<PAGE>
Neuberger&Berman
INCOME FUNDS
No-Load Income Funds
_________________________________________________________________________
Neuberger&Berman GOVERNMENT MONEY FUND(TRADEMARK)
Neuberger&Berman CASH RESERVES(TRADEMARK)
Neuberger&Berman ULTRA SHORT BOND FUND(TRADEMARK)
Neuberger&Berman LIMITED MATURITY BOND FUND(TRADEMARK)
Neuberger&Berman MUNICIPAL MONEY FUND(TRADEMARK)
Neuberger&Berman MUNICIPAL SECURITIES TRUST(TRADEMARK)
Neuberger&Berman NEW YORK INSURED INTERMEDIATE FUND(TRADEMARK)
Initial Purchase $2,000 Minimum
Automatic Investing $100 Minimum Per Month
Call 800-877-9700
__________________________________________________________________________
EACH OF THE ABOVE-NAMED FUNDS (A "FUND") INVESTS ALL OF ITS NET
INVESTABLE ASSETS IN A CORRESPONDING PORTFOLIO (A "PORTFOLIO") OF INCOME
MANAGERS TRUST ("MANAGERS TRUST"), AN OPEN-END MANAGEMENT INVESTMENT
COMPANY MANAGED BY NEUBERGER&BERMAN MANAGEMENT INCORPORATED ("N&B
MANAGEMENT"). EACH PORTFOLIO INVESTS IN SECURITIES IN ACCORDANCE WITH AN
INVESTMENT OBJECTIVE, POLICIES, AND LIMITATIONS IDENTICAL TO THOSE OF ITS
CORRESPONDING FUND. THE INVESTMENT PERFORMANCE OF EACH FUND DIRECTLY
CORRESPONDS WITH THE INVESTMENT PERFORMANCE OF ITS CORRESPONDING
PORTFOLIO. THIS "MASTER/FEEDER FUND" STRUCTURE IS DIFFERENT FROM THAT OF
MANY OTHER INVESTMENT COMPANIES WHICH DIRECTLY ACQUIRE AND MANAGE THEIR
OWN PORTFOLIOS OF SECURITIES. FOR MORE INFORMATION ON THIS UNIQUE
STRUCTURE THAT YOU SHOULD CONSIDER, SEE "SUMMARY" ON PAGE 3 AND "SPECIAL
INFORMATION REGARDING ORGANIZATION, CAPITALIZATION, AND OTHER MATTERS" ON
PAGE 23.
The Funds are no-load mutual funds, so you pay no sales
commissions or other charges when you buy or redeem shares. The Funds do
not pay "12b-1 fees" to promote or distribute their shares. The Funds
declare income dividends daily and pay them monthly.
Please read this Prospectus before investing in any of the Funds
and keep it for future reference. It contains information about the Funds
that a prospective investor should know before investing. Statements of
Additional Information ("SAIs"), one about the municipal Funds and
Portfolios and one about the taxable Funds and Portfolios, dated March 1,
1996, are on file with the Securities and Exchange Commission. The SAIs
are incorporated herein by reference (so they are legally considered a
part of this Prospectus). You can obtain a free copy of either SAI by
calling N&B Management at 800-877-9700. AN INVESTMENT IN THE FUNDS, AS IN
<PAGE>
ANY MUTUAL FUND, IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
ALTHOUGH NEUBERGER&BERMAN GOVERNMENT MONEY FUND, NEUBERGER&BERMAN CASH
RESERVES, AND NEUBERGER&BERMAN MUNICIPAL MONEY FUND SEEK TO MAINTAIN NET
ASSET VALUES OF $1.00 PER SHARE, THERE IS NO ASSURANCE THEY WILL BE ABLE
TO DO SO. PROSPECTUS DATED MARCH 1, 1996
SHARES OF NEUBERGER&BERMAN NEW YORK INSURED INTERMEDIATE FUND ARE
REGISTERED FOR SALE ONLY TO INVESTORS IN NEW YORK AND FLORIDA. THIS FUND
IS NOT BEING OFFERED FOR SALE TO INVESTORS IN ANY OTHER STATE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Funds and Portfolios . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 4
Management . . . . . . . . . . . . . . . . . . . . . . . . 5
EXPENSE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholder Transaction Expenses for Each Fund . . . . . . . 5
Annual Fund Operating Expenses . . . . . . . . . . . . . . . 5
Example . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 7
Government Money Fund . . . . . . . . . . . . . . . . . . 8
Cash Reserves . . . . . . . . . . . . . . . . . . . . . . 9
Ultra Short Bond Fund . . . . . . . . . . . . . . . . . . . 10
Limited Maturity Bond Fund . . . . . . . . . . . . . . . . 11
Municipal Money Fund . . . . . . . . . . . . . . . . . . . . 12
Municipal Securities Trust . . . . . . . . . . . . . . . . . 13
New York Insured Intermediate Fund . . . . . . . . . . . . . 14
INVESTMENT PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . 18
Money Market Portfolios . . . . . . . . . . . . . . . . . . 18
Bond Portfolios . . . . . . . . . . . . . . . . . . . . . . 18
Municipal Portfolios . . . . . . . . . . . . . . . . . . . . 19
Short-Term Trading; Portfolio Turnover . . . . . . . . . . . 21
Ratings of Securities . . . . . . . . . . . . . . . . . . 21
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 21
Other Investments . . . . . . . . . . . . . . . . . . . . . 21
Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 22
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Total Return . . . . . . . . . . . . . . . . . . . . . . . . 22
Tax-Equivalent Yield . . . . . . . . . . . . . . . . . . . . 22
Yield and Total Return Information . . . . . . . . . . . . . 23
SPECIAL INFORMATION REGARDING ORGANIZATION, CAPITALIZATION, AND
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . 23
The Funds . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Portfolios . . . . . . . . . . . . . . . . . . . . . . . 24
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 25
By Mail . . . . . . . . . . . . . . . . . . . . . . . . . . 25
By Wire . . . . . . . . . . . . . . . . . . . . . . . . . . 25
By Telephone . . . . . . . . . . . . . . . . . . . . . . . . 25
By Exchanging Shares . . . . . . . . . . . . . . . . . . . . 26
Other Information . . . . . . . . . . . . . . . . . . . . . 26
- i -
<PAGE>
HOW TO SELL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 26
By Mail or Facsimile Transmission (Fax) . . . . . . . . . . 27
By Telephone . . . . . . . . . . . . . . . . . . . . . . . . 27
By Check . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other Information . . . . . . . . . . . . . . . . . . . . . 28
ADDITIONAL INFORMATION ON TELEPHONE TRANSACTIONS . . . . . . . . . . 28
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . 28
Automatic Investing and Dollar Cost Averaging . . . . . . . 28
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . 29
Systematic Withdrawal Plans . . . . . . . . . . . . . . . . 29
Retirement Plans . . . . . . . . . . . . . . . . . . . . . . 30
SHARE PRICES AND NET ASSET VALUE . . . . . . . . . . . . . . . . . . 30
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES . . . . . . . . . . . . . . 30
Distribution Options . . . . . . . . . . . . . . . . . . . . 30
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
MANAGEMENT AND ADMINISTRATION . . . . . . . . . . . . . . . . . . . . 32
Trustees and Officers . . . . . . . . . . . . . . . . . . . 32
Investment Manager, Administrator, Distributor, and Sub-
Adviser . . . . . . . . . . . . . . . . . . . . . 32
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Transfer and Shareholder Servicing Arrangements . . . . . . 34
DESCRIPTION OF INVESTMENTS . . . . . . . . . . . . . . . . . . . . . 34
USE OF JOINT PROSPECTUS AND STATEMENTS OF ADDITIONAL INFORMATION . . 38
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Directory . . . . . . . . . . . . . . . . . . . . . . . . . 40
Funds Eligible for Exchange . . . . . . . . . . . . . . . . 40
ii
<PAGE>
SUMMARY
The Funds and Portfolios
_________________________________________________________________________
Each Fund is a series of Neuberger&Berman Income Funds (the
"Trust") and invests in a corresponding Portfolio that, in turn, invests
in securities in accordance with an investment objective, policies, and
limitations that are identical to those of the Fund. This is sometimes
called a master/feeder fund structure, because each Fund "feeds"
shareholders' investments into its corresponding Portfolio, a "master"
fund. The structure looks like this:
Shareholders
BUY SHARES IN
Funds
INVEST IN
Portfolios
INVEST IN
Debt Securities & Other Securities
The trustees who oversee the Funds believe that this structure
may benefit shareholders; investment in a Portfolio by investors in
addition to a Fund may enable the Portfolio to achieve economies of scale
that could reduce expenses. For more information about the organization of
the Funds and the Portfolios, including certain features of the
master/feeder fund structure, see "Special Information Regarding
Organization, Capitalization, and Other Matters" on page 23.
In this Prospectus, you will find information about three
different basic types of income mutual funds -- money market funds, bond
funds, and municipal funds.
The following table is a summary highlighting features of the
Funds and their corresponding Portfolios. You may want to invest in a
variety of Funds to fit your particular investment needs. Please see
"Investment Programs" on page 17. Of course, there can be no assurance
that a Fund will meet its investment objective.
<PAGE>
<TABLE>
<CAPTION>
Neuberger&Berman Investment Principal Portfolio Comparative
Income Funds Objective Investments Information
<S> <C> <C> <C>
MONEY MARKET FUNDS
Government Money Maximum safety and U.S. Treasury Seeks to maintain
liquidity and the obligations and a constant share
highest available other money market price of $1.00;
current income instruments backed dollar-weighted
by the full faith average portfolio
and credit of the maturity of up to
United States 90 days
Cash Reserves Highest current High-quality money Seeks to maintain
income consistent market instruments a constant share
with safety and of government and price of $1.00;
liquidity non-government dollar-weighted
issuers average portfolio
maturity of up to
90 days
BOND FUNDS
Ultra Short Higher total return High-quality money Lower expected
than is available market instruments price fluctuation
from money market and short-term debt of Neuberger&
funds, with minimal securities of Berman bond
risk to principal and government and non- funds; maximum
liquidity government issuers average duration
of two years
Limited Maturity Highest current Short- to inter- More potential
income consistent mediate-term debt price
with low risk to securities, fluctuation;
principal and primarily maximum average
liquidity; and, investment grade, duration of four
secondarily, total maximum 10% below years
return Baa or BBB, but no
lower than B*/
MUNICIPAL FUNDS
*/ As rated by Moody's Investors Services, Inc. ("Moody's") or
Standard & Poor's ("S&P") or, if unrated, determined to be of comparable
quality.
- 4 -
<PAGE>
Neuberger&Berman Investment Principal Portfolio Comparative
Income Funds Objective Investments Information
Municipal Money Maximum current tax- High-quality, Seeks to maintain
exempt income short-term a constant share
consistent with municipal price of $1.00;
safety and liquidity securities dollar-weighted
average portfolio
maturity of up to
90 days
Municipal High current tax- Municipal More potential
Securities exempt income with securities rated A price
low risk to or better fluctuation;
principal, limited maximum average
price fluctuation, duration of 10
and liquidity; and years
secondarily, total
return
New York Insured High level of current At least 65% of Maximum average
Intermediate income exempt from total assets duration of 10
federal income tax normally invested years
and New York State in New York
and New York City Municipal
personal income Securities having
taxes, consistent the highest ratings
with preservation of (Aaa/AAA) at the
capital time of purchase,
whose interest and
principal payments
are guaranteed by
private insurance
companies; the
remainder may be
invested in
uninsured New York
Municipal
Securities of
investment grade
and certain other
instruments
</TABLE>
Risk Factors
An investment in any Fund involves certain risks, depending upon
the types of investments made by its corresponding Portfolio. The
Portfolios invest in fixed income securities, which are likely to decline
in value in times of rising market interest rates and to rise in value in
times of falling interest rates. In general, the longer the maturity of a
- 5 -
<PAGE>
fixed income security, the more pronounced is the effect of a change in
interest rates on the value of the security. Special risk factors apply to
investments, which may be made by certain Portfolios, in foreign
securities, residual interest bonds, municipal leases, options and futures
contracts, zero coupon bonds, debt securities rated below investment grade
and swap agreements. The value and yield of New York Municipal Securities
in which Neuberger&Berman New York Insured Intermediate Portfolio invests
are subject to a variety of factors, including political and economic
conditions in New York State. Neuberger&Berman New York Insured
Intermediate Portfolio may at times have to rely on the private companies
that insure the municipal securities for payment of principal and interest
on a particular security. For more details about each Portfolio, its
investments and their risks, see "Investment Programs" on page 17 and
"Description of Investments" on page 34.
Management
N&B Management, with the assistance of Neuberger&Berman, L.P.
("Neuberger&Berman") as sub-adviser, selects investments for the
Portfolios. N&B Management also provides administrative services to the
Portfolios and the Funds and acts as distributor of Fund shares. See
"Management and Administration" on page 32. If you want to know how to buy
and sell shares of the Funds or exchange them for shares of other
Neuberger&Berman Funds(SERVICEMARK), see "How to Buy Shares" on page 25,
"How to Sell Shares" on page 26, and "Shareholder Services Exchange
Privilege" on page 29.
EXPENSE INFORMATION
This section gives you certain information about the expenses of
each Fund and its corresponding Portfolio. See "Performance Information"
for important facts about the investment performance of each Fund, after
taking expenses into account.
Shareholder Transaction Expenses for Each Fund
As shown by this table, you pay no transaction charges when you
buy or sell Fund shares.
Sales Charge Imposed on Purchases NONE
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charges NONE
Redemption Fees NONE
Exchange Fees NONE
If you want to redeem shares by wire transfer, the Funds'
transfer agent charges a fee (currently $8.00) for each wire redemption.
Shareholders who have one or more accounts in the Neuberger&Berman
- 6 -
<PAGE>
Funds(SERVICEMARK) aggregating $250,000 or more in value are not charged
for wire redemptions; the $8.00 fee is borne by N&B Management.
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
The following table shows annual Total Operating Expenses for
each Fund, which are paid out of the assets of the Funds and which include
each Fund's pro rata portion of the Operating Expenses of its
corresponding Portfolio. These expenses are borne indirectly by Fund
shareholders. Each Fund pays N&B Management an administration fee based on
the Fund's average daily net assets. Each Portfolio pays N&B Management a
management fee, based on the Portfolio's average daily net assets; a pro
rata portion of this fee is borne indirectly by the corresponding Fund.
Therefore, the table combines management and administration fees. The
Funds and Portfolios also incur other expenses for things such as
accounting and legal fees, maintaining shareholder records, and furnishing
shareholder statements and Fund reports. "Operating Expenses" exclude
interest, taxes, brokerage commissions, and extraordinary expenses. The
Funds' expenses are factored into their share prices and dividends and are
not charged directly to Fund shareholders. For more information, see
"Management and Administration" and the SAIs.
<TABLE>
<CAPTION>
Neuberger&Berman Management and 12b-1 Other Total Operating
Income Funds Administration Fees Fees Expenses Expenses
<S> <C> <C> <C> <C>
GOVERNMENT MONEY 0.52% None 0.13% 0.65%
CASH RESERVES 0.49%* None 0.16% 0.65%*
ULTRA SHORT 0.30%* None 0.35% 0.65%*
LIMITED MATURITY 0.51%* None 0.19% 0.70%*
MUNICIPAL MONEY 0.52% None 0.19% 0.71%
MUNICIPAL SECURITIES 0.19%* None 0.46% 0.65%*
NEW YORK INSURED INTERMEDIATE 0.00%* None 0.65%* 0.65%*
</TABLE>
*(Reflects N&B Management's expense reimbursement undertaking described
below)
- 7 -
<PAGE>
Total Operating Expenses for each Fund are annualized projections
based upon current administration fees for the Fund and management fees
for its corresponding Portfolio, with "Other Expenses" based on each
Fund's and Portfolio's expenses for the past fiscal year. The trustees of
the Trust believe that the aggregate per share expenses of each Fund and
its corresponding Portfolio will be approximately equal to the expenses
the Fund would incur if its assets were invested directly in the type of
securities held by its corresponding Portfolio. The trustees of the Trust
also believe that investment in a Portfolio by investors in addition to a
Fund may enable the Portfolio to achieve economies of scale which could
reduce expenses. The expenses and, accordingly, the returns of other funds
that may invest in the Portfolios may differ from those of the Funds.
The previous table reflects N&B Management's voluntary
undertaking to reimburse Cash Reserves, Ultra Short, Limited Maturity,
Municipal Securities and New York Insured Intermediate for each Fund's
Operating Expenses and that Fund's pro rata share of its corresponding
Portfolio's Operating Expenses which, in the aggregate, exceed 0.65% per
annum (0.70% for Limited Maturity) of the Fund's average daily net assets.
Each undertaking can be terminated by N&B Management by giving a Fund at
least 60 days' prior written notice. Absent the reimbursement, Management
and Administration Fees would be 0.52%, 0.52%, 0.52%, 0.52%, and 0.52% and
Total Operating Expenses would be 0.68%, 0.87%, 0.71%, 0.98% and 1.68% per
annum of the average daily net assets of Cash Reserves, Ultra Short,
Limited Maturity, Municipal Securities, and New York Insured Intermediate,
respectively, based upon the expenses of each Fund for its 1995 fiscal
year. Absent the reimbursement, Other Expenses would be 1.16% per annum of
the average daily net assets of New York Insured Intermediate.
For more information about the current expense reimbursement
undertakings, see "Expenses" on page 33.
Example
To illustrate the effect of Operating Expenses, let's assume that
each Fund's annual return is 5% and that it had Total Operating Expenses
described in the table above. For every $1,000 you invested in each Fund,
you would have paid the following amounts of total expenses if you closed
your account at the end of each of the following time periods:
<TABLE>
<CAPTION>
Neuberger&Berman
Income Funds 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
GOVERNMENT MONEY $7 $21 $36 $81
CASH RESERVES $7 $21 $36 $81
- 8 -
<PAGE>
Neuberger&Berman
Income Funds 1 Year 3 Years 5 Years 10 Years
ULTRA SHORT $7 $21 $36 $81
LIMITED MATURITY $7 $22 $39 $87
MUNICIPAL MONEY $7 $23 $40 $88
MUNICIPAL SECURITIES $7 $21 $36 $81
NEW YORK INSURED INTERMEDIATE $7 $21 $36 $81
</TABLE>
The assumption in this example of a 5% annual return is required
by regulations of the Securities and Exchange Commission applicable to all
mutual funds. The information in the table should not be considered a
representation of past or future expenses or rates of return; actual
expenses or returns may be greater or less than those shown, and may
change if expense reimbursements change.
- 9 -
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios
The financial information in the following tables is for each
Fund as of October 31, 1995 and includes data related to each Fund before
it was converted into a series of the Trust on July 2, 1993 (except
Neuberger&Berman New York Insured Intermediate Fund, which commenced
operations on February 1, 1994). This information has been audited by the
Funds' independent auditors. You may obtain, at no cost, further
information about the performance of the Funds in their annual reports to
shareholders. The annual reports contain the auditors' reports. Please
call 800-877-9700 for a free copy and for up-to-date information. Also,
see "Performance Information."
- 10 -
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Government Money Fund
-------------------------------------------------------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1/ 1994 1/ 1993 1/ 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $1.0000 $1.0000 $1.0000 $1.0003 $1.0000
Income From Investment Operations
Net Investment Income .0499 .0302 .0248 .0354 .0567
Net Gains or Losses on Securities -- -- -- -- .0003
Total From Investment .0499 .0302 .0248 .0354 .0570
Operations
Less Distributions
Dividends (from net investment (.0499) (.0302) (.0248) (.0354) (.0567)
income)
Distributions (from capital -- -- -- (.0003) --
gains)
Total Distributions (.0499) (.0302) (.0248) (.0357) (.0567)
Net Asset Value, End of Year $1.0000 $1.0000 $1.0000 $1.0000 $1.0003
Total Return* +5.10% +3.07% +2.51% +3.62% +5.82%
Ratios/Supplemental Data
Net Assets, End of Year (in $308.3 $251.5 $277.2 $301.1 $246.5
millions)
Ratio of Expenses to Average Net .65% .72% .70% .66% .68%
Assets
Ratio of Net Income to Average 5.00% 3.00% 2.48% 3.50% 5.66%
Net Assets
</TABLE>
See Notes to Financial Highlights.
- 11 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31
1990 1989 1988 1987 1986 2/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ .9997 $1.0000 $1.0002 $1.0002 $1.0003
Income From Investment Operations
Net Investment Income .0718 .0758 .0579 .0504 .0597
Net Gains or Losses on Securities .0003 (.0002) -- .0002 .0002
Total From Investment Operations .0721 .0756 .0579 .0506 .0599
Less Distributions
Dividends (from net investment income) (.0718) (.0758) (.0579) (.0504) (.0597)
Distributions (from capital gains) -- (.0001) (.0002) (.0002) (.0003)
Total Distributions (.0718) (.0759) (.0581) (.0506) (.0600)
Net Asset Value, End of Year $1.0000 $.9997 $1.0000 $1.0002 $1.0002
Total Return* +7.42% +7.86% +5.97% +5.18% +6.17%
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $234.6 $184.3 $173.2 $266.4 $156.1
Ratio of Expenses to Average Net Assets .74% .87% .79% 5/ .75% 5/ .75% 5/
Ratio of Net Income to Average Net Assets 7.19% 7.55% 5.73% 5/ 5.11% 5/ 5.80% 5/
</TABLE>
- 12 -
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Cash Reserves
----------------------------------------------------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1/ 1994 1/ 1993 1/ 1992
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $1.0000 $1.0001 $1.0001 $1.0000
Income From Investment Operations
Net Investment Income .0529 .0327 .0263 .0363
Net Gains or Losses on Securities -- -- .0002 .0002
Total From Investment .0529 .0327 .0265 .0365
Operations
Less Distributions
Dividends (from net investment (0.529) (.0327) (.0263) (.0363)
income)
Distributions (from capital -- (.0001) (.0002) (.0001)
gains)
Total Distributions (0.529) (.0328) (.0265) (.0364)
Net Asset Value, End of Year $1.0000 $1.0000 $1.0001 $1.0001
Total Return* +5.42% +3.33% +2.68% +3.69%
Ratios/Supplemental Data
Net Assets, End of Year (in $408.9 $311.9 $273.1 $261.7
millions)
Ratio of Expenses to Average Net .65% .65% .65% .65%
Assets 5/
Ratio of Net Income to Average 5.30% 3.31% 2.63% 3.63%
Net Assets 5/
</TABLE>
See Notes to Financial Highlights.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Period from
Year Ended October 31, April 12, 1988 3/
to October 31,
1991 1990 1989 1988
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $1.0000 $1.0001 $1.0000 $1.0000
Income From Investment Operations
Net Investment Income .0600 .0766 .0866 .0401
Net Gains or Losses on Securities -- -- .0001 --
Total From Investment .0600 .0766 .0867 .0401
Operations
Less Distributions
Dividends (from net investment (.0600) (.0766) (.0866) (.0401)
income)
Distributions (from capital -- (.0001) -- --
gains)
Total Distributions (.0600) (.0767) (.0866) (.0401)
Net Asset Value, End of Year $1.0000 $1.0000 $1.0001 $1.0000
Total Return* +6.17% +7.94% +9.01% +4.08% 4/
Ratios/Supplemental Data
Net Assets, End of Year (in $278.9 $278.2 $267.1 $140.9
millions)
Ratio of Expenses to Average Net .65% .65% .65% .60% 6/
Assets 5/
Ratio of Net Income to Average 6.00% 7.66% 8.70% 7.54% 6/
Net Assets 5/
</TABLE>
- 14 -
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Ultra Short Bond Fund
-------------------------------------------------------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1/ 1994 1/ 1993 1/ 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.47 $9.64 $9.70 $9.83 $9.79 $9.83
Income From Investment Operations
Net Investment Income .52 .35 .40 .56 .68 .79
Net Gains or Losses on Securities .06 (.17) (.06) (.13) .04 (.04)
(both realized and unrealized)
Total From Investment Operations .58 .18 .34 .43 .72 .75
Less Distributions
Dividends (from net investment income) (.52) (.35) (.40) (.56) (.68) (.79)
Net Asset Value, End of Year $9.53 $9.47 $9.64 $9.70 $9.83 $9.79
Total Return* +6.26% +1.96% +3.53% +4.44% +7.64% +7.98%
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $100.5 $101.1 $104.4 $103.3 $97.9 $85.8
Ratio of Expenses to Average Net Assets 5/ .65% .65% .65% .65% .65% .65%
Ratio of Net Income to Average Net Assets 5/ 5.44% 3.72% 4.09% 5.70% 6.97% 8.14%
Portfolio Turnover Rate 7/ -- -- 115% 66% 89% 120%
</TABLE>
See Notes to Financial Highlights.
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Period from Period from
March 1, 1988 Year Ended Nov. 7, 1986 3/
to Oct. 31, Feb. 29, to Feb. 28
1989 1988 1988 1987
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.87 $9.93 $9.98 $9.99
Income From Investment Operations
Net Investment Income .89 .47 .66 .18
Net Gains or Losses on Securities (.04) (.06) (.05) (.01)
(both realized and unrealized)
Total From Investment .85 .41 .61 .17
Operations
Less Distributions
Dividends (from net investment (.89) (.47) (.66) (.18)
income)
Net Asset Value, End of Year $9.83 $9.87 $9.93 $9.98
Total Return* +9.05% +4.20% 4/ +6.31% +1.75% 4/
Ratios/Supplemental Data
Net Assets, End of Year (in $103.3 $101.0 $125.3 $66.7
millions)
Ratio of Expenses to Average Net .65% .63% 6/ .50% .50% 6/
Assets 5/
Ratio of Net Income to Average 9.06% 7.01% 6/ 6.72% 6.03 6/
Net Assets 5/
Portfolio Turnover Rate 7/ 85% 47% 121% 39%
</TABLE>
- 16 -
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Limited Maturity Bond Fund
------------------------------------------------------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1/ 1994 1/ 1993 1/ 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.88 $10.49 $10.40 $10.24 $9.91 $9.96
Income From Investment Operations
Net Investment Income .62 .56 .58 .63 .71 .80
Net Gains or Losses on Securities .18 (.55) .14 .16 .33 (.05)
(both realized and unrealized)
Total From Investment Operations .80 .01 .72 .79 1.04 .75
Less Distributions
Dividends (from net investment income) (.62) (.56) (.58) (.63) (.71) (.80)
Distributions (from capital gains) -- (.05) (.05) -- -- --
Distributions (in excess of capital gains) -- (.01) -- -- -- --
Tax return of capital -- -- -- -- -- --
Total Distributions (.62) (.62) (.63) (.63) (.71) (.80)
Net Asset Value, End of Year $10.06 $9.88 $10.49 $10.40 $10.24 $9.91
Total Return* +8.32% +.013% +7.09% +7.87% +10.89% +7.85%
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $307.4 $308.6 $357.3 $273.0 $163.2 $101.3
Ratio of Expenses to Average Net Assets 5/ .70% .69% .65% .65% .65% .65%
Ratio of Net Investment Income to Average Net 6.21% 5.53% 5.49% 6.02% 7.07% 8.09%
Assets 5/
Portfolio Turnover Rate 7/ -- -- 114% 113% 88% 88%
</TABLE>
See Notes to Financial Highlights.
- 17 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31,
Period from
March 1, 1988 Year Ended Period from June 9,
to Oct. 31, Feb. 29, 1986 3/ to Feb. 28,
1989 1988 1988 1987
<S> <C> <C> <C> <C>
$9.88 $10.00 $10.17 $10.00
Net Asset Value, Beginning of Year
Income From Investment Operations .82 .48 .69 .48
Net Investment Income .08 (.12) (.17) .17
Net Gains or Losses on .90 .36 .52 .65
Securities
(both realized and unrealized)
Total From Investment
Operations
Less Distributions (.82) (.48) (.69) (.48)
Dividends (from net investment -- -- -- --
income)
Distributions (from capital -- -- -- --
gains)
Distributions (in excess of -- -- -- --
capital gains)
Tax return of capital (.82) (.48) (.69) (.48)
Total Distributions $9.96 $9.88 $10.00 $10.17
Net Asset Value, End of Year +9.56% +3.76% 4/ +5.39% +6.58% 4/
Total Return*
Ratios/Supplemental Data $107.7 $133.5 $107.3 $69.6
Net Assets, End of Year (in .65% .63% 6/ .50% .50% 6/
millions)
Ratio of Expenses to Average Net 8.33% 7.34% 6/ 6.97% 6.71 6/
Assets 5/
</TABLE>
- 18 -
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Municipal Money Fund
--------------------------------------------------------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1/ 1994 1/ 1993 1/ 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $.9995 $.9996 $.9995 $.9989 $.9989 $.9989
Income From Investment Operations
Net Investment Income .0324 .0204 .0184 .0263 .0432 .0539
Net Gains or Losses on Securities (.0001) (.0001) .0001 .0006 -- --
Total From Investment .0323 .0203 .0185 .0269 .0432 .0539
Operations
Less Distributions
Dividends (from net investment (0.324) (.0204) (.0184) (.0263) (.0432 (.0539)
income) )
Net Asset Value, End of Year $.9994 $.9995 $.9996 $.9995 $.9989 $.9989
Total Return* +3.29% +2.06% +1.86% +2.66% +4.40% +5.53%
Ratios/Supplemental Data
Net Assets, End of Year (in $160.9 $150.3 $181.6 $195.6 $173.9 $190.6
millions)
Ratio of Expenses to Average Net .71% .73% .74% .67% .66% .67%
Assets
Ratio of Net Income to Average Net 3.24% 2.02% 1.85% 2.63% 4.34% 5.41%
Assets
</TABLE>
See Notes to Financial Highlights.
- 19 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31,
1989 1988 1987 1986
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $.9993 $.9995 $1.0000 $1.0000
Income From Investment Operations
Net Investment Income .0591 .0478 .0388 .0447
Net Gains or Losses on Securities (.0004) (.0002) (.0005) --
Total From Investment Operations .0587 .0476 .0383 .0447
Less Distributions
Dividends (from net investment income) (.0591) (.0478) (.0388) (.0447)
Net Asset Value, End of Year $.9989 $.9993 $.9995 $1.0000
Total Return* +6.07% +4.89% +3.95% +4.56%
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $204.8 $184.5 $226.1 $231.4
Ratio of Expenses to Average Net .74% .69% .71% .72%
Assets
Ratio of Net Income to Average Net 5.91% 4.76% 3.90% 4.29%
Assets
</TABLE>
- 20 -
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Municipal Securities Trust
--------------------------------------------------------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1/ 1994 1/ 1993 1/ 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.26 $11.12 $10.53 $10.39 $10.14
Income From Investment Operations
Net Investment Income .47 .46 .48 .54 .58
Net Gains or Losses on Securities .57 (.73) .68 .14 .25
(both realized and unrealized)
Total From Investment Operations 1.04 (.27) 1.16 .68 .83
Less Distributions
Dividends (from net investment income) (.47) (.46) (.48) (.54) (.58)
Distributions (from capital gains) -- (.12) (.09) -- --
Distributions (in excess of capital gains) -- (.01) -- -- --
Total Distributions (.47) (.59) (.57) (.54) (.58)
Net Asset Value, End of Year $10.83 $10.26 $11.12 $10.53 $10.39
Total Return* +10.35% -2.57% +11.30% +6.72% +8.41%
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $44.3 $51.1 $105.2 $37.0 $25.5
Ratio of Expenses to Average Net Assets 5/ .65% .65% .62% .50% .50%
Ratio of Net Income to Average Net Assets 4.45% 4.24% 4.33% 5.16% 5.61%
5/
Portfolio Turnover Rate 7/ -- -- 35% 46% 10%
See Notes to Financial Highlights.
- 21 -
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Period from
Year Ended October 31, July 9, 1987
3/ to Oct. 31,
1990 1989 1988 1987
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of $10.09 $10.08 $9.73 $10.00
Year
Income From Investment
Operations
Net Investment Income .64 .63 .59 .15
Net Gains or Losses on .05 .01 .35 (.27)
Securities
(both realized and
unrealized)
Total From Investment .69 .64 .94 (.12)
Operations
Less Distributions
Dividends (from net (.64) (.63) (.59) (.15)
investment income)
Distributions (from capital -- -- -- --
gains)
Distributions (in excess of -- -- -- --
capital gains)
Total Distributions (.64) (.63) (.59) (.15)
Net Asset Value, End of Year $10.14 $10.09 $10.08 $9.73
Total Return* +6.99% +6.55% +9.88% -1.15% 4/
Ratios/Supplemental Data
Net Assets, End of Year (in $14.1 $10.5 $9.8 $6.7
millions)
Ratio of Expenses to Average .50% .50% .50% .50% 6/
Net Assets 5/
Ratio of Net Income to 6.28% 6.26% 5.90% 5.29% 6/
Average Net Assets 5/
42% 17% 23% 0%
</TABLE>
- 22 -
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
New York Insured Intermediate Fund
------------------------------------------------------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. The per share amounts and ratios which are
shown reflect income and expenses, including the Fund's proportionate
share of its corresponding Portfolio's income and expenses. It should be
read in conjunction with its corresponding Portfolio's Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
Period from February 1,
Year Ended 1994 3/ to October 31,
October 31, 1995 1994
<S> <C> <C>
Net Asset Value, Beginning of Year $9.25 $10.00
Income From Investment Operations
Net Investment Income .41 .29
Net Gains or Losses on Securities .76 (.75)
(both realized and unrealized)
Total From Investment Operations 1.17 (.46)
Less Distributions
Dividends (from net investment income) (.41) (.29)
Net Asset Value, End of Year $10.01 $9.25
Total Return* +12.88% -4.63% 4/
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $11.5 $14.7
Ratio of Expenses to Average Net Assets 5/ .66% .65% 6/
Ratio of Net Investment Income to Average 4.24% 4.10% 6/
Net Assets 5/
</TABLE>
See Notes to Financial Highlights.
- 23 -
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
1) The per share amounts and ratios which are shown reflect income
and expenses including each Fund's proportionate share of its
corresponding Portfolio's income and expenses.
2) Data for the year ended October 31, 1986 includes the combined
operations of the Neuberger&Berman Government Money Fund and of
Sentry Cash Management Fund for the period from the date of the
merger of the two funds (March 3, 1986). The merger was accounted
for under the purchase method of accounting.
3) The date investment operations commenced.
4) Not annualized.
