilities.

ARTICLE IX

LIMITATION OF LIABILITY AND INDEMNIFICATION

Section 1. LIMITATION OF LIABILITY. All persons contracting with or having any claim against the Trust or a particular Series shall look only to the assets of the Trust or Assets belonging to such Series, respectively, for payment under

such contract or claim; and neither the Trustees nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Every written instrument or obligation on behalf of the Trust or any Series shall contain a statement to the foregoing effect, but the absence of such statement shall not operate to make any Trustee or officer of the Trust liable thereunder. Provided they have exercised reasonable care and have acted under the reasonable belief that their actions are in the best interest of the Trust, the Trustees and officers of the Trust shall not be responsible or liable for any act or omission or for neglect or wrongdoing of them or any officer, agent, employee, investment adviser or independent contractor of the Trust, but nothing contained in this Trust Instrument or in the Delaware Act shall protect any Trustee or officer of the Trust against liability to the Trust or to Shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

Section 2. INDEMNIFICATION.

(a) Subject to the exceptions and limitations contained in subsection
(b) below:

(i) every person who is, or has been, a Trustee or an officer, employee or agent of the Trust ("Covered Person") shall be indemnified by the Trust or the appropriate Series to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Covered Person and against amounts paid or incurred by him in the settlement thereof, provided, however, that the transfer agent of the Trust or any Series shall not be considered an agent for these purposes unless expressly deemed to be such by the Trust's Board of Trustees in a resolution referring to this Article.

(ii) as used herein, the words "claim," "action," "suit" or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened, and the words "liability" and "expenses" shall include, without limitation, attorneys fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Covered Person:

(i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or

(ii) in the event of a settlement, unless there has been a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office: (A) by the court or other body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (C) by written opinion of

independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry).

(c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled and shall inure to the benefit of the heirs, executors and administrators of a Covered Person.

(d) To the maximum extent permitted by applicable law, expenses in connection with the preparation and presentation of a defense to any claim, action, suit or proceeding of the character described in subsection (a) of this
Section shall be paid by the Trust or applicable Series from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust or applicable Series if it is ultimately determined that he is not entitled to indemnification under this Section; provided, however, that either (i) such Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance payments or (iii) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that there is reason to believe that such Covered Person will not be disqualified from indemnification under this Section.

(e) Any repeal or modification of this Article IX by the Shareholders, or adoption or modification of any other provision of this Trust Instrument or the By-laws inconsistent with this Article, shall be prospective only, to the extent that such, repeal or modification would, if applied retrospectively, adversely affect any limitation on the liability of any Covered Person or indemnification available to any Covered Person with respect to any act or omission which occurred prior to such repeal, modification or adoption.

Section 3. INDEMNIFICATION OF SHAREHOLDERS. If any Shareholder or former Shareholder of any Series is held personally liable solely by reason of his being or having been a Shareholder and not because of his acts or omissions or for some other reason, the Shareholder or former Shareholder (or his heirs, executors, administrators or other legal representatives or, in the case of any entity, its general successor) shall be entitled out of the Assets belonging to the applicable Series to be held harmless from and indemnified against all loss and expense arising from such liability. The Trust, on behalf of the affected Series, shall, upon request by such Shareholder or former Shareholder, assume the defense of any claim made against him for any act or obligation of the Series and satisfy any judgment thereon from the Assets belonging to the Series.

ARTICLE X

MISCELLANEOUS

Section 1. TRUST NOT A PARTNERSHIP. This Trust Instrument creates a trust and not a partnership, and no Trustee shall have any power to bind personally either the Trust's officers or any Shareholder. It is intended that the Trust

(or each Series if there is more than one Series) be classified as an association (and thus a corporation) for federal tax purposes, and the Trustees shall do all things they, in their sole discretion, determine are necessary to achieve that objective, including affirmatively electing such classification on Internal Revenue Form 8832. Each Trustee is hereby authorized to sign such form on behalf of the Trust or any Series, and the Trustee may delegate such authority to any executive officer(s) of the Trust's or any Series's investment manager. The Trustees, in their sole discretion and without the vote or consent of the Shareholders, may amend this Trust Instrument to ensure that this objective is achieved.

Section 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY. The exercise by the Trustees of their powers and discretion hereunder in good faith and with reasonable care under the circumstances then prevailing shall be binding upon everyone interested. Subject to the provisions of Article IX, the Trustees shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Trust Instrument, and subject to the provisions of Article IX, shall not be liable for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is obtained.

Section 3. RECORD DATES. The Trustees may fix in advance a date up to 90 days before the date of any Shareholders' meeting, or the date for the payment of any dividends or other distributions, or the date for the allotment of rights, or the date when any change or conversion or exchange of Shares shall go into effect as a record date for the determination of the Shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of such dividend or other distribution, or to receive any such allotment of rights, or to exercise such rights in respect of any such change, conversion or exchange of Shares.

Section 4. TERMINATION OF THE TRUST.

(a) This Trust shall have perpetual existence. Subject to a majority Shareholder Vote of the Trust or of each Series to be affected, the Trustees may

(i) sell and convey all or substantially all of the assets of the Trust or Assets belonging to any affected Series to another Series or to another entity that is an open-end investment company as defined in the 1940 Act, or is a series thereof, for adequate consideration, which may include the assumption of all outstanding taxes and other Liabilities, accrued or contingent, of the Trust or any affected Series, and which may include shares of or interests in such Series, entity or series thereof or

(ii) at any time sell and convert into money all or substantially all of the assets of the Trust or Assets belonging to any affected Series.

Upon making reasonable provision for the payment of all known Liabilities of the Trust or any affected Series in either (i) or (ii), by such assumption or otherwise, the Trustees shall distribute the remaining proceeds or assets (as the case may be) ratably among the Shareholders of the Trust or any affected Series; however, the payment to any particular Class of such Series may be reduced by any fees, expenses or charges allocated to that Class.

(b) The Trustees may take any of the actions specified in subsection (a)
(i) and (ii) above without obtaining a Majority Shareholder Vote of the Trust or any Series if a majority of the Trustees determines that the continuation of the Trust or Series is not in the best interests of the Trust, such Series, or their respective Shareholders as a result of factors or events adversely affecting the ability of the Trust or such Series to conduct its business and operations in an economically viable manner. Such factors and events may include the inability of the Trust or a Series to maintain its assets at an appropriate size, changes in laws or regulations governing the Trust or the Series or affecting assets of the type in which the Trust or Series invests, or economic developments or trends having a significant adverse impact on the business or operations of the Trust or such Series.

(c) Upon completion of the distribution of the remaining proceeds or assets pursuant to subsection (a), the Trust or affected Series shall terminate and the Trustees and the Trust shall be discharged of any and all further liabilities and duties hereunder with respect thereto and the right, title and interest of all parties therein shall be canceled and discharged. Upon termination of the Trust, following completion of winding up of its business, the Trustees shall cause a certificate of cancellation of the Trust's certificate of trust to be filed in accordance with the Delaware Act, which certificate of cancellation may be signed by any one Trustee.

Section 5. REORGANIZATION.

(a) Notwithstanding anything else herein but subject to applicable federal and state law, the Trustees may, without any Shareholder vote or approval, (a) cause the Trust to merge or consolidate with or into, or be reorganized as, another trust, or a corporation, partnership, limited liability company, association or other organization, organized under the laws of Delaware or any other jurisdiction or a segregated portfolio of assets ("series") of any of the foregoing (each, an "Entity"), if the surviving or resulting Entity is the Trust or another open-end management investment company, within the meaning of the 1940 Act, that will succeed to or assume the Trust's registration under the 1940 Act, (b) cause any Series to merge or consolidate with or into, or be reorganized as, a newly organized Entity in a transaction or series of transactions intended to qualify as a reorganization under section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended ("Tax Code"), or a successor provision, (c) cause the Trust to incorporate under the laws of Delaware or any other jurisdiction, and/or (d) cause to be organized, or assist in organizing, an Entity to acquire all or part of the Trust Property or of the Assets belonging to a Series or to carry on any business in which the Trust directly or indirectly has any interest and to sell, convey and transfer all or part of the Trust Property or of the Assets belonging to a Series to any such Entity in exchange for shares or other equity securities thereof or otherwise and to lend money to, subscribe for the shares or other equity securities of and enter into any contracts with any such Entity; provided that the Trustees shall provide written notice to affected Shareholders of any transaction whereby the Trust sells, conveys or transfers all or part of the Trust Property or of the Assets belonging to any Series to another Entity or the Trust or any Series merges or consolidates with or into, or is reorganized as, another Entity. The transactions described in this Section 5 may be effected through share-for-share exchanges, transfers or sale of assets, shareholder in-kind redemptions and purchases, exchange offers or any other method the Trustees approve.

(b) Any agreement of merger or consolidation or certificate of merger may be signed by a majority of Trustees, and facsimile signatures conveyed by electronic or telecommunication means shall be valid. Pursuant to and in accordance with the provisions of Section 3815(f) of the Delaware Act, an agreement of merger or consolidation approved by the Trustees in accordance with this Section 5 may effect any amendment to the Trust Instrument or effect the adoption of a new trust instrument of the Trust if it is the surviving or resulting trust in the merger or consolidation.

Section 6. TRUST INSTRUMENT. The original or a copy of this Trust Instrument and of each amendment hereto or Trust Instrument supplemental shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by a Trustee or an officer of the Trust as to the authenticity of the Trust Instrument or any such amendments or supplements and as to any matters in connection with the Trust. The masculine gender herein shall include the feminine and neuter genders. Headings herein are for convenience only and shall not affect the construction of this Trust Instrument. This Trust Instrument may be executed in any number of counterparts, each of which shall be deemed an original.

Section 7. APPLICABLE LAW. This Trust Instrument and the Trust created hereunder are governed by and construed and administered according to the Delaware Act and the applicable laws of the State of Delaware; provided, however, that there shall not be applicable to the Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or common) of the State of Delaware (other than the Delaware Act) pertaining to trusts that relate to or regulate (i) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (ii) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (iii) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (iv) fees or other sums payable to trustees, officers, agents or employees of a trust, (v) the allocation of receipts and expenditures to income or principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding of trust assets or (vii) the establishment of fiduciary or other standards of responsibilities or limitations on the acts or powers of trustees that are inconsistent with the limitations or liabilities or authorities and powers of the Trustees set forth or referenced in this Trust Instrument. The Trust shall be of the type commonly called a Delaware statutory trust, and, without limiting the provisions hereof, the Trust may exercise all powers that are ordinarily exercised by such a trust under Delaware law. The Trust specifically reserves the right to exercise any of the powers or privileges afforded to trusts or actions that may be engaged in by trusts under the Delaware Act, and the absence of a specific reference herein to any such power, privilege or action shall not imply that the Trust may not exercise such power or privilege or take such actions.

Section 8. AMENDMENTS. The Trustees may, without any Shareholder vote, amend or otherwise supplement this Trust Instrument by making an amendment, a Trust Instrument supplemental hereto or an amended and restated trust instrument; provided, that Shareholders shall have the right to vote on any amendment (a) that would affect the voting rights of Shareholders granted in

Article VI, Section 1, (b) to this Section 8, (c) required to be approved by Shareholders by law or by the Trust's registration statement(s) filed with the Commission and (d) submitted to them by the Trustees in their sole discretion. Any amendment submitted to Shareholders that the Trustees determine would affect the Shareholders of any Series shall be authorized by vote of the Shareholders of such Series, and no vote shall be required of Shareholders of Series not affected. Notwithstanding anything else herein, any amendment to Article IX that would have the effect of reducing the indemnification and other rights provided thereby to Trustees, officers, employees and agents of the Trust or to Shareholders or former Shareholders, and any repeal or amendment of` this sentence, shall each require the affirmative vote of the holders of two-thirds of the Outstanding Shares of the Trust entitled to vote thereon.

Section 9. FISCAL YEAR. The fiscal year of the Trust shall end on a specified date as set forth in the By-Laws. The Trustees may change the fiscal year of the Trust without Shareholder approval.

Section 10. SEVERABILITY. The provisions of this Trust Instrument are severable. If the Trustees determine, with the advice of counsel, that any provision hereof conflicts with the 1940 Act, the regulated investment company provisions of the Tax Code or other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of this Trust Instrument; provided, however, that such determination shall not affect any of the remaining provisions of this Trust Instrument or render invalid or improper any action taken or omitted prior to such determination. If any provision hereof is held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision only in such jurisdiction and shall not affect any other provision of this Trust Instrument.

Section 11. INTERPRETATION. As used herein, the masculine gender includes all genders, and the singular includes the plural and vice versa.

TRUST INSTRUMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

SCHEDULE A

SERIES OF THE TRUST

Government Portfolio
Government Reserves Portfolio
Money Market Portfolio
Municipal Portfolio
New York Municipal Portfolio
Prime Portfolio
Tax-Exempt Portfolio
Treasury Portfolio
Treasury Reserves Portfolio

Dated: December 15, 2006

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

BY-LAWS

February 15, 2005,
As Amended on October 23, 2006

                                     TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
ARTICLE I PRINCIPAL OFFICE AND SEAL..........................................1
  Section 1. Principal Office................................................1
  Section 2. Seal............................................................1
ARTICLE II MEETINGS OF TRUSTEES..............................................1
  Section 1. Action by Trustees..............................................1
  Section 2. Compensation of Trustees........................................1
ARTICLE III COMMITTEES.......................................................1
  Section 1. Establishment...................................................1
  Section 2. Proceedings; Quorum; Action.....................................2
  Section 3. Executive Committee.............................................2
  Section 4. Nominating Committee............................................2
  Section 5. Audit Committee.................................................2
  Section 6. Compensation of Committee Members...............................2
ARTICLE IV BOARD CHAIR AND TRUST OFFICERS....................................2
  Section 1. Chairperson of the Board........................................2
  Section 2. Trust Officers..................................................2
  Section 3. Election, Tenure and Qualifications of Officers.................2
  Section 4. Vacancies and Newly Created Offices.............................3
  Section 5. Removal and Resignation.........................................3
  Section 6. Chief Executive Officer.........................................3
  Section 7. President.......................................................3
  Section 8. Vice President(s)...............................................3
  Section 9. Treasurer and Assistant Treasurer(s)............................4
  Section 10. Secretary and Assistant Secretaries............................4
  Section 11. Compensation of Officers.......................................4
  Section 12. Surety Bond....................................................4
ARTICLE V MEETINGS OF SHAREHOLDERS...........................................4
  Section 1. No Annual Meetings..............................................4
  Section 2. Special Meetings................................................4
  Section 3. Notice of Meetings; Waiver......................................5
  Section 4. Adjourned Meetings..............................................5
  Section 5. Validity of Proxies.............................................5
  Section 6. Record Date.....................................................6
  Section 7. Action Without a Meeting........................................6
ARTICLE VI SHARES OF BENEFICIAL INTEREST.....................................6
  Section 1. No Share Certificates...........................................6
  Section 2. Transfer of Shares..............................................6
ARTICLE VII FISCAL YEAR AND ACCOUNTANT.......................................6
  Section 1. Fiscal Year.....................................................6
  Section 2. Accountant......................................................6
ARTICLE VIII AMENDMENTS......................................................7
  Section 1. General.........................................................7

                                       i

  Section 2. By Shareholders Only............................................7
ARTICLE IX NET ASSET VALUE...................................................7
ARTICLE X CONFLICT OF INTEREST PROCEDURES....................................7
  Section 1. Monitoring and Reporting Conflicts..............................7
  Section 2. Annual Report...................................................8
  Section 3. Resolution of Conflicts.........................................8
  Section 4. Annual Review...................................................8

BY-LAWS

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

These By-laws of Lehman Brothers Institutional Liquidity Funds (formerly, Lehman Brothers Investor Liquidity Series) (the "Trust"), a Delaware business trust, are subject to the Trust Instrument of the Trust dated February 15, 2005 and as restated on October 23, 2006, as from time to time amended, supplemented or restated (the "Trust Instrument"). Capitalized terms used herein have the same meanings as in the Trust Instrument.

ARTICLE I
PRINCIPAL OFFICE AND SEAL

SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located in New York, New York, or such other location as the Trustees determine. The Trust may establish and maintain other offices and places of business as the Trustees determine.

SECTION 2. SEAL. The Trustees may adopt a seal for the Trust in such form and with such inscription as the Trustees determine. Any Trustee or officer of the Trust shall have authority to affix the seal to any document.

ARTICLE II
MEETINGS OF TRUSTEES

SECTION 1. ACTION BY TRUSTEES. Trustees may take actions at meetings held at such places and times as the Trustees may determine, or without meetings, all as provided in Article II, Section 7, of the Trust Instrument.

SECTION 2. COMPENSATION OF TRUSTEES. Each Trustee who is neither an employee of an investment adviser of the Trust or any Series nor an employee of an entity affiliated with the investment adviser may receive such compensation from the Trust for services and reimbursement for expenses as the Trustees may determine.

ARTICLE III
COMMITTEES

SECTION 1. ESTABLISHMENT. The Trustees may designate one or more committees of the Trustees, which shall include an Executive Committee, a Nominating Committee, and an Audit Committee (collectively, the "Established Committees"). The Trustees shall determine the number of members of each committee and its powers and shall appoint its members and its chair. Each committee member shall serve at the pleasure of the Trustees. The Trustees may abolish any committee, other than the Established Committees, at any time. Each committee shall maintain records of its meetings and report its actions to the Trustees. The Trustees may rescind any action of any committee, but such rescission shall not have retroactive effect. The Trustees may delegate to any committee any of its powers, subject to the limitations of applicable law.

SECTION 2. PROCEEDINGS; QUORUM; ACTION. Each committee may adopt such rules governing its proceedings, quorum and manner of acting as it shall deem proper and desirable. In the absence of such rules, a majority of any committee shall constitute a quorum, and a committee shall act by the vote of a majority of a quorum.

SECTION 3. EXECUTIVE COMMITTEE. The Executive Committee shall have all the powers of the Trustees when the Trustees are not in session. The Chairperson shall be a member and the chair of the Executive Committee. The Chief Executive Officer, if a member of the Board of Trustees, shall also be a member of the Executive Committee. A majority of the members of the Executive Committee shall be trustees who are not "interested persons" of the Trust, as defined in the 1940 Act, ("Disinterested Trustees").

SECTION 4. NOMINATING COMMITTEE. The Nominating Committee shall nominate individuals to serve as Trustees (including Disinterested Trustees), as members of committees, and as officers of the Trust. The members of the Committee shall be Disinterested Trustees.

SECTION 5. AUDIT COMMITTEE. The Audit Committee shall review and evaluate the audit function, including recommending the selection of independent certified public accountants for each Series. The members of the Committee shall be Disinterested Trustees.

SECTION 6. COMPENSATION OF COMMITTEE MEMBERS. Each committee member who is a Disinterested Trustee may receive such compensation from the Trust for services and reimbursement for expenses as the Trustees may determine.

ARTICLE IV
BOARD CHAIR AND TRUST OFFICERS

SECTION 1. CHAIRPERSON OF THE BOARD. The Board of Trustees shall be required to elect a Chairperson of the Board. Any Chairperson of the Board shall be elected from among the Trustees of the Trust and may hold such office only so long as he or she continues to be a Trustee. The Chairperson shall normally preside at meetings of the Board of Trustees and may be EX OFFICIO a member of all committees of the Board of Trustees. The Chairperson shall have such additional powers and perform such additional duties as may be assigned from time to time by the Board of Directors. The Board may elect a Vice-chair, who shall exercise the powers of the Chairperson in his or her absence.

SECTION 2. TRUST OFFICERS. The officers of the Trust shall be a Chief Executive Officer, a President, one or more Vice Presidents, a Treasurer, and a Secretary, and may include one or more Assistant Treasurers or Assistant Secretaries and such other officers ("Other Officers") as the Trustees may determine.

SECTION 3. ELECTION, TENURE AND QUALIFICATIONS OF OFFICERS. The Trustees shall elect the officers of the Trust. Each officer elected by the Trustees shall hold office until his or her successor shall have been elected and qualified or until his or her earlier death, inability to serve, or resignation. Any person may hold one or more offices, except that the Chief Executive Officer and the Secretary may not be the same individual. A person who holds more than one office in the Trust may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed,

acknowledged, or verified by more than one officer. No officer need be a Shareholder.

SECTION 4. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy shall occur in any office or if any new office is created, the Trustees may fill such vacancy or new office.

SECTION 5. REMOVAL AND RESIGNATION. Officers serve at the pleasure of the Trustees and may be removed at any time with or without cause. The Trustees may delegate this power to the Chief Executive Officer or President with respect to any Other Officer. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer may resign from office at any time by delivering a written resignation to the Trustees, Chief Executive Officer, or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery.

SECTION 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the chief executive officer of the Trust. Subject to the direction of the Trustees, the Chief Executive Officer shall have general charge, supervision and control over the Trust's business affairs and shall be responsible for the management thereof and the execution of policies established by the Trustees. In the absence of the Chairperson, the Chief Executive Officer shall preside at any Shareholders' meetings. Except as the Trustees may otherwise order, the Chief Executive Officer shall have the power to grant, issue, execute or sign such powers of attorney, proxies, agreements or other documents on the Trust's behalf. The Chief Executive Officer also shall have the power to employ attorneys, accountants and other advisers and agents for the Trust, except as the Board of Trustees may otherwise direct. The Chairperson shall exercise such other powers and perform such other duties as the Trustees may assign to the Chief Executive Officer.

SECTION 7. PRESIDENT. The President shall have such powers and perform such duties as the Trustees or the Chief Executive Officer may determine. At the request or in the absence or disability of the Chief Executive Officer, the President may perform all the duties of the Chief Executive Officer and, when so acting, shall have all the powers of and shall be subject to all the restrictions upon the Chief Executive Officer. Except as the Board of Trustees may otherwise order, the President may sign in the name and on behalf of the Trust, all powers of attorney, proxies, agreements or other documents, whether or not the Chief Executive Officer is present and able to act.

SECTION 8. VICE PRESIDENT(S). The Vice President(s) shall have such powers and perform such duties as the Trustees or the Chief Executive Officer may determine. At the request or in the absence or disability of the President, the Vice President (or, if there are two or more Vice Presidents, then the senior of the Vice Presidents present and able to act) shall perform all the duties of the President and, when so acting, shall have all the powers of the President. The Trustees may designate a Vice President as the principal financial officer of the Trust or to serve one or more other functions. If a Vice President is designated as principal financial officer of the Trust, he or she shall have general charge of the finances and books of the Trust and shall report to the Trustees annually regarding the financial condition of each Series as soon as possible after the close of such Series's fiscal year. The Trustees also may designate one of the Vice Presidents as Executive Vice President.

SECTION 9. TREASURER AND ASSISTANT TREASURER(S). The Treasurer may be designated as the principal financial officer or as the principal accounting officer of the Trust. If designated as principal financial officer, the Treasurer shall have general charge of the finances and books of the Trust, and shall report to the Trustees annually regarding the financial condition of each Series as soon as possible after the close of such Series' fiscal year. The Treasurer shall be responsible for the delivery of all funds and securities of the Trust to such company as the Trustees shall retain as Custodian. The Treasurer shall furnish such reports concerning the financial condition of the Trust as the Trustees may request. The Treasurer shall perform all acts incidental to the office of Treasurer, subject to the Trustees' supervision, and shall perform such additional duties as the Trustees may designate.

Any Assistant Treasurer may perform such duties of the Treasurer as the Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may perform all the duties of the Treasurer.

SECTION 10. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record all votes and proceedings of the meetings of Trustees and Shareholders in books to be kept for that purpose. The Secretary shall be responsible for giving and serving notices of the Trust. The Secretary shall have custody of any seal of the Trust and shall be responsible for the records of the Trust, including the Share register and such other books and documents as may be required by the Trustees or by law. The Secretary shall perform all acts incidental to the office of Secretary, subject to the supervision of the Trustees, and shall perform such additional duties as the Trustees may designate.

Any Assistant Secretary may perform such duties of the Secretary as the Trustees or the Secretary may assign, and, in the absence of the Secretary, may perform all the duties of the Secretary.

SECTION 11. COMPENSATION OF OFFICERS. Each officer may receive such compensation from the Trust for services and reimbursement for expenses as the Trustees may determine.

SECTION 12. SURETY BOND. The Trustees may require any officer or agent of the Trust to execute a bond (including, without limitation, any bond required by the 1940 Act and the rules and regulations of the Securities and Exchange Commission ("Commission")) to the Trust in such sum and with such surety or sureties as the Trustees may determine, conditioned upon the faithful performance of his or her duties to the Trust, including responsibility for negligence and for the accounting of any of the Trust's property, funds or securities that may come into his or her hands.

ARTICLE V
MEETINGS OF SHAREHOLDERS

SECTION 1. NO ANNUAL MEETINGS. There shall be no annual Shareholders' meetings, unless required by law.

SECTION 2. SPECIAL MEETINGS. The Secretary shall call a special meeting of Shareholders of any Series or Class whenever ordered by the Trustees.

The Secretary also shall call a special meeting of Shareholders of any Series or Class upon the written request of Shareholders owning at least ten percent of the Outstanding Shares of such Series or Class entitled to vote at such meeting; provided, that (1) such request shall state the purposes of such meeting and the matters proposed to be acted on, and (2) the Shareholders requesting such meeting shall have paid to the Trust the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such Shareholders. If the Secretary fails for more than thirty days to call a special meeting when required to do so, the Trustees or the Shareholders requesting such a meeting may, in the name of the Secretary, call the meeting by giving the required notice. The Secretary shall not call a special meeting upon the request of Shareholders of any Series or Class to consider any matter that is substantially the same as a matter voted upon at any special meeting of Shareholders of such Series or Class held during the preceding twelve months, unless requested by the holders of a majority of the Outstanding Shares of such Series or Class entitled to be voted at such meeting.

A special meeting of Shareholders of any Series or Class shall be held at such time and place as is determined by the Trustees and stated in the notice of that meeting.

SECTION 3. NOTICE OF MEETINGS; WAIVER. The Secretary shall call a special meeting of Shareholders by giving written notice of the place, date, time, and purposes of that meeting at least fifteen days before the date of such meeting. The Secretary may deliver or mail, postage prepaid, the written notice of any meeting to each Shareholder entitled to vote at such meeting. If mailed, notice shall be deemed to be given when deposited in the United States mail directed to the Shareholder at his or her address as it appears on the records of the Trust.

SECTION 4. ADJOURNED MEETINGS. A Shareholders' meeting may be adjourned one or more times for any reason, including the failure of a quorum to attend the meeting. No notice of adjournment of a meeting to another time or place need be given to Shareholders if such time and place are announced at the meeting at which the adjournment is taken or reasonable notice is given to persons present at the meeting, and if the adjourned meeting is held within a reasonable time after the date set for the original meeting. Any business that might have been transacted at the original meeting may be transacted at any adjourned meeting. If after the adjournment a new record date is fixed for the adjourned meeting, the Secretary shall give notice of the adjourned meeting to Shareholders of record entitled to vote at such meeting. Any irregularities in the notice of any meeting or the nonreceipt of any such notice by any of the Shareholders shall not invalidate any action otherwise properly taken at any such meeting.

SECTION 5. VALIDITY OF PROXIES. Subject to the provisions of the Trust Instrument, Shareholders entitled to vote may vote either in person or by proxy; provided, that either (1) the Shareholder or his or her duly authorized attorney has signed and dated a written instrument authorizing such proxy to act, or (2) the Trustees adopt by resolution an electronic, telephonic, computerized or other alternative to execution of a written instrument authorizing the proxy to act, but if a proposal by anyone other than the officers or Trustees is submitted to a vote of the Shareholders of any Series or Class, or if there is a proxy contest or proxy solicitation or proposal in opposition to any proposal by the officers or Trustees, Shares may be voted only in person or by written proxy. Unless the proxy provides otherwise, it shall not be valid for more than

eleven months before the date of the meeting. All proxies shall be delivered to the Secretary or other person responsible for recording the proceedings before being voted. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of such proxy the Trust receives a specific written notice to the contrary from any one of them. Unless otherwise specifically limited by their terms, proxies shall entitle the Shareholder to vote at any adjournment of a Shareholders' meeting. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. At every meeting of Shareholders, unless the voting is conducted by inspectors, the chairperson of the meeting shall decide all questions concerning the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes. Subject to the provisions of the Delaware Business Trust Act, the Trust Instrument, or these By-laws, the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder shall govern all matters concerning the giving, voting or validity of proxies, as if the Trust were a Delaware corporation and the Shareholders were shareholders of a Delaware corporation.

SECTION 6. RECORD DATE. The Trustees may fix in advance a date up to ninety days before the date of any Shareholders' meeting as a record date for the determination of the Shareholders entitled to notice of, and to vote at, any such meeting. The Shareholders of record entitled to vote at a Shareholders' meeting shall be deemed the Shareholders of record at any meeting reconvened after one or more adjournments, unless the Trustees have fixed a new record date. If the Shareholders' meeting is adjourned for more than sixty days after the original date, the Trustees shall establish a new record date.

SECTION 7. ACTION WITHOUT A MEETING. Shareholders may take any action without a meeting if a majority (or such greater amount as may be required by law) of the Outstanding Shares entitled to vote on the matter consent to the action in writing and such written consents are filed with the records of Shareholders' meetings. Such written consent shall be treated for all purposes as a vote at a meeting of the Shareholders.

ARTICLE VI
SHARES OF BENEFICIAL INTEREST

SECTION 1. NO SHARE CERTIFICATES. Neither the Trust nor any Series or Class shall issue certificates certifying the ownership of Shares, unless the Trustees may otherwise specifically authorize such certificates.

SECTION 2. TRANSFER OF SHARES. Shares shall be transferable only by a transfer recorded on the books of the Trust by the Shareholder of record in person or by his or her duly authorized attorney or legal representative. Shares may be freely transferred and the Trustees may, from time to time, adopt rules and regulations regarding the method of transfer of such Shares.

ARTICLE VII
FISCAL YEAR AND ACCOUNTANT

SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall end on March 31.

SECTION 2. ACCOUNTANT. The Trust shall employ independent certified public accountants as its Accountant to examine the accounts of the Trust and to sign and certify financial statements filed by the Trust. The Accountant's certificates and reports shall be addressed both to the Trustees and to the

Shareholders. A majority of the Disinterested Trustees shall select the Accountant at any meeting held within ninety days before or after the beginning of the fiscal year of the Trust, acting upon the recommendation of the Audit Committee. The Trust shall submit the selection for ratification or rejection at the next succeeding Shareholders' meeting, if such a meeting is to be held within the Trust's fiscal year. If the selection is rejected at that meeting, the Accountant shall be selected by majority vote of the Trust's outstanding voting securities, either at the meeting at which the rejection occurred or at a subsequent meeting of Shareholders called for the purpose of selecting an Accountant. The employment of the Accountant shall be conditioned upon the right of the Trust to terminate such employment without any penalty by vote of a Majority Shareholder Vote at any Shareholders' meeting called for that purpose.

ARTICLE VIII
AMENDMENTS

SECTION 1. GENERAL. Except as provided in Section 2 of this Article, these By-laws may be amended by the Trustees, or by the affirmative vote of a majority of the Outstanding Shares entitled to vote at any meeting.

SECTION 2. BY SHAREHOLDERS ONLY. After the issue of any Shares, this Article may only be amended by the affirmative vote of the holders of the lesser of (a) at least two-thirds of the Outstanding Shares present and entitled to vote at any meeting, or (b) at least fifty percent of the Outstanding Shares.

ARTICLE IX
NET ASSET VALUE

The term "Net Asset Value" of any Series shall mean that amount by which the assets belonging to that Series exceed its liabilities, all as determined by or under the direction of the Trustees. Net Asset Value per Share shall be determined separately for each Series and shall be determined on such days and at such times as the Trustees may determine. The Trustees shall make such determination with respect to securities for which market quotations are readily available, at the market value of such securities, and with respect to other securities and assets, at the fair value as determined in good faith by or under the direction of the Trustees; provided, however, that the Trustees, without Shareholder approval, may alter the method of appraising portfolio securities insofar as permitted under the 1940 Act and the rules, regulations and interpretations thereof promulgated or issued by the SEC or insofar as permitted by any order of the SEC applicable to the Series. The Trustees may delegate any of their powers and duties under this Article X with respect to appraisal of assets and liabilities. At any time the Trustees may cause the Net Asset Value per Share last determined to be determined again in a similar manner and may fix the time when such redetermined values shall become effective.

ARTICLE X
CONFLICT OF INTEREST PROCEDURES

SECTION 1. MONITORING AND REPORTING CONFLICTS. The trustees of Neuberger Berman Institutional Liquidity Series, Institutional Liquidity Trust and the Trust (collectively, the "Trusts") are the same individuals. Set forth in this Article

are procedures established to address potential conflicts of interest that may arise between the Trusts. On an ongoing basis, the investment adviser(s) ("Manager") of Institutional Liquidity Trust shall be responsible for monitoring the Trusts for the existence of any material conflicts of interest between the Trusts. The Manager shall be responsible for reporting any potential or existing conflicts to trustees of the Trusts as they may develop.

SECTION 2. ANNUAL REPORT. The Manager shall report to the trustees of the Trusts annually regarding its monitoring of the Trusts for conflicts of interest.

SECTION 3. RESOLUTION OF CONFLICTS. If a potential conflict of interest arises, the Trustees shall take such action as is reasonably appropriate to deal with the conflict, up to and including recommending a change in the trustees and implementing such recommendation, consistent with applicable law.

SECTION 4. ANNUAL REVIEW. The Trustees, including a majority of the Disinterested Trustees, shall determine no less frequently than annually that the operating structure is in the best interest of Shareholders. The Trustees shall consider, among other things, whether the expenses incurred by the Trust are approximately the same or less than the expenses that the Trust would incur if it invested directly in the type of securities being held by Institutional Liquidity Trust. The Trustees, including a majority of the Disinterested Trustees, shall review no less frequently than annually these procedures for their continuing appropriateness.

MANAGEMENT AGREEMENT

SCHEDULE A

SERIES OF INSTITUTIONAL LIQUIDITY TRUST

GOVERNMENT MASTER SERIES
GOVERNMENT RESERVES MASTER SERIES
MONEY MARKET MASTER SERIES
MUNICIPAL MASTER SERIES
NEW YORK MUNICIPAL MASTER SERIES.
PRIME MASTER SERIES
TAX-EXEMPT MASTER SERIES
TREASURY MASTER SERIES
TREASURY RESERVES MASTER SERIES

Date: December 15, 2006

MANAGEMENT AGREEMENT

SCHEDULE B

SERIES OF INSTITUTIONAL LIQUIDITY TRUST

RATE OF COMPENSATION BASED ON EACH SERIES'
AVERAGE DAILY NET ASSETS

GOVERNMENT MASTER SERIES                             0.08%
GOVERNMENT RESERVES MASTER SERIES                    0.08%
MONEY MARKET MASTER SERIES                           0.08%
MUNICIPAL MASTER SERIES                              0.25%
NEW YORK MUNICIPAL MASTER SERIES.                    0.25%
PRIME MASTER SERIES                                  0.08%
TAX-EXEMPT MASTER SERIES                             0.25%
TREASURY MASTER SERIES                               0.08%
TREASURY RESERVES MASTER SERIES                      0.08%

Date: December 15, 2006

ASSIGNMENT AND ASSUMPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment and Assumption Agreement") dated as of December 15, 2006 among Lehman Brothers Asset Management Inc. ("Assignor"), a Delaware corporation and a wholly owned subsidiary of Lehman Brothers Holdings Inc. ("Lehman Brothers"), and Lehman Brothers Asset Management LLC ("Assignee"), a Delaware limited liability company and a wholly owned subsidiary of Lehman Brothers.