5) After reimbursement of expenses by N&B Management. Had N&B
Management not undertaken such action the annualized ratios to
average daily net assets would have been:
<TABLE>
<CAPTION>
Year Ended October 31,
Neuberger&Berman Government Money Fund
1988 1987 1986
<S> <C> <C> <C>
Expenses .83% .90% .95%
Net Investment Income 5.69% 4.96% 5.60%
</TABLE>
<TABLE>
<CAPTION>
Period
from
April 12,
1988 to
Year Ended October 31, Oct. 31,
Neuberger&Berman
Cash Reserves 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses .68% .71% .76% .69% .69% .72% .83% 1.03%
Net Investment Income 5.27% 3.25% 2.52% 3.59% 5.96% 7.59% 8.52% 7.11%
</TABLE>
<TABLE>
<CAPTION>
- 24 -
<PAGE>
Period Period
from from
March 1, Year Nov. 7,
1988 to Ended 1986 to
Year Ended October 31, Oct. 31, Feb. 29, Feb. 28,
Neuberger&Berman
Ultra Short 1995 1994 1993 1992 1991 1990 1989 1988 1988 1987
Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses .87% .86% .95% .87% .87% .81% .92% .89% .95% 1.50%
Net Investment 5.22% 3.51% 3.79% 5.48% 6.75% 7.98% 8.79 6.75% 6.27% 5.03%
income %
</TABLE>
<TABLE>
<CAPTION>
Period
from July
9, 1987
to Oct.
Year Ended October 31, 31,
Neuberger&Berman
Municipal 1995 1994 1993 1992 1991 1990 1989 1988 1987
Securities Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses .98% .82% 1.04% 1.16% 1.38% 1.67% 2.50% 2.00% 1.50%
Net Investment Income 4.12% 4.07% 3.91% 4.50% 4.73% 5.11% 4.26% 4.40% 4.29%
</TABLE>
<TABLE>
<CAPTION>
Period Period
from Year from
March 1, Ended June 9,
1988 to Feb. 29, 1986 to
Year Ended October 31, Oct. 31, 1988 Feb. 28,
Neuberger&Berman
Limited Maturity 1995 1994 1993 1992 1991 1990 1989 1988 1988 1987
Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses .71% .71% .73% .68% .72% .71% .77% .74% .78% 1.50%
Net Investment 6.20% 5.51% 5.42% 5.99% 7.00% 8.03% 8.21% 7.23% 6.69% 5.71%
income
- 25 -
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Period
from
February 1,
1994 to
Neuberger&Berman Year Ended October 31,
New York Insured Intermediate Fund October 31, 1995 1994
<S> <C> <C>
Expenses 1.83% 1.53%
Net Investment Income 3.07% 3.22%
</TABLE>
6) Annualized.
7) Neuberger&Berman Ultra Short Bond Fund, Neuberger&Berman Limited
Maturity Bond Fund, and Neuberger&Berman Municipal Securities
Trust transferred all of their investment securities into their
respective Portfolios on July 2, 1993. After that date each Fund
invested only in its corresponding Portfolio, and that Portfolio,
rather than the Fund, engaged in securities transactions.
Therefore, after that date, no Fund has calculated a portfolio
turnover rate. The portfolio turnover rates for each Portfolio
were as follows:
<TABLE>
<CAPTION>
Period from July
Year Ended October 31, 2, 1993
(Commencement of
Operations) to
1995 1994 October 31, 1993
<S> <C> <C> <C>
Neuberger&Berman Ultra Short Bond 148% 94% 46%
Portfolio
Neuberger&Berman Limited Maturity 88% 102% 71%
Bond Portfolio
Neuberger&Berman Municipal 66% 127% 25%
Securities Portfolio
</TABLE>
- 26 -
<PAGE>
<TABLE>
<CAPTION>
Period from February 1, 1994
(Commencement of Operations) to
Year Ended October 31, 1995 October 31, 1994
<S> <C> <C>
Neuberger&Berman New York Insured 17% 96%
Intermediate Portfolio
</TABLE>
* Total return based on per share net asset value reflects the
effects of changes in net asset value on the performance of each
Fund during each year or other fiscal period shown in the table,
and assumes dividends and capital gain distributions, if any,
were reinvested. Results represent past performance and do not
guarantee future results. Investment returns and principal may
fluctuate and shares when redeemed may be worth more or less than
original cost. For each Fund (except Neuberger&Berman Government
Money Fund and Neuberger&Berman Municipal Money Fund), total
return would have been lower if N&B Management had not reimbursed
certain expenses.
- 27 -
<PAGE>
INVESTMENT PROGRAMS
The investment policies and limitations of each Fund and its
corresponding Portfolio are identical. Each Fund invests only in its
corresponding Portfolio. Therefore, the following shows you the kinds of
securities in which each Portfolio invests. For an explanation of some
types of investments, see "Description of Investments" on page 34.
Investment policies and limitations of the Funds and Portfolios
are not fundamental unless otherwise specified in this Prospectus or the
SAIs. While a non-fundamental policy or limitation may be changed by the
trustees of the Trust or of Managers Trust without shareholder approval,
the Funds intend to notify shareholders before making any material change
to such policies or limitations. Fundamental policies may not be changed
without shareholder approval.
The investment objectives of the Funds and Portfolios are not
fundamental. The Funds have undertaken not to change their investment
objectives without 30 days' prior notice to shareholders. There can be no
assurance that the Funds or Portfolios will achieve their objectives. Each
Fund, by itself, does not represent a comprehensive investment program.
Additional investment techniques, features, and limitations
concerning the Portfolios' investment programs are described in the SAIs.
The value of fixed income securities is likely to rise in times
of falling market interest rates and fall in times of rising interest
rates. Investments in shorter-term income securities normally are less
affected by interest rate changes than are investments in longer-term
securities. The value of income securities is also affected by changes in
the creditworthiness of the issuer.
Money Market Portfolios
The investment objective of Neuberger&Berman Government Money
Fund and Portfolio is to provide maximum safety and liquidity with the
highest available current income. The investment objective of
Neuberger&Berman Cash Reserves and Neuberger&Berman Cash Reserves
Portfolio is to provide the highest current income consistent with safety
and liquidity.
Neuberger&Berman Government Money Portfolio and Neuberger&Berman
Cash Reserves Portfolio each invests in a portfolio of debt instruments
with remaining maturities of 397 days or less and maintains a dollar-
weighted average portfolio maturity of not more than 90 days. Each
Portfolio uses the amortized cost method of valuation to enable its
corresponding Fund to maintain a stable $1.00 share price. Of course,
there is no guarantee that either Fund will be able to maintain a $1.00
share price.
Neuberger&Berman Government Money Portfolio, as a fundamental
policy, may invest only in U.S. Treasury obligations and other securities
- 28 -
<PAGE>
backed by the full faith and credit of the United States. Currently, the
Portfolio invests only in U.S. Treasury obligations. As a fundamental
policy, the Portfolio may not invest in repurchase agreements.
Neuberger&Berman Cash Reserves Portfolio invests in high-quality
U.S. dollar denominated money market instruments of U.S. and foreign
issuers, including governments and their agencies and instrumentalities,
banks and other financial institutions, and corporations, and may invest
in repurchase agreements with respect to these instruments. The Portfolio
may invest 25% or more of its total assets in U.S. Government and Agency
Securities or in certificates of deposit or bankers' acceptances issued by
domestic branches of U.S. banks.
Bond Portfolios
The investment objective of Neuberger&Berman Ultra Short Bond
Fund and Portfolio is to provide a higher total return than is available
from money market funds, with minimal risk to principal and liquidity. The
investment objective of Neuberger&Berman Limited Maturity Bond Fund and
Portfolio is to provide the highest current income consistent with low
risk to principal and liquidity; and secondarily, total return.
Neuberger&Berman Ultra Short Bond Portfolio and Neuberger&Berman
Limited Maturity Bond Portfolio each invests in a diversified portfolio of
fixed and variable rate debt securities and seeks to increase income and
preserve or enhance total return by actively managing average portfolio
duration in light of market conditions and trends.
Neuberger&Berman Ultra Short Bond Portfolio invests in a
diversified portfolio of U.S. Government and Agency Securities and high-
quality debt securities issued by financial institutions, corporations,
and others. The Portfolio's dollar-weighted average duration will not
exceed two years. Securities in which the Portfolio may invest include
mortgage-backed and asset-backed securities, money market instruments,
repurchase agreements with respect to U.S. Government and Agency
Securities, and U.S. dollar-denominated securities of foreign issuers.
The Portfolio may also purchase and sell options, futures contracts and
options on futures contracts. The Portfolio may invest 25% or more of its
total assets in U.S. Government and Agency Securities or in certificates
of deposit or bankers' acceptances issued by domestic branches of U.S.
banks.
Neuberger&Berman Limited Maturity Bond Portfolio invests in a
diversified portfolio consisting primarily of short- to intermediate-term
U.S. Government and Agency Securities and primarily investment grade debt
securities issued by financial institutions, corporations, and others. The
dollar-weighted average duration of the Portfolio will not exceed four
years. The Portfolio's dollar-weighted average maturity may range up to
five years. Securities in which the Portfolio may invest include
mortgage-backed and asset-backed securities, repurchase agreements with
respect to U.S. Government and Agency Securities, and foreign investments.
The Portfolio may invest up to 10% of its net assets in fixed income
- 29 -
<PAGE>
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by N&B Management to be of
comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Ratings of
Securities." The Portfolio may purchase and sell covered call and put
options, interest-rate futures contracts, and options on those futures
contracts and may lend portfolio securities. The Portfolio may invest up
to 5% of its net assets in municipal securities when N&B Management
believes such securities may outperform other available issues.
Municipal Portfolios
The investment objective of Neuberger&Berman Municipal Money Fund
and Portfolio is to provide the maximum current income exempt from federal
income tax ("tax-exempt income") consistent with safety and liquidity. The
investment objective of Neuberger&Berman Municipal Securities Trust and
Portfolio is to provide high current tax-exempt income with low risk to
principal, limited price fluctuation and liquidity, and secondarily, total
return. The investment objective of Neuberger&Berman New York Insured
Intermediate Fund and Portfolio is to seek a high level of current income
exempt from federal income tax and New York State and New York City
personal income taxes, consistent with preservation of capital.
Each Portfolio may invest in municipal securities issued to
finance private activities, the interest on which is a tax-preference item
for purposes of the federal alternative minimum tax. To the extent a
Portfolio makes those investments and you are subject to that tax, a
portion of your dividends from the corresponding Fund will be subject to
that tax. See "Dividends, Other Distributions, and Taxes."
Neuberger&Berman Municipal Money Portfolio and Neuberger&Berman Municipal
Securities Portfolio each normally invests only in municipal obligations
with fixed and variable interest rates. In addition, when, in N&B
Management's opinion, market conditions warrant a defensive posture, each
Portfolio may temporarily invest part of its assets in short-term, high-
quality taxable securities.
Neuberger&Berman Municipal Money Portfolio invests in high-
quality municipal obligations with remaining maturities of 397 days or
less and maintains a dollar-weighted average portfolio maturity of not
more than 90 days. The Portfolio uses the amortized cost method of
valuation to enable its corresponding Fund to maintain a stable $1.00
share price. Of course, there is no guarantee that the Fund will be able
to maintain a $1.00 share price.
Neuberger&Berman Municipal Securities Portfolio invests in
securities rated A or better by S&P or Moody's (or, if unrated by either
of these agencies, deemed by N&B Management to be of comparable quality).
As a fundamental policy, the Portfolio invests at least 80% of its total
assets in municipal obligations. The Portfolio's dollar-weighted average
duration will not exceed ten years. The Portfolio seeks to increase income
and preserve or enhance total return by actively managing the average
portfolio duration in light of market conditions and trends. The Portfolio
- 30 -
<PAGE>
also may seek to hedge all or a part of its portfolio against changes in
securities prices resulting from changes in interest rates by buying or
selling interest rate futures contracts and options on those contracts.
Neuberger&Berman New York Insured Intermediate Portfolio invests
in municipal obligations issued by the State of New York, its authorities,
multi-state authorities, municipalities, counties, and any other political
subdivisions and in municipal obligations issued by territories or
possessions of the United States, such as the Virgin Islands, Guam, and
Puerto Rico, the interest income from which is exempt, in the opinion of
counsel for the issuer, from federal income tax and New York State and New
York City personal income taxes ("New York Municipal Securities"). At
least 65% of the Portfolio's total assets normally will be invested in the
highest-rated New York Municipal Securities which are insured as to the
timely payment of principal and interest by municipal bond insurance
("Municipal Bond Insurance"). Municipal Bond Insurance provides an
unconditional and irrevocable guarantee that the insured bond's principal
and interest will be paid when due. The insurance is purchased from a
private, non-governmental insurance company. The insurance does not
guarantee the market value of the municipal bonds or the value of the
interests in the Portfolio. The insured bonds purchased by the Portfolio
must at the time of purchase have the highest credit rating available from
a nationally recognized statistical rating organization ("NRSRO"). For
such insured bonds to receive the highest credit rating, at least one
NRSRO must rate the claims-paying ability or financial strength of the
insurance company in the highest category (within which there may be
gradations). There is, of course, no guarantee that the claims-paying
ability or financial strength of the insurers will continue to receive the
highest credit ratings, or that the insurers will be able to pay all
claims when due.
The insured municipal bonds purchased by Neuberger&Berman New
York Insured Intermediate Portfolio will carry Municipal Bond Insurance
obtained to improve the bond's credit rating. Once purchased Municipal
Bond Insurance cannot be canceled by the insurer, and the protection it
affords continues as long as the bonds are outstanding and the insurer
remains solvent. The Municipal Bond Insurance covering the municipal
securities purchased by the Portfolio will be either new issue insurance
("New Issue Insurance") or secondary insurance ("Secondary Insurance").
New Issue Insurance is purchased by the respective issuers of the
municipal securities at the time of the original issuance of those
securities. Secondary Insurance may be purchased by the broker, another
investor or the Portfolio after the municipal security is originally
issued. Generally, the Portfolio expects that municipal securities it
purchases will carry insurance obtained by another party.
Neuberger&Berman New York Insured Intermediate Portfolio may
purchase bonds insured by AMBAC Indemnity Corporation, Municipal Bond
Investors Assurance Corporation or Financial Guaranty Insurance Company
(known as AMBAC, MBIA Corp. and FGIC, respectively), or any other
insurance company that has received the highest credit rating. The
Portfolio may invest more than 25% of its assets in bonds insured by the
- 31 -
<PAGE>
same insurance company. Further information regarding Municipal Bond
Insurance and insurance companies is included in the SAI.
Neuberger&Berman New York Insured Intermediate Portfolio's
remaining assets normally will be invested in New York Municipal
Securities that are not so insured and are rated investment grade or
better and in other investments described in this Prospectus. The
Portfolio may invest up to 100% of its assets in New York Municipal
Securities and certain other municipal securities issued to finance
private activities whose interest is a tax-preference item for purposes of
the federal alternative minimum tax. To the extent the Portfolio makes
those investments and you are subject to that tax, a portion of your
dividends from the Fund may not be exempt from federal income tax. See
"Dividends, Other Distributions, and Taxes."
During seasonal variations or other shortages in the supply of
suitable New York Municipal Securities, Neuberger&Berman New York Insured
Intermediate Portfolio may purchase uninsured New York Municipal
Securities; or municipal securities the interest income on which is exempt
from federal income tax, but not New York State and New York City personal
income taxes, or taxable U.S. Government and Agency Securities. However,
as a fundamental policy, the Portfolio normally invests at least 80% of
its total assets in municipal obligations.
Neuberger&Berman New York Insured Intermediate Portfolio's
dollar-weighted average duration will not exceed ten years. The Portfolio
seeks to increase income and preserve or enhance total return by actively
managing average portfolio duration in light of market conditions and
trends. The Portfolio also may seek to hedge all or a part of its
portfolio against changes in securities prices by buying or selling
interest-rate futures contracts and options. Although the Portfolio is
"non-diversified" for federal securities law purposes, it will limit its
investments to meet federal tax requirements so that, as of the last day
of each quarter of its taxable year, not more than 25% of its total assets
are invested in the securities of a single issuer and, with respect to at
least 50% of its total assets, not more than 5% of those assets are
invested in the securities of a single issuer (other than, in each case,
U.S. Government and Agency Securities). The Portfolio may not invest 25%
or more of its total assets in revenue bonds related to a single industry
but may invest 25% or more of its total assets in securities that depend
on revenue from similar types of projects, e.g., transportation, electric
utilities, housing, or health care. Developments affecting a single issuer
or industry, or securities financing particular types of projects, could
thus have a significant effect on the Portfolio.
Because Neuberger&Berman New York Insured Intermediate Portfolio
invests primarily in New York Municipal Securities, the Fund's yield and
share price are sensitive to political and economic developments within
the State of New York ("State") and to the financial condition of the
State, its public authorities, and political subdivisions, particularly
the City of New York ("City"). Both the State and the City have
experienced significant financial difficulties related to poor economic
- 32 -
<PAGE>
performance, and no assurance can be given that the State or the City will
not experience future fiscal instabilities. Further information regarding
the financial condition of the State and the City may be found in the SAI.
New York Municipal Securities include general obligations of
Puerto Rico and its political subdivisions and public corporations. The
economy of Puerto Rico is closely linked with that of the United States
and will depend on several factors, including the condition of the U.S.
economy, the exchange rate for U.S. dollars, the price stability of oil
imports, and interest rates.
Short-Term Trading; Portfolio Turnover
Although none of the Portfolios purchases securities with the
intention of profiting from short-term trading, each Portfolio may sell
portfolio securities prior to maturity when N&B Management believes that
such action is advisable. The portfolio turnover rates of Neuberger&Berman
Ultra Short Bond, Limited Maturity Bond, Municipal Securities and New York
Insured Intermediate Portfolios for 1995 and earlier years are set forth
under "Notes to Financial Highlights." Turnover rates in excess of 100%
generally result in higher transaction costs (which are borne directly by
the Portfolio) and a possible increase in realized short-term capital
gains or losses.
Ratings of Securities
HIGH-QUALITY DEBT SECURITIES. High-quality debt securities are
securities that have received a rating from at least one NRSRO, such as
S&P or Moody's, 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 N&B
Management to be of comparable quality. 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 Money Market Portfolio,
(including Neuberger&Berman Municipal Money Portfolio).
INVESTMENT GRADE DEBT SECURITIES. Investment grade debt
securities are securities that have received a rating from at least one
NRSRO in one of the four highest rating categories or, if not rated by any
NRSRO, have been determined by N&B Management to be of comparable quality.
Moody's deems securities rated in its fourth highest category (Baa) to
have speculative characteristics; a change in economic factors could lead
to a weakened capacity of the issuer to repay.
Neuberger&Berman Limited Maturity Bond Portfolio may invest up to
10% of its assets in fixed income securities that are rated below
investment grade, i.e., rated below Baa by Moody's or BBB by S&P, but at
least B (or, if unrated, determined by N&B Management to be of comparable
quality). Securities rated below investment grade are described as
"speculative" by both Moody's and S&P. Securities rated B are judged to be
predominantly speculative with respect to their capacity to pay interest
and repay principal in accordance with the terms of the obligations.
- 33 -
<PAGE>
Changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity
of the issuer of such securities to make principal and interest payments
than is the case for higher grade debt securities. An economic downturn
affecting the issuer may result in an increased incidence of default. The
market for lower-rated securities may be thinner and less active than for
higher-rated securities. N&B Management seeks to reduce the risks
associated with investing in such securities by limiting the Portfolio's
holdings in them and by extensively analyzing the potential benefits of
such an investment in relation to the associated risks.
If the quality of securities held by any Portfolio (other than a
Money Market Portfolio, Neuberger & Berman Municipal Money Portfolio, or
Neuberger&Berman New York Insured Intermediate Portfolio) deteriorates so
that the securities would no longer satisfy that Portfolio's standards,
the Portfolio will engage in an orderly disposition of the downgraded
securities to the extent necessary to ensure that the Portfolio's holdings
of such securities do not exceed 5% of its net assets. The Money Market
Portfolios, (including Neuberger&Berman Municipal Money Portfolio) in
accordance with Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"), will consider disposing of the securities. Neuberger&Berman New
York Insured Intermediate Portfolio will seek to dispose of the securities
as soon as is reasonably practicable. Further information regarding the
ratings assigned to securities purchased by the Portfolios and their
meaning is included in the SAIs and in the Funds' annual reports.
Borrowings
Each Portfolio has a fundamental policy that it may not borrow
money, except that it may (1) borrow money from banks for temporary or
emergency purposes and not for leveraging or investment and (2) except for
Neuberger&Berman Government Money Portfolio, enter into reverse repurchase
agreements for any purpose, so long as the aggregate amount of borrowings
and reverse repurchase agreements does not exceed one-third of the
Portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). None of the Portfolios expects to borrow money.
As a non-fundamental policy, none of these Portfolios may purchase
portfolio securities if its outstanding borrowings, including reverse
repurchase agreements, exceed 5% of its total assets. Dollar rolls are
treated as reverse repurchase agreements.
Other Investments
For temporary defensive purposes, each Portfolio may invest up to
100% of its total assets in cash or cash equivalents, commercial paper
(except for Neuberger&Berman Government Money Portfolio), U.S. Government
and Agency Securities and certain other money market instruments, as well
as (except for Neuberger&Berman Government Money Portfolio) repurchase
agreements on U.S. Government and Agency Securities, the interest on which
may be subject to federal and state income taxes, and may adopt shorter
weighted average maturities or durations than normal.
- 34 -
<PAGE>
Duration
Duration is a measure of the sensitivity of debt securities to
changes in market interest rates, based on the entire cash flow associated
with the securities, including payments occurring before the final
repayment of principal. For all Portfolios except the money market
portfolios, N&B Management utilizes duration as a tool in portfolio
selection instead of the more traditional measure known as "term to
maturity." "Term to maturity" measures only the time until a debt
security provides its final payment, taking no account of the pattern of
the security's payments prior to maturity. Duration incorporates a bond's
yield, coupon interest payments, final maturity and call features into one
measure. Duration therefore provides a more accurate measurement of a
bond's likely price change in response to a given change in market
interest rates. The longer the duration, the greater the bond's price
movement will be as interest rates change. For any fixed income security
with interest payments occurring prior to the payment of principal,
duration is always less than maturity.
Futures, options and options on futures have durations which are
generally related to the duration of the securities underlying them.
Holding long futures or call option positions will lengthen a Fund's
duration by approximately the same amount as would holding an equivalent
amount of the underlying securities. Short futures or put options have
durations roughly equal to the negative duration of the securities that
underlie these positions, and have the effect of reducing portfolio
duration by approximately the same amount as would selling an equivalent
amount of the underlying securities.
There are some situations where even the standard duration
calculation does not properly reflect the interest rate exposure of a
security. For example, floating and variable rate securities often have
final maturities of ten or more years; however, their interest rate
exposure corresponds to the frequency of the coupon reset. Another example
where the interest rate exposure is not properly captured by duration is
the case of mortgage-backed securities. The stated final maturity of such
securities is generally 30 years, but current prepayment rates are
critical in determining the securities' interest rate exposure. In these
and other similar situations, N&B Management, where permitted, will use
more sophisticated analytical techniques that incorporate the economic
life of a security into the determination of its interest rate exposure.
PERFORMANCE INFORMATION
The performance of the Funds can be measured as yield or as total
return. The Portfolios invest in various kinds of fixed income securities,
so their performance is related to changes in interest rates. Generally,
investments in shorter-term income securities are less affected by
interest rate changes than are investments in longer-term income
securities. For this reason, longer-term bond funds usually have higher
yields and carry more risk than shorter-term bond funds. Money market
funds, which seek to maintain a stable share price and invest only in
- 35 -
<PAGE>
income securities with remaining maturities of 397 days or less, have the
least risk. The creditworthiness of issuers of income securities also
affects their risk; for example, U.S. Government and Agency securities are
generally considered to have less risk than bonds rated "investment
grade."
The table under "Summary The Funds and Portfolios" shows the
investment objective, principal types of investments, and comparative
information for each Fund and its corresponding Portfolio. This should
help you decide which Fund best fits your needs. For more detailed
information, see "Investment Programs" and "Description of Investments."
Further information regarding each Fund's performance is presented in its
annual report to shareholders, which is available without charge by
calling 800-877-9700.
Yield
Yield refers to the income generated by an investment over a
particular period of time, which is annualized (assumed to have been
generated for one year) and expressed as an annual percentage rate.
Effective yield is yield assuming that all distributions are reinvested.
Annualized yields for money market funds based on the return for a recent
seven-day period are called current yields.
Total Return
Total return is the change in value of an investment in a fund
over a particular period, assuming that all distributions have been
reinvested. Thus, total return reflects not only income earned but also
variations in share prices from the beginning to the end of a period.
An average annual total return is a hypothetical rate of return
that, if achieved annually, would result in the same cumulative total
return as was actually achieved for the period. This smooths out year-to-
year variations in actual performance. Past results do not, of course,
guarantee future performance. Share prices may vary, and your shares when
redeemed may be worth more or less than your original purchase price.
Tax-Equivalent Yield
STATE AND LOCAL TAXES. Substantially all of Neuberger&Berman
Government Money Fund's income dividends are not subject to income taxes
of most states and localities. Substantially all income dividends paid by
Neuberger&Berman New York Insured Intermediate Fund are exempt from
federal income tax and New York State and New York City personal income
taxes. For those states and localities where the income dividends are not
subject to income taxes, these Funds may measure their performance by a
tax-equivalent yield. This reflects the taxable yield that an individual
investor at the highest marginal income tax rate for that state or
municipality would have to receive to equal the yield from
- 36 -
<PAGE>
Neuberger&Berman Government Money Fund or Neuberger&Berman New York
Insured Intermediate Fund, taking into account that a portion of the
dividends paid by those Funds is tax-exempt. Of course, all dividends paid
by Neuberger&Berman Government Money Fund are subject to federal income
tax at applicable rates.
FEDERAL TAX. Substantially all income dividends paid by
Neuberger&Berman Municipal Money Fund, Neuberger&Berman Municipal
Securities Trust and Neuberger&Berman New York Insured Intermediate Fund
are exempt from federal income tax. The Municipal Funds also may measure
their performance by a tax-equivalent yield. This reflects the taxable
yield that an investor at the highest marginal federal income tax rate
would have to receive to equal the primarily tax-exempt yield from each
Municipal Fund.
Before investing in one of the Municipal Funds, you may want to
determine which investment tax-free or taxable will result in a higher
after-tax yield. To do this, divide the tax-free yield on the investment
by the decimal determined by subtracting from 1 the highest federal tax
rate you pay. For example, if the tax-free yield is 4% and your maximum
federal tax bracket is 39.6%, the computation is:
4% Tax-Free Yield DIVIDED BY (1 .396 Tax Rate)
= 4% DIVIDED BY .604 = 6.62% Tax-Equivalent Yield
In this example, your after-tax return would be higher from the
4% tax-free investment if available taxable yields are below 6.62%.
Conversely, the taxable investment would provide a higher yield when
taxable yields exceed 6.62%. This example assumes that all of the income
from the investment is exempt.
To calculate the after-tax yield for Neuberger&Berman New York
Insured Intermediate Fund, divide the yield on the tax-free investment by
the decimal determined by subtracting from 1 the highest combination of
federal income tax and New York State and New York City personal income
tax rates you pay. For example, if the tax-free yield is 4% and your
maximum combined tax bracket is 46.6%, the computation is:
4% Tax-Free Yield DIVIDED BY (1 - .466 Tax Rate)
= 4% DIVIDED BY .534 = 7.49% Tax-Equivalent Yield
In this example, your after-tax return would be higher from the
4% tax-free investment if available taxable yields are below 7.49%.
Conversely, the taxable investment would provide a higher yield when
taxable yields exceed 7.49%. This example assumes that all of the income
from the investment is exempt.
Yield and Total Return Information
You can obtain current performance information about each Fund by
calling N&B Management at 800-877-9700. N&B Management has reimbursed
- 37 -
<PAGE>
certain Funds for certain expenses, which has the effect of increasing
their yields and total returns.
SPECIAL INFORMATION REGARDING ORGANIZATION, CAPITALIZATION, AND OTHER
MATTERS
The Funds
Each Fund is a separate series of the Trust, a Delaware business
trust organized pursuant to a Trust Instrument dated as of December 23,
1992. 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 seven separate operating series. The predecessors of the Funds
(except Neuberger&Berman New York Insured Intermediate Fund) were
converted into the Funds on July 2, 1993; these conversions were approved
by the shareholders of the predecessors of the Funds in April 1993.
Neuberger&Berman New York Insured Intermediate Fund began operations on
February 1, 1994. Each Fund invests all of its net investable assets in
its corresponding Portfolio, in each case receiving a beneficial interest
in that Portfolio. The trustees of the Trust 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 Fund is authorized to issue an
unlimited number of shares of beneficial interest (par value $0.001 per
share). Shares of each Fund represent equal proportionate interests in the
assets of that Fund 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 right to
subscribe to any additional shares.
SHAREHOLDER MEETINGS. The trustees of the Trust do not intend to
hold annual meetings of shareholders of the Funds. The trustees will call
special meetings of shareholders of a Fund 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 Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the
shareholders of a Fund will not be personally liable for the obligations
of any Fund; a shareholder is entitled to the same limitation of personal
liability extended to shareholders of corporations. 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 Fund
contain a statement that such obligation may be enforced only against the
assets of the Trust or Fund and provides for indemnification out of Trust
or Fund property of any shareholder nevertheless held personally liable
for Trust or Fund obligations, respectively.
- 38 -
<PAGE>
The Portfolios
Each Portfolio is a separate series of Managers Trust, a New York
common law trust organized as of December 1, 1992. Managers Trust is
registered under the 1940 Act as a diversified, open-end management
investment company. Managers Trust has seven separate Portfolios. The
assets of each Portfolio belong only to that Portfolio, and the
liabilities of each Portfolio are borne solely by that Portfolio and no
other.
FUNDS' INVESTMENTS IN PORTFOLIOS. Each Fund is a "feeder fund"
that seeks to achieve its investment objective by investing all of its net
investable assets in its corresponding Portfolio, which is a "master
fund." The Portfolio, which has the same investment objective, policies,
and limitations as the Fund, in turn invests in securities; its
corresponding Fund thus acquires an indirect interest in those securities.
Historically, N&B Management, which is the administrator of each Fund and
the investment manager of each Portfolio, has sponsored, with
Neuberger&Berman, traditionally structured funds since 1950. However, it
has operated 12 master funds and 20 feeder funds since August 1993 and now
operates 21 master funds and 28 feeder funds. This "master/feeder fund"
structure is depicted in the "Summary" on page 1.
Each Fund's investment in its corresponding Portfolio is in the
form of a non-transferable beneficial interest. Members of the general
public may not purchase a direct interest in a Portfolio. As of the date
of this Prospectus, only Neuberger&Berman Ultra Short Bond Fund and
Neuberger&Berman Limited Maturity Bond Fund have institutional investors
which invest in their corresponding Portfolios. The two mutual funds that
are series of Neuberger&Berman Income Trust ("N&B Income Trust"),
Neuberger&Berman Ultra Short Bond Trust and Neuberger&Berman Limited
Maturity Bond Trust, invest all of their respective net investable assets
in the two corresponding Portfolios of Managers Trust. Each Portfolio may
also permit other investment companies and/or other institutional
investors to invest in the Portfolio. All investors will invest in a
Portfolio on the same terms and conditions as a Fund and will pay a
proportionate share of the Portfolio's expenses. N&B Income Trust does not
sell its shares directly to members of the general public. Other investors
in a Portfolio are not required to sell their shares at the same public
offering price as a Fund, could have a different administration fee and
expenses than a Fund, and (except N&B Income Trust) might charge a sales
commission. Therefore, Fund shareholders may have different returns than
shareholders in another investment company that invests exclusively in the
Portfolio. There is currently no such other investment company that offers
its shares directly to members of the general public. Information
regarding any fund that may invest in a Portfolio in the future will be
available from N&B Management by calling 800-877-9700.
The trustees of the Trust believe that investment in a Portfolio
by a series of N&B Income Trust or other potential investors in addition
to a Fund may enable the Portfolio to realize economies of scale that
could reduce its operating expenses, thereby producing higher returns and
- 39 -
<PAGE>
benefitting all shareholders. However, a Fund's investment in its
corresponding Portfolio may be affected by the actions of other large
investors in the Portfolio, if any. For example, if a large investor in a
Portfolio (other than a Fund) redeemed its interest in the Portfolio, the
Portfolio's remaining investors (including the Fund) might, as a result,
experience higher pro rata operating expenses, thereby producing lower
returns.
Each Fund may withdraw its entire investment from its
corresponding Portfolio at any time, if the trustees of the Trust
determine that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were
other investors in a Portfolio with power to, and who did by a vote of all
investors (including the Fund), change the investment objective, policies,
or limitations of the Portfolio in a manner not acceptable to the trustees
of the Trust. A withdrawal could result in a distribution in kind of
securities (as opposed to a cash distribution) by the Portfolio. That
distribution could result in a less diversified portfolio of investments
for the Fund and could affect adversely the liquidity of the Fund's
investment portfolio. If the Fund decided to convert those securities to
cash, it usually would incur brokerage fees or other transaction costs. If
a Fund withdrew its investment from a Portfolio, the trustees would
consider what action might be taken, including the investment of all of
the Fund's net investable assets in another pooled investment entity
having substantially the same investment objective as the Fund or the
retention by the Fund of its own investment manager to manage its assets
in accordance with its investment objective, policies, and limitations.
The inability of the Fund to find a suitable replacement could have a
significant impact on shareholders.
INVESTOR MEETINGS AND VOTING. Each Portfolio normally will not
hold meetings of investors except as required by the 1940 Act. Each
investor in a Portfolio will be entitled to vote in proportion to its
relative beneficial interest in the Portfolio. On most issues subjected to
a vote of investors, as required by the 1940 Act and other applicable law,
a Fund will solicit proxies from its shareholders and will vote its
interest in the Portfolio in proportion to the votes cast by the Fund's
shareholders. If there are other investors in a Portfolio, there can be no
assurance that any issue that receives a majority of the votes cast by
Fund shareholders will receive a majority of votes cast by all Portfolio
investors; indeed, if other investors hold a majority interest in a
Portfolio, they could have voting control of the Portfolio.
CERTAIN PROVISIONS. Each investor in a Portfolio, including a
Fund, will be liable for all obligations of the Portfolio. However, the
risk of an investor in a Portfolio incurring financial loss on account of
such liability would be limited to circumstances in which the Portfolio
had inadequate insurance and was unable to meet its obligations out of its
assets. Upon liquidation of a Portfolio, investors would be entitled to
share pro rata in the net assets of the Portfolio available for
distribution to investors.
- 40 -
<PAGE>
HOW TO BUY SHARES
You can buy shares of any Fund directly by mail, wire, or
telephone, or through an exchange of shares with another Neuberger&Berman
Fund(SERVICE MARK) (see "Funds Eligible for Exchange"). Shares are
purchased at the next price calculated on a day the New York Stock
Exchange ("NYSE") is open, after your order is received and accepted.
Prices for shares of Neuberger&Berman Government Money Fund,
Neuberger&Berman Cash Reserves, and Neuberger&Berman Municipal Money Fund
are calculated as of noon Eastern time; prices for shares of all other
Funds are usually calculated as of 4 p.m. Eastern time.
N&B Management may, in its discretion, waive the minimum
investment requirements.
By Mail
Send your check or money order payable to "Neuberger&Berman
Funds" by mail to:
Neuberger&Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
or by overnight courier, U.S. Express Mail, or registered or
certified mail to:
Neuberger&Berman Funds
c/o State Street Bank and Trust Company
2 Heritage Drive
North Quincy, MA 02171
Be sure to specify the name of the Fund whose shares you want to
buy. If this is your first purchase, please send a minimum of $2,000 for
shares of each Fund you want to buy. For an additional purchase, please
send at least $100 for shares of any Fund. Unless your check or money
order is made payable on its face to Neuberger&Berman Funds, it may not be
accepted. Third party checks will not be accepted.
By Wire
Call 800-877-9700 for instructions on how to wire money to buy
shares. Your wire goes to State Street Bank and Trust Company ("State
Street") and must include your name, the name of the Fund whose shares you
want to buy, and your account number. The minimum for a first purchase of
shares of a Fund is $2,000. For an additional purchase, you should wire at
least $1,000.
- 41 -
<PAGE>
By Telephone
Call 800-877-9700 to buy shares of Neuberger&Berman Ultra Short
Bond Fund, Neuberger&Berman Limited Maturity Bond Fund, Neuberger&Berman
Municipal Securities Trust, or Neuberger&Berman New York Insured
Intermediate Fund. The minimum for a first purchase of shares of any of
these Funds by telephone is $2,000. The minimum for an additional purchase
is $1,000. Your order may be canceled if your payment is not received by
the third business day after your order is placed. In that case you could
be liable for any resulting losses or fees a Fund or its agents have
incurred. To recover those losses or fees, a Fund has the right to redeem
shares from your account. To meet the three-day deadline, you can wire
payment, send a check through overnight mail, or call 800-877-9700 for
information on how to make electronic transfers through your bank. Please
refer to "Additional Information on Telephone Transactions."
By Exchanging Shares
Call 800-877-9700 for instructions on how to invest by exchanging
shares of another Neuberger&Berman Fund(SERVICEMARK) for shares of a Fund.
To buy Fund shares by an exchange, both fund accounts must be registered
in the same name, address, and taxpayer ID number. The minimum for a first
purchase of shares of a Fund by an exchange is $2,000 worth of shares of
the other fund, and the minimum for an additional purchase is $1,000. For
more details, see "Shareholder Services Exchange Privilege" and "Funds
Eligible for Exchange."
- 42 -
<PAGE>
Other Information
o You must pay for your shares in U.S. dollars by check or
money order (drawn on a U.S. bank), or by bank or federal
funds wire transfer; cash cannot be accepted.
o Each Fund has the right to suspend the offering of its
shares for a period of time. Each Fund also has the right
to accept or reject a purchase order in its sole
discretion, including certain purchase orders using the
exchange privilege. See "Shareholder Services Exchange
Privilege."
o If you pay by check and your check does not clear, or if
you order shares by telephone and fail to pay for them,
your purchase will be canceled and you could be liable
for any resulting losses or fees a Fund or its agents
have incurred. To recover those losses or fees, a Fund
has the right to bill you or to redeem shares from your
account.
o When you sign your application for a new Fund account,
you will be certifying that your Social Security or other
taxpayer ID number is correct and whether you are subject
to backup withholding. If you violate certain federal
income tax provisions, the Internal Revenue Service can
require the Funds to withhold 31% of your taxable
distributions and redemptions (other than redemptions
from Neuberger&Berman Government Money Fund,
Neuberger&Berman Cash Reserves, and Neuberger&Berman
Municipal Money Fund).
o You can also buy shares of the Funds indirectly through
certain stockbrokers, banks, and other financial
institutions, some of which may charge you a fee.
o The Funds will not issue a certificate for your shares
unless you write to State Street and request it. Most
shareholders do not want certificates, because you must
present the certificate to sell or exchange the shares it
represents. This means that you would be able to sell or
exchange those shares only by mail, and not by telephone
or facsimile transmission. If you lose your certificate,
you will have to pay the expense of replacing it.
o You can invest as little as $100 each month under an
automatic investing plan. (See "Automatic Investing and
Dollar Cost Averaging" on page 28.)
- 43 -
<PAGE>
HOW TO SELL SHARES
You can sell (redeem) all or some of your shares at any time by
mail, fax, or telephone, or by writing a check (for certain Funds only).
However, if you have a certificate for your shares (including shares of a
Fund's predecessor), you can redeem those shares only by sending the
certificate by mail. You can also sell shares by exchanging them for
shares of other Neuberger&Berman Funds(SERVICEMARK); see "Shareholder
Services Exchange Privilege" for details.
To sell shares held in a retirement account or by a trust,
estate, guardian, or business organization, please call 800-225-1596 for
instructions.
Your shares are sold at the next price calculated on a day the
NYSE is open, after your sales order is received and accepted. Prices for
shares of Neuberger&Berman Government Money Fund, Neuberger&Berman Cash
Reserves, and Neuberger&Berman Municipal Money Fund are calculated as of
noon Eastern time; prices for shares of all other Funds are usually
calculated as of 4 p.m. Eastern time.
Unless otherwise instructed, the Fund will mail a check for your
sales proceeds, payable to the owner(s) shown on your account ("record
owner"), to the address shown on your account ("record address"). You may
designate in your Fund application a bank account to which, at your
request, State Street will wire your sales proceeds. State Street
currently charges a fee of $8.00 for each wire. However, if you have one
or more accounts in the Neuberger&Berman Funds(SERVICEMARK) aggregating
$250,000 or more in value, you will not be charged for wire redemptions;
your $8.00 fee will be paid by N&B Management.
If you purchased shares indirectly through certain stockbrokers,
banks, or other financial institutions, you may sell those shares only
through those organizations, some of which may charge you a fee.
By Mail or Facsimile Transmission (Fax)
Write a redemption request letter with your name and account
number, the Fund's name, and the dollar amount or number of shares of the
Fund you want to sell, together with any other instructions, and send it
by mail to:
Neuberger&Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
- 44 -
<PAGE>
or by overnight courier, U.S. Express Mail, or registered or certified
mail to:
Neuberger&Berman Funds
c/o State Street Bank and Trust Company
2 Heritage Drive
North Quincy, MA 02171
or by fax, to redeem up to $50,000 worth of shares, to 212-476-8848. If
shares are issued in certificate form, they are not eligible to be
redeemed by fax. If you have changed the record address by telephone or
fax, shares may not be redeemed by fax for 15 days after receipt of the
address change. Please call 800-877-9700 to confirm receipt and acceptance
of any order submitted by fax. Be sure to have all owners sign the request
exactly as their names appear on the account and include the certificate
for your shares if you have one.
To protect you and the Fund against fraud, your signature on a
redemption request must have a signature guarantee if (1) you want to sell
more than $50,000 worth of shares, (2) you want the redemption check to be
made out to someone other than the record owner, (3) you want the check to
be mailed somewhere other than to the record address, or (4) you want the
proceeds to be wired to a bank account not named in your application or in
your prior written instruction with a signature guarantee. You can obtain
a signature guarantee from most banks, stockbrokers and dealers, credit
unions, and financial institutions, but not from a notary public.
For a redemption request sent by fax, limited to not more than
$50,000, the redemption check may be made out only to the record owner and
mailed to the record address or the proceeds wired to a bank account named
in your application or in a written instruction from the record owner with
a signature guarantee.
By Telephone
To sell shares worth at least $500, call 800-877-9700, giving
your name and account number, the name of the Fund, and the dollar amount
or number of shares you want to sell.
You can sell shares by telephone unless (1) you have declined
this service either in your application or later by writing or by
submitting an appropriate form to State Street, (2) you have a certificate
for such shares, or (3) you want to sell shares from a retirement account.
In addition, if you have changed the record address by telephone or fax,
shares may not be redeemed by telephone for 15 days after receipt of the
address change.
Please refer to "Additional Information on Telephone
Transactions."
- 45 -
<PAGE>
By Check
For Neuberger&Berman Government Money Fund, Neuberger&Berman Cash
Reserves, and Neuberger&Berman Municipal Money Fund only, you may sell
shares by writing a check for at least $250 on your account. If you
requested this service on your application, you will receive a supply of
checks. You may write an unlimited number of checks, and there is no
charge. Because the amount in your account varies daily, you cannot sell
all your shares and close your account by writing a check.
Other Information
o Usually, redemption proceeds will be mailed on the next
business day, but in any case within three business days.
(Under unusual circumstances, the Funds may take longer,
as permitted by law.) You may also call 800-877-9700 for
information on how to receive electronic transfers
through your bank.
o Each Fund may delay paying for any redemption until it is
reasonably satisfied that the check used to buy shares
has cleared, which may take up to 15 days after the
purchase date. So if you plan to sell shares shortly
after buying them, you may want to pay for the purchase
with a certified check or money order or by wire
transfer.
o Each Fund may suspend redemptions or postpone payments on
days when the NYSE is closed (besides weekends and
holidays), when trading on the NYSE is restricted, or as
permitted by the Securities and Exchange Commission.
o If you sell shares by writing a check on your account for
an amount greater than the value of your shares, or if
the check is for less than $250 or has an irregularity
(such as no signature), your check will be returned to
you and you may be charged $15 by redeeming shares with
that value from your account. The check writing
redemption service may be modified or terminated at any
time, or other charges may be imposed on it.
o If, because you sold shares, your account balance with
any Fund falls below $2,000, the Fund has the right to
close your account after giving you at least 60 days'
written notice to reestablish the minimum balance. If you
do not do so, the Fund may redeem your remaining shares
at their price on the date of redemption and will send
the redemption proceeds to you.
- 46 -
<PAGE>
ADDITIONAL INFORMATION ON TELEPHONE TRANSACTIONS
A Fund at any time can limit the number of its shares you can buy
by telephone or can stop accepting telephone orders. You can sell or
exchange shares by telephone, unless (1) you have declined these services
in your application or by written notice to N&B Management or State
Street, with your signature guaranteed, or (2) you have a certificate for
such shares. Each Fund or its agent follows reasonable
procedures requiring you to provide a form of personal identification when
you telephone, recording your telephone call, and sending you a written
confirmation of each telephone transaction designed to confirm that
telephone instructions are genuine. However, no Fund or its agent is
responsible for the authenticity of telephone instructions or for any
losses caused by fraudulent or unauthorized telephone instructions if the
Fund or its agent reasonably believed that the instructions were genuine.
If you are unable to reach N&B Management by telephone (which
might be the case, for example, during periods of unusual market
activity), consider sending your transaction instructions by fax,
overnight courier, or U.S. Express Mail.
Beginning in the Spring of 1996, you will be able to buy, sell or
exchange shares using an automated telephone service that will be
available 24 hours a day, every day, to investors using a touch-tone
phone. Further information regarding this service, including use of a
Personal Identification Number (PIN) and a menu of features, will be sent
to all shareholders in advance.
SHAREHOLDER SERVICES
Several other services are available to assist you in making and
managing your investment in the Funds.
Automatic Investing and Dollar Cost Averaging
If you want to invest regularly, you may participate in a plan
that lets you automatically buy shares each month in Neuberger&Berman
Ultra Short Bond Fund, Neuberger&Berman Limited Maturity Bond Fund,
Neuberger&Berman Municipal Securities Trust, or Neuberger&Berman New York
Insured Intermediate Fund using dollar cost averaging. Under this plan,
you buy a fixed dollar amount of shares in any of these Funds at pre-set
intervals. You may pay for the shares by automatic transfers from your
accounts in Neuberger&Berman Government Money Fund, Neuberger&Berman Cash
Reserves, or Neuberger&Berman Municipal Money Fund or by pre-authorized
checks drawn on your bank account. You buy more shares when a Fund's share
price is relatively low and fewer shares when a Fund's share price is
relatively high. Thus, under this plan your average cost of shares would
generally be lower than if you bought a fixed number of shares at the same
intervals. To benefit from dollar cost averaging, you should be
financially prepared to continue your participation for a long enough
period to include times when Fund share prices are lower. Of course, the
- 47 -
<PAGE>
plan does not guarantee a profit and will not protect you against losses
in a declining market. For further information, call 800-877-9700.
Exchange Privilege
To exchange your shares in a Fund for shares in another
Neuberger&Berman Fund(SERVICEMARK), call 800-877-9700 between 8 a.m. and 4
p.m., Eastern time, on any Monday through Friday (unless the NYSE is
closed). See "Funds Eligible for Exchange." You may also effect an
exchange by sending a letter to Neuberger&Berman Management Incorporated,
605 Third Avenue, 2nd Floor, New York, NY 10158-0180, Attention: [Name of
Fund], or by faxing the letter to 212-476-8848, giving your name and
account number, the name of the Fund, the dollar amount or number of
shares you want to sell, and the name of the Fund whose shares you want to
buy. Please call 800-877-9700 to confirm receipt and acceptance of any
order submitted by fax. If you have a certificate for your shares, you can
exchange them only by mailing the certificate with your letter requesting
the exchange. You can use the telephone exchange privilege unless (1) you
have declined it in your application or by later writing to N&B Management
or State Street, or (2) you have a certificate for such shares. An
exchange must be for at least $1,000 worth of shares, and if the exchange
is your first purchase in another Neuberger&Berman Fund(SERVICEMARK), it
must be for at least the minimum initial investment amount for that fund.
Shares are exchanged at the next price calculated on a day the NYSE is
open, after your exchange order is received and accepted. Please note the
following about the exchange privilege:
o You can exchange shares only between accounts registered
in the same name, address, and taxpayer ID number.
o A telephone exchange order cannot be modified or
canceled.
o You can exchange only into a mutual fund whose shares are
eligible for sale in your state under applicable state
securities laws.
o An exchange may have tax consequences for you.
o Because excessive trading (including short-term "market
timing" trading) can hurt a Fund's performance, each Fund
may refuse any exchange orders (1) if they appear to be
market-timing transactions involving significant portions
of a Fund's assets or (2) from any shareholder account if
the shareholder has been advised that previous use of the
exchange privilege was considered excessive. Accounts
under common ownership or control, including those with
the same taxpayer ID number, will be considered one
account for this purpose.
- 48 -
<PAGE>
o Each Fund may impose other restrictions on the exchange
privilege, or modify or terminate the privilege, but will
try to give you advance notice whenever it can reasonably
do so.
Please refer to "Additional Information on Telephone
Transactions."
Systematic Withdrawal Plans
If you own shares of a Fund worth at least $5,000, you can open a
Systematic Withdrawal Plan. Under such a plan, you arrange to withdraw a
specific amount (at least $50) on a monthly, quarterly, semi-annual, or
annual basis, or you can have your account completely paid out over a
specified period of time. You can also arrange for periodic cash
withdrawals from your Fund account to pay fees to your financial planner
or investment adviser. Because the price of shares of each Fund (other
than Neuberger&Berman Government Money Fund, Neuberger&Berman Cash
Reserves, and Neuberger&Berman Municipal Money Fund) fluctuates, you may
incur capital gains or losses when you redeem shares of the Funds through
a Systematic Withdrawal Plan or by other methods. Call 800-877-9700 for
more information.
Retirement Plans
Retirement plans permit you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax-
deductible. Please call 800-877-9700 for information on a variety of
retirement plans, including individual retirement accounts, simplified
employee pension plans, self-employed individual retirement plans (so-
called "Keogh Plans"), corporate profit-sharing and money purchase pension
plans, section 401(k) plans, and section 403(b)(7) accounts offered by N&B
Management. The assets of these plans may be invested in any of the Funds,
except Neuberger&Berman Municipal Money Fund, Neuberger&Berman Municipal
Securities Trust, and Neuberger&Berman New York Insured Intermediate Fund.
SHARE PRICES AND NET ASSET VALUE
Each Fund's shares are bought or sold at a price that is the
Fund's net asset value ("NAV") per share. The NAVs for each Fund and its
corresponding Portfolio are calculated by subtracting liabilities from
total assets (in the case of a Portfolio, the market value of the
securities the Portfolio holds plus cash and other assets; in the case of
a Fund, its percentage interest in its corresponding Portfolio, multiplied
by the Portfolio's NAV, plus any other assets). Each Fund's per share NAV
is calculated by dividing its NAV by the number of Fund shares outstanding
and rounding the result to the nearest full cent.
Neuberger&Berman Government Money Fund, Neuberger&Berman Cash
Reserves, and Neuberger&Berman Municipal Money Fund try to maintain stable
- 49 -
<PAGE>
NAVs of $1.00 per share. Their corresponding Portfolios value their
securities at their cost at the time of purchase and assume a constant
amortization to maturity of any discount or premium. These Portfolios and
their corresponding Funds calculate their NAVs as of noon Eastern time on
each day the NYSE is open.
Neuberger&Berman Ultra Short Bond and Neuberger&Berman Limited
Maturity Bond Portfolios value their securities on the basis of bid
quotations from independent pricing services or principal market makers,
or, if quotations are not available, by a method that the trustees of
Managers Trust believe accurately reflects fair value. The Portfolios
periodically verify valuations provided by the pricing services. Short-
term securities with remaining maturities of less than 60 days are valued
at cost which, when combined with interest earned, approximates market
value. These Portfolios and their corresponding Funds calculate their NAVs
as of the close of regular trading on the NYSE, usually 4 p.m. Eastern
time, on each day the NYSE is open.
Neuberger&Berman Municipal Securities and Neuberger&Berman New
York Insured Intermediate Portfolios use an independent pricing service to
determine the market value of their portfolio securities and periodically
verify the valuations. These Portfolios and their corresponding Funds
calculate their NAVs as of the close of regular trading on the NYSE on
each day the NYSE is open.
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES
Each Fund distributes substantially all of its share of any net
investment income (net of the Fund's expenses) and net realized capital
gains earned by its corresponding Portfolio. Income dividends are declared
daily for each Fund at the time its NAV is calculated and are paid
monthly, and net realized capital gains, if any, are normally distributed
annually in December. Investors who are considering the purchase of Fund
shares in December should take this into account because of the tax
consequences of such distributions. Investors in the Money Market Funds
(including Neuberger&Berman Municipal Money Fund) whose purchase orders
are converted to "federal funds" by noon Eastern time on any given day
will accrue income dividends beginning that day. For other Funds, income
dividends will accrue beginning on the day after an investor's purchase
order is converted to "federal funds."
Distribution Options
REINVESTMENT IN SHARES. All dividends and other distributions
paid on shares of a Fund are automatically reinvested in additional shares
of that Fund, unless you elect to receive them in cash. Dividends are
reinvested at the Fund's per share NAV on the last business day of each
month. Each other distribution is reinvested at the Fund's per share NAV,
usually as of the date the distribution is payable. For retirement
accounts, all distributions are automatically reinvested in shares; when
- 50 -
<PAGE>
you are at least 59-1/2 years old, you can receive distributions in cash
without incurring a premature distribution penalty tax.
DIVIDENDS IN CASH. You may elect to receive dividends in cash,
with other distributions being reinvested in additional Fund shares, by
checking that election box on your application.
ALL DISTRIBUTIONS IN CASH. You may elect to receive all dividends
and other distributions in cash, by checking that election box on your
application.
Checks for cash distributions usually will be mailed no later
than seven days after the payable date. However, if you purchased your
shares with a check, distributions on those shares may not be paid in cash
until the Fund is reasonably satisfied that your check has cleared, which
may take up to 15 days after the purchase date. You can change any
distribution election by writing to State Street, the Funds' shareholder
servicing agent.
Taxes
Each Fund intends to continue to qualify for treatment as a
regulated investment company for federal income tax purposes so that it
will be relieved of federal income tax on that part of its taxable income
and realized gains that it distributes to its shareholders.
Your investment has certain tax consequences, depending on the
type of account and the type of Fund in which you invest. If you have a
retirement account, taxes are deferred.
MONEY MARKET FUNDS (INCLUDING NEUBERGER&BERMAN MUNICIPAL MONEY
FUND) AND BOND FUNDS: TAXES ON DISTRIBUTIONS. Distributions are subject to
federal income tax and may also be subject to state and local income
taxes. Your distributions are taxable when they are paid, whether in cash
or by reinvestment in additional Fund shares, except that distributions
declared in December to shareholders of record on a date in that month and
paid in the following January are taxable as if they were paid on December
31 of the year in which the distributions were declared.
For federal income tax purposes, income dividends and
distributions of net short-term capital gain are taxed as ordinary income.
Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), when designated as such, are
generally taxed as long-term capital gain, no matter how long you have
owned your shares. Distributions of net capital gain may include gains
from the sale of portfolio securities that appreciated in value before you
bought your shares.
Substantially all dividends paid by Neuberger&Berman Government
Money Fund generally are not expected to be subject to state and local
income taxes; however, distributions of net realized capital gains are
fully subject to those taxes. You should consult your tax adviser to
- 51 -
<PAGE>
determine the taxability of those dividends and other distributions in
your state and locality.
Every January, your Fund will send you a statement showing the
amount of distributions paid to you in the previous year. Information
accompanying your statement shows the portion of those distributions that
generally are not taxable in certain states.
MUNICIPAL FUNDS: TAXES ON DISTRIBUTIONS. Substantially all
dividends paid by the Municipal Funds generally are expected to be exempt
from federal income tax (and New York State and New York City personal
income taxes in the case of Neuberger&Berman New York Insured Intermediate
Fund), but may be subject to state or local taxes. Distributions of net
realized capital gains generally are subject to all such taxes. Those
distributions that are not tax-exempt are taxable when they are paid,
whether in cash or by reinvestment in additional Fund shares, except that
distributions declared in December to shareholders of record on a date in
that month and paid in the following January are taxable as if they were
paid on December 31 of the year in which the distributions were declared.
Neuberger&Berman New York Insured Intermediate Portfolio,
Neuberger&Berman Municipal Money Portfolio, and Neuberger&Berman Municipal
Securities Portfolio each may invest up to 100% of its assets in private
activity bonds. Distributions to you attributable to the interest on these
bonds may be a tax preference item for purposes of calculating your
federal alternative minimum taxable income.
Every January, your Municipal Fund will send you a statement
showing the amounts of tax-exempt and taxable distributions in the
previous year, including the portion of any dividends paid to individuals
that constitutes a tax preference item.
ALL FUNDS EXCEPT NEUBERGER&BERMAN GOVERNMENT MONEY FUND,
NEUBERGER&BERMAN CASH RESERVES, AND NEUBERGER&BERMAN MUNICIPAL MONEY FUND:
TAXES ON REDEMPTIONS. Capital gains realized on redemption of Fund shares,
including redemptions in connection with exchanges to other
Neuberger&Berman Funds(SERVICEMARK), are subject to tax. A capital gain
(or loss) is the difference between the amount you paid for the shares
(including the amount of any dividends and other distributions that were
reinvested) and the amount you receive when you sell them.
When you sell shares you will receive a confirmation statement
showing the number of shares you sold and the price. Every January you
will also receive a consolidated transaction statement for the previous
year. Be sure to keep your statements; they will be useful to you and your
tax preparer in determining the capital gains and losses from your
redemptions.
The foregoing is only a summary of some of the important tax
considerations affecting each Fund and its shareholders. See the SAIs for
additional tax information. There may be other federal, state, local, or
- 52 -
<PAGE>
foreign tax considerations applicable to a particular investor. Therefore,
you should consult your tax adviser.
MANAGEMENT AND ADMINISTRATION
Trustees and Officers
The trustees of the Trust and the trustees of Managers Trust, who
are currently the same individuals, have oversight responsibility for the
operations of each Fund and each Portfolio, respectively. The SAIs contain
general background information about each trustee and officer of the Trust
and of Managers Trust. The trustees and officers of the Trust and of
Managers Trust who are officers and/or directors of N&B Management and/or
partners of Neuberger&Berman serve without compensation from the Funds or
the Portfolios. The trustees of the Trust and of Managers Trust, including
a majority of those trustees who are not "interested persons" (as defined
in the 1940 Act) of any Fund, have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest between the Trust
and Managers Trust, including, if necessary, creating a separate board of
trustees of Managers Trust.
Investment Manager, Administrator, Distributor, and Sub-Adviser
N&B Management serves as the investment manager of each
Portfolio, as administrator of each Fund, and as distributor of the shares
of each Fund. N&B Management and its predecessor firms have specialized in
the management of no-load mutual funds since 1950. In addition to serving
the seven Portfolios, N&B Management currently serves as investment
manager of other mutual funds. Neuberger&Berman, which acts as sub-adviser
for the Portfolios and other mutual funds managed by N&B Management, also
serves as investment adviser of three other investment companies. The
mutual funds managed by N&B Management and Neuberger&Berman had aggregate
net assets of approximately $11.9 billion as of December 31, 1995.
As sub-adviser, Neuberger&Berman furnishes N&B Management with
investment recommendations and research without added cost to the
Portfolios. Neuberger&Berman is a member firm of the NYSE and other
principal exchanges and may act as the Portfolios' principal broker to the
extent that a broker is used in the purchase and sale of portfolio
securities and the sale of covered call options. Neuberger&Berman and its
affiliates, including N&B Management, manage securities accounts that had
approximately $38.7 billion of assets as of December 31, 1995. All of the
voting stock of N&B Management is owned by individuals who are general
partners of Neuberger&Berman.
Theresa A. Havell, the President and a Trustee of the Trust and
of Managers Trust, is a general partner of Neuberger&Berman and a director
and Vice President of N&B Management. Ms. Havell is the Manager of the
Fixed Income Group of Neuberger&Berman, which she established in 1984. The
Fixed Income Group manages fixed income accounts that had approximately
- 53 -
<PAGE>
$11.1 billion of assets as of December 31, 1995. Ms. Havell has had
overall responsibility for the activities of the Fixed Income Group since
1984.
The following members of the Fixed Income Group are, along with
Theresa Havell, primarily responsible for the day-to-day management of the
listed Portfolios:
Neuberger&Berman Government Money, Cash Reserves, and Ultra Short
Bond Portfolios Josephine P. Mahaney. Ms. Mahaney, who has been a Senior
Portfolio Manager in the Fixed Income Group since 1984, and a Vice
President of N&B Management since November 1994, has been primarily
responsible, for Neuberger&Berman Government Money Portfolio and
Neuberger&Berman Cash Reserves Portfolio since January 1993, and
Neuberger&Berman Ultra Short Bond Portfolio since July 1993. She was an
Assistant Vice President of N&B Management from 1986 to 1994.
Neuberger&Berman Limited Maturity Bond Portfolio Thomas G. Wolfe.
Mr. Wolfe has been primarily responsible for Neuberger&Berman Limited
Maturity Bond Portfolio since October 1, 1995. Mr. Wolfe has been a
Senior Portfolio Manager in the Fixed Income Group since July 1993,
Director of Fixed Income Credit Research since July 1993 and a Vice
President of N&B Management since October 1995. From November 1987 to June
1993, he was Vice President in the Corporate Finance Department of
Standard & Poor's.
Neuberger&Berman Municipal Money, Municipal Securities and New
York Insured Intermediate Portfolios Clara Del Villar. Ms. Del Villar,
who has been a Senior Portfolio Manager in the Fixed Income Group since
December 1991 and a Vice President of N&B Management since November 1994,
has been primarily responsible for Neuberger&Berman Municipal Money
Portfolio since August 1993, Neuberger&Berman Municipal Securities Trust
since December 1, 1991, and Neuberger&Berman New York Insured Intermediate
Portfolio since October 1, 1994. From April 1991 to December 1991 she
worked for a charitable organization; from January 1990 to April 1991 she
was a consultant for a commodities trading adviser.
The partners and employees of Neuberger&Berman and officers and
employees of N&B Management, together with their families, have invested
over $100 million of their own money in Neuberger&Berman
Funds(SERVICEMARK).
To mitigate the possibility that a Portfolio will be adversely
affected by employees' personal trading, the Trust, Managers Trust, N&B
Management, and Neuberger&Berman have adopted policies that restrict
securities trading in personal accounts of the portfolio managers and
others who normally come into possession of information on portfolio
transactions.
- 54 -
<PAGE>
Expenses
N&B Management provides investment management services to each
Portfolio that include, among other things, making and implementing
investment decisions and providing facilities and personnel necessary to
operate the Portfolio. N&B Management provides administrative services to
each Fund that include furnishing similar facilities and personnel for the
Fund and performing certain shareholder, shareholder-related and other
services. For such administrative services, each Fund pays N&B Management
a fee at the annual rate of 0.27% of that Fund's average daily net assets.
With a Fund's consent, N&B Management may subcontract to third parties
some of its responsibilities to that Fund under the administration
agreement. For investment management services, each Portfolio pays N&B
Management a fee at the annual rate of 0.25% of the first $500 million of
that Portfolio's average daily net assets, 0.225% of the next $500
million, 0.20% of the next $500 million, 0.175% of the next $500 million,
and 0.15% of average daily net assets in excess of $2 billion. During the
fiscal year ended October 31, 1995, each Fund accrued administration fees,
and a pro rata portion of the corresponding Portfolio's management fees,
of 0.51% of the Fund's average daily net assets.
See "Expense Information Annual Fund Operating Expenses" for
anticipated fees for the current fiscal year.
Each Fund bears all expenses of its operations other than those
borne by N&B Management as administrator of the Fund and as distributor of
its shares. Each Portfolio bears all expenses of its operations other than
those borne by N&B Management as investment manager of the Portfolio.
These expenses include, but are not limited to, for the Funds and
Portfolios, legal and accounting fees and compensation for trustees who
are not affiliated with N&B Management; for the Funds, transfer agent
fees, and the cost of printing and sending reports and proxy materials to
shareholders; and for the Portfolios, custodial fees for securities.
N&B Management has voluntarily undertaken to reimburse Cash
Reserves, Ultra Short, Limited Maturity, Municipal Securities, and New
York Insured Intermediate for each Fund's Operating Expenses (including
its administration fees) and that Fund's pro rata share of its
corresponding Portfolio's Operating Expenses (including its management
fees) that exceed, in the aggregate, 0.65% per annum (0.70% for Limited
Maturity) of the Fund's average daily net assets. N&B Management may
terminate this undertaking to any Fund by giving at least 60 days' prior
written notice to the Fund. The effect of reimbursement by N&B Management
is to reduce a Fund's expenses and thereby increase its total return.
For the fiscal year ended October 31, 1995, each Fund bore Total
Operating Expenses as a percentage of its average daily net assets (after
- 55 -
<PAGE>
taking into consideration N&B Management's expense reimbursements) as
follows:
Neuberger&Berman Government Money Fund 0.65%
Neuberger&Berman Cash Reserves 0.65%
Neuberger&Berman Ultra Short Bond Fund 0.65%
Neuberger&Berman Limited Maturity Bond Fund 0.70%
Neuberger&Berman Municipal Money Fund 0.71%
Neuberger&Berman Municipal Securities Trust 0.65%
Neuberger&Berman New York Insured Intermediate Fund 0.66%
Transfer and Shareholder Servicing Arrangements
The Funds' transfer and shareholder servicing agent is State
Street. State Street administers purchases, redemptions, and transfers of
Fund shares and the payment of dividends and other distributions through
its Boston Service Center, P.O. Box 8403, Boston, MA 02266-8403.
DESCRIPTION OF INVESTMENTS
In addition to the securities referred to in "Investment
Programs" herein, each Portfolio (except as noted) may make the following
investments, among others, individually or in combination, although it may
not necessarily buy all of the types of securities or use all of the
investment techniques that are described. For additional information on
the following investments or other types of investments which the
Portfolios may make, see the SAIs.
Certain investment techniques, such as futures and options,
securities loans, and repurchase agreements, may produce taxable income
and capital gains or losses if used by the Municipal Portfolios.
U.S. GOVERNMENT AND AGENCY SECURITIES (ALL PORTFOLIOS). 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
instrumentalities; by other U.S. Government-sponsored enterprises, such as
the Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Student Loan Marketing Association, and Tennessee Valley
Authority; and by various federally chartered or sponsored banks. 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. U.S.
Government Agency securities include U.S. Government mortgage-backed
securities. The market prices of U.S. Government securities are not
guaranteed by the Government and generally fluctuate with changing
interest rates.
- 56 -
<PAGE>
VARIABLE AND FLOATING RATE SECURITIES (ALL PORTFOLIOS EXCEPT
NEUBERGER&BERMAN GOVERNMENT MONEY PORTFOLIO). Variable and floating rate
securities have interest rate adjustment formulas that may help to
stabilize their market value. Many of these instruments carry a demand
feature which permits a Portfolio to sell them during a determined time
period at par value plus accrued interest. The demand feature is often
backed by a credit instrument, such as a letter of credit, or by a
creditworthy insurer. A Portfolio may rely on the credit instrument or the
creditworthiness of the insurer in purchasing a variable or floating rate
security. For purposes of determining its dollar-weighted average
maturity, the Portfolios calculate the remaining maturity of variable and
floating rate instruments as provided in Rule 2a-7 under the 1940 Act.
REPURCHASE AGREEMENTS/SECURITIES LOANS (ALL PORTFOLIOS EXCEPT
NEUBERGER&BERMAN GOVERNMENT MONEY PORTFOLIO). In a repurchase agreement, a
Portfolio buys a security from a Federal Reserve member bank or a
securities dealer and simultaneously agrees to sell it back at a higher
price, at a specified date, usually less than a week later. The underlying
securities must fall within the Portfolio's investment policies and
limitations (but not limitations as to maturity or duration). The
Portfolios also may lend portfolio securities to banks, brokerage firms or
institutional investors to earn income. Costs, delays, or losses could
result if the selling party to a repurchase agreement or the borrower of
portfolio securities becomes bankrupt or otherwise defaults. N&B
Management monitors the creditworthiness of sellers and borrowers.
ILLIQUID SECURITIES (ALL PORTFOLIOS EXCEPT NEUBERGER&BERMAN
GOVERNMENT MONEY PORTFOLIO). Each Portfolio may invest up to 10% of its
net assets in illiquid securities, which are securities that cannot be
expected to be sold within seven days at approximately the price at which
they are valued. Due to the absence of an active trading market, a
Portfolio may experience difficulty in valuing or disposing of illiquid
securities. N&B Management determines the liquidity of the Portfolios'
securities, under general supervision of the trustees of Managers Trust.
Securities that are freely tradeable in their country of origin or in
their principal market are not considered illiquid securities even if they
are not registered for sale in the U.S.