W I T N E S S E T H:

WHEREAS, Assignor and Neuberger Berman Management Inc. ("Investment Adviser") are parties to that certain Investment Advisory Agreement dated as of December 23, 2004 (the "Investment Advisory Agreement"), whereby Assignor serves as the subadviser to certain series of Institutional Liquidity Trust (the "Trust"), as listed on Schedule A and any supplements thereto of the Investment Advisory Agreement;

WHEREAS, Assignor desires to assign to Assignee, and Assignee desires to accept all of Assignor's right, title and interest in the Investment Advisory Agreement, and (ii) Assignee desires to acquire and to assume all of the duties and obligations of Assignor under the Investment Advisory Agreement;

WHEREAS, this Assignment and Assumption Agreement does not result in a change of actual control or management of the subadviser to the Trust and, therefore, is not an "assignment" as defined in Section 2(a)(4) of the Investment Company Act of 1940 (the "Act") nor an "assignment" for purposes of
Section 15(a)(4) of the Act.

NOW, THEREFORE, in consideration of the mutual premises herein contained, and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Effective as of December __, 2006, Assignor hereby designates Assignee as its successor under the Investment Advisory Agreement and hereby assigns, conveys, transfers and sets over absolutely to Assignee, and Assignee hereby accepts, all of Assignor's right, title and interest in and to the Investment Advisory Agreement and Assignee hereby assumes and agrees to perform and discharge all of Assignor's duties and obligations under the Investment Advisory Agreement.

2. The Trust and the Investment Adviser hereby agree and consent to the assignment to and assumption by Assignee of the Investment Advisory Agreement, and as of the date of this Assignment and Assumption Agreement agree that all of the representations, covenants, and agreements in the Investment Advisory Agreement of the Assignor shall now apply to the Assignee as though Assignee were a named party to the Investment Advisory Agreement, except that any claim by the Trust and the Investment Advisor under the Investment Advisory Agreement,

or liability with respect to services performed prior to the date of this Assignment and Assumption Agreement by the Assignor, shall not be made against the Assignee.

3. Assignor, Assignee and Investment Adviser hereto further agree that by signing this Assignment and Assumption Agreement, Assignee shall become a party to the Investment Advisory Agreement with the same effect as if Assignee had executed the Investment Advisory Agreement as a party thereto as of the date of this Assignment and Assumption Agreement, and Assignee shall have all of the rights and obligations of Assignor under the Investment Advisory Agreement and as of the date of this Assignment and Assumption Agreement shall be deemed to have made all of the representations, covenants and agreements of Assignor contained in the Investment Advisory Agreement.

4. Neither this Assignment and Assumption Agreement nor any term hereof may be changed, waived, discharged or terminated, except by an instrument in writing signed by the parties hereto.

5. In case any provision in or obligation under this Assignment and Assumption Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

6. This Assignment and Assumption Agreement shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of New York, without regard to conflicts of law principles.

7. This Assignment and Assumption Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

8. This Assignment and Assumption Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns.

9. This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof and may not be altered, amended, changed, waived, terminated or modified in any respect or particular unless the same shall be in writing and signed by each of the parties hereto.

[signatures on following page]

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be duly executed and delivered by their respective officers thereunto duly authorized, as of the date first above written.

TRUST:

INSTITUTIONAL LIQUIDITY TRUST

By: ______________________________
Name:
Title:

INVESTMENT ADVISER:

NEUBERGER BERMAN MANAGEMENT INC.

By: ______________________________
Name:
Title:

ASSIGNEE:

LEHMAN BROTHERS ASSET MANAGEMENT LLC

By: ______________________________
Name:
Title:

ASSIGNOR:

LEHMAN BROTHERS ASSET MANAGEMENT INC.

By: ______________________________
Name:
Title:

INVESTMENT ADVISORY AGREEMENT
INSTITUTIONAL LIQUIDITY TRUST

This Agreement is made as of December 15, 2006, between Neuberger Berman Management Inc., a New York corporation ("Manager") and Lehman Brothers Asset Management LLC, a Delaware corporation ("Adviser").

WITNESSETH:

WHEREAS, Institutional Liquidity Trust, a Delaware statutory trust ("Trust") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end, diversified management investment company and has established several separate series of shares "Series") with each Series having its own assets and investment policies; and

WHEREAS, Trust has retained Manager to provide investment advisory and administrative services to several Series of the Trust pursuant to a Management Agreement dated December 23, 2004, which agreement specifically provides for the retention of a sub-adviser to provide the investment advisory services described therein; and

WHEREAS, Manager desires to retain Adviser as investment adviser to furnish investment advisory and portfolio management services to each Series listed in Schedule A attached hereto, to such other Series of Trust hereinafter established as agreed to from time to time by the parties, evidenced by an addendum to Schedule A (hereinafter "Series" shall refer to each Series which is subject to this Agreement and all agreements and actions described herein to be made or taken by Trust on behalf of the Series), and the Adviser is willing to furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows:

1. SERVICES OF THE ADVISER

1.1 INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as the investment adviser to the Series and, as such, shall (i) obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in discharging its responsibilities hereunder, (ii) formulate a continuing program for the investment of the assets of the Series in a manner consistent with its investment objectives, policies and restrictions, and (iii) determine from time to time securities to be purchased, sold, retained or lent by the Series, and implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected; provided, that the Adviser will place orders pursuant to its investment determinations either directly with the issuer or with a broker or dealer, and if with a broker or dealer, (a) will attempt to obtain the best net price and most favorable execution of its orders, and (b) may nevertheless in its discretion purchase and sell portfolio securities from and to brokers and dealers who provide the

Adviser with research, analysis, advice and similar services and pay such brokers and dealers in return a higher commission or spread than may be charged by other brokers or dealers.

The Series hereby authorizes any entity or person associated with the Adviser which is a member of a national securities exchange to effect or execute any transaction on the exchange for the account of the Series which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Series hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv).

The Adviser shall carry out its duties with respect to the Series' investments in accordance with applicable law and the investment objectives, policies and restrictions of the Series adopted by the trustees of Trust ("Trustees"), and subject to such further limitations as the Series may from time to time impose by written notice to the Adviser.

1.2 ADMINISTRATIVE SERVICES. The Adviser shall:

1.2.1 BOOKS AND RECORDS. Assure that all records required to be maintained and preserved by Trust and/or the Series with respect to securities transactions are maintained and preserved by it or on its behalf in accordance with applicable laws and regulations.

1.2.2 REPORTS AND FILINGS. Assist in the preparation of (but not pay for) all periodic reports by Trust or the Series to Interestholders of the Series and all reports and filings required to maintain the registration and qualification of the Series, or to meet other regulatory or tax requirements applicable to the Series, under federal and state securities and tax laws.

1.2.3 REPORTS TO THE MANAGER. Prepare and furnish to Manager such reports, statistical data and other information in such form and at such intervals as Manager may reasonably request.

1.2.4 OTHER SERVICES. The Adviser shall perform such other functions of management and supervision as may be requested by the Manager and agreed to by the Adviser.

2. ADVISORY FEE

2.1 FEE. As compensation for all services rendered, facilities provided and expenses paid or assumed by the Adviser under this Agreement, Manager shall pay the Adviser an annual fee as set out in Schedule B to this Agreement.

2.2 COMPUTATION AND PAYMENT OF FEE. The advisory fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accruals shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual advisory fee rate (as set forth in Schedule B hereto), and multiplying this product by the net assets of the Series,

determined in the manner established by the Trustees, as of the close of business on the last preceding business day on which the Series' net asset value was determined. The fee provided in this Agreement for any Series shall be adjusted proportionately with any waiver or rebate of the fee due to the Manager from that Series, whether voluntary, contractual, or compelled by law.

2.3 EXPENSES. During the term of this Agreement, Adviser will pay all expenses incurred by it in connection with its activities under this Agreement other than the cost of securities (including brokerage commissions, if any) purchased for any Series.

3. OWNERSHIP AND HOLDING PERIOD OF RECORDS

All records required to be maintained and preserved by the Series pursuant to the rules or regulations under Section 31(a) of the 1940 Act and maintained and preserved by the Adviser on behalf of the Series are the property of the Series and shall be surrendered by the Adviser promptly on request by the Series; provided, that the Adviser may at its own expense make and retain copies of any such records. The Adviser agrees to preserve for the period prescribed by Rule 31a-2 under the 1940 Act any such records required to be maintained by Rule 31a-1 under the 1940 Act.

4. REPORTS TO ADVISER

Manager shall furnish or otherwise make available to the Adviser such copies of each Series' registration statements, financial statements, proxy statements, reports, and other information relating to the Series' business and affairs as the Adviser may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.

5. SERVICES TO OTHER CLIENTS

Nothing herein contained shall limit the freedom of the Adviser or any affiliated person of the Adviser to render investment management to other investment companies, to act as investment adviser or investment counselor to other persons, firms or corporations, or to engage in other business activities.

6. LIMITATION OF LIABILITY OF ADVISER AND ITS PERSONNEL

Neither the Adviser nor any director, officer or employee of the Adviser performing services for the Series at the direction or request of the Adviser in connection with the Adviser's discharge of its obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss suffered by the Manager or a Series in connection with any matter to which this Agreement relates; provided, that nothing herein contained shall be construed (i) to protect the Adviser against any liability to Trust or a Series or its Interestholders to which the Adviser would otherwise be subject by reason of the Adviser's willful misfeasance, bad faith, or gross negligence in the performance of the Adviser's duties, or by reason of the Adviser's reckless disregard of its obligations and duties under this Agreement, or (ii) to protect any director, officer or employee of the Adviser who is or was a Trustee or officer of Trust

against any liability to Trust or a Series or its Interestholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with Trust.

7. TERM OF AGREEMENT

The term of this Agreement shall begin on the date first above written with respect to each Series listed in Schedule A on the date hereof and, unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through October 31, 2008. With respect to each Series added by execution of an Addendum to Schedule A, the term of this Agreement shall begin on the date of such execution and, unless sooner terminated as hereinafter provided, this Agreement shall remain in effect to October 31 of the year following the year of execution. Thereafter, in each case, this Agreement shall continue in effect with respect to each Series from year to year, subject to the termination provisions and all other terms and conditions hereof, provided, such continuance with respect to a Series is approved at least annually by vote of the holders of a majority of the outstanding voting securities of the Series or by the Trustees, provided, that in either event such continuance is also approved annually by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees who are not parties to this Agreement or interested persons of either party hereto; and provided further that neither party hereto shall have notified the other party in writing at least sixty (60) days prior to the first expiration date hereof or at least sixty (60) days prior to any expiration date hereof of any year thereafter that it does not desire such continuation. The Adviser shall furnish to the Manager, promptly upon its request, such information as the Trustees of the Trust deem reasonably necessary to evaluate the terms of this Agreement or any extension, renewal or amendment thereof.

8. AMENDMENT OR ASSIGNMENT OF AGREEMENT

Any amendment to this Agreement shall be in writing signed by the parties hereto; provided, that no such amendment shall be effective unless authorized on behalf of any Series (i) by resolution of the Trustees, including the vote or written consent of a majority of the Trustees who are not parties to this Agreement or interested persons of either party hereto, and (ii) by vote of a majority of the outstanding voting securities of the Series. This Agreement shall terminate automatically and immediately in the event of its assignment.

9. TERMINATION OF AGREEMENT

This Agreement may be terminated at any time with respect to any Series by either party hereto, without the payment of any penalty, upon sixty (60) days' prior written notice to the other party. This Agreement shall terminate automatically and immediately with respect to a Series if the Management Agreement between the Trust and Manager terminates with respect to that Series. This Agreement may also be terminated with respect to any Series on sixty (60) days notice to the Adviser, without the payment of any penalty, by a vote of the Board of Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the Series.

10. INTERPRETATION AND DEFINITION OF TERMS

Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretation thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment" and "affiliated person," as used in this Agreement shall have the meanings assigned to them by Section 2(a) of the 1940 Act. In addition, when the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.

11. CHOICE OF LAW

This Agreement is made and to be principally performed in the State of New York and except insofar as the 1940 Act or other federal laws and regulations may be controlling, this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York.

12. CAPTIONS

The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.

13. EXECUTION IN COUNTERPARTS

This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written.

NEUBERGER BERMAN MANAGEMENT INC.

/s/ Peter E. Sundman
________________________________
Name:  Peter E. Sundman
Title: President

LEHMAN BROTHERS ASSET MANAGEMENT LLC

Name:
Title:

Date: December 15, 2006

INVESTMENT ADVISORY AGREEMENT

SCHEDULE A

SERIES OF INSTITUTIONAL LIQUIDITY TRUST

GOVERNMENT MASTER SERIES
GOVERNMENT RESERVES MASTER SERIES
MUNICIPAL MASTER SERIES
NEW YORK MUNICIPAL MASTER SERIES
TAX-EXEMPT MASTER SERIES
TREASURY RESERVES MASTER SERIES

Date: December 15, 2006

INVESTMENT ADVISORY AGREEMENT

SCHEDULE B

SERIES OF INSTITUTIONAL LIQUIDITY TRUST

                   RATE OF COMPENSATION BASED ON EACH SERIES'
                   ------------------------------------------
                            AVERAGE DAILY NET ASSETS
                            ------------------------

--------------------------------------------------------------------------------
GOVERNMENT MASTER SERIES                                        .05%
--------------------------------------------------------------------------------
GOVERNMENT RESERVES MASTER SERIES                               .05%
--------------------------------------------------------------------------------
MUNICIPAL MASTER SERIES                                         .05%
--------------------------------------------------------------------------------
NEW YORK MUNICIPAL MASTER SERIES.                               .05%
--------------------------------------------------------------------------------
TAX-EXEMPT MASTER SERIES                                        .05%
--------------------------------------------------------------------------------
TREASURY RESERVES MASTER SERIES                                 .05%
--------------------------------------------------------------------------------

Date: December 15, 2006

DISTRIBUTION AND SERVICES AGREEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

This Agreement is made as of December 15, 2006, between Lehman Brothers Institutional Liquidity Funds, a Delaware statutory trust ("Trust"), and Neuberger Berman Management Inc., a New York corporation ("Distributor"), on behalf of each class of each series listed on Schedule A attached hereto (each, a "Class") of the Trust.

WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end, diversified management investment company and has the power to establish one or more separate series of shares ("Series"), with each Series having one or more classes and with each Series having its own assets and investment policies;

WHEREAS, the Trust desires to retain the Distributor to furnish certain distribution, shareholder, and administrative services to each Class of each Series listed in Schedule A attached hereto, and to the classes of such other Series of the Trust hereinafter established as agreed to from time to time by the parties, evidenced by an addendum to Schedule A (hereinafter "Series" shall refer to each Series which is subject to this Agreement, and all agreements and actions described herein to be made or taken by a Series shall be made or taken by the Trust on behalf of the Series), and the Distributor is willing to furnish such services; and

WHEREAS, the Trust has approved a Distribution and Shareholder Services Plan pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to each Class of each Series;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows:

1. The Trust hereby appoints the Distributor as agent to sell the shares of beneficial interest of each Class of each Series ("Shares") and the Distributor hereby accepts such appointment. All sales by the Distributor shall be expressly subject to acceptance by the Trust, acting on behalf of the Series. The Trust may suspend sales of the Shares of any one or more Series at any time, and may resume sales at any later time.

2. (a) The Distributor agrees that (i) all Shares sold by the Distributor shall be sold at the net asset value ("NAV") thereof as described in
Section 3 hereof, and (ii) the Series shall receive 100% of such NAV.

(b) The Distributor may enter into agreements, in form and substance satisfactory to the Trust, with dealers selected by the Distributor, providing for the sale to such dealers and resale by such dealers of Shares at their NAV. The Distributor may compensate dealers for services they provide under such agreements.

(c) The Distributor can use any of the officers and employees of Neuberger Berman, LLC to provide any of the services or reports required under this Agreement.

Trustees of the Trust ("Trustees") may from time to time determine (each such day being hereinafter called a "business day"), a statement of the NAV of each Series, determined in the manner set forth in the then-current Prospectus and Statement of Additional Information ("SAI") of each Class of each Series. Each determination of NAV shall take effect as of such time or times on each business day as set forth in the then-current Prospectus of each Class of each Series.

4. Upon receipt by the Trust at its principal place of business of a written order from the Distributor, together with delivery instructions, the Trust shall, if it elects to accept such order, as promptly as practicable, cause the Shares purchased by such order to be delivered in such amounts and in such names as the Distributor shall specify, against payment therefor in such manner as may be acceptable to the Trust. The Trust may, in its discretion, refuse to accept any order for the purchase of Shares that the Distributor may tender to it.