RESTRICTED SECURITIES AND RULE 144A SECURITIES (ALL PORTFOLIOS
EXCEPT NEUBERGER&BERMAN GOVERNMENT MONEY PORTFOLIO). Each Portfolio may
invest in restricted securities and Rule 144A securities. Restricted
securities cannot be sold to the public without registration under the
Securities Act of 1933 ("1933 Act"). Unless registered for sale, these
securities can be sold only in privately negotiated transactions or
pursuant to an exemption from registration. Restricted securities are
generally considered illiquid. Rule 144A securities, although not
registered, may be resold to qualified institutional buyers in accordance
- 57 -
<PAGE>
with Rule 144A under the 1933 Act. Unregistered securities may also be
sold abroad pursuant to Regulation S under the 1933 Act. N&B Management,
acting pursuant to guidelines established by the trustees of Managers
Trust, may determine that some restricted securities are liquid.
REVERSE REPURCHASE AGREEMENTS (ALL PORTFOLIOS EXCEPT
NEUBERGER&BERMAN GOVERNMENT MONEY PORTFOLIO) AND DOLLAR ROLLS
(NEUBERGER&BERMAN ULTRA SHORT BOND AND NEUBERGER&BERMAN LIMITED MATURITY
BOND PORTFOLIOS). In a reverse repurchase agreement, a Portfolio sells
securities to a bank or securities dealer and simultaneously agrees to
repurchase the same securities at an agreed upon price on a specific date.
During the period before the repurchase, the Portfolio continues to
receive principal and interest payments on the securities. A Portfolio
will maintain a segregated account consisting of cash or high-grade,
liquid debt obligations to cover its obligations under reverse repurchase
agreements. Dollar rolls are similar to reverse repurchase agreements. In
a dollar roll, a Portfolio sells securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar
(same type and coupon) securities on a specified future date from the same
party. During the period before the repurchase, the Portfolio forgoes
principal and interest payments on the securities. The Portfolio is
compensated by the difference between the current sales price and the
forward price for the future purchase (often referred to as the "drop"),
as well as by the interest earned on the cash proceeds of the initial
sale. Reverse repurchase agreements and dollar rolls may increase the
fluctuation in the market value of a Portfolio's assets and are a form of
leverage. N&B Management monitors the creditworthiness of parties to
reverse repurchase agreements and dollar rolls.
WHEN-ISSUED TRANSACTIONS (ALL PORTFOLIOS EXCEPT NEUBERGER&BERMAN
GOVERNMENT MONEY AND NEUBERGER&BERMAN CASH RESERVES PORTFOLIOS). In a
when-issued transaction, a Portfolio commits to purchase securities at a
future date (generally within three months) in order to secure an
advantageous price and yield at the time of the commitment and pays for
the securities when they are delivered. If the seller fails to complete
the sale, a Portfolio may lose the opportunity to obtain a favorable price
and yield. When-issued securities may decline or increase in value during
the period from the Portfolio's investment commitment to the settlement of
the purchase, which may magnify fluctuation in a Portfolio's and its
corresponding Fund's NAV. None of the Municipal Portfolios may invest more
than 10% of its total assets in when-issued securities.
MORTGAGE-BACKED SECURITIES (NEUBERGER&BERMAN CASH RESERVES,
NEUBERGER&BERMAN ULTRA SHORT BOND AND NEUBERGER&BERMAN LIMITED MATURITY
BOND PORTFOLIOS). Mortgage-backed securities represent interests in, or
are secured by and payable from, pools of mortgage loans, including
collateralized mortgage obligations. These securities include U.S.
Government mortgage-backed securities, which are issued or guaranteed by a
U.S. Government agency or instrumentality (though not necessarily backed
- 58 -
<PAGE>
by the full faith and credit of the United States), such as GNMA, FNMA,
and FHLMC certificates. Other mortgage-backed securities are issued by
private issuers, generally originators of and investors in mortgage loans.
These issuers include savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Private mortgage-
backed securities may be supported by U.S. Government mortgage-backed
securities or some form of non-governmental credit enhancement. 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. N&B
Management determines the effective life of mortgage-backed securities
based on industry practice and current market conditions. If N&B
Management's determination is not borne out in practice, it could
positively or negatively affect the value of the Portfolio when market
interest rates change. Increasing market interest rates generally extend
the effective maturities of mortgage-backed securities.
ASSET-BACKED SECURITIES (NEUBERGER&BERMAN CASH RESERVES,
NEUBERGER&BERMAN ULTRA SHORT BOND, NEUBERGER&BERMAN LIMITED MATURITY BOND,
AND NEUBERGER&BERMAN NEW YORK INSURED INTERMEDIATE PORTFOLIOS). Asset-
backed securities represent interests in, or are secured by and payable
from, pools of assets, such as consumer loans, CARS(SERVICEMARK)
("Certificates for Automobile Receivables(SERVICEMARK), credit card
receivables securities, and installment loan contracts. Although these
securities may be supported by letters of credit or other credit
enhancements, payment of interest and principal ultimately depends upon
individuals paying the underlying loans, which may be affected adversely
by general downturns in the economy. The risk that recovery on repossessed
collateral might be unavailable or inadequate to support payments on
asset-backed securities is greater than in the case of mortgage-backed
securities.
Neuberger&Berman New York Insured Intermediate Portfolio may
purchase units of beneficial interest in pools of purchase contracts,
financing leases, and sales agreements entered into by municipalities.
These municipal obligations may be created when a municipality enters into
an installment purchase contract or lease with a vendor and may be secured
by the assets purchased or leased by the municipality. However, except in
very limited circumstances, there will be no recourse against the vendor
if the municipality stops making payments. Pools may also hold other types
of investments. The market for tax-exempt asset-backed securities is still
relatively new. Certain of these obligations are likely to involve
unscheduled prepayments of principal. In purchasing such securities, the
Portfolio typically relies on an opinion from the issuer's counsel that
interest on the asset-backed securities is exempt from income taxes.
- 59 -
<PAGE>
FOREIGN INVESTMENTS (NEUBERGER&BERMAN CASH RESERVES,
NEUBERGER&BERMAN ULTRA SHORT BOND AND NEUBERGER&BERMAN LIMITED MATURITY
BOND PORTFOLIOS). The Portfolios may invest in U.S. dollar-denominated
foreign securities. Foreign securities may be affected by political or
economic developments in foreign countries, the investment significance of
which may be difficult to discern. Foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies, and there may be less public information about their
operations. In addition, foreign markets may be less liquid or more
volatile than U.S. markets and may offer less protection to investors. It
may be difficult to invoke legal process abroad. Neuberger&Berman Limited
Maturity Bond Portfolio may also invest in foreign securities denominated
in or indexed to foreign currencies. Such securities may be affected by
special risks, such as governmental regulation of foreign exchange
transactions and the fluctuation of foreign currencies relative to the
U.S. dollar, which could result in losses irrespective of the performance
of the underlying investment. N&B Management considers these factors in
making investments for the Portfolios. Neuberger&Berman Limited Maturity
Bond Portfolio may enter into forward foreign currency contracts or
futures contracts (agreements to exchange one currency for another at a
specified price at a future date) and related options to manage currency
risks and to facilitate transactions in foreign securities. Although these
contracts can protect the Portfolio from adverse exchange rate changes,
they involve a risk of loss if N&B Management fails to predict foreign
currency values correctly; see the discussion of Hedging Instruments,
below.
PUT AND CALL OPTIONS, FUTURES CONTRACTS, AND OPTIONS ON FUTURES
CONTRACTS (NEUBERGER&BERMAN ULTRA SHORT BOND, NEUBERGER&BERMAN LIMITED
MATURITY BOND, NEUBERGER&BERMAN MUNICIPAL SECURITIES AND NEUBERGER&BERMAN
NEW YORK INSURED INTERMEDIATE PORTFOLIOS). Each Portfolio may try to
reduce the risk of securities price changes (hedge) or manage portfolio
duration by (1) entering into interest-rate futures contracts traded on
futures exchanges and (2) purchasing and writing options on futures
contracts. Neuberger&Berman Limited Maturity Bond Portfolio also may write
covered call options and purchase put options on debt securities in its
portfolio or on foreign currencies for hedging purposes or for the purpose
of producing income. Neuberger&Berman New York Insured Intermediate
Portfolio also may purchase and sell call options and put options on debt
securities in its portfolio for hedging purposes or for the purpose of
producing income. Neuberger&Berman Limited Maturity Bond and
Neuberger&Berman New York Insured Intermediate Portfolios will write a
call option on a security or currency only if it holds that security or
currency or has the right to obtain the security or currency at no
additional cost. These investment practices involve certain risks,
including price volatility and a high degree of leverage. The Portfolios
may engage in transactions in futures contracts and related options only
as permitted by regulations of the Commodity Futures Trading Commission.
The primary risks in using put and call options, futures
contracts, options on futures contracts, forward foreign currency
contracts or options on foreign currencies ("Hedging Instruments") are (1)
- 60 -
<PAGE>
imperfect correlation or no correlation between changes in market value of
the securities held by a Portfolio and the prices of Hedging Instruments;
(2) possible lack of a liquid secondary market for Hedging Instruments and
the resulting inability to close out Hedging Instruments when desired; (3)
the fact that the skills needed to use Hedging Instruments are different
from those needed to select a Portfolio's securities; and (4) the fact
that, although use of these instruments for hedging purposes can reduce
the risk of loss, they also can reduce the opportunity for gain, or even
result in losses, by offsetting favorable price movements in hedged
investments. When a Portfolio uses Hedging Instruments, the Portfolio will
place cash or high-grade, liquid debt securities in a segregated account
to the extent required by SEC staff policy. Another risk of Hedging
Instruments is the possible inability of a Portfolio to purchase or sell a
security at a time that would otherwise be favorable for it to do so, or
the possible need for a Portfolio to sell a security at a disadvantageous
time, due to its need to maintain "cover" or to segregate securities in
connection with its use of these instruments. Futures, options, and
forward contracts are considered "derivatives." Losses that may arise from
certain futures transactions are potentially unlimited.
MUNICIPAL OBLIGATIONS (NEUBERGER&BERMAN MUNICIPAL MONEY,
NEUBERGER&BERMAN MUNICIPAL SECURITIES, NEUBERGER&BERMAN NEW YORK INSURED
INTERMEDIATE, NEUBERGER&BERMAN CASH RESERVES AND NEUBERGER&BERMAN LIMITED
MATURITY BOND PORTFOLIOS). 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. Municipal obligations include "general
obligation" securities, which are backed by the full taxing power of a
municipality, and "revenue" securities, which are backed by the income
from a specific project, facility, or tax. Municipal obligations also
include industrial development and other private activity bonds the
interest on which may be a tax preference item for purposes of the federal
alternative minimum tax which are issued by or on behalf of public
authorities and 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. Current 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 are experiencing
substantial deficits and may find it difficult for political or economic
reasons to increase taxes. Efforts are underway that may result in a "flat
tax" or other restructuring of the federal income tax system. These
developments could reduce the value of all municipal securities, or the
securities of particular issuers. Neuberger&Berman Cash Reserves
Portfolio may invest in taxable municipal obligations that otherwise meet
its criteria for quality and maturity.
- 61 -
<PAGE>
ZERO COUPON SECURITIES (ALL PORTFOLIOS). Zero coupon securities
do not pay interest currently; instead, they are sold at a deep discount
from their face value and are redeemed at face value when they mature.
Because zero coupon securities do not pay current income, their prices can
be very volatile when interest rates change. In calculating their daily
income, the Portfolios accrue a portion of the difference between a zero
coupon security's purchase price and its face value.
SWAP AGREEMENTS (NEUBERGER&BERMAN NEW YORK INSURED INTERMEDIATE
AND NEUBERGER&BERMAN MUNICIPAL SECURITIES PORTFOLIOS). To help enhance the
value of their investments or manage their exposure to different types of
investments, the Portfolios may enter into interest rate, currency, and
mortgage swap agreements and may purchase and sell interest rate "caps,"
"floors," and "collars."
In a typical interest rate swap agreement, one party agrees to
make regular payments equal to a floating interest rate on a specified
amount (the "notional principal amount") in return for payments equal to a
fixed interest rate on the same amount for a specified period. If a swap
agreement provides for payment in different currencies, the parties may
also agree to exchange the notional principal amount. Mortgage swap
agreements are similar to interest rate swap agreements, except the
notional principal amount is tied to a reference pool of mortgages.
In a cap or floor, one party agrees, usually in return for a fee,
to make payments under particular circumstances. For example, the
purchaser of an interest rate cap has the right to receive payments to the
extent a specified interest rate exceeds an agreed level; the purchaser of
an interest rate floor has the right to receive payments to the extent a
specified interest rate falls below an agreed level. A collar entitles the
purchaser to receive payments to the extent a specified interest rate
falls outside an agreed range.
Swap agreements, including caps and floors, may involve leverage
and may be highly volatile; depending on how they are used, they may have
a considerable impact on a Portfolio's performance. The risks of swap
agreements depend upon the other party's creditworthiness and ability to
perform, as well as a Portfolio's ability to terminate its swap agreements
or reduce its exposure through offsetting transactions. Swap agreements
may be illiquid. The swap market is relatively new and is largely
unregulated. Swap agreements are considered "derivatives."
RESIDUAL INTEREST BONDS (NEUBERGER&BERMAN MUNICIPAL SECURITIES
AND NEUBERGER&BERMAN NEW YORK INSURED INTERMEDIATE PORTFOLIOS). The
Portfolios may purchase one component of a municipal security that is
structured in two parts: a variable rate security and a residual interest
bond. The interest rate for the variable rate security is determined by an
index or an auction process held approximately every 35 days, while the
residual interest bond holder receives the balance of the income less an
auction fee. These instruments are also known as inverse floaters because
the income received on the residual interest bond is inversely related to
the market rates. The market prices of residual interest bonds are highly
- 62 -
<PAGE>
sensitive to changes in market rates and may decrease significantly when
market rates increase.
MUNICIPAL LEASE OBLIGATIONS (NEUBERGER&BERMAN MUNICIPAL
SECURITIES AND NEUBERGER&BERMAN NEW YORK INSURED INTERMEDIATE PORTFOLIOS).
These obligations are issued by a state or local government or authority
to acquire land and a wide variety of equipment and facilities. The
obligations typically are not fully backed by the municipality's credit.
If funds are not appropriated for the following year's lease payments, the
lease may terminate, with the possibility of default on the lease
obligations and significant loss to the Portfolio. The Portfolios may also
purchase certificates of participation in municipal lease obligations or
installment sales contracts, which entitle the holder to a proportionate
interest in lease-purchase payments made.
RESOURCE RECOVERY BONDS (NEUBERGER&BERMAN MUNICIPAL MONEY,
NEUBERGER&BERMAN MUNICIPAL SECURITIES AND NEUBERGER&BERMAN NEW YORK
INSURED INTERMEDIATE PORTFOLIOS). 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.
TENDER OPTION BONDS (NEUBERGER&BERMAN MUNICIPAL SECURITIES AND
NEUBERGER&BERMAN NEW YORK INSURED INTERMEDIATE PORTFOLIOS). Tender option
bonds are created by coupling an intermediate-term or long-term, fixed
rate tax-exempt bond with a tender agreement that gives the holder the
option to tender the bond at its face value. A sponsor, such as a bank,
broker-dealer or other financial institution, in return for providing the
tender option, receives periodic fees equal to the difference between the
bond's fixed coupon rate and the rate that would cause the bond, with the
tender option, to trade at par value. A sponsor may terminate the tender
option if, for example, the issuer of the bond defaults on interest
payments or the bond's rating falls below investment grade. The tax
treatment of tender option bonds is unclear, and the Portfolios will not
invest in any such bonds unless N&B Management has assurances that the
interest thereon will be tax-exempt.
USE OF JOINT PROSPECTUS AND STATEMENTS OF ADDITIONAL INFORMATION
Each Fund and its corresponding Portfolio acknowledges that it is
solely responsible for all information or lack of information about that
Fund and Portfolio in this Prospectus or in the SAIs, and no other Fund or
Portfolio is responsible therefor. The trustees of the Trust and of
Managers Trust have considered this factor in approving each Fund's use of
a single combined Prospectus and combined SAIs.
- 63 -
<PAGE>
OTHER INFORMATION
-----------------
DIRECTORY
Investment Manager, Administrator,
and Distributor
Neuberger&Berman Management Incorporated
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
800-877-9700
Institutional Services 800-366-6264
Sub-Adviser
Neuberger&Berman, L.P.
605 Third Avenue
New York, NY 10158-3698
Custodian and Shareholder
Servicing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Address correspondence to:
Neuberger&Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
800-225-1596
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW, 2nd Floor
Washington, DC 20036-1800
FUNDS ELIGIBLE FOR EXCHANGE
Equity Funds
Neuberger&Berman Focus Fund
Neuberger&Berman Genesis Fund
Neuberger&Berman Guardian Fund
Neuberger&Berman International Fund
Neuberger&Berman Manhattan Fund
Neuberger&Berman Partners Fund
Neuberger&Berman Socially Responsive Fund
- 64 -
<PAGE>
Money Market Funds
Neuberger&Berman Government Money Fund
Neuberger&Berman Cash Reserves
Bond Funds
Neuberger&Berman Ultra Short Bond Fund
Neuberger&Berman Limited Maturity Bond Fund
Municipal Funds
Neuberger&Berman Municipal Money Fund
Neuberger&Berman Municipal Securities Trust
Neuberger&Berman New York Insured
Intermediate Fund (available to residents
of New York and Florida only)
Neuberger&Berman, Neuberger&Berman Management Inc., and the above-named
Funds are registered trademarks or service marks of Neuberger&Berman
Management Inc.
1996 Neuberger&Berman Management Inc.
This wrapper is not part of the prospectus.
[logo] PRINTED ON RECYCLED PAPER WITH
SOY BASED INKS NBIP00010395
- 65 -
<PAGE>
_________________________________________________________________
NEUBERGER & BERMAN INCOME FUNDS AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 1996
Neuberger & Berman Neuberger & Berman
Government Money Fund Ultra Short Bond Fund
(and Neuberger & Berman (and Neuberger & Berman
Government Money Ultra Short Bond Portfolio)
Portfolio)
Neuberger & Berman Neuberger & Berman
Cash Reserves Limited Maturity Bond Fund
(and Neuberger & Berman (and Neuberger & Berman
Cash Reserves Portfolio) Limited Maturity Bond
Portfolio)
No-Load Mutual Funds
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
_________________________________________________________________
Neuberger & Berman Government Money Fund ("Government
Money"), Neuberger & Berman Cash Reserves ("Cash Reserves"), Neuberger &
Berman Ultra Short Bond Fund ("Ultra Short"), and Neuberger & Berman
Limited Maturity Bond Fund ("Limited Maturity") (each a "Fund") are no-
load mutual funds that offer shares pursuant to a Prospectus dated March
1, 1996. The above-named Funds invest all of their net investable assets
in Neuberger & Berman Government Money Portfolio, Neuberger & Berman Cash
Reserves Portfolio, Neuberger & Berman Ultra Short Bond Portfolio, and
Neuberger & Berman Limited Maturity Bond Portfolio (each a "Portfolio"),
respectively.
The Funds' Prospectus, which is also the prospectus for
certain municipal funds managed by Neuberger & Berman Management
Incorporated ("N&B Management"), provides the basic information that an
investor should know before investing. A copy of the Prospectus may be
obtained, without charge, from N&B Management, 605 Third Avenue, 2nd
Floor, New York, NY 10158-0180 or by calling 800-877-9700.
This Statement of Additional Information ("SAI") is not a
prospectus and should be read in conjunction with the Prospectus.
No person has been authorized to give any information or
to make any representations not contained in the Prospectus or in this SAI
in connection with the offering made by the Prospectus, and, if given or
made, such information or representations must not be relied upon as
having been authorized by a Fund or its distributor. The Prospectus and
this SAI do not constitute an offering by a Fund or its distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . 1
Investment Policies and Limitations . . . . . . . . 1
Rating Agencies . . . . . . . . . . . . . . . . . . 7
Theresa A. Havell and Josephine P. Mahaney: Co-
Portfolio Managers of Neuberger & Berman Ultra
Short Bond Portfolio . . . . . . . . . . . . . . . . 7
Additional Investment Information . . . . . . . . . 9
Risks of Fixed Income Securities . . . . . . . . . . 28
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . 29
Yield Calculations . . . . . . . . . . . . . . . . . 29
Tax Equivalent Yield - State and Local Taxes . . . . 30
Total Return Computations . . . . . . . . . . . . . 31
Comparative Information . . . . . . . . . . . . . . 32
Other Performance Information . . . . . . . . . . . 33
CERTAIN RISK CONSIDERATIONS . . . . . . . . . . . . . . . . 35
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . 35
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES . . . . . 41
Investment Manager and Administrator . . . . . . . . 41
Sub-Adviser . . . . . . . . . . . . . . . . . . . . 44
Investment Companies Managed . . . . . . . . . . . . 45
Management and Control of N&B Management . . . . . . 47
DISTRIBUTION ARRANGEMENTS . . . . . . . . . . . . . . . . . 48
ADDITIONAL PURCHASE INFORMATION . . . . . . . . . . . . . . 49
Automatic Investing and Dollar Cost Averaging . . . 49
ADDITIONAL EXCHANGE INFORMATION . . . . . . . . . . . . . . 49
ADDITIONAL REDEMPTION INFORMATION . . . . . . . . . . . . . 53
Suspension of Redemptions . . . . . . . . . . . . . 53
Redemptions in Kind . . . . . . . . . . . . . . . . 53
DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . 53
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . 54
Taxation of the Funds . . . . . . . . . . . . . . . 54
Taxation of the Portfolios . . . . . . . . . . . . . 55
Taxation of the Funds' Shareholders . . . . . . . . 58
VALUATION OF PORTFOLIO SECURITIES . . . . . . . . . . . . . 59
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . 59
Portfolio Turnover . . . . . . . . . . . . . . . . . 61
- i -
<PAGE>
REPORTS TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . 61
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . 61
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . 61
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . 61
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . 61
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . 62
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 63
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . 64
RATINGS OF SECURITIES . . . . . . . . . . . . . . . 64
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . 67
THE ART OF INVESTMENT: A CONVERSATION WITH ROY
NEUBERGER . . . . . . . . . . . . . . . . . . . . . 67
- ii -
<PAGE>
INVESTMENT INFORMATION
Each Fund is a separate series of Neuberger & Berman
Income Funds ("Trust"), a Delaware business trust that is registered with
the Securities and Exchange Commission ("SEC") as an open-end management
investment company. Each Fund seeks its investment objective by investing
all of its net investable assets in a Portfolio of Income Managers Trust
("Managers Trust") that has an investment objective identical to, and a
name similar to, that of the Fund. Each Portfolio, in turn, invests in
accordance with an investment objective, policies, and limitations
identical to those of its corresponding Fund. (The Trust and Managers
Trust, which is an open-end management investment company managed by N&B
Management, are together referred to below as the "Trusts.")
The following information supplements the discussion in
the Prospectus of the investment objective, policies, and limitations of
each Fund and Portfolio. The investment objective and, unless otherwise
specified, the investment policies and limitations of each Fund and
Portfolio are not fundamental. Although any investment policy or
limitation that is not fundamental may be changed by the trustees of the
Trust ("Fund Trustees") or of Managers Trust ("Portfolio Trustees")
without shareholder approval, each Fund intends to notify its shareholders
before changing its investment objective or implementing any material
change in any non-fundamental policy or limitation. The fundamental
investment policies and limitations of a Fund or a Portfolio may not be
changed without the approval of the lesser of (1) 67% of the total units
of beneficial interest ("shares") of the Fund or Portfolio represented at
a meeting at which more than 50% of the outstanding Fund or Portfolio
shares are represented or (2) a majority of the outstanding shares of the
Fund or Portfolio. This vote is required by the Investment Company Act of
1940 ("1940 Act") and is referred to in this SAI as a "1940 Act majority
vote." Whenever a Fund is called upon to vote on a change in a
fundamental investment policy or limitation of its corresponding
Portfolio, the Fund 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 Fund has the following fundamental investment
policy, to enable it to invest in its corresponding Portfolio:
Notwithstanding any other investment policy of the Fund,
the Fund 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 Fund.
All other fundamental investment policies and limitations
and the non-fundamental investment policies and limitations of each Fund
and its corresponding Portfolio are identical. Therefore, although the
- 1 -
<PAGE>
following discusses the investment policies and limitations of the
Portfolios, it applies equally to their corresponding Funds.
For purposes of the investment limitation on concentra-
tion in particular industries, N&B Management identifies the "issuer" of a
municipal obligation that is not a general obligation note or bond by the
obligation's characteristics. The most significant of these character-
istics is the source of funds for the payment of principal and interest on
the obligation. If an obligation is backed by an irrevocable letter of
credit or other guarantee, without which the obligation would not qualify
for purchase under Neuberger & Berman Limited Maturity Bond Portfolio's
quality restrictions, the issuer of the letter of credit or the guarantee
is considered an issuer of the obligation. If an obligation meets the
Portfolio's quality restrictions without credit support, the Portfolio
treats the commercial developer or the industrial user, rather than the
governmental entity or the guarantor, as the only issuer of the
obligation, even if the obligation is backed by a letter of credit or
other guarantee.
Except for the limitation on borrowing and the limitation
on ownership of portfolio securities by officers and trustees, any
investment policy or limitation that involves a maximum percentage of
securities or assets will not be considered to be violated unless the
percentage limitation is exceeded immediately after, and because of, a
transaction by a Portfolio.
The fundamental investment policies and limitations of
Neuberger & Berman Government Money Portfolio are as follows:
1. Borrowing. The Portfolio may not borrow money,
except from banks for temporary or emergency purposes and not for lever-
aging or investment, in an amount not exceeding 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 the Portfolio's total assets, it 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 and Real Estate. The Portfolio may
not 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.
3. Lending. The Portfolio may not make loans. The
acquisition of a portion of an issue of publicly distributed bonds,
debentures, notes, and other securities as permitted by Managers Trust's
Declaration of Trust shall not be deemed to be the making of loans.
4. Senior Securities. The Portfolio may not issue
senior securities, except as permitted under the 1940 Act.
- 2 -
<PAGE>
5. Underwriting. The Portfolio may not underwrite
securities of other issuers, except to the extent that the Portfolio, in
disposing of portfolio securities, may be deemed to be an underwriter
within the meaning of the Securities Act of 1933 ("1933 Act").
6. Short Sales and Puts, Calls, Straddles, or
Spreads. The Portfolio may not effect short sales of securities or write
or purchase any puts, calls, straddles, spreads, or any combination
thereof.
The non-fundamental investment policies and limitations
of Neuberger & Berman Government Money Portfolio are as follows:
1. Investments in Other Investment Companies. The
Portfolio may not purchase securities of other investment companies,
except to the extent permitted by the 1940 Act and in the open market at
no more than customary brokerage commission rates. This limitation does
not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of a reorganization, consolidation, or merger.
2. Borrowing. The Portfolio may not purchase
securities if outstanding borrowings exceed 5% of its total assets.
3. Margin Transactions. The Portfolio may not
purchase securities on margin from brokers or other lenders, except that
the Portfolio may obtain such short-term credits as are necessary for the
clearance of securities transactions.
4. Industry Concentration. The Portfolio may not
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 securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
("U.S. Government and Agency Securities") or (ii) investments in certifi-
cates of deposit ("CDs") or banker's acceptances issued by domestic
branches of U.S. banks.
The fundamental investment policies and limitations of
Neuberger & Berman Cash Reserves Portfolio, Neuberger & Berman Ultra Short
Bond Portfolio, and Neuberger & Berman Limited Maturity Bond Portfolio are
as follows:
1. Borrowing. No Portfolio may borrow money, except
that a Portfolio 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 Portfolio's
total assets, that Portfolio will reduce its borrowings within three days
- 3 -
<PAGE>
(excluding Sundays and holidays) to the extent necessary to comply with
the 33-1/3% limitation.
2. Commodities. Neuberger & Berman Ultra Short Bond
and Neuberger & Berman Limited Maturity Bond Portfolios may not purchase
physical commodities or contracts thereon, unless acquired as a result of
the ownership of securities or instruments, but this restriction shall not
prohibit a Portfolio from purchasing futures contracts or options
(including options on futures contracts, but excluding options or futures
contracts on physical commodities) or from investing in securities of any
kind. Neuberger & Berman Cash Reserves Portfolio may not purchase
commodities or contracts thereon, but this restriction shall not prohibit
the Portfolio from purchasing the securities of issuers that own interests
in any of the foregoing.
3. Diversification. No Portfolio 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) if, as a result,
(i) more than 5% of the value of the Portfolio's total assets would be
invested in the securities of that issuer or (ii) the Portfolio would hold
more than 10% of the outstanding voting securities of that issuer.
4. Industry Concentration. No Portfolio 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 by Neuberger & Berman Cash Reserves
Portfolio or Neuberger & Berman Ultra Short Bond Portfolio in CDs or
banker's acceptances issued by domestic branches of U.S. banks. Mortgage
and asset-backed securities are considered to be a single industry.
5. Lending. No Portfolio 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 Portfolio may purchase real
estate unless acquired as a result of the ownership of securities or
instruments, but this restriction shall not prohibit a Portfolio 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 Portfolio may issue senior
securities, except as permitted under the 1940 Act.
8. Underwriting. No Portfolio may underwrite
securities of other issuers, except to the extent that a Portfolio, in
- 4 -
<PAGE>
disposing of portfolio securities, may be deemed to be an underwriter
within the meaning of the 1933 Act.
The non-fundamental investment policies and limitations
of Neuberger & Berman Cash Reserves Portfolio, Neuberger & Berman Ultra
Short Bond Portfolio, and Neuberger & Berman Limited Maturity Bond
Portfolio are as follows:
1. Investments in Any One Issuer. Neuberger &
Berman Cash Reserves Portfolio and Neuberger & Berman Ultra Short Bond
Portfolio may not purchase the securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities) if, as a result, more than 5% of the Port-
folio's total assets would be invested in the securities of that issuer.
2. Illiquid Securities. No Portfolio 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 Portfolio has valued the
securities, such as repurchase agreements maturing in more than seven
days.
3. Unseasoned Issuers. No Portfolio may purchase
the securities of any issuer (other than securities issued or guaranteed
by domestic or foreign governments or political subdivisions thereof) if,
as a result, more than 5% of the Portfolio's total assets would be
invested in the securities of business enterprises that, including
predecessors, have a record of less than three years of continuous
operation.
4. Ownership of Portfolio Securities by Officers and
Trustees. No Portfolio may purchase or retain the securities of any
issuer if, to the knowledge of N&B Management, those officers and trustees
of Managers Trust and officers and directors of N&B Management who each
owns individually more than 1/2 of 1% of the outstanding securities of
such issuer, together own more than 5% of such securities.
5. Investments in Other Investment Companies. No
Portfolio may purchase securities of other investment companies, except to
the extent permitted by the 1940 Act and in the open market at no more
than customary brokerage commission rates. This limitation does not apply
to securities received or acquired as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
6. Oil and Gas Programs. No Portfolio may invest in
participations or other direct interests in oil, gas, or other mineral
exploration or development programs or leases.
7. Borrowing. No Portfolio may purchase securities
if outstanding borrowings, including any reverse repurchase agreements,
exceed 5% of its total assets.
- 5 -
<PAGE>
8. Lending. Except for the purchase of debt
securities and engaging in repurchase agreements, no Portfolio may make
any loans other than securities loans.
9. Margin Transactions. No Portfolio may purchase
securities on margin from brokers or other lenders, except that a
Portfolio may obtain such short-term credits as are necessary for the
clearance of securities transactions. For Neuberger & Berman Ultra Short
Bond Portfolio and Neuberger & Berman Limited Maturity Bond Portfolio,
margin payments in connection with transactions in futures contracts and
options on futures contracts shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
10. Short Sales. No Portfolio may sell securities
short, unless it owns, or has the right to obtain without payment of addi-
tional consideration, securities equivalent in kind and amount to the
securities sold. For Neuberger & Berman Ultra Short Bond Portfolio and
Neuberger & Berman Limited Maturity Bond Portfolio, transactions in
forward contracts, futures contracts and options shall not constitute
selling securities short.
11. Puts, Calls, Straddles, or Spreads. No Portfolio
may invest in puts, calls, straddles, spreads, or any combination thereof,
except that each of these Portfolios may (i) purchase securities with
rights to put the securities to the seller in accordance with its invest-
ment program and (ii) purchase call options and write (sell) put options
to close out options previously written by the Portfolio, and Neuberger &
Berman Limited Maturity Bond Portfolio may write covered call options and
purchase put options. The Portfolios do not construe the foregoing
limitation to preclude them from purchasing or selling options on futures
contracts or from purchasing securities with rights to put the security to
the issuer or a guarantor.
12. Real Estate Limited Partnerships. No Portfolio may
invest in real estate limited partnerships.
Rating Agencies
---------------
As discussed in the Prospectus, the Portfolios may
purchase securities rated by Standard & Poor's ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), or any other nationally recognized statistical
rating organization ("NRSRO"). 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.
Among the NRSROs, the Portfolios rely primarily on ratings assigned by S&P
and Moody's, which are described in Appendix A to this SAI.
- 6 -
<PAGE>
Theresa A. Havell and Josephine P. Mahaney: Co-Portfolio
Managers of Neuberger & Berman Ultra Short Bond Portfolio
----------------------------------------------------------
Investors are accustomed to thinking of yield or interest
rate figures as the same as total return on their investment, because
savings accounts, conventional money market funds, and CDs almost always
do indeed return the stated yield. But bond funds are different-- bonds
not only pay interest, they also fluctuate in value. For example, a
decline in prevailing levels of interest rates generally increases the
value of debt securities in a bond fund's portfolio, while an increase in
rates usually reduces the value of those securities. As a result,
interest rate fluctuations will affect a bond fund's net asset value (and
total return) but not necessarily the income received by the fund from its
portfolio securities. Both the yield and risk to principal usually
increase as the duration of the bond increases.
So looking at yield alone carries high risk because the
highest yielding bonds historically tend to be the ones with the longest
durations. The risk to principal in these bonds can be nearly as great as
the risk in stocks and may not produce the same reward.
What advice does Ms. Theresa Havell, manager of the Fixed
Income Group of Neuberger & Berman, L.P. ("Neuberger & Berman"), have for
investors seeking the highest returns on their fixed income investments?
"Look beyond interest rates to total return," she states unequivocally.
Total return includes the yield from the bond and the increase or decrease
in the market value (price) of the bond.
"Once you consider the risk to principal, then total
return is the only concept that can measure what you are actually earning
from your fixed income securities," Ms. Havell says.
Ultra Short is appropriate for investors who seek a
higher total return alternative to money market funds with minimal risk to
principal and liquidity.
Theresa A. Havell and Thomas G. Wolfe: Co-Portfolio
Managers of Neuberger & Berman Limited Maturity Bond Portfolio
--------------------------------------------------------------
Limited Maturity is intended for investors who seek the
highest current income with less volatility and risk than that of a
longer-term bond fund. The Fund's corresponding Portfolio provides active
fixed income portfolio management through investments in securities with
an average portfolio duration of no longer than four years. Studies of
historical bond returns have shown that risk-adjusted total returns were
best in bonds having durations of two to five years. The bonds in this
duration range have provided significantly higher returns than shorter-
term securities and nearly the same return as longer-term fixed income
securities with far less volatility. The Portfolio Managers attempt to
increase the Portfolio's value by actively managing duration in response
to interest rate trends and fundamental economic developments. They seek
to protect principal by shortening duration when interest rates are rising
- 7 -
<PAGE>
and enhance returns by lengthening duration in a falling interest rate
market.
Limited Maturity also enhances return and limits risk by
following a broadly diversified investment program across the various
sectors of the fixed income market. Over long periods of time, corporate,
mortgage- and asset-backed bonds have provided
higher returns than Treasury securities. Relying on extensive internal
research, the Portfolio Managers attempt to increase the value of the
Portfolio by purchasing securities at significant yield premiums to
Treasury bonds. Neuberger&Berman uses sector weightings, which are based
on an analysis of the key factors that it believes will impact the
relative value and risk for each sector. These factors include the
economic cycle, credit quality trends and supply/demand analysis for each
security type. Within the sectors found attractive, individual bonds are
rigorously analyzed for credit, cash flow and liquidity risk. Those that
appear to offer attractive risk reward ratios are purchased. While
overall portfolio quality is high, Neuberger&Berman believes that by
careful evaluation of credit risk, the Portfolio benefits from the
inclusion of lower-rated bonds with only moderate incremental risk.
Additional Investment Information
---------------------------------
Some or all of the Portfolios, as indicated below, may
make the following investments, among others, although they may not buy
all of the types of securities or use all of the investment techniques
that are described.
Repurchase Agreements (All Portfolios except Neuberger &
Berman Government Money Portfolio). Repurchase agreements are agreements
under which a Portfolio 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 Portfolio at a higher price on a
designated future date. Repurchase agreements generally are for a short
period of time, usually less than a week. No Portfolio may enter into a
repurchase agreement with a maturity 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
Portfolio may enter into a repurchase agreement only if (1) the underlying
securities are of the type (excluding maturity or duration limitations)
that the Portfolio's investment policies and limitations would allow it to
purchase directly, (2) the market value of the underlying securities,
including accrued interest, at all times equals or exceeds the value of
the repurchase agreement, and (3) payment for the underlying securities is
made only upon satisfactory evidence that the securities are being held
for the Portfolio's account by its custodian or a bank acting as the
Portfolio's agent.
- 8 -
<PAGE>
Securities Loans (All Portfolios except Neuberger &
Berman Government Money Portfolio). In order to realize income, the
Portfolios may lend portfolio securities with a value not exceeding 33-
1/3% of its total assets to banks, brokerage firms, or institutional
investors judged creditworthy by N&B Management. Borrowers are required
continuously to secure their obligations to return securities on loan from
the Portfolio 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 100% of the market value
of the loaned securities, which will also be marked to market daily. N&B
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.
Restricted Securities and Rule 144A Securities (All
Portfolios except Neuberger & Berman Government Money Portfolio). The
Portfolios 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 or, if they are unregistered, 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 further 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 Portfolio qualify under Rule
144A, and an institutional market develops for those securities, the
Portfolio 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
Portfolio's illiquidity. N&B Management, acting under guidelines
established by the Portfolio Trustees, may determine that certain
securities qualified for trading under Rule 144A are liquid. Foreign
securities that can be freely sold in the markets in which they are
principally traded are not considered to be restricted. 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 Portfolio 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
the Portfolio may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market
conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to sell. To the extent privately
placed securities, including Rule 144A securities, are illiquid, purchases
thereof will be subject to each Portfolio's 10% limit on investments in
illiquid securities. Restricted securities for which no market exists are
- 9 -
<PAGE>
priced at fair value as determined in accordance with procedures approved
and periodically reviewed by the Portfolio Trustees.
Commercial Paper (All Portfolios except Neuberger &
Berman Government Money Portfolio). Commercial paper is a short-term debt
security issued by a corporation, bank, municipality, or other issuer for
purposes such as financing current operations.
Each Portfolio 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, N&B Management may in certain cases determine that such paper is
liquid, pursuant to guidelines established by the Portfolio Trustees.
Reverse Repurchase Agreements (All Portfolios except
Neuberger & Berman Government Money Portfolio). In a reverse repurchase
agreement, a Portfolio 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; these agreements are considered borrowings for
purposes of the Portfolios' investment policies and limitations concerning
borrowings. While a reverse repurchase agreement is outstanding, a
Portfolio will maintain with its custodian in a segregated account cash,
U.S. Government or Agency Securities, or other liquid, high-grade debt
securities, marked to market daily, in an amount at least equal to the
Portfolio's obligations under the agreement. There is a risk that the
contra-party to a reverse repurchase agreement will be unable or unwilling
to complete the transaction as scheduled, which may result in losses to
the Portfolio.
Banking and Savings Institution Securities (All Portfo-
lios except Neuberger & Berman Government Money Portfolio). The Port-
folios may invest in banking and savings institution obligations, which
include CDs, time deposits, bankers' acceptances, and other short-term
debt obligations issued by commercial banks and savings institutions. 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 the Portfolios invest typically are not covered by deposit
insurance.
The Portfolios may invest in securities issued by a
commercial bank or savings institution only if (1) the bank or institution
has total assets of at least $1,000,000,000, (2) the bank or institution
is on N&B Management's approved list, (3) in the case of a U.S. bank or
institution, its deposits are insured by the Federal Deposit Insurance
Corporation, and (4) in the case of a foreign bank or institution, the
securities are, in N&B Management's opinion, of an investment quality
comparable with other debt securities that may be purchased by the Port-
folio. These limitations do not prohibit investments in securities issued
by foreign branches of U.S. banks that meet the foregoing requirements.
- 10 -
<PAGE>
These Portfolios do not currently intend to invest in any security issued
by a foreign savings institution.
Variable or Floating Rate Securities; Demand and Put
Features (All Portfolios except Neuberger & Berman Government Money
Portfolio). 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 index changes. The
interest rate on variable and floating rate securities (collectively,
"Variable 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.
The Variable Rate Securities in which the Portfolios
invest 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, the Variable Rate Securities might not meet the Portfolios'
quality standards. Accordingly, in purchasing these securities, each
Portfolio relies primarily on the creditworthiness of the credit
instrument issuer or the insurer. A Portfolio may not invest more than 5%
of its total assets in securities backed by credit instruments from any
one issuer or by insurance from any one insurer (excluding securities that
do not rely on the credit instrument or insurance for their rating, i.e.,
stand on their own credit).
A Portfolio can also buy fixed rate securities accompa-
nied by a demand feature or by a put option, which permits the Portfolio
to sell the security to the issuer or third party at a specified price. A
Portfolio may rely on the creditworthiness of issuers of puts in
purchasing these securities.
In calculating its maturity and duration, each Portfolio
is permitted to treat certain Variable Rate Securities as maturing on a
date prior to the date on which the final repayment of principal is due to
be made. In applying such maturity shortening devices, N&B Management
considers whether the interest rate reset is expected to cause the
security to trade at approximately its par value.
Mortgage-Backed Securities (All Portfolios except
Neuberger & Berman Government Money Portfolio). 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 (though not
necessarily backed by the full faith and credit of the United States),
such as the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"), or may be issued by private issuers.
- 11 -
<PAGE>
Mortgage-backed securities may be issued in the form of
collateralized mortgage obligations ("CMOs") or mortgage-backed bonds.
CMOs are obligations 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. Mortgage-
backed bonds are general obligations of the issuer 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
of a CMO but not that of a mortgage-backed bond (although, like many
bonds, mortgage-backed bonds may be callable by the issuer prior to
maturity).
Governmental, government-related, and private entities
may create mortgage loan pools to back mortgage pass-through and mortgage-
collateralized investments. Commercial banks, savings institutions,
private mortgage insurance companies, mortgage bankers, and other
secondary market issuers, including securities broker-dealers and special
purpose entities (which generally are affiliates of the foregoing estab-
lished to issue such securities), also create pass-through pools of
residential mortgage loans. 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 government 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 the mortgage poolers
issue these forms of insurance and guarantees. Such insurance and
guarantees, as well as the creditworthiness of the issuers thereof, are
considered in determining whether a mortgage-backed security meets a
Portfolio's investment quality standards. There can be no assurance that
the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements.
A Portfolio may buy mortgage-backed securities without
insurance or guarantees, if N&B Management determines that the securities
meet the Portfolio's quality standards. A Portfolio may not purchase
mortgage-backed securities or any other assets that, in N&B Management's
opinion, are illiquid if, as a result, more than 10% of the value of the
Portfolio's net assets would be illiquid. N&B Management will, consistent
with the Portfolios' investment objective, 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.
- 12 -
<PAGE>
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
maturity and duration, a Portfolio may apply certain industry conventions
regarding the maturity and duration of mortgage-backed instruments.
Asset-Backed Securities (All Portfolios except
Neuberger & Berman Government Money Portfolio). The Portfolios may
purchase asset-backed securities, including commercial paper. Asset-
backed securities represent direct or indirect participations in, or are
secured by and payable from, pools of assets such as motor vehicle
installment sales contracts, installment loan contracts, leases of various
types of real and personal property, and receivables from revolving credit
(credit card) agreements. These assets are securitized through the use of
trusts and special purpose corporations. Credit enhancements, such as
various forms of cash collateral accounts or letters of credit, may
support payments or distributions of principal and interest on asset-
backed securities. Like mortgage-backed securities, asset-backed
securities are subject to the risk of prepayment. The risk that recovery
on repossessed collateral might be unavailable or inadequate to support
payments, however, is greater for asset-backed securities than for
mortgage-backed securities.
Certificates for Automobile Receivables ("CARS ") repre-
sent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing those contracts. Payments of principal
and interest on the underlying contracts are "passed through" monthly to
certificate holders and are guaranteed up to specified amounts by a letter
of credit issued by a financial institution unaffiliated with the trustee
or originator of the trust. Underlying installment sales contracts are
subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders also may experience delays in payment or
losses on CARS if the trust does not realize the full amounts due on
underlying installment sales contracts because of unanticipated legal or
administrative costs of enforcing the contracts; depreciation, damage, or
loss of the vehicles securing the contracts; or other factors.
Credit card receivable securities are backed by receiv-
ables from revolving credit card agreements ("Accounts"). Credit balances
on Accounts are generally paid down more rapidly than are automobile
contracts. Most of the credit card receivable securities issued publicly
to date have been pass-through certificates. In order to lengthen their
maturity or duration, most such securities provide for a fixed period
during which only interest payments on the underlying Accounts are passed
through to the security holder; principal payments received on the
Accounts are used to fund the transfer of additional credit card charges
made on the Accounts to the pool of assets supporting the securities.
Usually, the initial fixed period may be shortened if specified events
occur signaling a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates.
- 13 -
<PAGE>
An issuer's ability to extend the life of an issue of credit card
receivable securities thus depends on the continued generation of
principal amounts in the underlying Accounts and the non-occurrence of the
specified events. The nondeductibility of consumer interest, as well as
competitive and general economic factors, could adversely affect the rate
at which new receivables are created in an Account and conveyed to an
issuer, thereby shortening the expected weighted average life of the
related security and reducing its yield. An acceleration in cardholders'
payment rates or any other event that shortens the period during which
additional credit card charges on an Account may be transferred to the
pool of assets supporting the related security could have a similar effect
on its weighted average life and yield.
Credit cardholders are entitled to the protection of
state and federal consumer credit laws. Many of those laws give a holder
the right to set off certain amounts against balances owed on the credit
card, thereby reducing amounts paid on Accounts. In addition, unlike most
other asset-backed securities, Accounts are unsecured obligations of the
cardholder.
U.S. Dollar-Denominated Foreign Debt Securities (All
Portfolios except Neuberger & Berman Government Money Portfolio). The
Portfolios may invest in U.S. dollar-denominated debt securities issued by
foreign issuers (including banks, governments and quasi-governmental
organizations) and foreign branches of U.S. banks, including negotiable
CDs, bankers' acceptances, and commercial paper. These investments are
subject to each Portfolio's quality, maturity, and duration standards.
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) and the potentially adverse effects of unavailabil-
ity of public information regarding issuers, less governmental supervision
and regulation of financial markets, reduced liquidity of certain finan-
cial markets, and the lack of uniform accounting, auditing, and financial
standards or the application of standards that are different or less
stringent than those applied in the United States.
Foreign Currency Denominated Foreign Securities
(Neuberger & Berman Limited Maturity Bond Portfolio). The Portfolio may
invest in debt or other income-producing securities (of issuers in
countries whose governments are considered stable by N&B Management) that
are denominated in or indexed to foreign currencies, including (1) CDs,
commercial paper, fixed time deposits, and bankers' acceptances issued by
foreign banks, (2) obligations of other corporations, and (3) obligations
of foreign governments or their subdivisions, agencies, and instrumentali-
ties, international agencies, and supranational entities. Investing in
foreign currency denominated securities includes the special risks asso-
ciated with investing in non-U.S. issuers described in the preceding
section and the additional risks of (1) adverse changes in foreign
exchange rates, (2) nationalization, expropriation, or confiscatory taxa-
- 14 -
<PAGE>
tion, (3) adverse changes in investment or exchange control regulations
(which could prevent cash from being brought back to the United States),
and (4) expropriation or nationalization of foreign portfolio companies.
Additionally, dividends and interest payable on foreign securities may be
subject to foreign taxes, including taxes withheld from those payments.
Foreign securities often trade with less frequency and in
less volume than domestic securities and therefore may exhibit greater
price volatility. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to
domestic custody arrangements, and transaction costs of foreign currency
conversions.
Interest rates prevailing in other countries may affect
the prices of foreign securities and exchange rates for foreign
currencies. Local factors, including the strength of the local economy,
the demand for borrowing, the government's fiscal and monetary policies,
and the international balance of payments often affect the interest rates
in other countries. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource self-
sufficiency, and balance of payments position.
Foreign markets also have different clearance and
settlement procedures, and, in certain markets, there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Such
delays in settlement could result in temporary periods when a portion of
the assets of a Portfolio are uninvested and no return is earned thereon.
The inability of a Portfolio to make intended security purchases due to
settlement problems could cause the Portfolio to miss attractive
investment opportunities. Inability to dispose of portfolio securities
due to settlement problems could result in losses to a Portfolio due to
subsequent declines in value of the portfolio securities, or, if the
Portfolio has entered into a contract to sell the securities, could result
in possible liability to the purchaser.
In order to limit the risk inherent in investing in
foreign currency denominated securities, the Portfolio may not purchase
any such security if, after such purchase, more than 25% of its net assets
(taken at market value) would be invested in foreign currency denominated
securities. Within that limitation, however, the Portfolio is not
restricted in the amount it may invest in securities denominated in any
one foreign currency.
Dollar Rolls (Neuberger & Berman Ultra Short Bond
Portfolio and Neuberger & Berman Limited Maturity Bond Portfolio). In a
"dollar roll," a Portfolio sells securities for delivery in the current
month and simultaneously agrees to repurchase substantially similar (same
type and coupon) securities on a specified future date from the same
party. A "covered roll" is a specific type of dollar roll in which the
Portfolio holds an offsetting cash position or a cash equivalent security
- 15 -
<PAGE>
position that matures on or before the forward settlement date of the
dollar roll transaction. Dollar rolls are considered borrowings for
purposes of the Portfolios' investment policies and limitations concerning
borrowings. There is a risk that the contra-party will be unable or
unwilling to complete the transactions as scheduled, which may result in
losses to the Portfolio.
When-Issued Transactions (Neuberger & Berman Ultra Short
Bond Portfolio and Neuberger & Berman Limited Maturity Bond Portfolio).
The Portfolios may purchase securities (including mortgage-backed
securities such as GNMA, FNMA, and FHLMC certificates) on a when-issued
basis. In such a transaction, a Portfolio commits to purchase securities
(to secure an advantageous price and yield at the time of the commitment)
and completes the purchase by making payment against delivery of the
securities at a future date. When-issued purchases are negotiated
directly with the other party, and such commitments are not traded on an
exchange.
In periods of falling interest rates and rising prices, a
Portfolio might purchase a security on a when-issued basis and sell a
similar security to settle such purchase, thereby obtaining the benefit of
currently higher yields.
The value of securities purchased on a when-issued basis
and any subsequent fluctuations in their value are reflected in the
computation of a Portfolio's net asset value ("NAV") starting on the date
of the agreement to purchase the securities. The Portfolio does not earn
interest on securities it has committed to purchase until the securities
are paid for and delivered on the settlement date. Settlement of when-
issued purchase transactions generally takes place within two months after
the date of the transaction, but a Portfolio may agree to a longer
settlement period.
A Portfolio will purchase securities on a when-issued
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. If deemed advisable as a matter of
investment strategy, however, a Portfolio may dispose of or renegotiate a
commitment after it has been entered into. A Portfolio also may sell
securities it has committed to purchase before those securities are
delivered to the Portfolio on the settlement date. The Portfolio may
realize capital gains or losses in connection with these transactions.
When a Portfolio purchases securities on a when-issued
basis, it will maintain in a segregated account with its custodian, until
payment is made, cash, U.S. Government and Agency Securities, or other
liquid, high-grade debt securities having an aggregate market value
(determined daily) at least equal to the amount of the Portfolio's pur-
chase commitments. This procedure is designed to ensure that the
Portfolio maintains sufficient assets at all times to cover its
obligations under when-issued purchases.
- 16 -
<PAGE>
Futures Contracts and Options Thereon (Neuberger & Berman
Ultra Short Bond Portfolio and Neuberger & Berman Limited Maturity Bond
Portfolio). The Portfolios may purchase and sell interest-rate and bond
index futures contracts and options thereon, and Neuberger & Berman
Limited Maturity Bond Portfolio may purchase and sell foreign currency
futures contracts (with interest-rate and bond index futures contracts,
"Futures" or "Futures Contracts") and options thereon. The Portfolios
engage in interest-rate Futures and options transactions in an attempt to
hedge against changes in securities prices resulting from expected changes
in prevailing interest rates; Neuberger & Berman Limited Maturity Bond
Portfolio engages in foreign currency Futures and options transactions in
an attempt to hedge against expected changes in prevailing currency
exchange rates. Because the futures markets may be more liquid than the
cash markets, the use of Futures permits a Portfolio to enhance portfolio
liquidity and maintain a defensive position without having to sell
portfolio securities. The Portfolios do not engage in transactions in
Futures or options thereon for speculation. The Portfolios view invest-
ment in (1) interest-rate Futures and options thereon as a maturity or
duration management device and/or a device to reduce risk and preserve
total return in an adverse interest rate environment and (2) foreign
currency Futures and options thereon as a means of establishing more
definitely the effective return on securities denominated in foreign
currencies held or intended to be acquired by them.
A "sale" of a Futures Contract (or a "short" Futures
position) entails the assumption of a contractual obligation to deliver
the securities or currency underlying the contract at a specified price at
a specified future time. A "purchase" of a Futures Contract (or a "long"
Futures position) entails the assumption of a contractual obligation to
acquire the securities or currency underlying the contract at a specified
price at a specified future time. Certain Futures, including bond index
Futures, are settled on a net cash payment basis rather than by the sale
and delivery of the securities underlying the Futures.
"Margin" with respect to Futures is the amount of assets
that must be deposited by a Portfolio with, or for the benefit of, a
futures commission merchant in order to initiate and maintain the
Portfolio's Futures positions. The margin deposit made by a Portfolio
when it enters into a Futures Contract ("initial margin") is intended to
assure its performance of the contract. If the price of the Futures
Contract changes -- increases in the case of a short (sale) position or
decreases in the case of a long (purchase) position -- so that the
unrealized loss on the contract causes the margin deposit not to satisfy
margin requirements, the Portfolio will be required to make an additional
margin deposit ("variation margin"). However, if favorable price changes
in the Futures Contract cause the margin on deposit to exceed the required
margin, the excess will be paid to the Portfolio. In computing its daily
NAV, each Portfolio marks to market the current value of its open Futures
positions. A Portfolio also must make margin deposits with respect to
options on Futures that it has written. If the futures commission
merchant holding the deposit goes bankrupt, the Portfolio could suffer a
delay in recovering its funds and could ultimately suffer a loss.
- 17 -
<PAGE>
U.S. Futures (except certain currency Futures) are traded
on exchanges that have been designated as "contract markets" by the
Commodity Futures Trading Commission ("CFTC"), an agency of the U.S.
Government; Futures transactions must be executed through a futures
commission merchant that is a member of the relevant contract market. The
exchange's affiliated clearing organization guarantees performance of the
contracts between the clearing members of the exchange.
Although Futures Contracts by their terms may require the
actual delivery or acquisition of the underlying securities or currency,
in most cases the contractual obligation is extinguished by being offset
before the expiration of the contract, without the parties having to make
or take delivery of the assets. A Futures position is offset by buying
(to offset an earlier sale) or selling (to offset an earlier purchase) an
identical Futures Contract calling for delivery in the same month.
Although each Portfolio believes that the use of Futures
Contracts will benefit it, if N&B Management's judgment about the general
direction of the markets is incorrect, a Portfolio's overall return would
be lower than if it had not entered into any such contracts. Moreover,
the spread between values in the cash and futures markets is subject to
distortion, due to differences in the character of those markets. Because
of the possibility of distortion, even a correct forecast of general
market trends by N&B Management may not result in a successful transac-
tion.
An option on a Futures Contract gives the purchaser the
right, in return for the premium paid, to assume a position in the
contract (a long position if the option is a call and a short position if
the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon
exercise to assume a short Futures position (if the option is a call) or a
long Futures position (if the option is a put). Upon exercise of the
option, the assumption of offsetting Futures positions by the writer and
holder of the option is accompanied by delivery of the accumulated cash
balance in the writer's Futures margin account. That balance represents
the amount by which the market price of the Futures Contract at exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option.
The prices of Futures are volatile and are influenced by,
among other things, actual and anticipated changes in interest or currency
exchange rates, which in turn are affected by fiscal and monetary policies
and by national and international political and economic events. At best,
the correlation between changes in prices of Futures and of the securities
and currencies being hedged can be only approximate. Decisions regarding
whether, when, and how to hedge involve skill and judgment. Even a well-
conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate or currency exchange rate trends, or lack
of correlation between the futures markets and the securities markets.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage; as a result, a relatively small price
- 18 -
<PAGE>
movement in a Futures Contract may result in an immediate and substantial
loss, or gain, to the investor. Losses that may arise from certain
Futures transactions are potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctua-
tion in the price of a Futures Contract or option thereon during a single
trading day; once the daily limit has been reached, no trades thereof may
be made on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day, however; it thus
does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Prices can move to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing liquidation of Futures and options positions and subjecting
investors to substantial losses. If this were to happen with respect to a
position held by a Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
Covered Call and Put Options (Neuberger & Berman Limited
Maturity Bond Portfolio). The Portfolio may write or purchase put and
call options on securities. Generally, the purpose of writing and
purchasing these options is to reduce the effect of price fluctuations of
securities held by the Portfolio on the Portfolio's and its corresponding
Fund's NAVs. The Portfolio may also write covered call options to earn
premium income.
The obligation under any option terminates upon expira-
tion of the option or, at an earlier time, when the writer offsets the
option by entering into a "closing purchase transaction" to purchase an
option of the same series. If an option is purchased by the Portfolio and
is never exercised, the Portfolio will lose the entire amount of the
premium paid.
The Portfolio will receive a premium for writing a put
option, which obligates the Portfolio to acquire a certain security at a
certain price at any time until a certain date if the purchaser of the
option decides to sell such security. The Portfolio may be obligated to
purchase the underlying security at more than its current value.
When the Portfolio purchases a put option, it pays a
premium to the writer for the right to sell a security to the writer for a
specified amount at any time until a certain date. The Portfolio would
purchase a put option in order to protect itself against a decline in the
market value of a security it owns.
When the Portfolio writes a call option, it is obligated
to sell a security to a purchaser at a specified price at any time the
purchaser requests until a certain date, and receives a premium for
writing the option. The Portfolio writes only "covered" call options on
securities it owns. So long as the obligation of the call option
continues, the Portfolio may be assigned an exercise notice, requiring it
to deliver the underlying security against payment of the exercise price.
The Portfolio may be obligated to deliver securities underlying an option
- 19 -
<PAGE>
at less than the market price, thereby giving up any additional gain on
the security.
When the Portfolio purchases a call option, it pays a
premium for the right to purchase a security from the writer at a
specified price until a specified date. The Portfolio would purchase a
call option in order to protect against an increase in the price of
securities it intends to purchase or to offset a previously written call
option.
Portfolio securities on which call and put options may be
written and purchased by the Portfolio are purchased solely on the basis
of investment considerations consistent with the Portfolio's investment
objective. The writing of covered call options is a conservative
investment technique that is believed to involve relatively little risk
(in contrast to the writing of "naked" or uncovered call options, which
the Portfolio will not do), but is capable of enhancing the Portfolio's
total return. When writing a covered call option, the Portfolio, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security
decline. When writing a put option, the Portfolio, in return for the
premium, takes the risk that it must purchase the underlying security at
the exercise price, which may be higher than the current market price of
the security. If a call or put option that the Portfolio has written
expires unexercised, the Portfolio will realize a gain in the amount of
the premium; however, in the case of a call option, that gain may be
offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security.
Options are traded both on national securities exchanges
and in the over-the-counter ("OTC") market. Exchange-traded options in
the U.S. are issued by a clearing organization affiliated with the
exchange on which the option is listed; the clearing organization in
effect guarantees completion of every exchange-traded option. In
contrast, OTC options are contracts between the Portfolio and its counter-
party with no clearing organization guarantee. Thus, when the Portfolio
sells (or purchases) an OTC option, it generally will be able to "close
out" the option prior to its expiration only by entering into a "closing
transaction" with the dealer to whom (or from whom) the Portfolio
originally sold (or purchased) the option. There can be no assurance that
the Portfolio would be able to liquidate an OTC option at any time prior
to expiration. Unless the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option it has written, it will not be
able to liquidate securities used as cover until the option expires or is
exercised or until different cover is substituted. In the event of the
counter-party's insolvency, the Portfolio may be unable to liquidate its
options position and the associated cover. N&B Management monitors the
creditworthiness of dealers with which the Portfolio may engage in OTC
options transactions, and limits the Portfolio's counter-parties in such
- 20 -
<PAGE>
transactions to dealers with a net worth of at least $20 million as
reported in their latest financial statements.
The assets used as cover for OTC options written by the
Portfolio will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Portfolio may repurchase any OTC
option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC call option written
subject to this procedure will be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
The premium received (or paid) by the Portfolio when it
writes (or purchases) a call or put option is the amount at which the
option is currently traded on the applicable exchange, less (or plus) a
commission. The premium may reflect, among other things, the current
market price of the underlying security, the relationship of the exercise
price to the market price, the historical price volatility of the
underlying security, the length of the option period, the general supply
of and demand for credit, and the general interest rate environment. The
premium received by the Portfolio for writing a covered call or put option
is recorded as a liability on the Portfolio's statement of assets and
liabilities. This liability is adjusted daily to the option's current
market value, which is the sales price on the option's last reported trade
on that day before the time the Portfolio's NAV is computed or, in the
absence of any trades thereof on that day, the mean between the bid and
ask prices as of that time.
Closing transactions are effected in order to realize a
profit on an outstanding option, to prevent an underlying security from
being called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits the Portfolio to
write another call option on the underlying security with either a
different exercise price or expiration date or both. If the Portfolio
desires to sell a security on which it has written a call option, it will
seek to effect a closing transaction prior to, or concurrently with, the
sale of the security. There is, of course, no assurance that the
Portfolio will be able to effect closing transactions at favorable prices.
If the Portfolio cannot enter into such a transaction, it may be required
to hold a security that it might otherwise have sold (or purchase a
security that it would not have otherwise bought), in which case it would
continue to be at market risk on the security.
The Portfolio will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the call or put option.
However, because increases in the market price of a call option generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the
Portfolio.
- 21 -
<PAGE>
The Portfolio pays brokerage commissions in connection
with purchasing or writing options, including those used to close out
existing positions. These brokerage commissions normally are higher than
those applicable to purchases and sales of portfolio securities.
Options normally have expiration dates between three and
nine months from the date written. The exercise price of an option may be
below, equal to, or above the market value of the underlying security at
the time the option is written. From time to time, the Portfolio may
purchase an underlying security for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering
the security from its portfolio. In those cases, additional brokerage
commissions are incurred.
Options on Foreign Currencies (Neuberger & Berman Limited
Maturity Bond Portfolio). The Portfolio may write and purchase covered
call and put options on foreign currencies. The Portfolio would engage in
such transactions to protect against declines in the U.S. dollar value of
portfolio securities or increases in the U.S. dollar cost of securities to
be acquired, or to protect the dollar equivalent of dividends, interest,
or other payments on those securities. As with other types of options,
however, writing an option on foreign currency constitutes only a partial
hedge, up to the amount of the premium received, and the Portfolio could
be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The risks of currency options
are similar to the risks of other options, discussed herein. Certain
options on foreign currencies are traded on the OTC market and involve
liquidity and credit risks that may not be present in the case of
exchange-traded currency options.
Forward Foreign Currency Contracts (Neuberger & Berman
Limited Maturity Bond Portfolio). The Portfolio may enter into contracts
for the purchase or sale of a specific foreign currency at a future date
at a fixed price ("Forward Contracts"). The Portfolio enters into Forward
Contracts in an attempt to hedge against expected changes in prevailing
currency exchange rates. The Portfolio does not engage in transactions in
Forward Contracts for speculation; it views investments in Forward
Contracts as a means of establishing more definitely the effective return
on securities denominated in foreign currencies that are held or intended
to be acquired by it. Forward Contract transactions include forward sales
or purchases of foreign currencies for the purpose of protecting the U.S.
dollar value of securities held or to be acquired by the Portfolio that
are denominated in a foreign currency or protecting the U.S. dollar
equivalent of dividends, interest, or other payments on those securities.
N&B Management believes that the use of foreign currency
hedging techniques, including "cross-hedges," can help protect against
declines in the U.S. dollar value of income available for distribution and
declines in the Portfolio's NAV resulting from adverse changes in currency
exchange rates. For example, the return available from securities denomi-
nated in a particular foreign currency would diminish if the value of the
- 22 -
<PAGE>
U.S. dollar increased against that currency. Such a decline could be
partially or completely offset by an increase in value of a hedge involv-
ing a Forward Contract to sell that foreign currency or a cross-hedge
involving a Forward Contract to sell a different foreign currency whose
behavior is expected to resemble the currency in which the securities
being hedged are denominated and which is available on more advantageous
terms. N&B Management believes that hedges and cross-hedges can,
therefore, provide significant protection of NAV in the event of a general
rise in the U.S. dollar against foreign currencies. However, a hedge or
cross-hedge cannot protect against exchange rate risks perfectly, and, if
N&B Management is incorrect in its judgment of future exchange rate
relationships, the Portfolio could be in a less advantageous position than
if such a hedge or cross-hedge had not been established. In addition,
because forward contracts are not traded on an exchange, the assets used
to cover such contracts may be illiquid. If the Portfolio uses cross-
hedging, it may experience losses on both the currency in which it has
invested and the currency used for hedging, if the two currencies do not
vary with the expected degree of correlation.
GENERAL CONSIDERATIONS INVOLVING FUTURES, OPTIONS ON
FUTURES, OPTIONS ON SECURITIES AND FOREIGN CURRENCIES,
AND FORWARD CONTRACTS (COLLECTIVELY, "HEDGING INSTRU-
MENTS")
Futures Contracts and Options on Futures Contracts and
Foreign Currencies. To the extent a Portfolio sells or purchases Futures
Contracts and/or writes options thereon or options on foreign currencies
that are traded on an exchange regulated by the CFTC other than for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial
margin and premiums on these positions (excluding the amount by which
options are "in-the-money") may not exceed 5% of the Portfolio's net
assets.
In addition, pursuant to state securities laws, (1) the
aggregate premiums paid by a Portfolio on all options (both exchange-
traded and OTC) held by it at any time may not exceed 20% of its net
assets and (2) the aggregate margin deposits required on all exchange-
traded Futures Contracts and related options held at any time by a Portfo-
lio may not exceed 5% of its total assets. Pursuant to an undertaking to
a state securities law administrator, Neuberger & Berman Limited Maturity
Bond Portfolio may not purchase a put option if, as a result, more than 5%
of its total assets would be invested in put options.
Risks Involved in Using Hedging Instruments. The primary
risks in using Hedging Instruments are (1) imperfect correlation or no
correlation between changes in market value of the securities held or to
be acquired by a Portfolio and changes in market value of Hedging
Instruments; (2) possible lack of a liquid secondary market for Hedging
Instruments and the resulting inability to close out Hedging Instruments
when desired; (3) the fact that the skills needed to use Hedging Instru-
ments are different from those needed to select a Portfolio's securities;
(4) the fact that, although use of these instruments for hedging purposes
- 23 -
<PAGE>
can reduce the risk of loss, they also can reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
hedged investments; and (5) the possible inability of a Portfolio to
purchase or sell a portfolio security at a time that would otherwise be
favorable for it to do so, or the possible need for a Portfolio to sell a
portfolio security at a disadvantageous time, due to its need to maintain
"cover" or to segregate securities in connection with its use of Hedging
Instruments. N&B Management intends to reduce the risk of imperfect
correlation by investing only in Hedging Instruments whose behavior is
expected to resemble or offset that of a Portfolio's underlying
securities. N&B Management intends to reduce the risk that a Portfolio
will be unable to close out Hedging Instruments by entering into such
transactions only if N&B Management believes there will be an active and
liquid secondary market. Hedging Instruments used by the Portfolios are
generally considered "derivatives." There can be no assurance that a
Portfolio's use of Hedging Instruments will be successful.
The Portfolios' use of Hedging Instruments may be limited
by the provisions of the Internal Revenue Code of 1986, as amended
("Code"), with which each Portfolio must comply if its corresponding Fund
is to continue to qualify as a regulated investment company ("RIC"). See
"Additional Tax Information -- Taxation of Portfolios."