5. (a) All sales literature and advertisements used by the Distributor in connection with sales of Shares shall be subject to approval by the Trust. The Trust authorizes the Distributor, in connection with the sale or arranging for the sale of Shares of any Series, to provide only such information and to make only such statements or representations as are contained in the Series's then-current Prospectus and SAI of each Class or in such financial and other statements furnished to the Distributor pursuant to the next paragraph or as may properly be included in sales literature or advertisements in accordance with the provisions of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act and applicable rules of self-regulatory organizations. Neither the Trust nor any Series shall be responsible in any way for any information provided or statements or representations made by the Distributor or its representatives or agents other than the information, statements and representations described in the preceding sentence.

(b) Each Series shall keep the Distributor fully informed with regard to its affairs, shall furnish the Distributor with a certified copy of all of its financial statements and a signed copy of each report prepared for it by its independent auditors, and shall cooperate fully in the efforts of the Distributor to negotiate and sell Shares of such Series and in the Distributor's performance of all its duties under this Agreement.

6. The Distributor, as agent of each Series and for the account and risk of each Series, is authorized, subject to the direction of the Trust, to redeem outstanding Shares of such Series when properly tendered by shareholders pursuant to the redemption right granted to such Series' shareholders by the Trust Instrument of the Trust, as from time to time in effect, at a redemption price equal to the NAV per Share of such Series next determined after proper tender and acceptance. The Trust has delivered to the Distributor a copy of the Trust's Trust Instrument as currently in effect and agrees to deliver to the Distributor any amendments thereto promptly.

7. The Distributor shall assume and pay or reimburse each Series for the following expenses of such Series: (i) costs of printing and distributing reports, prospectuses and SAIs for other than existing shareholders used in connection with the sale or offering of the Series' Shares; (ii) costs of preparing, printing and distributing all advertising and sales literature relating to such Series printed at the instruction of the Distributor; and (iii) counsel fees and expenses in connection with the foregoing. The Distributor shall pay all its own costs and expenses connected with the sale of Shares and may pay the compensation and expenses, including overhead and telephone and

other communication expenses, of organizations and employees that engage in or support the distribution of Shares.

8. Each Series shall maintain a currently effective Registration Statement on Form N-1A with respect to the Shares of such Series and shall file with the Securities and Exchange Commission ("SEC") such reports and other documents as may be required under the 1933 Act and the 1940 Act or by the rules and regulations of the SEC thereunder.

Each Series represents and warrants that the Registration Statement, post-effective amendments, Prospectus and SAI (excluding statements relating to the Distributor and the services it provides that are based upon written information furnished by the Distributor expressly for inclusion therein) of such Series shall not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that all statements or information furnished to the Distributor, pursuant to Section 5(b) hereof, shall be true and correct in all material respects.

9. In addition to the foregoing, the Distributor agrees to provide or obtain certain administrative and shareholder services for each Class of each Series to the extent such services are not already provided under a separate agreement with the Distributor or an affiliate of the Distributor. Such services shall include as required, but are not limited to, administering periodic investment and periodic withdrawal programs; researching and providing historical account activity information for shareholders requesting it; preparing and mailing account and confirmation statements to account holders; preparing and mailing tax forms to account holders; serving as custodian for retirement plans investing in Shares; dealing appropriately with abandoned accounts; collating and reporting the number of Shares attributable to each state for blue sky registration and reporting purposes; identifying and reporting transactions exempt from blue sky registration requirements; and providing and maintaining ongoing shareholder services for the duration of the shareholders' investment in each Class of each Series, which may include updates on performance, total return, other related statistical information, and a continual analysis of the suitability of the investment in each Class of each Series. The Distributor may subcontract to third parties some or all of its responsibilities to the Series under this paragraph. The Distributor may pay compensation and expenses, including overhead and telephone and other communication expenses, to organizations and employees who provide such services.

10. As compensation for the distribution, shareholder and administrative services provided under this Agreement, the Distributor shall receive from each Class of each Series a fee at the rate and under the terms and conditions set forth in the Plan adopted by each Class of the Series, as such Plan may be amended from time to time. In addition to the expenditures specifically authorized herein, the Distributor may spend with respect to each Class such amounts as it deems appropriate for any purpose consistent with the Plan, as amended from time to time.

11. The Distributor shall prepare, at least quarterly, reports for the Trustees showing expenditures under this Agreement and the purposes for which such expenditures were made. Such reports shall be in a format suitable to ensure compliance with the applicable requirements of the SEC and the National Association of Securities Dealers.

12. (a) This Agreement, as amended, shall become effective on the date first written above and shall remain in full force and effect until October 31, 2008 and may be continued from year to year thereafter; PROVIDED, that such continuance shall be specifically approved each year by the Trustees or by a majority of the outstanding voting securities of the respective Class of a Series, and in either case, also by a majority of the Trustees who are not interested persons of the Trust or the Distributor ("Disinterested Trustees") and by a majority of those Disinterested Trustees who have no direct or indirect financial interest in the Plan or this Agreement ("Rule 12b-1 Trustees"). This Agreement may be amended as to any Series with the approval of the Trustees or of a majority of the outstanding voting securities of the respective Class of such Series; PROVIDED, that in either case, such amendment also shall be approved by a majority of the Disinterested Trustees and the Rule 12b-1 Trustees.

(b) Either party may terminate this Agreement without the payment of any penalty, upon not more than sixty days' nor less than thirty days' written notice delivered personally or mailed by registered mail, postage prepaid, to the other party; PROVIDED, that in the case of termination by any Series, such action shall have been authorized (i) by resolution of the Trustees, (ii) by vote of a majority of the outstanding voting securities of the respective Class of such Series or (iii) by written consent of a majority of the Disinterested Trustees or the Rule 12b-1 Trustees.

(d) Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretation thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC validly issued pursuant to the 1940 Act. Specifically, the terms "interested persons," "assignment" and "vote of a majority of the outstanding voting securities," as used in this Agreement, shall have the meanings assigned to them by Section 2(a) of the 1940 Act. In addition, when the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the SEC, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. The Trust and the Distributor may from time to time agree on such provisions interpreting or clarifying the provisions of this Agreement as, in their joint opinion, are consistent with the general tenor of this Agreement and with the specific provisions of this Section 12(d). Any such interpretations or clarifications shall be in writing signed by the parties and annexed hereto, but no such interpretation or clarification shall be effective if in contravention of any applicable federal or state law or regulations, and no such interpretation or clarification shall be deemed to be an amendment of this Agreement.

No term or provision of this Agreement shall be construed to require the Distributor to provide distribution, shareholder, or administrative services to any series of the Trust other than the Series, or to require any Class of any Series to pay any compensation or expenses that are properly allocable, in a manner approved by the Trustees, to a class or series of the Trust other than such Class of such Series.

(e) This Agreement is made and to be principally performed in the State of New York, and except insofar as the 1940 Act or other federal laws and regulations may be controlling, this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York.

(f) This Agreement is made by the Trust solely with respect to the Series, and the obligations created hereby with respect to a Class of one Series bind only assets belonging to that Class of that Series and are not binding on any other series of the Trust.

13. The Distributor or one of its affiliates may from time to time deem it desirable to offer to the list of shareholders of each Class of each Series the shares of other mutual funds for which it acts as Distributor, including other series of the Trust or other products or services; however, any such use of the list of shareholders of any Series shall be made subject to such terms and conditions, if any, as shall be approved by a majority of the Disinterested Trustees.

14. The Distributor shall look only to the assets of a Class of a Series for the performance of this Agreement by the Trust on behalf of such Class of such Series, and neither the shareholders, the Trustees nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed by their duly authorized officers and under their respective seals.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

         /s/ Robert Conti
        -----------------
By:     Robert Conti
Title:  Vice President

NEUBERGER BERMAN MANAGEMENT INC.

    /s/ Peter E. Sundman
    --------------------
By:     Peter E. Sundman
Title:  President


Date: December 15, 2006

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

DISTRIBUTION AND SERVICES AGREEMENT

SCHEDULE A

The Classes and Series of Lehman Brothers Institutional Liquidity Funds currently subject to this Agreement are as follows:

PREMIER CLASS

SERVICE CLASS

Dated: December 15, 2006

DISTRIBUTION AGREEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

This Agreement is made as of December 15, 2006, between Lehman Brothers Institutional Liquidity Funds, a Delaware statutory trust ("Trust"), and Neuberger Berman Management Inc., a New York corporation (the "Distributor"), on behalf of each class of each series listed on Schedule A attached hereto (each, a "Class") of the Trust.

WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end, diversified management investment company and has established several separate series of shares ("Series"), with each Series having one or more classes and with each Series having its own assets and investment policies; and

WHEREAS, the Trust desires to retain the Distributor to furnish distribution services to each Class of each Series listed in Schedule A attached hereto, and to the classes of such other Series of the Trust hereinafter established as agreed to from time to time by the parties, evidenced by an addendum to Schedule A (hereinafter "Series" shall refer to each Series which is subject to this Agreement and all agreements and actions described herein to be made or taken by a Series shall be made or taken by the Trust on behalf of the Series), and the Distributor is willing to furnish such services,

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows:

1. The Trust hereby appoints the Distributor as agent to sell the shares of beneficial interest of each Class of each Series (the "Shares") and the Distributor hereby accepts such appointment. All sales by the Distributor shall be expressly subject to acceptance by the Trust, acting on behalf of the Series. The Trust may suspend sales of the Shares of any one or more Series at any time, and may resume sales at any later time.

(c) The Distributor can use any of the officers and employees of Neuberger Berman, LLC to provide any of the services or reports required under this Agreement.

3. The Trust agrees to supply to the Distributor, promptly after the time or times at which NAV is determined, on each day on which the New York Stock Exchange is open for unrestricted trading and on such other days as the Board of Trustees of the Trust ("Trustees") may from time to time determine (each such day being hereinafter called a "business day"), a statement of the NAV of each Series having been determined in the manner set forth in the then-current Prospectus and Statement of Additional Information ("SAI") of each Class of each Series. Each determination of NAV shall take effect as of such time or times on

each business day as set forth in the then-current Prospectus of each Class of each Series.

5. (a) All sales literature and advertisements used by the Distributor in connection with sales of Shares shall be subject to approval by the Trust. The Trust authorizes the Distributor, in connection with the sale or arranging for the sale of Shares of any Series, to provide only such information and to make only such statements or representations as are contained in the Series' then-current Prospectus and SAI of each Class or in such financial and other statements furnished to the Distributor pursuant to the next paragraph or as may properly be included in sales literature or advertisements in accordance with the provisions of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act and applicable rules of self-regulatory organizations. Neither the Trust nor any Series shall be responsible in any way for any information provided or statements or representations made by the Distributor or its representatives or agents other than the information, statements and representations described in the preceding sentence.

- 2 -

9. (a) This Agreement, as amended, shall become effective on the date first written above and shall remain in full force and effect until October 31, 2008 and may be continued from year to year thereafter; PROVIDED, that such continuance shall be specifically approved each year by the Trustees or by a majority of the outstanding voting securities of the respective Class of a Series, and in either case, also by a majority of the Trustees who are not interested persons of the Trust or the Distributor ("Disinterested Trustees"). This Agreement may be amended as to any Series with the approval of the Trustees or of a majority of the outstanding voting securities of the respective Class of such Series; PROVIDED, that in either case, such amendment also shall be approved by a majority of the Disinterested Trustees.

(b) Either party may terminate this Agreement without the payment of any penalty, upon not more than sixty days' nor less than thirty days' written notice delivered personally or mailed by registered mail, postage prepaid, to the other party; PROVIDED, that in the case of termination by any Series, such action shall have been authorized (i) by resolution of the Trustees, or (ii) by vote of a majority of the outstanding voting securities of the respective Class of such Series, or (iii) by written consent of a majority of the Disinterested Trustees.

(d) Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretation thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC validly issued pursuant to the 1940 Act. Specifically, the terms "interested persons," "assignment" and "vote of a majority of the outstanding voting securities," as used in this Agreement, shall have the meanings assigned to them by Section 2(a) of the 1940 Act. In addition, when the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the SEC, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. The Trust and the Distributor may from time to time agree on such provisions interpreting or clarifying the provisions of this Agreement as, in their joint opinion, are consistent with the general tenor of this Agreement and with the specific provisions of this Section 9(d). Any such interpretations or clarifications shall be in writing signed by the parties and annexed hereto, but no such interpretation or clarification shall be effective if in contravention of any applicable federal or state law or regulations, and no such interpretation or clarification shall be deemed to be an amendment of this Agreement.

No term or provision of this Agreement shall be construed to require the Distributor to provide distribution services to any series of the Trust other than the Series, or to require any Class of any Series to pay any compensation or expenses that are properly allocable, in a manner approved by the Trustees, to a class or series of the Trust other than such Class of such Series.

- 3 -

10. The Distributor or one of its affiliates may from time to time deem it desirable to offer to the list of shareholders of each Class of each Series the shares of other mutual funds for which it acts as Distributor, including other series of the Trust or other products or services; however, any such use of the list of shareholders of any Series shall be made subject to such terms and conditions, if any, as shall be approved by a majority of the Disinterested Trustees.

11. The Distributor shall look only to the assets of a Class of a Series for the performance of this Agreement by the Trust on behalf of such Class of such Series, and neither the shareholders, the Trustees nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed by their duly authorized officers and under their respective seals.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

By:

Title:

NEUBERGER BERMAN MANAGEMENT INC.

By:

Title:

Date: December 15, 2006

- 4 -

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

DISTRIBUTION AGREEMENT

SCHEDULE A

The Classes and Series of Lehman Brothers Institutional Liquidity Funds currently subject to this Agreement are as follows:

ADMINISTRATIVE CLASS:

CAPITAL CLASS:

CASH MANAGEMENT CLASS:

- 5 -

INSTITUTIONAL CLASS:

SELECT CLASS:

- 6 -

CUSTODIAN AGREEMENT

This Agreement is made as of December __, 2006 by and between LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS, a statutory trust organized and existing under the laws of Delaware (the "Fund"), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company (the "Custodian"),

WITNESSETH:

WHEREAS, the Fund is authorized to issue shares in separate series ("Shares"), with each such series representing interests in a separate portfolio of securities and other assets; and

WHEREAS, the Fund intends that this Agreement be applicable to each its series set forth on Appendix A hereto (such series together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Section 18.5, shall be referred to herein as the "Portfolio(s)").

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:

SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT

The Fund hereby employs the Custodian as a custodian of assets of the Portfolios, including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States ("domestic securities") and securities it desires to be held outside the United States ("foreign securities"). The Custodian shall not be responsible for any property of a Portfolio which is not received by it or which is delivered out in accordance with Proper Instructions (as such term is defined in Section 7 hereof) including, without limitation, Portfolio property (i) held by brokers, private bankers or other entities on behalf of the Portfolio (each a "Local Agent"), (ii) held by Special Sub-Custodians (as such term is defined in Section 5 hereof), (iii) held by entities which have advanced monies to or on behalf of the Portfolio and which have received Portfolio property as security for such advance(s) (each a "Pledgee"), or (iv) delivered or otherwise removed from the custody of the Custodian pursuant to Special Instructions (as such term is defined in Section 7 hereof). With respect to uncertificated shares (the "Underlying Shares") of registered "investment companies" (as defined in Section 3(a)(1) of the Investment Company Act of 1940, as amended from time to time (the "1940 Act")), whether in the same "group of investment companies" (as defined in
Section 12(d)(1)(G)(ii) of the 1940 Act) or otherwise, including pursuant to
Section 12(d)(1)(F) of the 1940 Act (hereinafter sometimes referred to as the "Underlying Portfolios") the holding of confirmation statements that identify the shares as being recorded in the Custodian's name on behalf of the Portfolios will be deemed custody for purposes hereof.

Upon receipt of Proper Instructions, the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees of the Fund (the "Board") on behalf of the applicable Portfolio(s), and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions

of any sub-custodian so employed than any such sub-custodian has to the Custodian. The Custodian may place and maintain each Fund's foreign securities with foreign banking institution sub-custodians employed by the Custodian and/or foreign securities depositories, all as designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Sections 3 and 4 hereof.

SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS

TO BE HELD IN THE UNITED STATES

SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States, including all domestic securities owned by such Portfolio other than (a) securities which are maintained pursuant to
Section 2.8 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a "U.S. Securities System") and (b) Underlying Shares owned by the Fund which are maintained pursuant to Section 2.10 hereof in an account with State Street Bank and Trust Company or such other entity which may from time to time act as a transfer agent for the Underlying Portfolios and with respect to which the Custodian is provided with Proper Instructions (the "Underlying Transfer Agent").

SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian, in a U.S. Securities System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:

1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor;

2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio;

3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.8 hereof;

4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio;

5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;

6) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent

appointed pursuant to Section 2.7 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian;

7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct;

8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;

9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;

10) For delivery in connection with any loans of securities made by the Portfolio (a) against receipt of collateral as agreed from time to time by the Fund on behalf of the Portfolio, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral or (b) to the lending agent, or the lending agent's custodian, in accordance with written Proper Instructions (which may not provide for the receipt by the Custodian of collateral therefor) agreed upon from time to time by the Custodian and the Fund;

11) For delivery as security in connection with any borrowing by the Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio;

12) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. (the "NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other

arrangements in connection with transactions by the Fund on behalf of a Portfolio;

13) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission (the "CFTC") and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund on behalf of a Portfolio;

14) Upon the sale or other delivery of such investments (including, without limitation, to one or more (a) Special Sub-Custodians or
(b) additional custodians appointed by the Fund, and communicated to the Custodian from time to time via a writing duly executed by an authorized officer of the Fund, for the purpose of engaging in repurchase agreement transactions(s), each a "Repo Custodian"), and prior to receipt of payment therefor, as set forth in written Proper Instructions (such delivery in advance of payment, along with payment in advance of delivery made in accordance with
Section 2.6(7), as applicable, shall each be referred to herein as a "Free Trade"), provided that such Proper Instructions shall set forth (a) the securities of the Portfolio to be delivered and
(b) the person(s) to whom delivery of such securities shall be made;

15) Upon receipt of instructions from the Fund's transfer agent (the "Transfer Agent") for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund related to the Portfolio (the "Prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption;

16) In the case of a sale processed through the Underlying Transfer Agent of Underlying Shares, in accordance with Section 2.10 hereof; and

17) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio specifying (a) the securities of the Portfolio to be delivered and (b) the person or persons to whom delivery of such securities shall be made.

SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered management investment companies having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.7 or in

the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Agreement shall be in "street name" or other good delivery form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers.

SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.

SECTION 2.5 COLLECTION OF INCOME. Except with respect to Portfolio property released and delivered pursuant to Section 2.2(14) or purchased pursuant to Section 2.6(7), and subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to such Portfolio's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due the Fund on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Custodian so long as the securities are registered and remain in the name of the Fund, the Custodian, or its nominee, or in the Depository Trust Company account of the Custodian, but shall otherwise be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled.

SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only:

1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.8 hereof; (c) in the case of a purchase of Underlying Shares, in accordance with the conditions set forth in Section 2.10 hereof; (d) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Portfolio of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Portfolio; or (e) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined herein;

2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof;

3) For the redemption or repurchase of Shares issued as set forth in
Section 6 hereof;

4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;

5) For the payment of any dividends on Shares declared pursuant to the Fund's Certificate of Statutory Trust, Declaration of Trust and Prospectus, each as my be amended from time to time (collectively, the "Governing Documents");

6) For payment of the amount of dividends received in respect of securities sold short;

7) Upon the purchase of domestic investments including, without limitation, repurchase agreement transactions involving delivery of Portfolio monies to Repo Custodian(s), and prior to receipt of

such investments, as set forth in written Proper Instructions (such payment in advance of delivery, along with delivery in advance of payment made in accordance with Section 2.2(14), as applicable, shall each be referred to herein as a "Free Trade"), provided that such Proper Instructions shall also set forth (a) the amount of such payment and (b) the person(s) to whom such payment is made; and

8) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the Portfolio specifying
(a) the amount of such payment and (b) the person or persons to whom such payment is to be made.

SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. The Underlying Transfer Agent shall not be deemed an agent or sub-custodian of the Custodian for purposes of this Section 2.7 or any other provision of this Agreement.

SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain securities owned by a Portfolio in a U.S. Securities System in compliance with the conditions of Rule 17f-4 under the 1940 Act, as amended from time to time.

SECTION 2.9 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions on behalf of each applicable Portfolio, establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.8 hereof, (a) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio,
(b) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (c) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the "SEC"), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered management investment companies, and (d) for any other purpose in accordance with Proper Instructions.

SECTION 2.10 DEPOSIT OF FUND ASSETS WITH THE UNDERLYING TRANSFER AGENT. Underlying Shares beneficially owned by the Fund, on behalf of a Portfolio, shall be deposited and/or maintained in an account or accounts

maintained with an Underlying Transfer Agent and the Custodian's only responsibilities with respect thereto shall be limited to the following:

1) Upon receipt of a confirmation or statement from an Underlying Transfer Agent that such Underlying Transfer Agent is holding or maintaining Underlying Shares in the name of the Custodian (or a nominee of the Custodian) for the benefit of a Portfolio, the Custodian shall identify by book-entry that such Underlying Shares are being held by it as custodian for the benefit of such Portfolio.

2) In respect of the purchase of Underlying Shares for the account of a Portfolio, upon receipt of Proper Instructions, the Custodian shall pay out monies of such Portfolio as so directed, and record such payment from the account of such Portfolio on the Custodian's books and records.

3) In respect of the sale or redemption of Underlying Shares for the account of a Portfolio, upon receipt of Proper Instructions, the Custodian shall transfer such Underlying Shares as so directed, record such transfer from the account of such Portfolio on the Custodian's books and records and, upon the Custodian's receipt of the proceeds therefor, record such payment for the account of such Portfolio on the Custodian's books and records.

The Custodian shall not be liable to the Fund for any loss or damage to the Fund or any Portfolio resulting from the maintenance of Underlying Shares with an Underlying Transfer Agent except for losses resulting directly from the fraud, negligence or willful misconduct of the Custodian or any of its agents or of any of its or their employees.

SECTION 2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities.

SECTION 2.12 PROXIES. Except with respect to Portfolio property released and delivered pursuant to Section 2.2(14), or purchased pursuant to
Section 2.6(7), the Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.

SECTION 2.13 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Except with respect to Portfolio property released and delivered pursuant to Section 2.2(14), or purchased pursuant to Section 2.6(7), and subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund for each Portfolio all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in

connection therewith and notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Fund on behalf of the Portfolio) received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action.

SECTION 2.14 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. Except as specifically stated otherwise in this Agreement, in any and every case where payment for purchase of domestic securities is made by the Custodian in advance of receipt of the securities purchased in the absence of specific instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian.

SECTION 3. PROVISIONS RELATING TO RULES 17F-5 AND 17F-7

SECTION 3.1. DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings:

"Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the SEC), or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository.

"Eligible Securities Depository" has the meaning set forth in section (b)(1) of Rule 17f-7.

"Foreign Assets" means any of the Portfolios' investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios' transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule 17f-5.

"Rule 17f-5" means Rule 17f-5 promulgated under the 1940 Act.

"Rule 17f-7" means Rule 17f-7 promulgated under the 1940 Act.

SECTION 3.2. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Fund, by resolution adopted by the Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this
Section 3.2 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios.

3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with
Section 3.2.5 hereof.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund, on behalf of the applicable Portfolio(s), of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board on behalf of such Portfolio(s) responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of such Portfolio to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager with respect to such Portfolio with respect to that country.

The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn.

3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES:

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(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1).

(b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

(c) MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder.

3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios.

3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Portfolios described in this
Section 3.2 after the occurrence of the material change.

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3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise.

3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Portfolios.

3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody Manager of the Portfolios shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Portfolios with respect to designated countries.

SECTION 3.3 ELIGIBLE SECURITIES DEPOSITORIES.

3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment adviser) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment adviser) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7.

3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in
Section 3.3.1.

SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS

TO BE HELD OUTSIDE THE UNITED STATES

SECTION 4.1 DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings:

"Foreign Securities System" means an Eligible Securities Depository listed on Schedule B hereto.

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"Foreign Sub-Custodian" means a foreign banking institution serving as an Eligible Foreign Custodian.

SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Portfolios the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.

SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country.

SECTION 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.

4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Portfolios held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:

(i) Upon the sale of such foreign securities for the Portfolio in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System;

(ii) In connection with any repurchase agreement related to foreign securities;

(iii) To the depository agent in connection with tender or other similar offers for foreign securities of the Portfolios;

(iv) To the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable;

(v) To the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number

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of bonds, certificates or other evidence representing the same aggregate face amount or number of units;

(vi) To brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case, the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such foreign securities prior to receiving payment for such foreign securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct;

(vii) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;

(viii) In the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;

(ix) For delivery as security in connection with any borrowing by the Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio;

(x) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;

(xi) Upon the sale or other delivery of such foreign securities (including, without limitation, to one or more Special Sub-Custodians or Repo Custodians) as a Free Trade, provided that applicable Proper Instructions shall set forth (A) the foreign securities to be delivered and (B) the person or persons to whom delivery shall be made;

(xii) In connection with the lending of foreign securities; and

(xiii) For any other purpose, but only upon receipt of Proper Instructions specifying (A) the foreign securities to be delivered and (B) the person or persons to whom delivery of such securities shall be made.

4.4.2. PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Portfolio in the following cases only:

(i) Upon the purchase of foreign securities for the Portfolio, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor

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(or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System;

(ii) In connection with the conversion, exchange or surrender of foreign securities of the Portfolio;

(iii) For the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses;

(iv) For the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;

(v) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;

(vi) Upon the purchase of foreign investments including, without limitation, repurchase agreement transactions involving delivery of Portfolio monies to Repo Custodian(s), as a Free Trade, provided that applicable Proper Instructions shall set forth (A) the amount of such payment and (B) the person or persons to whom payment shall be made;

(vii) For payment of part or all of the dividends received in respect of securities sold short;

(viii) In connection with the borrowing or lending of foreign securities; and

(ix) For any other purpose, but only upon receipt of Proper Instructions specifying (A) the amount of such payment and (B) the person or persons to whom such payment is to be made.

4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer.

15.

The Custodian shall provide to the Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had been previously provided hereunder.

SECTION 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.

SECTION 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts.

SECTION 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures.

SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Section 4, the Custodian shall use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights.

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SECTION 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Portfolios (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Portfolios at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power.

SECTION 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Portfolios shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim.

SECTION 4.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund with respect to the Portfolios or the Custodian as custodian of the Portfolios by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information.

SECTION 4.12. LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in this Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization,

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expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care.

SECTION 5. SPECIAL SUB-CUSTODIANS

Upon receipt of Special Instructions (as such term is defined in Section 7 hereof), the Custodian shall, on behalf of one or more Portfolios, appoint one or more banks, trust companies or other entities designated in such Special Instructions to act as a sub-custodian for the purposes of effecting such transaction(s) as may be designated by the Fund in Special Instructions. Each such designated sub-custodian is referred to herein as a "Special Sub-Custodian." Each such duly appointed Special Sub-Custodian shall be listed on Schedule D hereto, as it may be amended from time to time by the Fund, with the acknowledgment of the Custodian. In connection with the appointment of any Special Sub-Custodian, and in accordance with Special Instructions, the Custodian shall enter into a sub-custodian agreement with the Fund and the Special Sub-Custodian in form and substance approved by the Fund, provided that such agreement shall in all events comply with the provisions of the 1940 Act and the rules and regulations thereunder and the terms and provisions of this Agreement.

SECTION 6. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES

The Custodian shall receive from the distributor of the Shares or from the Transfer Agent and deposit into the account of the appropriate Portfolio such payments as are received for Shares thereof issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio.

From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian.

SECTION 7. PROPER INSTRUCTIONS AND SPECIAL INSTRUCTIONS

"Proper Instructions," which may also be standing instructions, as such term is used throughout this Agreement shall mean instructions received by the Custodian from the Fund, the Fund's duly authorized investment manager or investment adviser, or a person or entity duly authorized by either of them. Such instructions may be in writing signed by the authorized person or persons or may be in a tested communication or in a communication utilizing access codes

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effected between electro-mechanical or electronic devices or may be by such other means and utilizing such intermediary systems and utilities as may be agreed from time to time by the Custodian and the person(s) or entity giving such instruction, provided that the Fund has followed any security procedures agreed to from time to time by the Fund and the Custodian including, but not limited to, the security procedures selected by the Fund via the form of Funds Transfer Addendum hereto. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to provide such instructions with respect to the transaction involved; the Fund shall cause all oral instructions to be confirmed in writing. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any multi-party agreement which requires a segregated asset account in accordance with Section 2.9 hereof.

"Special Instructions," as such term is used throughout this Agreement, means Proper Instructions countersigned or confirmed in writing by the Treasurer or any Assistant Treasurer of the Fund or any other person designated in writing by the Treasurer of the Fund, which countersignature or confirmation shall be (a) included on the same instrument containing the Proper Instructions or on a separate instrument clearly relating thereto and (b) delivered by hand, by facsimile transmission, or in such other manner as the Fund and the Custodian agree in writing.

Concurrently with the execution of this Agreement, and from time to time thereafter, as appropriate, the Fund shall deliver to the Custodian, duly certified by the Fund's Treasurer or Assistant Treasurer, a certificate setting forth: (i) the names, titles, signatures and scope of authority of all persons authorized to give Proper Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of the Fund and (ii) the names, titles and signatures of those persons authorized to give Special Instructions. Such certificate may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until receipt by the Custodian of a similar certificate to the contrary.

SECTION 8. EVIDENCE OF AUTHORITY

The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.

SECTION 9. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY

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The Custodian may in its discretion, without express authority from the Fund on behalf of each applicable Portfolio:

1) Make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement; provided that all such payments shall be accounted for to the Fund on behalf of the Portfolio;

2) Surrender securities in temporary form for securities in definitive form;

3) Endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and

4) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board.

SECTION 10. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND

CALCULATION OF NET ASSET VALUE AND NET INCOME

The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board to keep the books of account of each Portfolio and/or compute the net asset value per Share of the outstanding Shares or, if directed in writing to do so by the Fund on behalf of a Portfolio, shall itself keep such books of account and/or compute such net asset value per Share. If so directed, the Custodian shall also calculate daily the net income of the Portfolio as described in the Prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The Fund acknowledges and agrees that, with respect to investments maintained with the Underlying Transfer Agent, the Underlying Transfer Agent is the sole source of information on the number of shares of a fund held by it on behalf of a Portfolio and that the Custodian has the right to rely on holdings information furnished by the Underlying Transfer Agent to the Custodian in performing its duties under this Agreement, including without limitation, the duties set forth in this Section 10 and in Section 11 hereof; provided, however, that the Custodian shall be obligated to reconcile information as to purchases and sales of Underlying Shares contained in trade instructions and confirmations received by the Custodian and to report promptly any discrepancies to the Underlying Transfer Agent. The calculations of the net asset value per Share and the daily income of each Portfolio shall be made at the time or times described from time to time in the Prospectus. The Fund acknowledges that, in keeping the books of account of the Portfolio and/or making the calculations described herein with respect to Portfolio property released and delivered pursuant to Section 2.2(14), or purchased pursuant to Section 2.6(7) hereof, the Custodian is authorized and instructed to rely upon information provided to it by the Fund, the Fund's counterparty(ies), or the agents of either of them.

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SECTION 11. RECORDS

The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. The Fund acknowledges that, in creating and maintaining the records as set forth herein with respect to Portfolio property released and delivered pursuant to Section 2.2(14), or purchased pursuant to Section 2.6(7) hereof, the Custodian is authorized and instructed to rely upon information provided to it by the Fund, the Fund's counterparty(ies), or the agents of either of them.

SECTION 12. OPINION OF FUND'S INDEPENDENT ACCOUNTANT

The Custodian shall take all reasonable action, as the Fund with respect to a Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A or Form N-2, as applicable, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof.

SECTION 13. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS

The Custodian shall provide the Fund, on behalf of each of the Portfolios at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System (either, a "Securities System"), relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.

SECTION 14. COMPENSATION OF CUSTODIAN

The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund on behalf of each applicable Portfolio and the Custodian.

SECTION 15. RESPONSIBILITY OF CUSTODIAN

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So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be without liability to the Fund and the Portfolios for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk (as defined in Section 3 hereof), including without limitation nationalization, expropriation, currency restrictions, or acts of war, revolution, riots or terrorism.

Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a sub-custodian or agent, the Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by; (i) events or circumstances beyond the reasonable control of the Custodian or any sub-custodian or Securities System or any agent or nominee of any of the foregoing, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts; (ii) errors by the Fund or its duly authorized investment manager or investment adviser in their instructions to the Custodian provided such instructions have been in accordance with this Agreement; (iii) the insolvency of or acts or omissions by a Securities System; (iv) any act or omission of a Special Sub-Custodian including, without limitation, reliance on reports prepared by a Special Sub-Custodian; (v) any delay or failure of any broker, agent or intermediary, central bank or other commercially prevalent payment or clearing system to deliver to the Custodian's sub-custodian or agent securities purchased or in the remittance or payment made in connection with securities sold; (vi) any delay or failure of any company, corporation, or other body in charge of registering or transferring securities in the name of the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any consequential losses arising out of such delay or failure to transfer such securities including non-receipt of bonus, dividends and rights and other accretions or benefits; (vii) delays or inability to perform its duties due to any disorder in market infrastructure with respect to any particular security or Securities System; and (viii) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction.

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The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian (as such term is defined in Section 4 hereof) to the same extent as set forth with respect to sub-custodians generally in this Agreement.

If the Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.

If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement.

In no event shall the Custodian be liable for indirect, special or consequential damages.

SECTION 16. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT

This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's Governing Documents, and further provided, that the Fund on behalf of one or more of the Portfolios may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction.

Upon termination of the Agreement, the Fund on behalf of each applicable Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements.

SECTION 17. SUCCESSOR CUSTODIAN

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If a successor custodian for one or more Portfolios shall be appointed by the Board, the Custodian shall, upon termination and receipt of Proper Instructions, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or at the Underlying Transfer Agent.

If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of Proper Instructions, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such resolution.

In the event that no Proper Instructions designating a successor custodian or alternative arrangements shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement.

In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to provide Proper Instructions as aforesaid, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.

SECTION 18. GENERAL

SECTION 18.1 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts.

SECTION 18.2 PRIOR AGREEMENTS. This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between the Fund on behalf of each of the Portfolios and the Custodian relating to the custody of the Fund's assets.

SECTION 18.3 ASSIGNMENT. This Agreement may not be assigned by either party without the written consent of the other.

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SECTION 18.4 INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of this Agreement, the Custodian and the Fund on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Fund's Governing Documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.

SECTION 18.5 ADDITIONAL FUNDS. In the event that the Fund establishes one or more series of Shares in addition to those listed on Appendix A hereto with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder.

SECTION 18.6 NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time.