Cover for Hedging Instruments. Each Portfolio will com-
ply with SEC guidelines regarding cover for Hedging Instruments and, if
the guidelines so require, set aside in a segregated account with its
custodian cash, U.S. Government or Agency Securities, or other liquid,
high-grade debt securities in the prescribed amount. Securities held in a
segregated account cannot be sold while the Futures, option, or forward
strategy covered by those securities is outstanding, unless they are
replaced with other suitable assets. As a result, segregation of a large
percentage of a Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet current obligations. A Portfolio may be
unable promptly to dispose of assets which cover, or are segregated with
respect to, an illiquid Futures, options, or forward position; this
inability may result in a loss to the Portfolio.
Indexed Securities (Neuberger & Berman Limited Maturity
Bond Portfolio). The Portfolio may invest in securities linked to foreign
currencies, interest rates, commodities, indices, or other financial
indicators ("indexed securities"). Most indexed securities are short- to
intermediate-term fixed income securities whose value at maturity or
interest rate rises or falls according to the change in one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their value may increase or decrease if the
underlying instrument appreciates) and may have return characteristics
similar to direct investments in the underlying instrument or to one or
more options thereon. An indexed security may be more volatile than the
underlying instrument itself.
- 24 -
<PAGE>
Zero Coupon Securities (All Portfolios). Each Portfolio
may invest in zero coupon securities, which 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
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.
The discount on zero coupon securities ("original issue
discount") is taken into account ratably by each Portfolio prior to the
receipt of any actual payments. Because each Fund must distribute
substantially all of its net income (including its pro rata share of its
corresponding Portfolio's original issue discount) to its shareholders
each year for income and excise tax purposes (see "Additional Tax Informa-
tion -- Taxation of the Funds"), a Portfolio may have to dispose of
portfolio securities under disadvantageous circumstances to generate cash,
or may be required to borrow, to satisfy its corresponding Fund's
distribution requirements.
The market prices of zero coupon securities generally are
more volatile than the prices of securities that pay interest periodi-
cally. Zero coupon securities are likely to respond to changes in
interest rates to a greater degree than other types of debt securities
having similar maturities and credit quality.
Municipal Obligations (Neuberger & Berman Limited
Maturity Bond Portfolio). This Portfolio may invest up to 5% of its net
assets in municipal obligations which are issued by or on behalf of states
(as used herein, including the District of Columbia), territories, and
possessions of the United States and their political subdivisions,
agencies, and instrumentalities, and which pay interest that is exempt
from federal income tax. 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 industrial development and 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 is dependent on the
continuing payment of interest and principal when due by the issuers of
the municipal obligations (or, in the case of industrial development
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
- 25 -
<PAGE>
rates generally will reduce the value of the Portfolio's investments in
municipal obligations, whereas a decline in interest rates generally will
increase that value. Current efforts to restructure the federal budget
and the relationship between the federal government and state and local
governments may impact the financing of some issuers of municipal
securities. Some states and localities are experiencing substantial
deficits and may find it difficult for political or economic reasons to
increase taxes. Efforts are underway that may result in a "flat tax" or
other restructuring of the federal income tax system. Any of these
factors could affect the value of municipal securities.
Risks of Fixed Income Securities
--------------------------------
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, market perception of the
creditworthiness of the issuer, and general market liquidity ("market
risk"). Lower-rated securities 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.
Neuberger&Berman Limited Maturity Bond Portfolio may invest up to 10% of
its net assets in fixed income securities that are rated below investment
grade, i.e., rated below Baa by Moody's or BBB by S&P, but rated at least
B (or, if unrated, determined by N&B Management to be of comparable
quality). Securities rated below investment grade are described as
"speculative" by both Moody's and S&P. Moody's also deems securities
rated Baa to have speculative characteristics. Securities rated B are
judged to be predominantly speculative with respect to their capacity to
pay interest and repay principal in accordance with the terms of the
obligations.
Changes in economic conditions or developments regarding
the individual issuer are more likely to cause price volatility and weaken
the capacity of the issuer of such securities to make principal and
interest payments than is the case for higher-grade debt securities. An
economic downturn affecting the issuer may result in an increased
incidence of default. The market for lower-rated securities may be
thinner and less active than for higher-rated securities. Pricing of
thinly traded securities requires greater judgment than pricing of
securities for which market transactions are regularly reported.
Subsequent to its purchase by a Portfolio, an issue of
debt securities may cease to be rated or its rating may be reduced, so
that the securities would not be eligible for purchase by that Portfolio.
In such a case, with respect to the non-money market Portfolios, N&B
Management will engage in an orderly disposition of the downgraded
securities to the extent necessary to ensure that the Portfolio's holdings
of such securities will not exceed 5% of its net assets. With respect to
the money market Portfolios, N&B Management will consider the need to
dispose of such securities in accordance with the requirements of Rule 2a-
7 under the 1940 Act.
- 26 -
<PAGE>
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical
earnings and are not intended to indicate future performance. The yield
and total return of each Fund will vary. The share prices of Ultra Short
and Limited Maturity will vary, and an investment in either of these
Funds, when redeemed, may be worth more or less than an investor's
original cost.
Yield Calculations
------------------
Government Money and Cash Reserves. Each of these Funds
may advertise its "current yield" and "effective yield" in the financial
press and other publications. A Fund'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 these Funds is calculated simi-
larly, 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:
365/7]
Effective Yield = [(Base Period Return + 1) - 1.
For the seven calendar days ended October 31, 1995, the
current yields of Government Money and Cash Reserves were 4.91% and 5.14%,
respectively. For the same period, the effective yields were 5.03% and
5.27%, respectively.
Ultra Short and Limited Maturity. Each of these Funds
may advertise its "yield" based on a 30-day period. This YIELD is
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the
period. The result then is annualized and shown as an annual percentage
of the investment.
The annualized yields for Limited Maturity and Ultra
Short for the 30-day period ended October 31, 1995, were 5.56% and 5.53%,
respectively.
- 27 -
<PAGE>
Tax Equivalent Yield - State and Local Taxes
--------------------------------------------
Government Money. Substantially all of the dividends
paid by Government Money represent income received on direct obligations
of the U.S. Government and, as a result, are not subject to income tax in
most states and localities. This Fund may, from time to time, advertise a
"tax equivalent yield" for one or more of those states and localities that
reflects the taxable yield that an investor subject to the highest mar-
ginal rate of state or local income taxes would have had to receive in
order to realize the same level of after-tax yield that an investment in
the Fund produced. TAX EQUIVALENT YIELD is calculated according to the
following formula:
Tax Equivalent Yield = Y1 + Y2
---
1-MR
where Y1 equals that portion of a Fund's current or effective yield that
is not subject to state or local income tax, Y2 equals that portion of the
Fund'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 illustrat-
ed by the following example. If the yield for a 30-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 1995 tax rate of
7.59375%) would have to have received a taxable current yield of 5.41% 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 1995 rate
of 4.46%, the taxpayer would have to have received a taxable yield of
5.69% 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 Fund's future performance. Of
course, all dividends paid by Government Money are subject to federal
income taxation at applicable rates.
Total Return Computations
-------------------------
Each Fund may advertise certain total return information.
An average annual compounded rate of return ("T") may be computed by using
the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment of $1,000 ("P") over a period of time
("n") according to the formula:
n
P(1+T) = ERV
- 28 -
<PAGE>
Average annual total return smooths out year-to-year
variations and, in that respect, differs from actual year-to-year results.
For the one- and five-year periods ended October 31,
1995, and the period from June 9, 1986 (commencement of operations),
through October 31, 1995, the average annual total returns for Limited
Maturity and its predecessor were +8.32%, +6.80%, and +7.15%,
respectively. If an investor had invested $10,000 in that predecessor's
shares on June 9, 1986, and had reinvested all capital gain distributions
and income dividends, the NAV of that investor's holdings would have been
$19,132 on October 31, 1995.
For the one- and five-year periods ended October 31,
1995, and for the period from November 7, 1986 (commencement of
operations), through October 31, 1995, the average annual total returns
for Ultra Short and its predecessor were +6.26%, +4.75%, and +5.90%,
respectively. If an investor had invested $10,000 in that predecessor's
shares on November 7, 1986, and had reinvested all capital gain
distributions and income dividends, the NAV of that investor's holdings
would have been $16,736 on October 31, 1995.
N&B Management reimbursed the Funds and their
predecessors for certain expenses during the periods mentioned above,
which has the effect of increasing yield and total return. Of course,
past performance cannot guarantee future results.
Comparative Information
-----------------------
From time to time each Fund's performance may be compared
with:
(1) data (that may be expressed as rankings or ratings)
published by independent services or publications
(including newspapers, newsletters, and financial
periodicals) that monitor the performance of mutual
funds, such as Lipper Analytical Services, Inc., C.D.A.
Investment Technologies, Inc., Wiesenberger Investment
Companies Service, IBC/Donoghue's Money Market Fund
Report, Investment Company Data Inc., Morningstar Inc.,
Micropal Incorporated and quarterly mutual fund rankings
by Money, Fortune, Forbes, Business Week, Personal
Investor, and U.S. News & World Report magazines, The
Wall Street Journal, The New York Times, Kiplingers
Personal Finance, and Barron's Newspaper, or
(2) recognized bond, stock, and other indices such as the
Shearson Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"), Dow Jones
Industrial Average ("DJIA"), S&P/BARRA Index, Russell
Index, and various other domestic, international, and
global indices and changes in the Consumer Price Index.
- 29 -
<PAGE>
The S&P 500 Index is a broad index of common stock
prices, while the DJIA represents a narrower segment of
industrial companies. Each assumes reinvestment of
distributions and is calculated without regard to tax
consequences or the costs of investing. Each Portfolio
invests in different types of securities from those
included in these indices.
Each Fund's performance also may be compared from time to
time with the following specific indices and other measures of
performance:
Government Money's and Cash Reserves's performance may be
compared, respectively, with IBC/Donoghue's Government
Money Market Funds average and Taxable General Purpose
Money Market Funds average.
Ultra Short's performance may be compared with the
Merrill Lynch 2-year Treasury Index and the Salomon
Brothers 6-month and 1-year Treasury Bill Indices, as
well as the performance of Treasury Securities and the
Lipper Short Investment Grade Debt Funds category.
Limited Maturity's performance may be compared with the
Merrill Lynch 1-3 year Treasury Index and the Lehman
Brothers Intermediate Government/Corporate Bond Index, as
well as the performance of Treasury Securities, corporate
bonds, and the Lipper Short Investment Grade Debt Funds
category.
In addition, each Fund's performance may be compared at
times with that of various bank instruments (including bank money market
accounts and CDs of varying maturities) as reported in publications such
as The Bank Rate Monitor. Any such comparisons may be useful to investors
who wish to compare a Fund's past performance with that of certain of its
competitors. Of course, past performance is not a guarantee of future
results. Unlike an investment in a Fund, bank CDs pay a fixed rate of
interest for a stated period of time and are insured up to $100,000.
Evaluations of the Funds' performance and their
yield/total returns and comparisons may be used in advertisements and in
information furnished to current and prospective shareholders
(collectively, "Advertisements"). The Funds may also be compared to
individual asset classes such as common stocks, small-cap stocks, or
Treasury bonds, based on information supplied by Ibbotson and Sinquefield.
Other Performance Information
-----------------------------
From time to time, information about a Portfolio's
portfolio allocation and holdings as of a particular date may be included
in Advertisements for its corresponding Fund. This information, for
example, may include the Portfolio's diversification by asset type.
- 30 -
<PAGE>
Information used in Advertisements may include statements or illustrations
relating to the appropriateness of types of securities and/or mutual funds
that may be employed to meet specific financial goals, such as (1) funding
retirement, (2) paying for children's education, and (3) financially
supporting aging parents.
Information (including charts and illustrations) showing
the effects of compounding interest may be included in Advertisements from
time to time. Compounding is the process of earning interest on principal
plus interest that was earned earlier. Interest can be compounded at
different intervals, such as annually, semi-annually, quarterly, monthly,
or daily; for example, $1,000 compounded annually at 9% will grow to
$1,090 at the end of the first year (an increase of $90) and $1,188 at the
end of the second year (an increase of $98). The extra $8 that was earned
on the $90 interest from the first year is the compound interest. One
thousand dollars compounded annually at 9% will grow to $2,367 at the end
of ten years and $5,604 at the end of twenty years. Other examples of
compounding are as follows: at 7% and 12% annually, $1,000 will grow to
$1,967 and $3,106, respectively, at the end of ten years and $3,870 and
$9,646, respectively, at the end of twenty years. All these examples are
for illustrative purposes only and are not indicative of any Fund's
performance.
Information relating to inflation and its effects on the
dollar also may be included in Advertisements. For example, after ten
years, the purchasing power of $25,000 would shrink to $16,621, $14,968,
$13,465, and $12,100, respectively, if the annual rates of inflation
during that period were 4%, 5%, 6%, and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the
inflation rate for the ten-year period.)
Information (including charts and illustrations) showing
the total return performance for government funds, 6-month CDs and money
market funds may be included in Advertisements from time to time.
Information regarding the effects of automatic investment
and systematic withdrawal plans, investing at market highs and/or lows,
and investing early versus late for retirement plans also may be included
in Advertisements, if appropriate.
From time to time the investment philosophy of N&B
Management's founder, Roy R. Neuberger, may be included in the Funds'
Advertisements. This philosophy is described in further detail in "The
Art of Investment: A Conversation with Roy Neuberger," attached as
Appendix B to this SAI.
CERTAIN RISK CONSIDERATIONS
Although each Portfolio seeks to reduce risk by investing
in a diversified portfolio, diversification does not eliminate all risk.
There can, of course, be no assurance that any Portfolio will achieve its
investment objective, and an investment in a Fund involves certain risks
- 31 -
<PAGE>
that are described in the sections entitled "Investment Programs" and
"Description of Investments" in the Prospectus and "Investment
Information" in this SAI.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the
trustees and officers of the Trusts, including their addresses and
principal business experience during the past five years. Some persons
named as trustees and officers also serve in similar capacities for other
funds, and (where applicable) their corresponding portfolios, administered
or managed by N&B Management and Neuberger & Berman.
<TABLE>
<CAPTION>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
------------- --------------- --------------------------
<S> <C> <C>
John Cannon (66) Trustee of each Trust President, AMA Investment Advisers, Inc.
CDC Associates, Inc. (registered investment adviser) (1976 -
620 Sentry Parkway 1991); Senior Vice President AMA Investment
Suite 220 Advisers, Inc. (1991 - 1993); President of
Blue Bell, PA 19422 AMA Family Funds (investment companies)
(1976 - 1991); Chairman and Treasurer of
CDC Associates, Inc. (registered investment
adviser) (1993 - present)
Charles DeCarlo (74) Trustee of each Trust President Emeritus of Sarah Lawrence
33 West 67th Street College; Chief Executive Officer of Xicon
New York, NY 10023 Systems (animation company).
Stanley Egener* (61) Chairman of the Board, Chief Partner of Neuberger & Berman; President
Executive Officer, and and Director of N&B Management; Chairman of
Trustee of each Trust the Board, Chief Executive Officer and
Trustee of eight other mutual funds for
which N&B Management acts as investment
manager or administrator.
Theresa A. Havell* (49) President and Trustee of Partner of Neuberger & Berman; Vice
each Trust President and Director of N&B Management;
President and Trustee of one other mutual
fund for which N&B Management acts as
administrator.
- 32 -
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
------------- --------------- --------------------------
Barry Hirsch (62) Trustee of each Trust Senior Vice President, Secretary, and
Loews Corporation General Counsel of Loews Corporation
667 Madison Avenue (diversified financial corporation).
7th Floor
New York, NY 10021
Robert A. Kavesh (68) Trustee of each Trust Professor of Finance and Economics at Stern
110 Blecker Street School of Business, New York University;
Apt. 24B Director of Del Laboratories, Inc. and
New York, NY 10012 Greater New York Mutual Insurance Co.
Harold R. Logan (74) Trustee of each Trust Chairman of Comstock Resources, Inc.
19 Norfield Road (natural resources company); Vice Chairman,
Weston, CT 06883 Retired, of W.R. Grace & Co. (chemicals,
natural resources, and selected consumer
services).
William E. Rulon (63) Trustee of each Trust Senior Vice President and Secretary of
Foodmaker, Inc. Foodmaker, Inc. (operator and franchisor of
9330 Balboa Avenue restaurants).
San Diego, CA 92123
Candace L. Straight (48) Trustee of each Trust Managing Director of Head & Company, LLC
Head & Company, LLC (limited liability company providing in-
1330 Avenue of the Americas vestment banking and consulting services to
12th Floor the insurance industry); President of
New York, NY 10019 Integon Corporation, (marketer of life
insurance, annuities, and property and
casualty insurance), 1990-1992; Director of
Drake Holdings (U.K. motor insurer).
Daniel J. Sullivan (56) Vice President of each Trust Senior Vice President of N&B Management
since 1992; prior thereto, Vice President
of N&B Management; Vice President of eight
other mutual funds for which N&B Management
acts as investment manager or
administrator.
- 33 -
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
------------- --------------- --------------------------
Michael J. Weiner (49) Vice President and Principal Senior Vice President of N&B Management
Financial Officer of each since 1992; Treasurer of N&B Management
Trust from 1992 to 1996; prior thereto, Vice
President and Treasurer of N&B Management
and Treasurer of certain mutual funds for
which N&B Management acted as investment
adviser; Vice President and Principal
Financial Officer of eight other mutual
funds for which N&B Management acts as
investment manager or administrator.
Claudia A. Brandon (39) Secretary of each Trust Vice President of N&B Management; Secretary
of eight other mutual funds for which N&B
Management acts as investment manager or
administrator.
Richard Russell (49) Treasurer and Principal Ac- Vice President of N&B Management since
counting Officer of each 1993; prior thereto, Assistant Vice
Trust President of N&B Management; Treasurer and
Principal Accounting Officer of eight other
mutual funds for which N&B Management acts
as investment manager or administrator.
Stacy Cooper-Shugrue (33) Assistant Secretary of each Assistant Vice President of N&B Management
Trust since 1993; prior thereto, employee of N&B
Management; Assistant Secretary of eight
other mutual funds for which N&B Management
acts as investment manager or
administrator.
C. Carl Randolph (58) Assistant Secretary of each Partner of Neuberger & Berman since 1992;
Trust prior thereto, employee of Neuberger &
Berman; Assistant Secretary of eight other
mutual funds for which N&B Management acts
as investment manager or administrator.
</TABLE>
____________________
(1) Unless otherwise indicated, the business address of each listed
person is 605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
(2) Except as otherwise indicated, each individual has held the positions
shown for at least the last five years.
- 34 -
<PAGE>
* Indicates a trustee who is an "interested person" of each Trust
within the meaning of the 1940 Act. Mr. Egener and Ms. Havell are
interested persons by virtue of the fact that they are officers and
directors of N&B Management and partners of Neuberger & Berman.
The Trust's Trust Instrument and Managers Trust's
Declaration of Trust each provides that it 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 engaged in bad
faith, willful misfeasance, gross negligence, or reckless disregard of the
duties involved in the conduct of their offices. 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, or 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.
For the fiscal year ended October 31, 1995, each Fund and
Portfolio paid the following fees and expenses to Fund and Portfolio
Trustees who were not affiliated with N&B Management or Neuberger &
Berman: Neuberger & Berman Government Money Fund and Portfolio - $55,340;
Neuberger & Berman Cash Reserves and Cash Reserves Portfolio - $61,964;
Neuberger & Berman Ultra Short Bond Fund and Portfolio - $24,345; and
Neuberger & Berman Limited Maturity Bond and Portfolio - $61,636.
The following table sets forth information concerning the
compensation of the trustees and officers of the Trust. None of the
Neuberger & Berman Funds(SERVICEMARK) has any retirement plan for its
trustees or officers.
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/95
------------------------------
Aggregate Total Compensation from Trusts
Name and Position Compensation in the Neuberger & Berman Fund
with the Trust from the Trust Complex Paid to Trustees
----------------- -------------- --------------------------------
<S> <C> <C>
John Cannon $ 9,923 $20,500
Trustee (2 other investment companies)
Charles DeCarlo $16,622 $33,500
Trustee (2 other investment companies)
- 35 -
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/95
------------------------------
Aggregate Total Compensation from Trusts
Name and Position Compensation in the Neuberger & Berman Fund
with the Trust from the Trust Complex Paid to Trustees
----------------- -------------- --------------------------------
Stanley Egener $ 0 $ 0
Chairman of the Board, Chief Executive (9 other investment companies)
Officer, and Trustee
Theresa Havell $ 0 $ 0
President and Trustee (2 other investment companies)
Barry Hirsch $16,622 $33,500
Trustee (2 other investment companies)
Robert A. Kavesh $14,887 $30,500
Trustee (2 other investment companies)
Harold R. Logan $13,896 $28,000
Trustee (2 other investment companies)
William E. Rulon $15,135 $30,500
Trustee (2 other investment companies)
Candace L. Straight $15,631 $32,000
Trustee (2 other investment companies)
</TABLE>
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
Investment Manager and Administrator
------------------------------------
Because all of the Funds' net investable assets are
invested in their corresponding Portfolios, the Funds do not need an
investment manager. N&B Management serves as the Portfolios' investment
manager pursuant to a management agreement with Managers Trust, on behalf
of the Portfolios, dated as of July 2, 1993 ("Management Agreement"). The
Management Agreement was approved by the holders of the interests in the
Portfolios on July 2, 1993.
The Management Agreement provides, in substance, that N&B
Management will make and implement investment decisions for the Portfolios
in its discretion and will continuously develop an investment program for
the Portfolios' assets. The Management Agreement permits N&B Management
to effect securities transactions on behalf of each Portfolio through
- 36 -
<PAGE>
associated persons of N&B Management. The Management Agreement also
specifically permits N&B Management to compensate, through higher
commissions, brokers and dealers who provide investment research and
analysis to the Portfolios, although N&B Management has no current plans
to do so.
N&B Management provides to each Portfolio, without
separate cost, office space, equipment, and facilities and the personnel
necessary to perform executive, administrative, and clerical functions.
N&B Management pays all salaries, expenses, and fees of the officers,
trustees, and employees of Managers Trust who are officers, directors, or
employees of N&B Management. Two officers and directors of N&B Management
(who also are partners of Neuberger & Berman) presently serve as trustees
and officers of the Trusts. See "Trustees and Officers." Each Portfolio
pays N&B Management a management fee based on the Portfolio's average
daily net assets, as described in the Prospectus.
N&B Management provides similar facilities, services, and
personnel to each Fund pursuant to an administration agreement dated May
1, 1995 ("Administration Agreement"). For such administrative services,
each Fund pays N&B Management a fee based on the Fund's average daily net
assets, as described in the Prospectus.
Under the Administration Agreement, N&B Management also
provides to each Fund and its shareholders certain shareholder,
shareholder-related, and other services that are not furnished by the
Fund's shareholder servicing agent. N&B 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 Fund'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, N&B Management or a Fund 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
Fund 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.
Each Fund listed below and its predecessor accrued
advisory or management and administration fees of the stated amounts
(before any reimbursement of the Funds, described below) for the fiscal
years ended October 31, 1995, 1994, and 1993:
- 37 -
<PAGE>
1995 1994 1993
---- ---- ----
Government Money $1,521,937 $1,105,665 $ 1,550,490
Cash Reserves $1,738,424 $1,448,365 $ 1,322,719
Ultra Short $ 459,038 $ 532,340 $ 515,156
Limited Maturity $1,522,574 $1,655,333 $ 1,555,925
As noted in the Prospectus under "Management and Admini-
stration -- Expenses," N&B Management has voluntarily undertaken to
reimburse each Fund other than Government Money for its operating expenses
(including the fees under the Administration Agreement) and its pro rata
share of its corresponding Portfolio's operating expenses (including its
fees under the Management Agreement) -- in each instance excluding
interest, taxes, brokerage commissions, and extraordinary expenses -- that
exceed, in the aggregate, 0.65% per annum (0.70% per annum for Limited
Maturity) of the Fund's average daily net assets. For the fiscal years
ended October 31, 1995, 1994, and 1993, N&B Management reimbursed the
Funds and their predecessors the following amounts: (1) Cash Reserves
$109,113, $171,012, and $284,626, respectively, (2) Ultra Short $196,865,
$222,161, and $312,724, respectively, and (3) Limited Maturity $32,042,
$77,866, and $239,882, respectively.
N&B Management can terminate an expense limitation by
giving the Fund at least 60 days prior written notice.
Prior to May 1, 1995, the shareholder services described
above were provided pursuant to a separate agreement between the Trust and
N&B Management. As compensation for these services, each Fund paid N&B
Management a monthly fee calculated at the annual rate of 0.02% of the
average daily net assets of the Fund. Before February 1, 1994, the
monthly fee under the shareholder service agreement then in effect was
calculated at an annual rate of $6.00 per shareholder account. For these
services, each Fund listed below and its predecessor paid and accrued the
stated amounts for the period from November 1, 1994 to April 30, 1995 and
the fiscal years ended October 31, 1994 and 1993:
November 1,
1994 to
April 30,
1995 1994 1993
----------- ---- ----
Government Money $25,750 $39,595 $35,534
Cash Reserves $31,746 $55,583 $42,668
Ultra Short $ 9,038 $21,515 $23,790
Limited Maturity $29,447 $55,399 $27,213
The Management Agreement continues with respect to each
Portfolio for a period of two years after the date the Portfolio became
subject thereto. The Management Agreement is renewable thereafter from
year to year with respect to each Portfolio, so long as its continuance is
- 38 -
<PAGE>
approved at least annually (1) by the vote of a majority of the Portfolio
Trustees who are not "interested persons" of N&B Management or Managers
Trust ("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 interests in that Portfolio. The Administration Agreement
continues with respect to each Fund for a period of two years after the
date the Fund became subject thereto. The Administration Agreement is
renewable from year to year with respect to a Fund, so long as its
continuance is approved at least annually (1) by the vote of the Fund
Trustees who are not "interested persons" of N&B Management or the Trust
("Independent Fund 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 Fund Trustees or by a 1940 Act majority vote of the outstanding shares
in the Fund.
The Management Agreement is terminable, without penalty,
with respect to a Portfolio on 60 days' written notice either by Managers
Trust or by N&B Management. The Administration Agreement is terminable,
without penalty, with respect to a Fund on 60 days' written notice either
by N&B Management or by the Trust if authorized by the Fund Trustees,
including a majority of the Independent Trustees. Each Agreement
terminates automatically if it is assigned.
In addition to the voluntary expense reimbursement noted
above and described in the Prospectus under "Management and
Administration--Expenses," N&B Management has agreed in the Management
Agreement to reimburse each Fund's expenses as follows. If, in any fiscal
year, a Fund's Aggregate Operating Expenses (as defined below) exceed the
most restrictive expense limitation imposed under the securities laws of
the states in which the Fund's shares are qualified for sale ("State
Expense Limitation"), then N&B Management will pay to the Fund the amount
of that excess, less the amount of any reduction of the administration fee
payable by the Fund under a similar State Expense Limitation contained in
the Administration Agreement. N&B Management will have no obligation to
pay a Fund, however, for any expenses that exceed the pro rata portion of
the advisory fees attributable to that Fund's interest in its corre-
sponding Portfolio. At the date of this SAI, the most restrictive expense
limitation to which the Funds expect to be subject is 2 1/2% of the first
$30 million of average net assets, 2% of the next $70 million of average
net assets, and 1 1/2% of average net assets over $100 million. For the
fiscal year ended October 31, 1995, there were no expense reimbursements
required of N&B Management because of the State Expense Limitation.
For purposes of the State Expense Limitation, the term
"Aggregate Operating Expenses" means a Fund's operating expenses plus its
pro rata portion of its corresponding Portfolio's operating expenses
(including any fees or expense reimbursements payable to N&B Management
and any compensation payable thereto pursuant to (1) the Administration
Agreement or (2) any other agreement or arrangement with Managers Trust in
regard to the Portfolio, but excluding (with respect to both the Fund and
the Portfolio) interest, taxes, brokerage commissions, litigation and
- 39 -
<PAGE>
indemnification expenses, and other extraordinary expenses not incurred in
the ordinary course of business).
Sub-Adviser
-----------
N&B Management retains Neuberger & Berman, 605 Third
Avenue, New York, NY 10158-3698, as sub-adviser with respect to each
Portfolio pursuant to a sub-advisory agreement dated July 2, 1993 ("Sub-
Advisory Agreement"). The Sub-Advisory Agreement was approved by the
holders of the interests in the Portfolios on July 2, 1993.
The Sub-Advisory Agreement provides in substance that
Neuberger & Berman will furnish to N&B Management, upon reasonable
request, such investment recommendations and research as Neuberger &
Berman, from time to time, provides to its partners and employees for use
in managing client accounts. In this manner, N&B Management expects to
have available to it, in addition to research from other professional
sources, the capability of the research staff of Neuberger & Berman. This
staff consists of approximately fourteen investment analysts, each of whom
specializes in studying one or more industries, under the supervision of
the Director of Research, who is also available for consultation with N&B
Management. The Sub-Advisory Agreement provides that N&B Management will
pay for the services rendered by Neuberger & Berman based on the direct
and indirect costs to Neuberger & Berman in connection with those
services. Neuberger & Berman also serves as a sub-adviser for all of the
other mutual funds managed by N&B Management.
The Sub-Advisory Agreement continues with respect to each
Portfolio for a period of two years after the date the Portfolio became
subject thereto, and is renewable thereafter from year to year, subject to
approval of its continuance in the same manner as the Management
Agreement. The Sub-Advisory Agreement is subject to termination, without
penalty, with respect to each Portfolio by the Portfolio Trustees, by a
1940 Act majority vote of the outstanding interests in the Portfolio, by
N&B Management, or by Neuberger & Berman on not less than 30 nor more than
60 days' written notice. The Sub-Advisory Agreement also terminates
automatically with respect to each Portfolio if it is assigned or if the
Management Agreement terminates with respect to that Portfolio.
Most money managers that come to the Neuberger & Berman
organization have at least fifteen years experience. Neuberger & Berman
and N&B Management employ experienced professionals that work in a
competitive environment.
Investment Companies Managed
----------------------------
N&B Management currently serves as investment manager of
the following investment companies. As of December 31, 1995, these
companies, along with three investment companies advised by Neuberger &
Berman, had aggregate net assets of approximately $11.9 billion, as shown
in the following list:
- 40 -
<PAGE>
Approximate
Net Assets at
Name December 31, 1995
---- -----------------
Neuberger & Berman Cash Reserves Portfolio . . . . . . . . $ 433,504,363
(investment portfolio for Neuberger & Berman Cash Reserves)
Neuberger & Berman Government Money Portfolio . . . . . . . $ 275,569,350
(investment portfolio for Neuberger & Berman Government Money
Fund)
Neuberger & Berman Limited Maturity Bond Portfolio . . . . $ 318,037,698
(investment portfolio for Neuberger & Berman Limited Maturity
Bond Fund and Neuberger & Berman Limited Maturity Bond Trust)
Neuberger & Berman Ultra Short Bond Portfolio . . . . . . . $102,724,936
(investment portfolio for Neuberger & Berman Ultra Short Bond
Fund and Neuberger & Berman Ultra Short Bond Trust)
Neuberger & Berman Municipal Money Portfolio . . . . . . . $ 152,876,653
(investment portfolio for Neuberger & Berman Municipal Money
Fund)
Neuberger & Berman Municipal Securities Portfolio . . . . . $ 43,859,557
(investment portfolio for Neuberger & Berman Municipal Securities
Trust)
Neuberger & Berman New York Insured Intermediate
Portfolio . . . . . . . . . . . . . . . . . . $ 11,742,945
(investment portfolio for Neuberger & Berman New York Insured
Intermediate Fund)
Neuberger & Berman Focus Portfolio . . . . . . . . . . . $ 1,057,224,027
(investment portfolio for Neuberger & Berman Focus Fund,
Neuberger & Berman Focus Trust, and Neuberger & Berman Focus
Assets)
Neuberger & Berman Genesis Portfolio . . . . . . . . . . . $ 152,439,092
(investment portfolio for Neuberger & Berman Genesis Fund and
Neuberger & Berman Genesis Trust)
Neuberger & Berman Guardian Portfolio . . . . . . . . . $ 5,321,221,497
(investment portfolio for Neuberger & Berman Guardian Fund,
Neuberger & Berman Guardian Trust, and Neuberger & Berman
Guardian Assets)
Neuberger & Berman International Portfolio . . . . . . . $ 33,320,099
(investment portfolio for Neuberger & Berman International Fund)
- 41 -
<PAGE>
Neuberger & Berman Manhattan Portfolio . . . . . . . . . $ 638,295,408
(investment portfolio for Neuberger & Berman Manhattan Fund,
Neuberger & Berman Manhattan Trust, and Neuberger & Berman
Manhattan Assets)
Neuberger & Berman Partners Portfolio . . . . . . . . . . $ 1,741,742,815
(investment portfolio for Neuberger & Berman Partners Fund,
Neuberger & Berman Partners Trust, and Neuberger & Berman
Partners Assets)
Neuberger & Berman Socially Responsive
Portfolio . . . . . . . . . . . . . . . . . . $ 115,240,931
(investment portfolio for Neuberger & Berman Socially Responsive
Fund, Neuberger & Berman Socially Responsive Trust, and Neuberger
& Berman NYCDC Socially Responsive Trust)
Advisers Managers Trust (six series) . . . . . . . . . . $ 1,306,566,805
In addition, Neuberger & Berman serves as investment
adviser to three investment companies, Plan Investment Fund, Inc., AHA
Investment Fund, Inc., and AHA Full Maturity, with assets of
$64,302,128, $99,396,468 and $26,077,793, respectively, at December 31,
1995.
The investment decisions concerning the Portfolios and
the other funds and portfolios managed by N&B Management (collectively,
"Other N&B Funds") have been and will continue to be made independently of
one another. In terms of their investment objectives, most of the Other
N&B Funds differ from the Portfolios. Even where the investment
objectives are similar, however, the methods used by the Other N&B Funds
and the Portfolios to achieve their objectives may differ.
There may be occasions when a Portfolio and one or more
of the Other N&B Funds or other accounts managed by Neuberger & Berman 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 as to amounts 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 N&B Management outweighs any disadvantages that
may result from contemporaneous transactions. The investment results
achieved by all of the funds managed by N&B Management have varied from
one another in the past and are likely to vary in the future.
- 42 -
<PAGE>
Management and Control of N&B Management
----------------------------------------
The directors and officers of N&B Management, all of whom
have offices at the same address as N&B Management, are Richard A. Cantor,
Chairman of the Board and director; Stanley Egener, President and
director; Theresa A. Havell, Vice President and director; Irwin Lainoff,
director; Marvin C. Schwartz, director; Lawrence Zicklin, director;
Daniel J. Sullivan, Senior Vice President; Peter E. Sundman, Senior Vice
President; Michael J. Weiner, Senior Vice President; Claudia A. Brandon,
Vice President; Robert Conti, Treasurer; William Cunningham, Vice
President; Clara Del Villar, Vice President; Mark R. Goldstein, Vice
President; Farha-Joyce Haboucha, Vice President; Michael M. Kassen, Vice
President; Michael Lamberti, Vice President; Josephine P. Mahaney, Vice
President; Lawrence Marx III, Vice President; Ellen Metzger, Vice
President and Secretary; Janet W. Prindle, Vice President; Felix Rovelli,
Vice President; Richard Russell, Vice President; Kent C. Simons, Vice
President; Frederick B. Soule, Vice President; Judith M. Vale, Vice
President; Thomas Wolfe, Vice President; Andrea Trachtenberg, Vice
President of Marketing; Patrick T. Byrne, Assistant Vice President; Stacy
Cooper-Shugrue, Assistant Vice President; Robert Cresci, Assistant Vice
President; Barbara DiGiorgio, Assistant Vice President; Roberta D'Orio,
Assistant Vice President; Robert I. Gendelman, Assistant Vice President;
Joseph G. Galli, Assistant Vice President; Leslie Holliday-Soto, Assistant
Vice President; Jody L. Irwin, Assistant Vice President; Carmen G.
Martinez, Assistant Vice President; Paul Metzger, Assistant Vice
President; Susan Switzer, Assistant Vice President; Susan Walsh, Assistant
Vice President; and Celeste Wischerth, Assistant Vice President. Messrs.
Cantor, Egener, Lainoff, Schwartz, Zicklin, Goldstein, Kassen, Marx, and
Simons and Mmes. Havell and Prindle are general partners of Neuberger &
Berman.
Ms. Havell and Mr. Egener are trustees and officers, and
Messrs. Sullivan, Weiner, and Russell and Mmes. Brandon and Cooper-Shugrue
are officers, of each Trust. C. Carl Randolph, a general partner of
Neuberger & Berman, also is an officer of each Trust.
All of the outstanding voting stock in N&B Management is
owned by persons who are also general partners of Neuberger & Berman.
DISTRIBUTION ARRANGEMENTS
N&B Management serves as the distributor ("Distributor")
in connection with the offering of each Fund's shares on a no-load basis.
In connection with the sale of its shares, each Fund 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 either personally, through the mails, or by electronic
means. The Distributor is the Funds' "principal underwriter" within the
- 43 -
<PAGE>
meaning of the 1940 Act and, as such, acts as agent in arranging for the
sale of each Fund's shares without sales commission or other compensation
and bears all advertising and promotion expenses incurred in the sale of
the Funds' shares.
The Distributor or one of its affiliates may, from time
to time, deem it desirable to offer to a Fund's shareholders, through use
of its shareholder list, the shares of other mutual funds for which the
Distributor acts as distributor or other products or services. Any such
use of the Funds' shareholder lists, however, will be made subject to
terms and conditions, if any, approved by a majority of the Independent
Fund Trustees. These lists will not be used to offer to the Funds'
shareholders any investment products or services other than those managed
or distributed by N&B Management or Neuberger & Berman.
The Trust, on behalf of each Fund, and the Distributor
are parties to a Distribution Agreement that continues until July 2, 1996.
The Distribution Agreement may be renewed annually if specifically
approved by (1) the vote of a majority of the Fund Trustees or a 1940 Act
majority vote of the Fund's outstanding shares and (2) the vote of a
majority of the Independent Fund Trustees, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution
Agreement may be terminated by either party and will automatically
terminate on its assignment, in the same manner as the Management
Agreement.
ADDITIONAL PURCHASE INFORMATION
Automatic Investing and Dollar Cost Averaging
---------------------------------------------
Shareholders may arrange to have a fixed amount automa-
tically invested in Fund shares each month. To do so, a shareholder must
complete an application, available from the Distributor, electing to have
automatic investments funded either through (1) redemptions from his or
her account in a money market fund for which N&B Management serves as
investment manager (subject to a minimum monthly investment of $100) or
(2) withdrawals from the shareholder's checking account (in which case the
minimum monthly investment is $100). A shareholder who elects to parti-
cipate in automatic investing through his or her checking account must
include a voided check with the completed application. A completed
application should be sent to Neuberger & Berman Management Incorporated,
605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
Automatic investing enables a shareholder in Ultra Short
and Limited Maturity to take advantage of "dollar cost averaging." As a
result of dollar cost averaging, a shareholder's average cost of shares in
those Funds generally will be lower than it would be if the shareholder
purchased a fixed number of shares at pre-set intervals. Additional
information on dollar cost averaging may be obtained from the Distributor.
- 44 -
<PAGE>
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus
entitled "Exchanging Shares," shareholders may exchange at least $1,000
worth of a Fund's shares and invest the proceeds in shares of one or more
of the other Funds or the Other N&B Funds that are briefly described
below, provided that the minimum investment requirements of the other
fund(s) are met.
<TABLE>
<CAPTION>
EQUITY FUNDS
------------
<S> <C>
Neuberger & Berman Seeks long-term capital appreciation through investments
Focus Fund principally in common stocks selected from 13 multi-industry
economic sectors. The corresponding portfolio uses a value-
oriented approach to select individual securities and then
focuses its investments in the sectors in which the
undervalued stocks are clustered. Through this approach,
90% or more of the portfolio's investments are normally made
in not more than six sectors.
Neuberger & Berman Seeks capital appreciation through investments principally
Genesis Fund in common stocks of companies with small market capi-
talizations, up to $750 million. The corresponding
portfolio uses a value-oriented approach to the selection of
individual securities.
Neuberger & Berman Seeks capital appreciation through investments primarily in
Guardian Fund a large number of common stocks of long-established, high-
quality companies that N&B Management believes are well-man-
aged. The corresponding portfolio uses a value-oriented
approach to the selection of individual securities. Current
income is a secondary objective. The fund (or its predeces-
sor) has paid its shareholders an income dividend every
quarter, and a capital gain distribution every year, since
its inception in 1950, although there can be no assurance
that it will be able to continue to do so.
Neuberger & Berman International Seek long-term capital appreciation through investments
Fund primarily in a diversified portfolio of equity securities of
foreign issuers. Assets will be allocated among
economically mature countries and emerging industrialized
countries.
- 45 -
<PAGE>
Neuberger & Berman Seeks capital appreciation, without regard to income,
Manhattan Fund through investments generally in securities of medium- to
large-capitalization companies that N&B Management believes
have the maximum potential for increasing total NAV. The
corresponding portfolio's "growth at a reasonable price"
investment approach involves greater risks and share price
volatility than programs that invest in more conservative
securities.
Neuberger & Berman Seeks capital growth through an investment approach that is
Partners Fund designed to increase capital with reasonable risk. Its
investment program seeks securities believed to be
undervalued based on strong fundamentals such as low price-
to-earnings ratios, consistent cash flow and the company's
track record through all parts of the market cycle. The
corresponding portfolio uses the value oriented investment
approach to the selection of individual securities.
Neuberger & Berman Socially Seeks long-term capital appreciation by investing primarily
Responsive Fund in securities of companies that meet both financial and
social criteria.
MUNICIPAL FUNDS
---------------
Neuberger & Berman A money market fund seeking the maximum current income
Municipal Money Fund exempt from federal income tax consistent with safety and
liquidity. Through its corresponding portfolio, the fund
invests in high quality, short-term tax-exempt municipal
securities. It seeks to maintain a constant purchase and
redemption price of $1.00.
Neuberger & Berman A short- to intermediate-term bond fund seeking high current
Municipal Securities Trust tax-exempt income with low risk to principal, limited price
fluctuation, and liquidity; and secondarily, total return.
Through its corresponding portfolio, the fund invests in
municipal securities rated A or better.
Neuberger & Berman New York Insured An intermediate-term bond fund which seeks a high level of
Intermediate Fund current income exempt from federal income tax and New York
State and New York City personal income taxes, consistent
with preservation of capital.
</TABLE>
Any Fund described herein, and any of the Other N&B
Funds, may terminate or modify its exchange privilege in the future.
Fund shareholders who are considering exchanging shares
into any of the funds listed above should note that (1) like the Funds,
the Municipal Funds listed above are series of the Trust, (2) the Equity
- 46 -
<PAGE>
Funds listed above are series of a Delaware business trust (named
"Neuberger & Berman Equity Funds") that is registered with the SEC as an
open-end management investment company, (3) each series of the Trust
invests all its net investable assets in the corresponding portfolio of
Managers Trust, (4) Neuberger & Berman International Fund is a series of
Neuberger & Berman Equity Funds that invests all of its net investable
assets in Neuberger & Berman International Portfolio, a series of Global
Managers Trust, an open-end management investment company that is managed
by N&B Management, and (5) each of the other series of Neuberger & Berman
Equity Funds invests all of its net investable assets in a corresponding
portfolio of Equity Managers Trust, an open-end management investment
company that is managed by N&B Management. Each such portfolio has an
investment objective identical to that of its corresponding fund and
invests in accordance with investment policies and limitations identical
to those of that fund.
Before effecting an exchange, Fund shareholders must
obtain and should review a currently effective prospectus of the fund into
which the exchange is to be made. In this regard, it should be noted that
the Municipal Funds (each of which is a separate series of the Trust)
share a prospectus with the Funds, while the Equity Funds share a separate
prospectus. 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 Cash Reserves, Government
Money, or Municipal Money, 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 of the above-
referenced funds, as 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 a Fund's shares may be suspended or
payment of the redemption price postponed (1) when the New York Stock
Exchange ("NYSE") is closed (other than weekend and holiday closings),
(2) when trading on the NYSE is restricted, (3) when an emergency exists
as a result of which it is not reasonably practicable for the
corresponding Portfolio to dispose of securities it owns or fairly to
determine the value of its net assets, or (4) for such other period as the
SEC may by order permit for the protection of a Fund's shareholders; pro-
vided that applicable SEC rules and regulations shall govern whether the
conditions prescribed in (2) or (3) exist. 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 day the NYSE is open ("Business Day") after
termination of the suspension.
- 47 -
<PAGE>
Redemptions in Kind
-------------------
Each Fund reserves the right, under certain conditions,
to honor any request for redemption, or a combination of requests from the
same shareholder in any 90-day period, totalling $250,000 or 1% of the net
assets of the Fund, whichever is less, by making payment in whole or in
part by securities valued as described under "Account and Share
Information -- Share Prices and Net Asset Value" in the Prospectus. If
payment is made in securities, a shareholder generally will incur
brokerage expenses in converting those securities into cash and will be
subject to fluctuations in the market price of those securities until they
are sold. The Funds do not redeem in kind under normal circumstances, but
would do so when the Fund Trustees determine that it would be in the best
interests of a Fund's shareholders as a whole. Redemptions in kind will
be made with readily marketable securities to the extent possible.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders amounts equal
to substantially all of its proportionate share of any net investment
income (after deducting expenses incurred directly by the Fund), net
capital gains (both long-term and short-term), and net gains from foreign
currency transactions earned or realized by its corresponding Portfolio.
Government Money and Cash Reserves calculate their net investment income
and share price as of noon (Eastern time) on each Business Day; the other
Funds calculate their net investment income and share price as of the
close of regular trading on the NYSE on each Business Day (currently 4
p.m. Eastern time). Shares of Government Money and Cash Reserves begin
earning income dividends on the Business Day the proceeds of the purchase
order are converted into "federal funds" and continue to earn dividends
through the Business Day before they are redeemed; shares of the other
Funds begin earning income dividends on the Business Day after the
proceeds of the purchase order have been converted to "federal funds" and
continue to earn dividends through the Business Day they are redeemed.
Dividends declared for each month are paid on the last Business Day of the
month.
A Portfolio's net investment income consists of all
income accrued on portfolio assets less accrued expenses but does not
include realized gains and losses, which are reflected in a Portfolio's
NAV (and, hence, its corresponding Fund's NAV) until they are distributed.
Distributions of net realized capital and foreign currency gains, if any,
normally are paid once annually, in December. Income dividends are
declared daily and paid monthly.
Dividends and other distributions, if any, are automati-
cally reinvested in additional shares of the distributing Fund, unless and
until the shareholder elects to receive them in cash ("cash election").
Shareholders may make a cash election on the original 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. To the extent dividends and other distributions are subject
- 48 -
<PAGE>
to federal, state, or local income taxation, they are taxable to the
shareholders whether received in cash or reinvested in Fund shares.
A cash election with respect to any Fund remains in
effect until the shareholder notifies State Street in writing to
discontinue the election. If it is determined, however, that the U.S.
Postal Service cannot properly deliver Fund mailings to the shareholder,
the Fund will terminate the shareholder's cash election. Thereafter, the
shareholder's dividends and other distributions will be automatically
reinvested in additional Fund shares until the shareholder notifies State
Street or the Fund in writing of his or her correct address and requests
in writing that the cash election be reinstated.
ADDITIONAL TAX INFORMATION
Taxation of the Funds
---------------------
In order to continue to qualify for treatment as a RIC
under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable
income (consisting generally of net investment income, net short-term
capital gain, and, for Limited Maturity, net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. With respect to each Fund, these requirements
include the following: (1) the Fund 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 foreign currencies, or other income (including gains from
Hedging Instruments) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale
or other disposition of securities, or any of the following, that were
held for less than three months -- (i) Hedging Instruments (other than
those on foreign currencies) or (ii) foreign currencies or Hedging
Instruments thereon that are not directly related to the Fund's principal
business of investing in securities (or options and Futures with respect
thereto) ("Short-Short Limitation"); and (3) at the close of each quarter
of the Fund'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, and other securities limited, in respect of any one issuer, to
an amount that does not exceed 5% of the value of the Fund'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) of any one
issuer.
The Funds have received rulings from the Internal Revenue
Service ("Service") that each Fund, as an investor in its corresponding
Portfolio, will be deemed to own a proportionate share of the Portfolio's
assets and income for purposes of determining whether the Fund satisfies
all the requirements described above to qualify as a RIC. The Funds also
have received rulings from the Service that no Fund will recognize gain or
- 49 -
<PAGE>
loss upon the transfer of property to a Portfolio in exchange for an
interest in the Portfolio.
Each Fund 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 income for that year and
capital gain net income for the one-year period ending on October 31 of
that year, plus certain other amounts.
See the next section for a discussion of the tax conse-
quences to Ultra Short and Limited Maturity of hedging and certain other
transactions engaged in by their corresponding Portfolios.
Taxation of the Portfolios
--------------------------
The Portfolios have received rulings from the Service to
the effect that, among other things, each Portfolio will be treated as a
separate partnership for federal income tax purposes and will not be a
"publicly traded partnership." As a result, no Portfolio is subject to
federal income tax; instead, each investor in a Portfolio, such as a Fund,
will be required to take into account in determining its federal income
tax liability its share of the Portfolio's income, gains, losses,
deductions, credits, and tax preference items, without regard to whether
it has received any cash distributions from the Portfolio. Each Portfolio
also will not be subject to Delaware or New York income or franchise tax.
Because each Fund will be deemed to own a proportionate
share of its corresponding Portfolio's assets and income for purposes of
determining whether the Fund satisfies the requirements to qualify as a
RIC, each Portfolio intends to continue to conduct its operations so that
its corresponding Fund will be able to continue to satisfy all those
requirements.
Distributions to a Fund from its corresponding Portfolio
(whether pursuant to a partial or complete withdrawal or otherwise) will
not result in the Fund's recognition of any gain or loss for federal
income tax purposes, except that (1) gain will be recognized to the extent
any cash that is distributed exceeds the Fund's basis for its interest in
the Portfolio before the distribution, (2) income or gain will be
recognized if the distribution is in liquidation of the Fund's entire
interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio, (3) loss will be recognized
if a liquidation distribution consists solely of cash and/or unrealized
receivables and (4) gain (and, in certain situations, loss) may be
recognized on an in-kind distribution by the Portfolio. A Fund's basis
for its interest in its corresponding Portfolio generally equals the
amount of cash and the basis of any property the Fund invests in the
Portfolio, increased by the Fund's share of the Portfolio's net income and
gains and decreased by (1) the amount of cash and the basis of any
property the Portfolio distributes to the Fund and (2) the Fund's share of
the Portfolio's losses.
- 50 -
<PAGE>
Dividends and interest received by a Portfolio may be
subject to income, withholding, or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on its
securities. Tax conventions between certain countries and the United
States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors.
The use by Neuberger & Berman Ultra Short Bond Portfolio
and Neuberger & Berman Limited Maturity Bond Portfolio of hedging
strategies, such as writing (selling) and purchasing Futures Contracts and
options and entering into Forward Contracts, involves complex rules that
will determine for income tax purposes the character and timing of
recognition of the gains and losses the Portfolios realize in connection
therewith. For each of these Portfolios, income from foreign currencies
(except certain gains therefrom that may be excluded by future regula-
tions), and income from transactions in Hedging Instruments derived with
respect to its business of investing in securities or foreign currencies,
will qualify as permissible income for its corresponding Fund under the
Income Requirement. However, income from the disposition by a Portfolio
of Hedging Instruments (other than those on foreign currencies) will be
subject to the Short-Short Limitation for its corresponding Fund if they
are held for less than three months. Income from the disposition of
foreign currencies, and Hedging Instruments on foreign currencies, that
are not directly related to a Portfolio's principal business of investing
in securities (or options and Futures with respect thereto) also will be
subject to the Short-Short Limitation for its corresponding Fund if they
are held for less than three months.
If Neuberger & Berman Ultra Short Bond Portfolio or
Neuberger & Berman Limited Maturity Bond Portfolio satisfies certain
requirements, any increase in value of a position that is part of a
"designated hedge" will be offset by any decrease in value (whether
realized or not) of the offsetting hedging position during the period of
the hedge for purposes of determining whether its corresponding Fund
satisfies the Short-Short Limitation. Thus, only the net gain (if any)
from the designated hedge will be included in gross income for purposes of
that limitation. Each of these Portfolios will consider whether it should
seek to qualify for this treatment for its hedging transactions. To the
extent a Portfolio does not so qualify, it may be forced to defer the
closing out of certain Hedging Instruments beyond the time when it
otherwise would be advantageous to do so, in order for its corresponding
Fund to continue to qualify as a RIC.
Exchange-traded Futures Contracts and listed options
thereon constitute "Section 1256 contracts." Section 1256 contracts are
required to be marked to market (that is, treated as having been sold at
market value) at the end of a Portfolio's taxable year. Sixty percent of
any gain or loss recognized as a result of these "deemed sales," and 60%
of any net realized gain or loss from any actual sales, of Section 1256
contracts are treated as long-term capital gain or loss, and the remainder
is treated as short-term capital gain or loss.
- 51 -
<PAGE>
Neuberger & Berman Limited Maturity Bond Portfolio may
invest in municipal bonds that are purchased with market discount (that
is, at a price less than the bond's principal amount or, in the case of a
bond that was issued with original issue discount ("OID"), a price less
than the amount of the issue price plus accrued OID) ("municipal market
discount bonds"). If a bond's market discount is 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 taxpayer acquired the bond, then no
market discount is considered to exist. Gain on the disposition of a
municipal market discount bond purchased by the Portfolio (other than a
bond with a fixed maturity date within one year from its issuance), gener-
ally 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. Market discount on such a bond generally is accrued ratably,
on a daily basis, over the period from the acquisition date to the date of
maturity. In lieu of treating the disposition gain as above, the
Portfolio may elect to include market discount in its gross income cur-
rently, for each taxable year to which it is attributable.
Each Portfolio may acquire zero coupon or other securi-
ties issued with OID. As a holder of those securities, each Portfolio
(and, through it, its corresponding Fund) must take into account the OID
that accrues on the securities during the taxable year, even if it
receives no corresponding payment on the securities during the year.
Because each Fund annually must distribute substantially all of its
investment company taxable income (plus its share of its corresponding
Portfolio's accrued OID) to satisfy the Distribution Requirement and to
avoid imposition of the Excise Tax, a Fund may be required in a particular
year to distribute as a dividend an amount that is greater than its
proportionate share of the total amount of cash its corresponding
Portfolio actually receives. Those distributions will be made from a
Fund's (or its proportionate share of its corresponding Portfolio's) cash
assets or, if necessary, from the proceeds of sales of that Portfolio's
securities. A Portfolio may realize capital gains or losses from those
sales, which would increase or decrease its corresponding Fund's
investment company taxable income and/or net capital gain (the excess of
net long-term capital gain over net short-term capital loss). In
addition, any such gains may be realized on the disposition of securities
held for less than three months. Because of the Short-Short Limitation,
any such gains would reduce a Portfolio's ability to sell other
securities, or certain Hedging Instruments, held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.
Taxation of the Funds' Shareholders
-----------------------------------
If shares of Ultra Short or Limited Maturity are sold at
a loss after being held for six months or less, the loss will be treated
as long-term, instead of short-term, capital loss to the extent of any
capital gain distributions received on those shares. Investors also
should be aware that if shares of either of those Funds are purchased
shortly before the record date for a dividend or other distribution, the
- 52 -
<PAGE>
purchaser will receive some portion of the purchase price back as a
taxable distribution.
Each Fund is required to withhold 31% of all dividends
and capital gain distributions, and each of Ultra Short and Limited
Maturity is required to withhold 31% of redemption proceeds payable to any
individuals and certain other noncorporate shareholders who do not provide
the Fund with a correct taxpayer identification number. Withholding at
that rate also is required from dividends and capital gain distributions
payable to such shareholders who otherwise are subject to backup
withholding.
As described under "How to Sell Shares" in the
Prospectus, a Fund may close a shareholder's account with the Fund and
redeem the remaining shares if the account balance falls below the
specified minimum and the shareholder fails to reestablish the minimum
balance after being given the opportunity to do so. If an account that is
closed pursuant to the foregoing was maintained for an individual retire-
ment account or a qualified retirement plan (including a simplified
employee pension plan, self-employed individual retirement plan (so-called
"Keogh plan"), corporate profit-sharing and money purchase pension plan,
section 401(k) plan, and section 403(b)(7) account), the Fund's payment of
the redemption proceeds to the accountholder may result in adverse tax
consequences for the accountholder. The accountholder should consult his
or her tax adviser regarding any such consequences.
VALUATION OF PORTFOLIO SECURITIES
Each of Neuberger & Berman Government Money Portfolio and
Neuberger & Berman Cash Reserves Portfolio relies on Rule 2a-7 under the
1940 Act to use the amortized cost method of valuation to enable its
corresponding Fund to stabilize the purchase and redemption price of its
shares at $1.00 per share. This method involves valuing portfolio securi-
ties 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 Funds' reliance on Rule 2a-7
and the Portfolios' use of that valuation method should enable the Funds,
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 these Funds,
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 Portfolios usually do not pay brokerage commissions for such purchases
and sales. Instead, the price paid for newly issued securities typically
includes a concession or discount paid by the issuer to the underwriter,
- 53 -
<PAGE>
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 purchasing and selling portfolio securities other than
as described above (for example, in the secondary market), each Portfolio
seeks to obtain best execution at the most favorable prices through
responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates. In selecting broker-dealers to execute
transactions, N&B Management considers such factors as the price of the
security, the rate of commission, the size and difficulty of the order,
and the reliability, integrity, financial condition, and general execution
and operational capabilities of competing broker-dealers. N&B Management
also may consider the brokerage and research services that broker-dealers
provide to the Portfolio or N&B Management. Under certain conditions, a
Portfolio may pay higher brokerage commissions in return for brokerage and
research services, although no Portfolio has a current arrangement to do
so. In any case, each Portfolio may effect principal transactions with a
dealer who furnishes research services, designate any dealer to receive
selling concessions, discounts, or other allowances, or otherwise deal
with any dealer in connection with the acquisition of securities in
underwritings.
During the fiscal year ended October 31, 1995, Neuberger
& Berman Ultra Short Bond Portfolio acquired securities of the following
"regular brokers or dealers" (as defined in the 1940 Act): Canadian
Imperial Bank of Commerce, Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Inc., and Morgan Stanley & Co. Inc. At October 31, 1995,
that Portfolio held none of the securities of its "regular brokers or
dealers."
During the fiscal year ended October 31, 1995,
Neuberger & Berman Limited Maturity Bond Portfolio acquired securities of
the following "regular brokers or dealers": Canadian Imperial Bank of
Commerce. At October 31, 1995, that Portfolio held none of the securities
of its "regular brokers or dealers."
During the fiscal year ended October 31, 1995, Neuberger
& Berman Cash Reserves Portfolio acquired securities of the following
"regular brokers or dealers": Canadian Imperial Bank of Commerce,
Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
and Morgan Stanley & Co. Inc.; at October 31, 1995, that Portfolio held
the securities of its "regular brokers or dealers" with an aggregate value
as follows: Goldman Sachs & Co.: $5,862,022 and Morgan Stanley & Co.
Inc.: $5,931,360.
During the fiscal year ended October 31, 1995, Neuberger
& Berman Government Money Portfolio acquired none of the securities of its
"regular brokers or dealers." At October 31, 1995, that Portfolio held
none of the securities of its "regular brokers or dealers."
No affiliate of any Portfolio receives give-ups or reciprocal
business in connection with its portfolio transactions. No Portfolio
- 54 -
<PAGE>
effects transactions with or through broker-dealers in accordance with any
formula or for selling shares of any Fund. However, broker-dealers who
effect or execute portfolio transactions may from time to time effect
purchases of Fund shares for their customers. The 1940 Act generally
prohibits Neuberger & Berman from acting as principal in the purchase of
portfolio securities from, or the sale of portfolio securities to, a
Portfolio unless an appropriate exemption is available.
Portfolio Turnover
------------------
The portfolio turnover rate is the lesser of the cost of
the securities purchased or the value of the securities sold, excluding
all securities, including options, whose maturity or expiration date at
the time of acquisition was one year or less, divided by the average
monthly value of such securities owned during the year.
REPORTS TO SHAREHOLDERS
Shareholders of each Fund receive unaudited semi-annual
financial statements, as well as year-end financial statements audited by
the independent auditors for the Fund and for its corresponding Portfolio.
Each Fund's statements show the investments owned by its corresponding
Portfolio and the market values thereof and provide other information
about the Fund and its operations, including the Fund's beneficial
interest in its corresponding Portfolio.
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street Bank
and Trust Company, 225 Franklin Street, Boston, MA 02110 as custodian for
its securities and cash. All correspondence should be mailed to
Neuberger & Berman Funds, c/o Boston Service Center, P.O. Box 8403,
Boston, MA 02266-8403. That company also serves as each Fund's transfer
agent and shareholder servicing agent, administering purchases,
redemptions, and transfers of Fund shares and the payment of dividends and
other distributions through its Boston Service Center.
INDEPENDENT AUDITORS
Each Fund and Portfolio has selected Ernst & Young LLP,
200 Clarendon Street, Boston, MA 02116, as the independent auditors who
will audit its financial statements.
LEGAL COUNSEL
Each Fund and Portfolio has selected Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C.
20036, as its legal counsel.
- 55 -
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and
percentage of ownership of each person who was known by each Fund to own
beneficially or of record 5% or more of that Fund's outstanding shares at
January 31, 1996:
<TABLE>
<CAPTION>
Percentage of
Ownership at
Name and Address January 31, 1996
---------------- ---------------
<S> <C> <C>
Government Money: Neuberger & Berman* 72.65%
---------------- 605 Third Avenue
New York, NY 10158-3698
Cash Reserves: Neuberger & Berman* 56.41%
------------- 605 Third Avenue
New York, NY 10158-3698
Ultra Short: Charles Schwab & Co., Inc.* 27.02%
----------- 101 Montgomery Street
San Francisco, CA 94104-4122
Limited Maturity: Charles Schwab & Co., Inc.* 29.64%
---------------- 101 Montgomery Street
San Francisco, CA 94104-4122
Nationwide Life Insurance Plan 8.60%
QPVA
c/o IPO CO 67
P.O. Box 182029
Columbus, Ohio 43218-2029
</TABLE>
___________________________
* Charles Schwab & Co., Inc. and Neuberger & Berman hold these
shares of record for the accounts of certain of their clients and
have informed the Funds of their policies to maintain the
confidentiality of holdings in client accounts unless disclosure
is expressly required by law.
At January 31, 1996, the trustees and officers of the Trust, as a
group, owned beneficially or of record less than one percent of the
outstanding shares of each Fund.
- 56 -
<PAGE>
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the infor-
mation included in the Trust's registration statement filed with the SEC
under the 1933 Act with respect to the securities offered by the
Prospectus. Certain portions of the registration statement have been
omitted pursuant to SEC rules and regulations. The registration
statement, including the exhibits filed therewith, may be examined at the
SEC's offices in Washington, D.C.
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, and in each instance reference is made to the copy
of the contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The following financial statements and related documents
are incorporated herein by reference to the Funds' Annual Report to
Shareholders for the fiscal year ended October 31, 1995:
The audited financial statements of the Funds and
Portfolios and notes thereto for the fiscal year ended
October 31, 1995, and the reports of Ernst & Young LLP,
independent auditors, with respect to such audited
financial statements.
- 57 -
<PAGE>
Appendix A
RATINGS OF SECURITIES
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 - Bonds rated BB or B 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. While these bonds will likely
have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB - Bonds rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. The BB rating category is used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B - Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
Plus (+) or Minus (-): The ratings above may be modified by the
addition of a plus or minus sign to show relative standing within major
categories.
- 58 -
<PAGE>
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 edged." 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, such changes that can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
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 which are 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 which are 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.
Modifiers - Moody's may apply numerical modifiers 1, 2, and 3 in
each generic rating classification described above. The modifier 1
indicates that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
- 59 -
<PAGE>
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 (+).
A-2 - This designation denotes satisfactory capacity for timely
payment. However, the relative degree of safety is not as high as for
issues designated A-1.
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 promis-
sory 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.
Issuers rated Prime-2 (or related supporting institutions), also
known as P-2, have a strong capacity for repayment of short-term promis-
sory obligations. This will normally be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
- 60 -
<PAGE>
Appendix B
THE ART OF INVESTMENT: A CONVERSATION WITH ROY NEUBERGER
- 61 -
<PAGE>
___________________________________________________________
NEUBERGER & BERMAN MUNICIPAL FUNDS AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 1996
Neuberger & Berman Neuberger & Berman
Municipal Money Fund Municipal Securities Trust
(and Neuberger & Berman Municipal (and Neuberger & Berman
Money Portfolio) Municipal Securities Portfolio)
Neuberger & Berman
New York Insured Intermediate Fund
(and Neuberger & Berman New York
Insured Intermediate Portfolio)
No-Load Mutual Funds
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
_________________________________________________________________
Neuberger & Berman Municipal Money Fund ("Municipal
Money"), Neuberger & Berman Municipal Securities Trust ("Municipal
Securities"), and Neuberger & Berman New York Insured Intermediate Fund
("New York Insured Intermediate") (each a "Fund") are no-load mutual funds
that offer shares pursuant to a Prospectus dated March 1, 1996. The above-
named Funds invest all of their net investable assets in Neuberger &
Berman Municipal Money Portfolio, Neuberger & Berman Municipal Securities
Portfolio, and Neuberger & Berman New York Insured Intermediate Portfolio
(each a "Portfolio"), respectively. Shares of New York Insured
Intermediate are registered for sale only to investors in New York and
Florida. New York Insured Intermediate is not being offered for sale to
investors in any other state.
The Funds' Prospectus, which is also the prospectus for
certain taxable fixed income funds managed by Neuberger & Berman
Management Incorporated ("N&B Management"), provides the basic information
that an investor should know before investing. A copy of the Prospectus
may be obtained, without charge, from N&B Management, 605 Third Avenue,
2nd Floor, New York, NY 10158-0180 or by calling 800-877-9700.
This Statement of Additional Information ("SAI") is not a
prospectus and should be read in conjunction with the Prospectus.
No person has been authorized to give any information or
to make any representations not contained in the Prospectus or in this SAI
in connection with the offering made by the Prospectus, and, if given or
made, such information or representations must not be relied upon as
having been authorized by a Fund or its distributor. The Prospectus and
this SAI do not constitute an offering by a Fund or its distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Policies and Limitations . . . . . . . . . . . . 1
Investment Programs of Both Neuberger & Berman Municipal
Money Portfolio and Neuberger & Berman Municipal
Securities Portfolio . . . . . . . . . . . . . . . . 8
Investment Program of Neuberger & Berman Municipal
Securities Portfolio . . . . . . . . . . . . . . . . 9
Investment Approach of Neuberger & Berman Municipal
Securities Portfolio and Neuberger & Berman New
York Insured Intermediate Portfolio . . . . . . . . 11
Municipal Bond Insurance (Neuberger & Berman New York
Insured Intermediate Portfolio). . . . . . . . . . . 11
Theresa A. Havell and Clara Del Villar - Co-Portfolio
Managers of the Portfolios . . . . . . . . . . . . . 13
Types of Municipal Obligations . . . . . . . . . . . . . . . 13
Yield and Price Characteristics of Municipal Obligations . . 17
Investment in Taxable Securities . . . . . . . . . . . . . . 17
Additional Techniques for Purchasing and Selling
Municipal Obligations and Taxable Securities . . . . 19
Risks of Fixed Income Securities . . . . . . . . . . 30
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 31
Yield Calculations . . . . . . . . . . . . . . . . . . . . . 31
Tax Equivalent Yield . . . . . . . . . . . . . . . . . . . . 32
Total Return Computations . . . . . . . . . . . . . . . . . 33
Comparative Information . . . . . . . . . . . . . . . . . . 34
Other Performance Information . . . . . . . . . . . . . . . 35
CERTAIN RISK CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 36
New York City . . . . . . . . . . . . . . . . . . . . . . . 38
New York State . . . . . . . . . . . . . . . . . . . . . . . 39
Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . 40
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 41
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES . . . . . . . . . . 47
Investment Manager and Administrator . . . . . . . . . . . . 47
Sub-Adviser . . . . . . . . . . . . . . . . . . . . . . . . 50
Investment Companies Managed . . . . . . . . . . . . . . . . 52
Management and Control of N&B Management . . . . . . . . . . 54
DISTRIBUTION ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . 55
ADDITIONAL PURCHASE INFORMATION . . . . . . . . . . . . . . . . . . . 55
Automatic Investing and Dollar Cost Averaging . . . . . . . 55
ADDITIONAL EXCHANGE INFORMATION . . . . . . . . . . . . . . . . . . . 56
ADDITIONAL REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . 59
Suspension of Redemptions . . . . . . . . . . . . . . . . . 59
- i -
<PAGE>
Redemptions in Kind . . . . . . . . . . . . . . . . . . . . 60
DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . . 60
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . 61
Taxation of the Funds . . . . . . . . . . . . . . . . . . . 61
Taxation of the Portfolios . . . . . . . . . . . . . . . . . 62
Taxation of the Funds' Shareholders . . . . . . . . . . . . 65
VALUATION OF PORTFOLIO SECURITIES
(Municipal Money) . . . . . . . . . . . . . . . . . . . . . 67
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 67
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . 68
REPORTS TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 68
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . 68
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . 69
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . 69
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . 70
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 70
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
RATINGS OF MUNICIPAL OBLIGATIONS AND COMMERCIAL PAPER . . . 72
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER . . . . . . . . . 76
- ii -
<PAGE>
INVESTMENT INFORMATION
Each Fund is a separate series of Neuberger & Berman
Income Funds ("Trust"), a Delaware business trust that is registered with
the Securities and Exchange Commission ("SEC") as an open-end management
investment company. Each Fund seeks its investment objective by investing
all of its net investable assets in a Portfolio of Income Managers Trust
("Managers Trust") that has an investment objective identical to, and a
name similar to, that of the Fund. Each Portfolio, in turn, invests in
accordance with an investment objective, policies, and limitations
identical to those of its corresponding Fund. (The Trust and Managers
Trust, which is an open-end management investment company managed by N&B
Management, are together referred to below as the "Trusts.")