To the Fund:              LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS
                          605 Third Avenue, 2nd Floor
                          New York, New York  10158
                          Attention: Fred Soule & Andrew Allard
                          Telephone: (646) 497-4669
                          Facsimile: (212) 476-5781

To the Custodian:         STATE STREET BANK AND TRUST COMPANY
                          Lafayette Corporate Center, LCC/3N
                          2 Avenue de Lafayette
                          Boston, Massachusetts  02111
                          Attention: Robert F. Dempsey, Vice President
                          Telephone: 617-662-2246
                          Facsimile: 617-662-2352

Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on

25.

the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting.

SECTION 18.7 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute one and the same Agreement.

SECTION 18.8 SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, unlawful or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

SECTION 18.9 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, addenda, exhibits, appendices, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

SECTION 18.10 REMOTE ACCESS SERVICES ADDENDUM. The Custodian and the Fund agree to be bound by the terms of the Remote Access Services Addendum hereto.

SECTION 18.11 SHAREHOLDER COMMUNICATIONS ELECTION. SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund's name, address, and share position to requesting companies whose securities the Fund owns. If the Fund tells the Custodian "no," the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For the Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below.

YES [ ] The Custodian is authorized to release the Fund's name, address, and share positions.

NO [X] The Custodian is not authorized to release the Fund's name, address, and share positions.

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SECTION 18.12 LIMITATION OF TRUSTEE, OFFICER AND SHAREHOLDER LIABILITY. It is expressly agreed that the obligations of the Fund and each Portfolio hereunder shall not be binding upon any of the Board members, officers, agents or employees of the Fund or upon the shareholders of any Portfolio personally, but shall only bind the assets and property of the Fund. The execution and delivery of this Agreement have been authorized by the Board, and this Agreement has been executed and delivered by an authorized officer of the Fund acting as such; neither such authorization by such Board nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the assets and property of the Fund.

SECTION 18.13 NO LIABILITY OF OTHER PORTFOLIOS. Notwithstanding any other provision of this Agreement, the parties agree that the assets and liabilities of each Portfolio are separate and distinct from the assets and liabilities of each other Portfolio and that no Portfolio shall be liable or shall be charged for any debt, obligation or liability of any other Portfolio, whether arising under this Agreement or otherwise.

SECTION 18.14 REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund hereby represents and warrants that: (a) it was duly formed and organized as a Delaware statutory trust and is validly existing in good standing under the laws of the State of Delaware; (b) it has the requisite power and authority under applicable law and its Governing Documents to enter into and perform this Agreement; (c) all requisite proceedings have been taken to authorize it to enter into and perform this Agreement; (d) this Agreement constitutes its legal, valid, binding and enforceable agreement; (e) its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it, and (f) it is an investment company registered under the 1940 Act, as amended and will continue to be a registered investment company under the 1940 Act for the term of this Agreement.

SECTION 18.15 CONFIDENTIALITY. The Custodian agrees that all non-public books, records, information and data pertaining to the business of the Fund which are exchanged or received pursuant to the negotiation or carrying out of this Agreement shall remain confidential, shall not be disclosed to any other person, except as may be required by law, regulation or order by a court of competent jurisdiction, and shall not be used by the Custodian for any purpose not directly related to the business of the Fund, except with the Fund's written consent. Notwithstanding the foregoing, the Custodian may aggregate Fund data with similar data of other customers of the Custodian ("Aggregated Data") and may use Aggregated Data for purposes of constructing statistical models so long as such Aggregated Data represents such a sufficiently large sample that no Fund data can be identified either directly or by inference or implication.

SECTION 18.16 PROVISIONS SURVIVING TERMINATION. The provisions of Sections 4.11, 4.12, 15, 16, 17, 18.1, 18.10 and 18.15 of this Agreement shall survive termination of this Agreement for any reason.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

27.

SIGNATURE PAGE

IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative as of the date first above-written.

Attest:                           LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS



                                  By:
--------------------------           ------------------------------------------
Name:                                Name:
Title:                               Title:                   , Duly Authorized



Attest:                           STATE STREET BANK AND TRUST COMPANY



                                  By:
--------------------------           ------------------------------------------
Veronica Greenbaum                   Joseph L. Hooley
Vice President and Counsel           Executive Vice President

28.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

CUSTODIAN AGREEMENT

APPENDIX A

Dated: December __, 2006

SCHEDULE D
TO
CUSTODIAN AGREEMENT

SPECIAL SUB-CUSTODIANS

None

30.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

Money Market Portfolio
Prime Portfolio
Government Portfolio
Government Reserves Portfolio
Treasury Portfolio
Treasury Reserves Portfolio
Tax-Exempt Portfolio
Municipal Portfolio
New York Municipal Portfolio

605 Third Avenue
New York, New York 10158-0180

December 15, 2006

Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180

Dear Ladies and Gentlemen:

Money Market Portfolio, Prime Portfolio, Government Portfolio, Government Reserves Portfolio, Treasury Portfolio, Treasury Reserves Portfolio, Tax-Exempt Portfolio, Municipal Portfolio, and New York Municipal Portfolio (each a "Portfolio") are series of Lehman Brothers Institutional Liquidity Funds, a Delaware statutory trust ("Trust").

Administrative Class

You hereby agree during the period from December 15, 2006 through March 31, 2010 ("Limitation Period"), to forgo current payment of fees and/or pay operating expenses of each Portfolio's Administrative Class (excluding interest, taxes, brokerage commissions, and extraordinary expenses of each Portfolio) ("Operating Expenses"), so that the Operating Expenses of each Portfolio's Administrative Class are limited to the rate of 0.45% per annum of its average daily net assets ("Expense Limitation").

Each Portfolio agrees to reimburse you out of assets attributable to its Administrative Class for any fees forgone by you under the Expense Limitation or any Operating Expenses you paid in excess of the Expense Limitation, provided the reimbursements do not cause the Class' total operating expenses (exclusive of interest, taxes, brokerage commissions and extraordinary expenses) to exceed

an annual rate of 0.45% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

Cash Management Class

You hereby agree during the period from December 15, 2006 through March 31, 2010 ("Limitation Period"), to forgo current payment of fees and/or pay operating expenses of each Portfolio's Cash Management Class (excluding interest, taxes, brokerage commissions, and extraordinary expenses of each Portfolio) ("Operating Expenses"), so that the Operating Expenses of each Portfolio's Cash Management Class are limited to the rate of 0.25% per annum of its average daily net assets ("Expense Limitation").

Each Portfolio agrees to reimburse you out of assets attributable to its Cash Management Class for any fees forgone by you under the Expense Limitation or any Operating Expenses you paid in excess of the Expense Limitation, provided the reimbursements do not cause the Class' total operating expenses (exclusive of interest, taxes, brokerage commissions and extraordinary expenses) to exceed an annual rate of 0.25% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

Capital Class

You hereby agree during the period from December 15, 2006 through March 31, 2010 ("Limitation Period"), to forgo current payment of fees and/or pay operating expenses of each Portfolio's Capital Class (excluding interest, taxes, brokerage commissions, and extraordinary expenses of each Portfolio) ("Operating Expenses"), so that the Operating Expenses of each Portfolio's Capital Class are limited to the rate of 0.30% per annum of its average daily net assets ("Expense Limitation").

Each Portfolio agrees to reimburse you out of assets attributable to its Capital Class for any fees forgone by you under the Expense Limitation or any Operating Expenses you paid in excess of the Expense Limitation, provided the reimbursements do not cause the Class' total operating expenses (exclusive of interest, taxes, brokerage commissions and extraordinary expenses) to exceed an annual rate of 0.30% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

Institutional Class

You hereby agree during the period from December 15, 2006 through March 31, 2010 ("Limitation Period"), to forgo current payment of fees and/or pay operating expenses of each Portfolio's Institutional Class (excluding interest, taxes, brokerage commissions, and extraordinary expenses of each Portfolio) ("Operating Expenses"), so that the Operating Expenses of each Portfolio's Institutional Class are limited to the rate of 0.20% per annum of its average daily net assets ("Expense Limitation").

Each Portfolio agrees to reimburse you out of assets attributable to its Institutional Class for any fees forgone by you under the Expense Limitation or any Operating Expenses you paid in excess of the Expense Limitation, provided the reimbursements do not cause the Class' total operating expenses (exclusive of interest, taxes, brokerage commissions and extraordinary expenses) to exceed an annual rate of 0.20% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

Premier Class

You hereby agree during the period from December 15, 2006 through March 31, 2010 ("Limitation Period"), to forgo current payment of fees and/or pay operating expenses of each Portfolio's Premier Class (excluding interest, taxes, brokerage commissions, and extraordinary expenses of each Portfolio) ("Operating Expenses"), so that the Operating Expenses of each Portfolio's Premier Class are limited to the rate of 0.70% per annum of its average daily net assets ("Expense Limitation").

Each Portfolio agrees to reimburse you out of assets attributable to its Premier Class for any fees forgone by you under the Expense Limitation or any Operating Expenses you paid in excess of the Expense Limitation, provided the reimbursements do not cause the Class' total operating expenses (exclusive of interest, taxes, brokerage commissions and extraordinary expenses) to exceed an annual rate of 0.70% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

Select Class

You hereby agree during the period from December 15, 2006 through March 31, 2010 ("Limitation Period"), to forgo current payment of fees and/or pay operating expenses of each Portfolio's Select Class (excluding interest, taxes, brokerage commissions, and extraordinary expenses of each Portfolio) ("Operating Expenses"), so that the Operating Expenses of each Portfolio's Select Class are limited to the rate of 0.35% per annum of its average daily net assets ("Expense Limitation").

Each Portfolio agrees to reimburse you out of assets attributable to its Select Class for any fees forgone by you under the Expense Limitation or any Operating Expenses you paid in excess of the Expense Limitation, provided the reimbursements do not cause the Class' total operating expenses (exclusive of interest, taxes, brokerage commissions and extraordinary expenses) to exceed an annual rate of 0.35% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

Service Class

Expenses"), so that the Operating Expenses of each Portfolio's Service Class are limited to the rate of 0.60% per annum of its average daily net assets ("Expense Limitation").

Each Portfolio agrees to reimburse you out of assets attributable to its Service Class for any fees forgone by you under the Expense Limitation or any Operating Expenses you paid in excess of the Expense Limitation, provided the reimbursements do not cause the Class' total operating expenses (exclusive of interest, taxes, brokerage commissions and extraordinary expenses) to exceed an annual rate of 0.60% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

You understand that you shall look only to the assets attributable to the applicable Class of the applicable Portfolio for performance of this Agreement and for payment of any claim you may have hereunder, and neither any other series of the Trust or class of the applicable Portfolio, nor any of the Trust's trustees, officers, employees, agents, or shareholders, whether past, present or future, shall be personally liable therefor.

This Agreement is made and to be performed principally in the State of New York, and except insofar as the Investment Company Act of 1940, as amended, or other federal laws and regulations may be controlling, this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York. Any amendment to this Agreement shall be in writing signed by the parties hereto.

If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart hereof and return the same to us.

Very truly yours,

LEHMAN BROTHERS INSTITUTIONAL
LIQUIDITY FUNDS,
on behalf of
MONEY MARKET PORTFOLIO
PRIME PORTFOLIO
GOVERNMENT PORTFOLIO
GOVERNMENT RESERVES PORTFOLIO
TREASURY PORTFOLIO
TREASURY RESERVES PORTFOLIO
TAX-EXEMPT PORTFOLIO
MUNICIPAL PORTFOLIO
NEW YORK MUNICIPAL PORTFOLIO

       /s/ Robert Conti
       ----------------
By:    Robert Conti

Title: Vice President

The foregoing Agreement is hereby
accepted as of December 15, 2006

NEUBERGER BERMAN MANAGEMENT INC.

        /s/ Peter E. Sundman
        --------------------
By:     Peter E. Sundman
Title:  President

INSTITUTIONAL LIQUIDITY TRUST

Tax-Exempt Master Series
Municipal Master Series
New York Municipal Master Series

605 Third Avenue
New York, New York 10158-0180

December 15, 2006

Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180

Dear Ladies and Gentlemen:

Tax-Exempt Master Series, Municipal Master Series, and New York Municipal Master Series (each a "Master Series") are series of Institutional Liquidity Trust, a Delaware statutory trust ("Trust").

You hereby agree during the period from December 14, 2006 through March 31, 2010 ("Limitation Period"), to forgo current payment of management fees and/or pay management fees of each Master Series, so that the management fee of each Master Series is limited to the rate of 0.08% per annum of its average daily net assets ("Management Fee Limitation").

Each Master Series agrees to reimburse you out of its assets for any management fees forgone by you under the Management Fee Limitation or any management fees you paid in excess of the Management Fee Limitation, provided the reimbursements do not cause the Master Series' management fee to exceed an annual rate of 0.08% of its average daily net assets and the reimbursements are made within three years after the year in which you incurred the expense.

You understand that you shall look only to the assets attributable to the applicable Master Series for performance of this Agreement and for payment of any claim you may have hereunder, and neither any other Master Series or other series of the Trust, nor any of the Trust's trustees, officers, employees, agents, or shareholders, whether past, present or future, shall be personally liable therefor.

If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart hereof and return the same to us.

Very truly yours,

INSTITUTIONAL LIQUIDITY TRUST,
on behalf of
TAX-EXEMPT MASTER SERIES
MUNICIPAL MASTER SERIES
NEW YORK MUNICIPAL MASTER SERIES

By:    /s/ Robert Conti

Title: Vice President

The foregoing Agreement is hereby
accepted as of December 15, 2006

NEUBERGER BERMAN MANAGEMENT INC.

By:    /s/ Peter E. Sundman

Title: President

SHAREHOLDER SERVICING AGREEMENT

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

This Agreement is made as of December 15, 2006 between Lehman Brothers Institutional Liquidity Funds, a Delaware statutory trust ("Trust"), and Neuberger Berman Management Inc., a New York corporation ("NBMI"), with respect to each class of shares listed on Schedule A hereto (each, a "Class") of each series, also listed on Schedule A hereto, as it may be amended from time to time (each, a "Portfolio").

WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end, diversified management investment company and has established one or more separate series of shares, with each Portfolio having its own assets and investment policies, and with each Portfolio having one or more classes of shares;

WHEREAS, the Trust desires to retain NBMI to furnish shareholder services, which may include shareholder accounting, recordkeeping, or other services to shareholders, to each Portfolio (or as appropriate, a Class of each such Portfolio), and NBMI is willing to furnish such services,

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows:

1. SHAREHOLDER SERVICES. NBMI shall provide to the shareholders and beneficial owners of each Class of a Portfolio the shareholder services listed on Schedule B for that Class (some or all of which may be provided by banks, trust companies or other institutions that will provide such shareholder services to their accounts ("Accounts") and their Account holders and which have entered into a service agreement with NBMI (each, a "Service Organization")). NBMI may compensate a Service Organization for the shareholder services it provides to Accounts and Account holders pursuant to such service agreement. Under this Agreement, NBMI shall not have any obligation to provide, nor shall it provide or be compensated by a Portfolio to provide, any services related to the distribution of a Portfolio's shares, or any other services that are the subject of a separate agreement or arrangement between a Portfolio and NBMI. NBMI can use any of the officers and employees of Neuberger Berman, LLC or Lehman Brothers Asset Management LLC to provide any of the services or reports required under this agreement.

2. EXPENSES OF EACH PORTFOLIO.

2.1 EXPENSES TO BE PAID BY NBMI. NBMI shall pay all salaries, expenses and fees of the officers, trustees, or employees of the Trust who are officers, directors or employees of NBMI. If NBMI pays or assumes any expenses of the Trust, or a Portfolio or Class not required to be paid or assumed by NBMI under this Agreement, NBMI shall not be obligated hereby to pay or assume the same or any similar expense in the future; PROVIDED, that nothing herein contained shall be deemed to relieve NBMI of any obligation to the Trust or to a Portfolio or Class under any separate agreement or arrangement between the parties.

2.2 EXPENSES TO BE PAID BY THE PORTFOLIO. Each Portfolio shall bear all expenses of its operation, except those specifically allocated to NBMI under this Agreement or under any separate agreement between such Portfolio and NBMI.

Expenses to be borne by such Portfolio shall include both expenses directly attributable to the operation of that Portfolio, as well as the portion of any expenses of the Trust that is properly allocable to such Portfolio in a manner approved by the trustees of the Trust ("Trustees"). (The allocation of such expenses among the classes of a Portfolio, on either a class-specific or a pro rata basis, shall be made in accordance with the Trust's Rule 18f-3 Plan, if applicable.)

3. SHAREHOLDER SERVICING FEE.

3.1 FEE. As compensation for all services rendered under this Agreement, each Class of a Portfolio shall pay NBMI an annual fee for that Class as set out in Schedule C to this Agreement.

3.2 COMPUTATION AND PAYMENT OF FEE. The shareholder servicing fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual for each Portfolio shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual fee rate for the applicable Class (as set forth in Schedule C hereto), and multiplying this product by the net assets of the Class of such Portfolio, determined in the manner set forth in such Portfolio's then-current Prospectus for that Class, as of the close of business on the last preceding business day on which the net assets of the Class of such Portfolio were determined.

4. OWNERSHIP OF RECORDS. All records required to be maintained and preserved by each Portfolio pursuant to the provisions or rules or regulations of the Securities and Exchange Commission ("SEC") under Section 31(a) of the 1940 Act and maintained and preserved by NBMI on behalf of such Portfolio are the property of such Portfolio and shall be surrendered by NBMI promptly on request by the Portfolio; PROVIDED, that NBMI may at its own expense make and retain copies of any such records.

5. REPORTS TO NBMI. Each Portfolio shall furnish or otherwise make available to NBMI such copies of that Portfolio's Prospectus, SAI, financial statements, proxy statements, reports, and other information for each Class relating to the Portfolio's business and affairs as NBMI may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.

6. REPORTS TO EACH PORTFOLIO. NBMI shall prepare and furnish to each Portfolio such reports, statistical data and other information in such form and at such intervals as such Portfolio may reasonably request.

7. OWNERSHIP OF SOFTWARE AND RELATED MATERIALS. All computer programs, written procedures and similar items developed or acquired and used by NBMI in performing its obligations under this Agreement shall be the property of NBMI, and no Portfolio will acquire any ownership interest therein or property rights with respect thereto.

8. CONFIDENTIALITY. NBMI agrees, on its own behalf and on behalf of its employees, agents and contractors, to keep confidential any and all records maintained and other information obtained hereunder which relates to any Portfolio or to any of a Portfolio's former, current or prospective shareholders, EXCEPT that NBMI may deliver records or divulge information (a) when requested to do so by duly constituted authorities after prior notification to and approval in writing by such Portfolio (which approval will not be

- 2 -

unreasonably withheld and may not be withheld by such Portfolio where NBMI advises such Portfolio that it may be exposed to civil or criminal contempt proceedings or other penalties for failure to comply with such request) or (b) whenever requested in writing to do so by such Portfolio.

9. NBMI'S ACTIONS IN RELIANCE ON PORTFOLIO'S INSTRUCTIONS, LEGAL OPINIONS, ETC.; PORTFOLIO'S COMPLIANCE WITH LAWS.

9.1 NBMI may at any time apply to an officer of the Trust for instructions, and may consult with legal counsel for a Portfolio or with NBMI's own legal counsel, in respect of any matter arising in connection with this Agreement; and NBMI shall not be liable for any action taken or omitted to be taken in good faith and with due care in accordance with such instructions or with the advice or opinion of such legal counsel. NBMI shall be protected in acting upon any such instructions, advice or opinion and upon any other paper or document delivered by a Portfolio or such legal counsel which NBMI believes to be genuine and to have been signed by the proper person or persons, and NBMI shall not be held to have notice of any change of status or authority of any officer or representative of the Trust, until receipt of written notice thereof from the Portfolio.

9.2 Except as otherwise provided in this Agreement or in any separate agreement between the parties and except for the accuracy of information furnished to each Portfolio by NBMI, each Portfolio assumes full responsibility for the preparation, contents, filing and distribution of the Prospectus and SAI of each Class of such Portfolio, and full responsibility for other documents or actions required for compliance with all applicable requirements of the 1940 Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and any other applicable laws, rules and regulations of governmental authorities having jurisdiction over such Portfolio.

10. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the freedom of NBMI or any affiliated person of NBMI to render shareholder services to other investment companies, to act as shareholder servicing agent to other persons, firms, or corporations, or to engage in other business activities.

11. LIMITATION OF LIABILITY REGARDING THE TRUST. NBMI shall look only to the assets of each Portfolio for performance of this Agreement by the Trust on behalf of such Portfolio, and neither the Trustees nor any of the Trust's officers, employees or agents, whether past, present or future shall be personally liable therefor.

12. INDEMNIFICATION BY PORTFOLIO. Each Portfolio shall indemnify NBMI and hold it harmless from and against any and all losses, damages and expenses, including reasonable attorneys' fees and expenses, incurred by NBMI that result from: (i) any claim, action, suit or proceeding in connection with NBMI's entry into or performance of this Agreement with respect to such Portfolio; or (ii) any action taken or omission to act committed by NBMI in the performance of its obligations hereunder with respect to such Portfolio; or (iii) any action of NBMI upon instructions believed in good faith by it to have been executed by a duly authorized officer or representative of the Trust with respect to such Portfolio; PROVIDED, that NBMI shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or misconduct on the part of NBMI or its employees, agents or contractors. Before confessing any

- 3 -

claim against it which may be subject to indemnification by a Portfolio hereunder, NBMI shall give such Portfolio reasonable opportunity to defend against such claim in its own name or in the name of NBMI.

13. INDEMNIFICATION BY NBMI. NBMI shall indemnify each Portfolio and hold it harmless from and against any and all losses, damages and expenses, including reasonable attorneys' fees and expenses, incurred by such Portfolio which result from: (i) NBMI's failure to comply with the terms of this Agreement with respect to such Portfolio; or (ii) NBMI's lack of good faith in performing its obligations hereunder with respect to such Portfolio; or (iii) NBMI's negligence or misconduct or that of its employees, agents or contractors in connection herewith with respect to such Portfolio. A Portfolio shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or misconduct on the part of that Portfolio or its employees, agents or contractors other than NBMI unless such negligence or misconduct results from or is accompanied by negligence or misconduct on the part of NBMI, any affiliated person of NBMI, or any affiliated person of an affiliated person of NBMI. Before confessing any claim against it which may be subject to indemnification hereunder, a Portfolio shall give NBMI reasonable opportunity to defend against such claim in its own name or in the name of the Trust on behalf of such Portfolio.

14. EFFECT OF AGREEMENT. Nothing herein contained shall be deemed to require the Trust or any Portfolio to take any action contrary to the Trust Instrument or By-laws of the Trust or any applicable law, regulation or order to which it is subject or by which it is bound, or to relieve or deprive the Trustees of their responsibility for and control of the conduct of the business and affairs of the Portfolio or Trust.

15. TERM OF AGREEMENT. The term of this Agreement shall begin on the date first written above with respect to each Portfolio and, unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through October 31, 2007. Thereafter, this Agreement shall continue in effect with respect to each Portfolio from year to year, subject to the termination provisions and all other terms and conditions hereof; PROVIDED, such continuance with respect to a Portfolio is approved at least annually by vote or written consent of the Trustees, including a majority of the Trustees who are not interested persons of either party hereto ("Disinterested Trustees"); and PROVIDED FURTHER, that NBMI shall not have notified a Portfolio in writing at least sixty days prior to the first expiration date hereof or at least sixty days prior to any expiration date in any year thereafter that it does not desire such continuation. NBMI shall furnish any Portfolio, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment thereof.

16. AMENDMENT OR ASSIGNMENT OF AGREEMENT. Any amendment to this Agreement shall be in writing signed by the parties hereto; PROVIDED, that no such amendment shall be effective unless authorized on behalf of any Portfolio (i) by resolution of the Trustees, including the vote or written consent of a majority of the Disinterested Trustees, or (ii) by vote of a majority of the outstanding voting securities of the applicable Class of such Portfolio. This Agreement shall terminate automatically and immediately in the event of its assignment; provided, that with the consent of a Portfolio, which may be general or specific, NBMI may subcontract to another person any of its responsibilities with respect to such Portfolio.

17. TERMINATION OF AGREEMENT. This Agreement may be terminated at any time by either party hereto, without the payment of any penalty, upon at least sixty days' prior written notice to the other party; PROVIDED, that in the case of

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termination by any Portfolio, such action shall have been authorized (i) by resolution of the Trustees, including the vote or written consent of the Disinterested Trustees, or (ii) by vote of a majority of the outstanding voting securities of the applicable Class of such Portfolio.

18. INTERPRETATION AND DEFINITION OF TERMS. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretation thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested persons," "assignment" and "affiliated person," as used in this Agreement shall have the meanings assigned to them by Section 2(a) of the 1940 Act. In addition, when the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the SEC, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.

19. CHOICE OF LAW. This Agreement is made and to be principally performed in the State of New York, and except insofar as the 1940 Act or other federal laws and regulations may be controlling, this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York.

20. CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.

21. EXECUTION IN COUNTERPARTS. This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY
FUNDS (on behalf of each Portfolio listed
on Schedule A)

/s/ Robert Conti
----------------
Name:  Robert Conti
Title: Vice President

NEUBERGER BERMAN MANAGEMENT INC.

/s/ Peter E. Sundman
--------------------
Name:  Peter E. Sundman
Title: President




Date: December 15, 2006

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LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS
SHAREHOLDER SERVICING AGREEMENT

SCHEDULE A

CLASSES OF SHARES:

Cash Management Class
Capital Class
Select Class
Administrative Class
Service Class
Premier Class

THE PORTFOLIOS OF LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS CURRENTLY SUBJECT TO THIS AGREEMENT:

Dated: December 15, 2006

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LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS
SHAREHOLDER SERVICING AGREEMENT

SCHEDULE B

SHAREHOLDER SERVICES PROVIDED TO EACH CLASS:

Cash Management Class

(i) acting, directly or through an agent, as the shareholder of record and nominee for customers;

(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Cash Management shares;

(iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions; and

(iv) such other similar services as a Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

Capital Class

(i) acting, directly or through an agent, as the shareholder of record and nominee for customers;

(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Capital shares;

(iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions;

(iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Capital shares; and

(v) such other similar services as a Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

Select Class

(i) acting, directly or through an agent, as the shareholder of record and nominee for customers;

(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Select shares;

(iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions;

(iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Select shares;

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(v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through the service organization, for example, retirement, asset allocation, bank trust or private banking programs or services; and

(vi) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

Administrative Class

(i) acting, directly or through an agent, as the shareholder of record and nominee for customers;

(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Administrative shares;

(iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions;

(iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Administrative shares;

(v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through service organizations;

(vi) processing, or assisting in processing, dividend payments on behalf of customers; and

(vii) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

Service Class

(i) acting, directly or through an agent, as the shareholder of record and nominee for customers;

(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Service shares;

(iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions;

(iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Service shares;

(v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through service organizations;

(vi) processing, or assisting in processing, dividend payments on behalf of customers; and

(vii) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

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Premier Class

(i) acting, directly or through an agent, as the shareholder of record and nominee for customers;

(ii) maintaining, or assisting in maintaining, account records for customers who beneficially own Premier shares;

(iii) receiving and transmitting, or assisting in receiving and transmitting, funds for share purchases and redemptions;

(iv) processing or assisting in processing confirmations concerning customer orders to purchase, redeem and exchange Premier shares;

(v) providing the technological means to facilitate the inclusion of a Portfolio in accounts, products or services offered to customers by or through service organizations;

(vi) processing, or assisting in processing, dividend payments on behalf of customers; and

(vii) such other similar services as the Portfolio may reasonably request to the extent permissible under applicable statutes, rules and regulations.

Dated: December 15, 2006

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LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS
SHAREHOLDER SERVICING AGREEMENT

SCHEDULE C

FEE RATES FOR EACH CLASS:

Cash Management                  0.05% per annum of the average daily net assets

Capital Class                    0.10% per annum of the average daily net assets

Select Class                     0.15% per annum of the average daily net assets

Administrative Class             0.25% per annum of the average daily net assets

Service Class                    0.25% per annum of the average daily net assets

Premier Class                    0.25% per annum of the average daily net assets

- 11 -

KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP 1601 K Street, N.W.

Washington, DC 20006-1600
202.778.9000
Fax 202.778.9100
www.klng.com

December 14, 2006

Lehman Brothers Institutional Liquidity Funds 605 Third Avenue, Second Floor
New York, NY 10158-0180

Ladies and Gentlemen:

We have acted as counsel to Lehman Brothers Institutional Liquidity Funds, a statutory trust formed under the laws of the State of Delaware (the "Trust"), in connection with the filing with the Securities and Exchange Commission ("SEC") of Pre-Effective Amendment No. 2 to the Trust's Registration Statement on Form N-1A (File Nos. 333-122847; 811-21715) (the "Pre-Effective Amendment"), registering an indefinite number of Institutional Class, Cash Management Class, Capital Class, Select Class, Administrative Class, Service Class and Premier Class shares of beneficial interest of each of Money Market Portfolio, Prime Portfolio, Government Portfolio, Government Reserves Portfolio, Treasury Portfolio, Treasury Reserves Portfolio, Tax-Exempt Portfolio, Municipal Portfolio and New York Municipal Portfolio, each a series of the Trust, (the "Shares") under the Securities Act of 1933, as amended (the "1933 Act").

You have requested our opinion as to the matters set forth below in connection with the filing of the Pre-Effective Amendment. For purposes of rendering that opinion, we have examined the Pre-Effective Amendment, the Trust Instrument and By-Laws of the Trust, and the action of the Trust that provides for the issuance of the Shares, and we have made such other investigation as we have deemed appropriate. We have examined and relied upon certificates of public officials and, as to certain matters of fact that are material to our opinions, we have also relied on a certificate of an officer of the Trust. In rendering our opinion, we also have made the assumptions that are customary in opinion letters of this kind. We have not verified any of those assumptions.

Our opinion, as set forth herein, is limited to the federal laws of the United States of America and the laws of the State of Delaware that, in our experience, generally are applicable to the issuance of shares by entities such as the Trust. We express no opinion with respect to any other laws.

Based upon and subject to the foregoing, we are of the opinion that:

1. The Shares to be issued pursuant to the Pre-Effective Amendment have been duly authorized for issuance by the Trust; and

Lehman Brothers Institutional Liquidity Funds December 14, 2006

Page 2

2. When issued and paid for upon the terms provided in the Pre-Effective Amendment, the Shares to be issued pursuant to the Pre-Effective Amendment will be validly issued, fully paid and nonassessable.

This opinion is rendered solely in connection with the filing of the Pre-Effective Amendment and supersedes any previous opinions of this firm in connection with the issuance of the Shares. We hereby consent to the filing of this opinion with the SEC in connection with the Pre-Effective Amendment and to the reference to this firm in the statement of additional information that is being filed as part of the Pre-Effective Amendment. In giving our consent we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the SEC thereunder.

Very truly yours,

/s/ Kirkpatrick & Lockhart Nicholson Graham LLP

Kirkpatrick & Lockhart Nicholson Graham LLP

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the references to our firm under the captions "Independent Registered Public Accounting Firm" and "Financial Statements" in the Statement of Additional Information in Pre-Effective Amendment Number 2 to the Registration Statement (Form N-1A, No. 333-122847) of Lehman Brothers Institutional Liquidity Funds, and to the incorporation by reference of our report dated May 5, 2006, with respect to the financial statements and financial highlights of Institutional Liquidity Portfolio, one of the series of Institutional Liquidity Trust, included in the March 31, 2006 Annual Report of Lehman Brothers Institutional Liquidity Series.

We further consent to the inclusion of our reports dated December 7, 2006 for Government Portfolio, one of the series comprising Lehman Brothers Institutional Liquidity Funds, and for Government Master Series, one of the series comprising Institutional Liquidity Trust in the Statement of Additional Information in Pre-Effective Amendment Number 2 to the Registration Statement (Form N-1A, No. 333-122847) of Lehman Brothers Institutional Liquidity Funds.

                                                           /s/ ERNST & YOUNG LLP


Boston, Massachusetts
December 14, 2006

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the references to our firm in the Statement of Additional Information in the Pre-Effective Amendment to the Registration Statement on Form N-1A of Lehman Brothers Institutional Liquidity Funds and to the use of our report dated May 5, 2006 on the financial statements and financial highlights of Prime Portfolio, a series of Institutional Liquidity Trust. Such financial statements and financial highlights appear in the March 31, 2006 Annual Report to Shareholders which are also incorporated by reference into the Registration Statement.

                                        /s/ TAIT, WELLER & BAKER LLP
                                            TAIT, WELLER & BAKER LLP


Philadelphia, Pennsylvania
December 14, 2006

Neuberger Berman Management Inc. 605 Third Avenue New York, NY 10158-0180

December 4, 2006

Lehman Brothers Institutional Liquidity Funds 605 Third Avenue
New York, New York 10158

Ladies and Gentlemen:

In order to provide Lehman Brothers Institutional Liquidity Funds (the "Trust") with initial capital (the "Initial Interest"), we hereby purchase from the Trust 100,000 shares of the Institutional Class of the Government Portfolio, a series of the Trust, at the price of $1.00 per share.

We represent and warrant to the Trust that the shares of the Trust are being acquired for investment and not with a view to distribution thereof, and that we have no present intention to redeem or dispose of any of the shares.

Very truly yours,

Neuberger Berman Management Inc.

By:  /s/ Peter E. Sundman
     --------------------
Name:  Peter E. Sundman
Title: President

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

PLAN PURSUANT TO RULE 12b-1

WHEREAS, Lehman Brothers Institutional Liquidity Funds ("Trust") is an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"), and offers for public sale shares of beneficial interest in several series (each series a "Fund");

WHEREAS, the shares of beneficial interest of each Fund are divided into several classes;

WHEREAS, the Trust desires to adopt a plan pursuant to Rule 12b-1 under the 1940 Act for each Class listed on Schedule A (each, a "Class"), and the Board of Trustees has determined that there is a reasonable likelihood that adoption of said plan will benefit each Class and its shareholders; and

WHEREAS, the Trust has employed Neuberger Berman Management Inc. ("NBMI") as principal underwriter of the shares of each class of the Trust;

NOW, THEREFORE, the Trust, with respect to each Class, hereby adopts this Plan Pursuant to Rule 12b-1 ("Plan") in accordance with Rule 12b-1 under the 1940 Act on the following terms and conditions:

1. This Plan applies to the Funds listed on Schedule A (each, a "Fund").

2. A. Each Class of each Fund shall pay to NBMI, as compensation for selling such Class' shares and/or for providing services to such Class' shareholders, a fee at the rate specified for that Fund on Schedule A, such fee to be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine.

B. The fees payable hereunder are payable without regard to the aggregate amount that may be paid over the years, provided that, so long as the limitations set forth in Rule 2830 of the Conduct Rules ("Rule 2830") of the National Association of Securities Dealers, Inc. ("NASD") remain in effect and apply to recipients of payments made under this Plan, the amounts paid hereunder shall not exceed those limitations, including permissible interest. Amounts expended in support of the activities described in Paragraph 3.B. of this Plan may be excluded in determining whether expenditures under the Plan exceed the appropriate percentage of new gross assets specified in Rule 2830.

3. A. As principal underwriter of the Trust's shares, NBMI may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of shares of each Class of the Funds, including, but not limited to, compensation to employees of NBMI; compensation to NBMI and other broker-dealers (including affiliates of NBMI) that engage in or support the

distribution of shares; expenses of NBMI and such other broker-dealers and entities, including overhead and telephone and other communication expenses; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation and distribution of sales literature and advertising materials.

B. NBMI may spend such amounts as it deems appropriate on the administration and servicing of each Class' shareholder accounts, including, but not limited to, responding to inquiries from shareholders or their representatives requesting information regarding matters such as shareholder account or transaction status, net asset value of shares, performance, services, plans and options, investment policies, portfolio holdings, and distributions and taxation thereof; and dealing with complaints and correspondence of shareholders; including compensation to organizations and employees who service each Class' shareholder accounts, and expenses of such organizations, including overhead and telephone and other communications expenses.

4. This Plan shall take effect on December 18, 2006 and shall continue in effect with respect to each Fund for successive periods of one year from its execution for so long as such continuance is specifically approved with respect to such Fund at least annually together with any related agreements, by votes of a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees who are not "interested persons" of the Trust, as defined in the 1940 Act, and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for the purpose of voting on this Plan and such related agreements; and only if the Trustees who approve the implementation or continuation of the Plan have reached the conclusion required by Rule 12b-1(e) under the 1940 Act.

5. Any person authorized to direct the disposition of monies paid or payable by a Fund pursuant to this Plan or any related agreement shall provide to the Trust's Board of Trustees and the Board shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.

6. This Plan may be terminated with respect to a Class of the Fund at any time by vote of a majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding voting securities of that Class of that Fund.

7. This Plan may not be amended to increase materially the amount of fees to be paid by a Class of a Fund hereunder unless such amendment is approved by a vote of a majority of the outstanding securities (as defined in the 1940 Act) of that Class of that Fund, and no material amendment to the Plan shall be made unless such amendment is approved in the manner provided in Paragraph 4 hereof for annual approval.

8. While this Plan is in effect, the selection and nomination of Trustees who are not interested persons of the Trust, as defined in the 1940 Act, shall be committed to the discretion of Trustees who are themselves not interested persons.

9. The Trust shall preserve copies of this Plan and any related agreements for a period of not less than six years from the date of expiration of the Plan or agreement, as the case may be, the first two years in an easily accessible place; and shall preserve copies of each report made pursuant to Paragraph 5 hereof for a period of not less than six years from the date of such report, the first two years in an easily accessible place.

IN WITNESS WHEREOF, the Trust has executed this Plan Pursuant to Rule 12b-1 as of the day and year set forth below.

Date: December 15, 2006 LEHMAN BROTHERS INSTITUTIONAL

LIQUIDITY FUNDS

By:    /s/ Robert Conti
       -----------------
Name:  Robert Conti
Title: Vice President

Agreed and assented to:

NEUBERGER BERMAN MANAGEMENT INC.

By:    /s/ Peter E. Sundman
       --------------------
Name:  Peter E. Sundman
Title: President

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

PLAN PURSUANT TO RULE 12b-1

SCHEDULE A

The following series and classes of Lehman Brothers Institutional Liquidity Funds are subject to this Plan Pursuant to Rule 12b-1, at the fee rates specified:

                                               Fee (as a Percentage of Average
Service Class                                  Daily Net Assets of the Series)
-------------                                  --------------------------------

    Government Portfolio                              0.15%
    Government Reserves Portfolio                     0.15%
    Money Market Portfolio                            0.15%
    Municipal Portfolio                               0.15%
    New York Municipal Portfolio                      0.15%
    Prime Portfolio                                   0.15%
    Tax-Exempt Portfolio                              0.15%
    Treasury Portfolio                                0.15%
    Treasury Reserves Portfolio                       0.15%


                                               Fee (as a Percentage of Average
Premier Class                                  Daily Net Assets of the Series)
-------------                                  -------------------------------
    Government Portfolio                              0.25%
    Government Reserves Portfolio                     0.25%
    Money Market Portfolio                            0.25%
    Municipal Portfolio                               0.25%
    New York Municipal Portfolio                      0.25%
    Prime Portfolio                                   0.25%
    Tax-Exempt Portfolio                              0.25%
    Treasury Portfolio                                0.25%
    Treasury Reserves Portfolio                       0.25%

Dated: December 15, 2006

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS

MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3

Lehman Brothers Institutional Liquidity Funds ("Trust") hereby adopts this Multiple Class Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended ("1940 Act") on behalf of its current series and any series that may commence operations in the future (each a "Series").

A. GENERAL DESCRIPTION OF CLASSES OFFERED.

Each Series shall have one or more of the classes listed on Schedule A (each a "Class"), as may from time to time be created by the Board of Trustees of the Trust ("Board") acting pursuant to the Trust Instrument.

Each Class of shares is sold to the general public and is available for purchase by banks, trust companies and certain other investment providers (collectively, "Institutions") who act as record owners on behalf of their clients and customers (who are the beneficial owners or trusts holding on behalf of the beneficial owners). Each Class of shares also may be purchased directly or through a cash sweep program for certain eligible accounts managed or established at Lehman Brothers or its affiliates or through Institutions ("Cash Sweep Program").

Shareholders purchasing a particular Class of shares are subject to the investment minimum requirements disclosed in the prospectus for that Class, which may be waived from time to time as described in the prospectus.

Shareholder services are provided to each Class' shareholders and beneficial owners by Neuberger Berman Management Inc. ("NBMI") or its affiliates and/or by the Institutions through which beneficial owners hold shares.

B. CLASS DIFFERENCES.

1. Each Class of shares of each Series shall represent interests in the same portfolio of investments of the Series and shall differ solely with respect to: (i) arrangements for administrative, shareholder and distribution services as provided for in Section B.2 of this Plan; (ii) the exclusive right of a class to vote on certain matters relating to any Administration Agreement, Shareholder Servicing Agreement or Distribution Plan adopted by the Trust with respect to such class; (iii) any differences relating to purchase minimums, sales charges and eligible investors as may be set forth in the prospectuses and Statement of Additional Information ("SAI") of the Series; (iv) any differences in any exchange privileges or conversion features of the Classes of shares in effect from time to time; (v) the designation of each Class of shares; and (vi) such other differences as may be specified in the future by the Board.

Each Class of shares of each Series is subject to no front-end or back-end sales load and each Class of shares of each Series pays a fee for administrative services as set forth in the Administration Agreement between the Trust and NBMI for that Class at an annual rate of 0.10% of average daily net assets plus an amount approved by the Board for certain technology costs.

2. Each Class of shares of each Series shall have a different arrangement for shareholder and/or distribution services, as follows:

Institutional Class shares of a Series are not subject to a Shareholder Servicing Agreement. Shareholder services are provided as set forth in the Administration Agreement between the Trust and NBMI for the Institutional Class.

Cash Management Class shares of a Series pay a fee at an annual rate of up to 0.05% of average daily net assets for the shareholder services described in the Shareholder Servicing Agreement between the Trust and NBMI for the Cash Management Class.

Capital Class shares of a Series pay a fee at an annual rate of up to 0.10% of average daily net assets for the shareholder services described in the Shareholder Servicing Agreement between the Trust and NBMI for the Capital Class.

Select Class shares of a Series pay a fee at an annual rate of up to 0.15% of average daily net assets for the shareholder services described in the Shareholder Servicing Agreement between the Trust and NBMI for the Select Class.

Administrative Class shares of a Series pay a fee at an annual rate of up to 0.25% of average daily net assets for the shareholder services described in the Shareholder Servicing Agreement between the Trust and NBMI for the Administrative Class.

Service Class shares of a Series pay a fee at an annual rate of up to 0.25% of average daily net assets for the shareholder services described in the Shareholder Servicing Agreement between the Trust and NBMI for the Service Class. Service Class shares of a Series pay a fee for distribution services at an annual rate of up to 0.15% of average daily net assets pursuant to a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act.

Premier Class shares of a Series pay a fee at an annual rate of up to 0.25% of average daily net assets for the shareholder services described in the Shareholder Servicing Agreement between the Trust and NBMI for the Premier Class. Premier Class shares of a Series pay a fee for distribution services at an annual rate of up to 0.25% of average daily net assets pursuant to a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act.

C. EXPENSE ALLOCATIONS OF EACH CLASS.

1. Certain expenses may be attributable to a particular Class of shares ("Class Expenses"). Class Expenses are charged directly to the net assets of the particular Class and, thus, are borne on a pro rata basis by the outstanding shares of that Class. Fees and expenses that are not Class Expenses are allocated among the Classes on the basis of their respective net asset values.

In addition to the fees described above, each Class also could pay a different amount of the following other expenses:

(a) transfer agent fees identified as being attributable to a specific Class of shares;

(b) stationery, printing, postage and delivery expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxy statements to current shareholders of a specific Class of shares;

(d) SEC registration fees incurred by a specific Class of shares;

(e) Trustees' fees or expenses incurred as a result of issues relating to a specific Class of shares;

(f) accounting expenses relating solely to a specific Class of shares;

(g) auditors' fees, litigation expenses and legal fees and expenses relating to a specific Class of shares;

(h) expenses incurred in connection with shareholders meetings as a result of issues relating to a specific Class of shares;

(i) other expenses incurred attributable to a specific Class of shares.

2. NBMI may agree to waive or forgo the current payment of the fees and/or reimburse the Class Expenses of any Class of any Series.

3. NBMI may agree to waive or forgo the current payment of the fees and/or reimburse the non-Class Expenses of any Series. Such waiver or reimbursement will be allocated to each Class of the Series in the same proportion as the fee or expense being waived, forwent or reimbursed.

D. EXCHANGE PRIVILEGES

Each Class of shares of any Series may be exchanged for the same Class of shares of any other Series in the Trust, provided: (i) the investor qualifies for shares of the Series being exchanged into; (ii) the conditions of exchange set forth in the prospectuses and SAI of each Series involved in the exchange are complied with; (iii) the Institution that is the recordholder of the shares permits such an exchange; and (iv) any conditions duly established by the Institution are complied with.

E. CONVERSION FEATURES

Except as the Board may approve in a Plan of Share Class conversion, there are no conversion features among the Classes.

F. CLASS DESIGNATION

Subject to approval by the Board, a Series may alter the nomenclature for the designations of one or more of its Classes of shares.

G. ADDITIONAL INFORMATION

The prospectus and SAI for each Class may contain additional information about the Classes and the Trust's multiple class structure.

H. EFFECTIVE DATE; AMENDMENTS

This Plan is effective on December 14, 2006. Before any material amendments can be made to this Plan, a majority of the Board of Trustees of the Trust, and a majority of the Trustees who are not interested persons of the Trust (as defined in Section 2(a)(19) of the 1940 Act) must find that the Plan as proposed to be amended, including the expense allocation, is in the best interests of each Class individually and the Trust as a whole.

LEHMAN BROTHERS INSTITUTIONAL LIQUIDITY FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3

SCHEDULE A

CLASSES OF SHARES OF EACH SERIES

Institutional Class
Cash Management Class
Capital Class
Select Class
Administrative Class
Service Class
Premier Class

POWER OF ATTORNEY

INSTITUTIONAL LIQUIDITY TRUST, a Delaware business trust (the "Trust"), and each of its undersigned officers and trustees hereby nominates, constitutes and appoints Peter E. Sundman, Richard M. Phillips, Arthur C. Delibert, Lori L. Schneider and Fatima Sulaiman (with full power to each of them to act alone) its/his/her true and lawful attorney-in-fact and agent, for it/him/her and on its/his/her behalf and in its/his/her name, place and stead in any and all capacities, to make, execute and sign the Registration Statement on Form N-1A under the Investment Company Act of 1940, as amended, and/or under the Securities Act of 1933, as amended, and any and all amendments to such Registration Statement, of the Trust, Lehman Brothers Institutional Liquidity Series, Lehman Brothers Institutional Liquidity Funds, Neuberger Berman Institutional Liquidity Series, Neuberger Berman Income Funds or any other registered investment company that invests substantially all of its investable assets in a series of the Trust and to file with the Securities and Exchange Commission, and any other regulatory authority having jurisdiction over the offer and sale of shares of the Beneficial Interest of the Trust, any such Registration Statement or amendment, and any and all supplements thereto or to any prospectus or statement of additional information forming a part thereof, and any and all exhibits and other documents requisite in connection therewith, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as the Trust and the undersigned officers and trustees itself/themselves might or could do.

IN WITNESS WHEREOF, INSTITUTIONAL LIQUIDITY TRUST has caused this power of attorney to be executed in its name by its President, and attested by its Secretary, and the undersigned officers and trustees have hereunto set their hands and seals at New York, New York this 13th day of December, 2006.

INSTITUTIONAL LIQUIDITY TRUST

                             By:  /s/ Jack L. Rivkin
                                  --------------------------
                                  Name: Jack L. Rivkin
                                  Title: President and Trustee

[SEAL]

ATTEST:


/s/ Claudia A. Brandon
--------------------------
Name: Claudia A. Brandon
Title: Secretary

[Signatures Continued on Next Page]

    Signature                    Title
    ---------                    -----


/s/  John Cannon                 Trustee
----------------
John Cannon


/s/ Faith Colish                 Trustee
----------------
Faith Colish


/s/ C. Anne Harvey               Trustee
------------------
C. Anne Harvey


/s/ Robert A. Kavesh             Trustee
--------------------
Robert A. Kavesh


/s/ Howard A. Mileaf             Trustee
--------------------
Howard A. Mileaf


/s/ Edward I. O'Brien            Trustee
---------------------
Edward I. O'Brien


/s/ Jack L. Rivkin               President and Trustee
------------------
Jack L. Rivkin


/s/ William E. Rulon             Trustee
--------------------
William E. Rulon


/s/ Cornelius T. Ryan            Trustee
---------------------
Cornelius T. Ryan


/s/ Tom D. Seip                  Trustee
---------------
Tom D. Seip


/s/ Candace L. Straight          Trustee
-----------------------
Candace L. Straight

                                       2

    Signature                    Title
    ---------                    -----


/s/ Peter E. Sundman             Chairman of the Board, Chief
--------------------             Executive Officer and Trustee
Peter E. Sundman


/s/ Peter P. Trapp               Trustee
------------------
Peter P. Trapp

POWER OF ATTORNEY

Each of the entities listed on Schedule A (each a "Trust"), and each of the undersigned officers and trustees of each Trust hereby nominates, constitutes and appoints Peter E. Sundman, Richard M. Phillips, Arthur C. Delibert, Lori L. Schneider and Fatima Sulaiman (with full power to each of them to act alone) its/his/her true and lawful attorney-in-fact and agent, for it/him/her and on its/his/her behalf and in its/his/her name, place and stead in any and all capacities, to make, execute and sign each Trust's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and any and all amendments to such Registration Statement and to file with the Securities and Exchange Commission, and any other regulatory authority having jurisdiction over the offer and sale of shares of the Beneficial Interest of each Trust, any such Registration Statement or amendment, and any and all supplements thereto or to any prospectus or statement of additional information forming a part thereof, and any and all exhibits and other documents requisite in connection therewith, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as each Trust and the undersigned officers and trustees itself/themselves might or could do.

IN WITNESS WHEREOF, EACH TRUST has caused this power of attorney to be executed in its name by its President, and attested by its Secretary, and the undersigned officers and trustees have hereunto set their hands and seals at New York, New York this 13th day of December, 2006.

By:

                                 /s/ Jack L. Rivkin
                                 ------------------
                                 Name: Jack L. Rivkin
                                 Title: President and Trustee

[SEAL]

ATTEST:


/s/ Claudia A. Brandon
-------------------------
Name: Claudia A. Brandon
Title: Secretary

[Signatures Continued on Next Page]

      Signature                 Title
      ---------                 -----



/s/  John Cannon                Trustee
-----------------
John Cannon


/s/ Faith Colish                Trustee
-----------------
Faith Colish


/s/ C. Anne Harvey              Trustee
-------------------
C. Anne Harvey


/s/ Robert A. Kavesh            Trustee
--------------------
Robert A. Kavesh


/s/ Howard A. Mileaf            Trustee
--------------------
Howard A. Mileaf


/s/ Edward I. O'Brien           Trustee
---------------------
Edward I. O'Brien


/s/ Jack L. Rivkin              President and Trustee
------------------
Jack L. Rivkin


/s/ William E. Rulon            Trustee
--------------------
William E. Rulon


/s/ Cornelius T. Ryan           Trustee
---------------------
Cornelius T. Ryan


/s/ Tom D. Seip                 Trustee
---------------
Tom D. Seip


/s/ Candace L. Straight         Trustee
-----------------------
Candace L. Straight

/s/ Peter E. Sundman            Chairman of the Board, Chief
--------------------            Executive Officer and Trustee
Peter E. Sundman


/s/ Peter P. Trapp              Trustee
------------------
Peter P. Trapp

POWER OF ATTORNEY
SCHEDULE A

Lehman Brothers Institutional Liquidity Funds Lehman Brothers Institutional Liquidity Series Lehman Brothers Reserve Liquidity Series Neuberger Berman Equity Funds
Neuberger Berman Income Funds
Neuberger Berman Institutional Liquidity Series