The following information supplements the discussion in
the Prospectus of the investment objective, policies, and limitations of
each Fund and Portfolio. The investment objective and, unless otherwise
specified, the investment policies and limitations of each Fund and
Portfolio are not fundamental. Although any investment policy or
limitation that is not fundamental may be changed by the trustees of the
Trust ("Fund Trustees") or of Managers Trust ("Portfolio Trustees")
without shareholder approval, each Fund intends to notify its shareholders
before changing its investment objective or implementing any material
change in any non-fundamental policy or limitation. The fundamental
investment policies and limitations of a Fund or a Portfolio may not be
changed without the approval of the lesser of (1) 67% of the total units
of beneficial interest ("shares") of the Fund or Portfolio represented at
a meeting at which more than 50% of the outstanding Fund or Portfolio
shares are represented or (2) a majority of the outstanding shares of the
Fund or Portfolio. This vote is required by the Investment Company Act of
1940 ("1940 Act") and is referred to in this SAI as a "1940 Act majority
vote." Whenever a Fund is called upon to vote on a change in a
fundamental investment policy or limitation of its corresponding
Portfolio, the Fund casts its votes thereon in proportion to the votes of
its shareholders at a meeting thereof called for that purpose.
Investment Policies and Limitations
-----------------------------------
Municipal Money and Municipal Securities have the
following fundamental investment policy, to enable them to invest in their
corresponding Portfolios:
Notwithstanding any other investment policy of the Fund,
the Fund may invest all of its investable assets (cash,
securities, and receivables relating to securities) in an
open-end management investment company having substan-
tially the same investment objective, policies, and limi-
tations as the Fund.
New York Insured Intermediate has the following
fundamental investment policy, to enable it to invest in its corresponding
Portfolio:
- 1 -
<PAGE>
Notwithstanding any other investment policy or limitation
of the Fund, the Fund may invest all of its investable
assets in an open-end management investment company
having substantially the same investment objective,
policies, and limitations as the Fund.
All other fundamental investment policies and limitations
and the non-fundamental investment policies and limitations of each Fund
and its corresponding Portfolio are identical. Therefore, although the
following discusses the investment policies and limitations of the
Portfolios, it applies equally to their corresponding Funds.
For purposes of the investment limitation on concentra-
tion in particular industries, N&B Management identifies the "issuer" of a
municipal obligation that is not a general obligation note or bond by the
obligation's characteristics. The most significant of these character-
istics is the source of funds for the payment of principal and interest on
the obligation. If an obligation is backed by an irrevocable letter of
credit or other guarantee, without which the obligation would not qualify
for purchase under a Portfolio's quality restrictions, the issuer of the
letter of credit or the guarantee is considered an issuer of the
obligation. If an obligation meets a Portfolio's quality restrictions
without credit support, the Portfolio treats the commercial developer or
the industrial user, rather than the governmental entity or the guarantor,
as the only issuer of the obligation, even if the obligation is backed by
a letter of credit or other guarantee.
Except for the limitation on borrowing and the limitation
on ownership of portfolio securities by officers and trustees, any
investment policy or limitation that involves a maximum percentage of
securities or assets will not be considered to be violated unless the
percentage limitation is exceeded immediately after, and because of, a
transaction by a Portfolio.
The fundamental investment policies and limitations of
Neuberger & Berman Municipal Money and Neuberger & Berman Municipal
Securities Portfolios are as follows:
1. Borrowing. Neither Portfolio may borrow money,
except that a Portfolio may (i) borrow money from banks for temporary or
emergency purposes and not for leveraging or investment and (ii) enter
into reverse repurchase transactions 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). If at any time borrowings exceed 33-1/3% of the value of a
Portfolio's total assets, the Portfolio 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. Neuberger & Berman Municipal Money
Portfolio may not purchase commodities or contracts thereon, except that
it may purchase the securities of issuers that own interests in any of the
- 2 -
<PAGE>
foregoing. Neuberger & Berman Municipal Securities Portfolio may not
purchase physical commodities or contracts thereon, unless acquired as a
result of the ownership of securities or instruments, but this restriction
shall not prohibit Neuberger & Berman Municipal Securities Portfolio from
purchasing futures contracts or options (including options on futures con-
tracts, but excluding options or future contracts on physical commodities)
or from investing in securities of any kind.
3. Diversification. Neither Portfolio 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 ("U.S. Government
and Agency Securities")) if, as a result, (i) more than 5% of the value of
the Portfolio's total assets would be invested in the securities of that
issuer or (ii) the Portfolio would hold more than 10% of the outstanding
voting securities of that issuer.
4. Industry Concentration. Neither Portfolio may
invest 25% or more of its total assets 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) municipal securities, or (iii) certificates of deposit ("CDs") or
bankers' acceptances issued by domestic banks.
5. Lending. Neither Portfolio may lend any
securities 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 and (ii) by engaging in repurchase agreements.
6. Real Estate. Neither Portfolio may purchase real
estate unless acquired as a result of the ownership of securities or
instruments, but this restriction shall not prohibit a Portfolio 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. Neither Portfolio may issue
senior securities, except as permitted under the 1940 Act.
8. Underwriting. Neither Portfolio may underwrite
securities of other issuers, except to the extent that a Portfolio, in
disposing of portfolio securities, may be deemed to be an underwriter
within the meaning of the Securities Act of 1933 ("1933 Act").
The non-fundamental investment policies and limitations
of Neuberger & Berman Municipal Money and Neuberger & Berman Municipal
Securities Portfolios are as follows:
1. Geographic Concentration. Neither Portfolio will
invest 25% or more of its total assets in securities issued by govern-
- 3 -
<PAGE>
mental 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).
2. Illiquid Securities. Neither Portfolio 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 Portfolio has valued
the securities, such as repurchase agreements maturing in more than seven
days.
3. Unseasoned Issuers. Neither Portfolio currently
intends to purchase the securities of any issuer (other than securities
issued or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of a Portfolio's total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of
continuous operation. This restriction does not apply to asset-backed
securities.
4. Ownership of Portfolio Securities by Officers and
Trustees. Neither Portfolio may purchase or retain the securities of any
issuer if, to the knowledge of N&B Management, those officers and trustees
of Managers Trust and officers and directors of N&B Management who each
owns individually more than 1/2 of 1% of the outstanding securities of
such issuer, together own more than 5% of such securities.
5. Investments in Other Investment Companies.
Neither Portfolio may purchase securities of other investment companies,
except to the extent permitted by the 1940 Act and in the open market at
no more than customary brokerage commission rates. This limitation does
not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of a reorganization, consolidation, or merger.
6. Oil and Gas Programs. Neither Portfolio may
invest in participations or other direct interests in oil, gas, or other
mineral exploration or development programs or leases.
7. Borrowing. Neither Portfolio may purchase
securities if outstanding borrowings, including any reverse repurchase
agreements, exceed 5% of its total assets.
8. Lending. Except for the purchase of debt
securities and engaging in repurchase agreements, neither Portfolio may
make any loans other than securities loans.
9. Margin Transactions. Neither Portfolio may
purchase securities on margin from brokers or other lenders, except that a
Portfolio may obtain such short-term credits as are necessary for the
clearance of securities transactions. For Neuberger & Berman Municipal
Securities Portfolio, margin payments in connection with transactions in
- 4 -
<PAGE>
futures contracts and options on futures contracts shall not constitute
the purchase of securities on margin and shall not be deemed to violate
the foregoing limitation.
10. Short Sales. Neither Portfolio may sell
securities short, unless it owns, or has the right to obtain without
payment of additional consideration, securities equivalent in kind and
amount to the securities sold. For Neuberger & Berman Municipal
Securities Portfolio, transactions in futures contracts and options shall
not constitute selling securities short.
11. Puts, Calls, Straddles, or Spreads. Neither
Portfolio may invest in puts, calls, straddles, spreads, or any combina-
tion thereof, except that a Portfolio may purchase securities with rights
to put the securities to the seller in accordance with its investment
program, and Neuberger & Berman Municipal Securities Portfolio may
purchase options on interest-rate futures contracts. Neuberger & Berman
Municipal Securities Portfolio does not construe the foregoing limitation
to preclude it from purchasing or selling options on futures contracts,
and neither Portfolio construes the limitation to preclude it from
purchasing securities with rights to put the security to the issuer or a
guarantor.
12. Real Estate Limited Partnerships. Neither Portfolio
may invest in real estate limited partnerships.
The fundamental investment policies and limitations of
Neuberger & Berman New York Insured Intermediate Portfolio are as follows:
1. Borrowing. The Portfolio may not borrow money,
except that the Portfolio may (i) borrow money from banks for temporary or
emergency purposes and not for leveraging or investment and (ii) enter
into reverse repurchase transactions 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). If at any time borrowings exceed 33-1/3% of the value of the
Portfolio's total assets, the Portfolio 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. The Portfolio may not purchase
physical commodities or contracts thereon, unless acquired as a result of
the ownership of securities or instruments, but this restriction shall not
prohibit the Portfolio from purchasing futures contracts or options
(including options on futures contracts, but excluding options or futures
contracts on physical commodities) or from investing in securities of any
kind.
3. Industry Concentration. The Portfolio may not
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
- 5 -
<PAGE>
limitation does not apply to U.S. Government and Agency Securities. State
and local governments, their agencies and instrumentalities, including
multi-state agencies, are not considered part of any "industry."
4. Lending. The Portfolio may not 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 debt securities and (ii) by engaging in repurchase
agreements.
5. Real Estate. The Portfolio may not purchase real
estate unless acquired as a result of the ownership of securities or
instruments, but this restriction shall not prohibit the Portfolio 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.
6. Senior Securities. The Portfolio may not issue
senior securities, except as permitted under the 1940 Act.
7. Underwriting. The Portfolio may not engage in
the business of underwriting securities of other issuers, except to the
extent that the Portfolio, in disposing of portfolio securities, may be
deemed to be an underwriter within the meaning of the 1933 Act.
The non-fundamental investment policies and limitations
of Neuberger & Berman New York Insured Intermediate Portfolio are as
follows:
1. Diversification. At the close of each quarter of
the Portfolio's taxable year, (i) not more than 25% of its total assets
may be invested in the securities of a single issuer and (ii) with regard
to at least 50% of its total assets, not more than 5% of its total assets
may be invested in the securities of a single issuer. These limitations
do not apply to U.S. Government and Agency Securities.
2. Illiquid Securities. The Portfolio may not
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 Portfolio has valued
the securities, such as repurchase agreements maturing in more than seven
days.
3. Unseasoned Issuers. The Portfolio currently does
not intend to purchase the securities of any issuer (other than securities
issued or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of the Portfolio's
total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
- 6 -
<PAGE>
continuous operation. This restriction does not apply to asset-backed
securities.
4. Ownership of Portfolio Securities by Officers and
Trustees. The Portfolio may not purchase or retain the securities of any
issuer if, to the knowledge of N&B Management, those officers and trustees
of Managers Trust, and officers and directors of N&B Management who each
owns individually more than 1/2 of 1% of the outstanding securities of
such issuer, together own more than 5% of such securities.
5. Investments in Other Investment Companies. The
Portfolio may not purchase securities of other investment companies,
except to the extent permitted by the 1940 Act and in the open market at
no more than customary brokerage commission rates. This limitation does
not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of a reorganization, consolidation, or merger.
6. Oil and Gas Programs. The Portfolio may not
invest in participations or other direct interests in oil, gas, or other
mineral exploration or development programs or leases.
7. Borrowing. The Portfolio may not purchase
securities if outstanding borrowings, including any reverse repurchase
agreements, exceed 5% of its total assets.
8. Lending. Except for the purchase of debt
securities and engaging in repurchase agreements, the Portfolio may not
make any loans other than securities loans.
9. Margin Transactions. The Portfolio may not
purchase securities on margin from brokers or other lenders, except that
the Portfolio may obtain such short-term credits as are necessary for the
clearance of securities transactions. Margin payments in connection with
transactions in futures contracts and options on futures contracts shall
not constitute the purchase of securities on margin and shall not be
deemed to violate the foregoing limitation.
10. Short Sales. The Portfolio may not sell
securities short, unless it owns, or has the right to obtain without
payment of additional consideration, securities equivalent in kind and
amount to the securities sold. Transactions in futures contacts and
options shall not constitute selling securities short.
11. Real Estate Limited Partnerships. The Portfolio may
not invest in real estate limited partnerships.
Investment Programs of Both Neuberger & Berman Municipal Money
Portfolio and Neuberger & Berman Municipal Securities Portfolio
---------------------------------------------------------------
Neuberger & Berman Municipal Money Portfolio and
Neuberger & Berman Municipal Securities Portfolio invest in municipal
obligations which are issued by or on behalf of states (as used herein,
- 7 -
<PAGE>
including the District of Columbia), territories, and possessions of the
United States and their political subdivisions, agencies, and instrumen-
talities, and which pay interest that is exempt from federal income tax.
Ordinarily, Neuberger & Berman Municipal Money Portfolio
invests only in high-quality municipal obligations with remaining
maturities of 397 days or less. Neuberger & Berman Municipal Securities
Portfolio, as a fundamental policy, invests at least 80%, and intends to
invest substantially all, of its total assets in municipal obligations.
Each Portfolio, however, temporarily may invest any part of its total
assets in taxable securities to maintain a "defensive" posture when, in
N&B Management's opinion, market conditions warrant. See "Investment
Information -- Investment in Taxable Securities."
Investment Program of Neuberger & Berman Municipal Securities Portfolio
-----------------------------------------------------------------------
Neuberger & Berman Municipal Securities Portfolio invests
in (1) municipal bonds, notes, and instruments receiving any of the three
highest ratings assigned by Standard & Poor's ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), or any other nationally recognized statistical
rating organization ("NRSRO"), (2) unrated municipal obligations that N&B
Management determines are of comparable quality to rated municipal
obligations of the same type in which the Portfolio may invest, and
(3) municipal obligations backed by the full faith and credit of the
United States. During periods of rising or falling interest rates, the
Portfolio may seek to hedge all or part of its portfolio against related
changes in securities prices by buying or selling interest-rate futures
contracts (with bond index futures contracts, "Futures" or "Futures
Contracts") and options thereon. See "Investment Information -- Futures
Contracts and Options Thereon (Neuberger & Berman Municipal Securities
Portfolio and Neuberger & Berman New York Insured Intermediate
Portfolio)."
The dollar-weighted average duration of the Portfolio's
investment portfolio will not exceed ten years. Futures, options and
options on futures have durations which are generally related to the
duration of the securities underlying them. There are some situations
where even the standard duration calculation does not properly reflect the
interest rate exposure of a security. For example, variable or floating
rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the
coupon reset. See "Investment Information -- Variable or Floating Rate
Securities; Demand and Put Features." In this and other, similar
situations, N&B Management, where permitted, will use more sophisticated
analytical techniques that incorporate the economic life of a security
into the determination of its interest rate exposure.
Investment Program of Neuberger & Berman New York Insured
Intermediate Portfolio
---------------------------------------------------------
Generally, Neuberger & Berman New York Insured
Intermediate Portfolio invests at least 65% of its total assets in (1)
- 8 -
<PAGE>
municipal obligations issued by the State of New York, its authorities,
multi-state authorities, municipalities, counties, and any other political
subdivisions (including New York City), or (2) municipal obligations
issued by territories or possessions of the U.S., such as the Virgin
Islands, Guam, and Puerto Rico, that are exempt from federal income tax
and New York State and New York City personal income taxes (collectively,
"New York Municipal Securities") that are insured as to the timely payment
of principal and interest by private insurance companies having the
highest rating available from S&P, Moody's or any other NRSRO at the time
of purchase ("Municipal Bond Insurance"). The Portfolio invests the
remainder, up to 35% of its total assets, in (1) uninsured New York
Municipal Securities that receive any of the four highest ratings assigned
by at least one NRSRO, (2) unrated municipal obligations that N&B
Management determines are of comparable quality to rated municipal
obligations of the same type in which the Portfolio may invest and (3)
other instruments described in the Prospectus or this SAI. During
seasonal variations or other shortages in the supply of suitable New York
Municipal Securities or when, in N&B Management's opinion, market
conditions warrant, the Portfolio may invest in municipal securities which
are exempt from federal income tax, but not New York State and New York
City personal income taxes, or may invest in high-quality taxable U.S.
Government obligations. See "Investment Information--Investment in
Taxable Securities." However, as a fundamental policy, the Portfolio
will, under normal conditions, invest at least 80% of its total assets in
municipal obligations. The remaining 20% may invest in non-municipal
securities, including U.S. Government and Agency Securities, bank
obligations, repurchase agreements, securities loans, commercial paper
receiving the highest rating from S&P or Moody's, put and call options,
and futures and options on futures.
For temporary defensive purposes only, the Portfolio may
invest up to 100% of its total assets in cash that is not earning interest
and in U.S. Government and Agency Securities, the interest on which may be
subject to federal income tax and New York State and New York City
personal income taxes. During periods of rising or falling interest
rates, the Portfolio may seek to hedge all or part of its portfolio
against related changes in securities prices by buying or selling Futures
Contracts and options thereon. See "Investment Information -- Futures
Contracts and Options Thereon (Neuberger & Berman Municipal Securities
Portfolio and Neuberger & Berman New York Insured Intermediate
Portfolio)."
The dollar-weighted average duration of the Portfolio's
investment portfolio will not exceed ten years. Futures, options and
options on futures have durations which are generally related to the
duration of the securities underlying them. There are some situations
where even the standard duration calculation does not properly reflect the
interest rate exposure of a security. For example, variable or floating
rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the
coupon reset. See "Investment Information -- Variable or Floating Rate
Securities; Demand and Put Features." In this and other, similar
- 9 -
<PAGE>
situations, N&B Management, where permitted, will use more sophisticated
analytical techniques that incorporate the economic life of a security
into the determination of its interest rate exposure.
Investment Approach of Neuberger & Berman Municipal Securities Portfolio
and Neuberger & Berman New York Insured Intermediate Portfolio
-------------------------------------------------------------------------
Neuberger & Berman Municipal Securities Portfolio and
Neuberger & Berman New York Insured Intermediate Portfolio are managed in
accordance with an investment approach developed by their sub-adviser,
Neuberger & Berman, L.P. ("Neuberger & Berman"), and currently used by
that firm in managing taxable and tax-exempt fixed income portfolios with
an aggregate value of approximately $11.1 billion. In the tax-exempt
area, the approach is based, in part, on market studies that compared the
yield and price volatility of short- to intermediate-term municipal
obligations -- securities having maturities of five to ten years -- with
the yield and price volatility of long-term municipal bonds -- securities
having maturities of up to thirty years. The studies showed that munici-
pal obligations with maturities of five to ten years have generally
produced from 80% to 90% of the yield but have been subject to only one-
half to two-thirds of the price volatility of 30-year municipal bonds.
The average duration of each Portfolio is actively managed and may not
exceed ten years.
Municipal Bond Insurance (Neuberger & Berman New York Insured Intermediate
Portfolio)
--------------------------------------------------------------------------
Neuberger & Berman New York Insured Intermediate
Portfolio will purchase insured bonds only if, at the time of purchase,
they have the highest credit rating available from an NRSRO. For an
insured bond to receive the highest credit rating, an NRSRO must rate the
claims-paying ability or financial strength of the insurance company in
the highest category. There is, of course, no guarantee that the
insurance company will continue to receive the highest credit rating or
that it will be able to meet its obligation to the Portfolio. See
Appendix A for a summary of the highest ratings of Municipal Bond
Insurance companies by S&P and Moody's.
The Municipal Bond Insurance covering the New York
Municipal Securities purchased by the Portfolio may be either new issue
insurance ("New Issue Insurance") or secondary insurance ("Secondary
Insurance"). New Issue Insurance is purchased by the issuer of the
municipal security at the time of the original issuance of such security.
Secondary Insurance may be purchased by the selling broker, a prior
investor or the Portfolio after the municipal security is issued.
Generally, the Portfolio expects to purchase New York Municipal Securities
that have been insured by a prior party.
The Portfolio may purchase bonds insured by AMBAC
Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance
Corporation ("MBIA Corp."), Financial Guaranty Insurance Company ("FGIC"),
or any other insurance company that has received the highest credit rating
- 10 -
<PAGE>
from at least one NRSRO. The Portfolio may invest more than 25% of its
assets in bonds insured by the same insurance company. AMBAC, FGIC and
MBIA Corp. collectively hold a market share in excess of 90% of the
Municipal Bond Insurance market.
AMBAC is a wholly-owned subsidiary of AMBAC Inc. and is
licensed to do insurance business in all 50 states, the District of
Columbia, and Puerto Rico. AMBAC is the successor to the business of the
oldest Municipal Bond Insurance company, which wrote the first Municipal
Bond Insurance policy in 1971. According to its shareholder or other
reports, AMBAC is a Wisconsin-domiciled stock insurance corporation with
admitted assets of approximately $2,060,000,000 (unaudited) and statutory
capital of approximately $1,178,000,000 (unaudited) as of June 30, 1994.
Statutory capital consists of AMBAC Indemnity's policyholders' surplus and
statutory contingency reserve. AMBAC primarily provides New Issue
Insurance.
MBIA Corp. is a wholly-owned subsidiary of MBIA Inc. and
is licensed to do insurance business in all 50 states, the District of
Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, and
Puerto Rico. MBIA Corp. primarily provides New Issue Insurance and
Secondary Insurance. It also provides surety bonds for debt service
reserve funds. MBIA Corp. also insures other types of obligations, such
as asset-backed securities, debt of investor-owned utilities and municipal
deposits in approved financial institutions. According to it shareholder
or other reports, as of September 30, 1995 MBIA Corp. had admitted assets
of $3.7 billion (unaudited), total liabilities of $2.5 billion
(unaudited), and total capital and surplus of 1.2 billion (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. According to its
shareholder or other reports, as of December 31, 1994, MBIA Corp. had
admitted assets of $3.4 billion (audited), total liabilities of $2.3
billion (audited), and total capital and surplus of $1.1 billion (audited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities.
FGIC is a wholly-owned subsidiary of FGIC Corporation,
which is a wholly-owned subsidiary of General Electric Capital
Corporation. FGIC writes New Issue Insurance and Secondary Insurance on
bonds held in unit investment trusts and mutual funds. FGIC also
guarantees certain structured debt issues in the taxable market.
According to its shareholder or other reports, as of June 30, 1994, the
total capital and surplus of FGIC was approximately $850,000,000.
Approximately 90% of the business written to date by FGIC has been
Municipal Bond Insurance.
Theresa A. Havell and Clara Del Villar - Co-Portfolio Managers of the
Portfolios
---------------------------------------------------------------------
Ms. Del Villar notes: "Neuberger & Berman Municipal Money
Portfolio invests only in high-quality, short-term municipal obligations
and uses the amortized cost method of valuation to enable Municipal Money
- 11 -
<PAGE>
to maintain a constant share price of $1.00. Because this Portfolio
invests exclusively in short-term municipal obligations, Municipal Money's
shareholders avoid the market fluctuations and risk that come with
investment in longer-term municipal bonds and still receive dividends that
are exempt from federal income tax."
Ms. Del Villar states: "Neuberger & Berman Municipal
Securities Portfolio seeks high tax-exempt current income at reduced risk
by investing primarily in short- to intermediate-term municipal
obligations. This Portfolio also seeks to reduce the risk to principal.
Based on our studies, we've determined that the risk-reward tradeoffs in
the municipal bond market occur a little further out on the yield curve.
So the average duration in this Portfolio is managed accordingly. We also
actively manage this Portfolio to try to enhance the investors' total
return on a risk-adjusted basis in both bull and bear markets. Of course,
we can't guarantee such returns."
Ms. Del Villar notes: "Neuberger & Berman New York
Insured Intermediate Portfolio seeks high triple tax-exempt current income
at reduced risk by maintaining a dollar-weighted average duration ten
years or less. The Portfolio also seeks to reduce the risk to principal
by predominately purchasing insured New York Municipal Securities. The
Portfolio seeks to maximize total return by identifying municipal
obligations that are undervalued due to temporary dislocations of supply
and demand. Also, the Portfolio is actively managed to enhance the
investments' return through optional yield curve allocation."
Types of Municipal Obligations
------------------------------
The tax-exempt status of any issue of municipal obliga-
tions is determined on the basis of an opinion of the issuer's bond
counsel at the time the obligations are issued. Except as otherwise
provided in the Prospectus and this SAI, the Portfolios' investment
portfolios may consist of any combination of the types of municipal
obligations described below, and others as set forth in the Prospectus or
in this SAI. The proportions in which each Portfolio invests in various
types of municipal obligations will vary from time to time.
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.
- 12 -
<PAGE>
Revenue Bonds. 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
commitment" of a related governmental unit (subject, however, to
appropriations). 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 industrial development 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 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.
Municipal Lease Obligations (Neuberger & Berman Municipal
Securities Portfolio and Neuberger & Berman New York Insured Intermediate
Portfolio). 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 Portfolio will usually invest in municipal
lease obligations through certificates of participation ("COPs"), which
give the Portfolio 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 the municipality's appropriating body does
not allocate necessary funds. Such termination would result in a
significant loss to a Portfolio.
Municipal Notes. 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 the primary
- 13 -
<PAGE>
obligations of the local issuing agency, the HUD agreement provides the
full faith and credit of the U.S. 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 from
income, sales, use, and business 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 the Federal National Mortgage
Association ("FNMA" or "Fannie Mae") or the Government National Mortgage
Association ("GNMA" or "Ginnie Mae").
6. Tax-exempt commercial paper is a short-
term obligation issued by state or local governments or their agencies 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 qual-
ity equal to the securities in the account, usually U.S. Government
securities. The Portfolios can also purchase bonds issued to refund
earlier issues. The proceeds of these refunding bonds are often used for
escrow to support refunding.
Zero Coupon Securities. Zero coupon 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 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 securities, and the
perceived credit quality of the issuer.
- 14 -
<PAGE>
The discount on zero coupon securities ("original issue
discount") is taken into account ratably by each Portfolio prior to the
receipt of any actual payments. Because each Fund must distribute
substantially all of its net income (including its pro rata share of its
corresponding Portfolio's tax-exempt original issue discount) to its
shareholders each year for income tax purposes (see "Additional Tax
Information -- Taxation of the Funds"), a Portfolio may have to dispose of
portfolio securities under disadvantageous circumstances to generate cash,
or may be required to borrow, to satisfy its corresponding Fund's
distribution requirements.
The market prices of zero coupon securities generally are
more volatile than the prices of securities that pay 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 similar maturities, durations, and credit quality.
Tender Option Bonds (Neuberger & Berman Municipal
Securities Portfolio and Neuberger & Berman New York Insured Intermediate
Portfolio). 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, the Portfolio effectively holds a
demand obligation that bears interest at the prevailing short-term tax-
exempt rate. N&B 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.
Yield and Price Characteristics of Municipal Obligations
--------------------------------------------------------
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 Portfolio's investments, whereas a decline in interest rates generally
- 15 -
<PAGE>
will increase that value. The ability of each Portfolio to achieve its
investment objective also is dependent on the continuing ability of the
issuers of the municipal obligations in which the Portfolios invest (or,
in the case of industrial development 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.
Investment in Taxable Securities
--------------------------------
The types of taxable securities in which each Portfolio
temporarily may invest are limited to the following short-term (maturing
in one year or less from the time of purchase) fixed income securities:
U.S. Government and Agency Securities. U.S. Government
and Agency Securities are direct obligations of the U.S. Government, its
agencies and instrumentalities, and obligations issued or guaranteed by
U.S. Government-sponsored enterprises and federal agencies. Many agency
securities are not backed by the full faith and credit of the United
States.
Bank Obligations. Bank obligations include CDs, bankers'
acceptances, and other short-term debt obligations issued by U.S. banks
with total assets of $1 billion or more.
Repurchase Agreements. Repurchase agreements are
agreements under which a Portfolio purchases securities from a bank that
is a member of the Federal Reserve System or a securities dealer that
agrees to repurchase the securities from the Portfolio at a higher price
on a designated future date. Repurchase agreements generally are for a
short period of time, usually less than a week. No Portfolio may enter
into a repurchase agreement with a maturity 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
Portfolio may enter into a repurchase agreement only if (1) the underlying
securities are of the type (excluding maturity or duration limitations)
that the Portfolio's investment policies and limitations would allow it to
purchase directly, except that Neuberger & Berman Municipal Money
Portfolio may invest only in repurchase agreements with respect to
securities rated in the highest rating category by S&P, Moody's, or any
other NRSRO, (2) the market value of the underlying securities, including
accrued interest, at all times equals or exceeds the value of the
repurchase agreement, and (3) payment for the underlying securities is
made only upon satisfactory evidence that the securities are being held
for the Portfolio's account by its custodian or a bank acting as the
Portfolio's agent.
Securities Loans. In order to realize income, each Port-
folio may lend portfolio securities with a value not exceeding 33-1/3% of
its total assets to banks, brokerage firms, or institutional investors
judged creditworthy by N&B Management. Borrowers are required continu-
ously to secure their obligations to return securities on loan from the
- 16 -
<PAGE>
Portfolio 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 100% of the market value of the loaned
securities, which will also be marked to market daily. N&B 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.
Commercial Paper. Commercial paper is a short-term debt
security issued by a corporation, bank, municipality, or other issuer for
purposes such as financing current operations. Each Portfolio may invest
only in commercial paper receiving the highest rating from S&P (A-1) or
Moody's (P-1), or deemed by N&B Management to be of equivalent quality.
Each Portfolio 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, N&B Management may in certain cases determine that such paper is
liquid, pursuant to guidelines established by the Portfolio Trustees.
Swap Agreements (Neuberger & Berman Municipal Securities
Trust and New York Insured Intermediate Portfolio). To help enhance the
value of its portfolio or manage its exposure to different types of
investments, the Portfolio may enter into interest rate and mortgage swap
agreements and may purchase and sell interest rate "caps," "floors," and
"collars." In accordance with SEC staff requirements, the Portfolio will
segregate cash or liquid high-grade debt securities in an amount equal to
its obligations under swap agreements; when an agreement provides for
netting of the payments by the two parties, the Portfolio will segregate
only the amount of its net obligation, if any.
Additional Techniques for Purchasing and Selling Municipal
Obligations and Taxable Securities
---------------------------------------------------------
The Portfolios' investments in municipal obligations and
taxable securities may take the form of the following types of
investments:
Variable or Floating Rate Securities; Demand and Put Features
-------------------------------------------------------------
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 index changes. The
interest rate on variable and floating rate securities (collectively,
"Variable 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.
- 17 -
<PAGE>
The Variable Rate Securities in which the Portfolios
invest are municipal obligations which 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 municipal bond insurance from
a creditworthy insurer. Without these credit enhancements, the Variable
Rate Securities might not meet the Portfolios' quality standards.
Accordingly, in purchasing these securities, each Portfolio relies
primarily on the creditworthiness of the credit instrument issuer or the
insurer. Neither Neuberger & Berman Municipal Money Portfolio nor
Neuberger & Berman Municipal Securities Portfolio may invest more than 5%
of its total assets in securities backed by credit instruments from any
one issuer or by insurance from any one insurer (excluding securities that
do not rely on the credit instrument or insurance for their rating, i.e.,
stand on their own credit).
A Portfolio can also buy fixed rate securities
accompanied by a demand feature or by a put option, which permits the
Portfolio to sell the security to the issuer or third party at a specified
price. A Portfolio may rely on the creditworthiness of issuers of puts in
purchasing these securities.
In calculating its maturity and duration, each Portfolio
is permitted to treat certain Variable Rate Securities as maturing on a
date prior to the date on which the final repayment of principal is due to
be made. In applying such maturity shortening devices, N&B Management
considers whether the interest rate reset is expected to cause the
security to trade at approximately its par value.
Purchases with a Standby Commitment to Repurchase
-------------------------------------------------
When a may Portfolio purchases municipal obligations, it
also may acquire a standby commitment obligating the seller to repurchase
the obligations at an agreed price on a specified date or within a
specified period. A standby commitment is the equivalent of a
nontransferable "put" option held by a Portfolio that terminates if the
Portfolio sells the obligations to a third party.
The Portfolios may enter into standby commitments only
with banks and (if permitted under the 1940 Act) securities dealers
determined to be creditworthy. A Portfolio's 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 Portfolio may be unable to recover all or even part of any
loss it may sustain from having to sell the obligations elsewhere.
Although none of the Portfolios currently intends to
invest in standby commitments, each reserves the right to do so. No Port-
folio will invest in standby commitments unless it receives an opinion of
its counsel or a ruling of the Internal Revenue Service ("Service")
- 18 -
<PAGE>
satisfactory to the Portfolio Trustees that interest earned by the
Portfolio on municipal obligations subject to standby commitments is
exempt from federal income tax. No Portfolio will acquire standby
commitments with a view to exercising them when the exercise price exceeds
the current value of the underlying obligations; a Portfolio will do so
only to facilitate portfolio liquidity. By enabling a Portfolio to
dispose of municipal obligations at a predetermined price prior to
maturity, this investment technique allows the Portfolio to be fully
invested while preserving 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 net
asset value ("NAV"). The maturity or duration of municipal obligations
purchased by a Portfolio is not shortened by a standby commitment. There-
fore, standby commitments do not affect the average maturity or duration
of the Portfolio's investment portfolio.
Participation Interests
-----------------------
The Portfolios 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 to be creditworthy.
A Portfolio 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
loss when the underlying municipal obligations are in default. Although
no Portfolio currently intends to acquire participation interests, each
reserves the right to do so in the future. No Portfolio will purchase
participation interests unless it receives an opinion of its counsel or a
ruling of the Service satisfactory to the Portfolio Trustees that interest
earned by the Portfolio on municipal obligations in which it holds
participation interests is exempt from federal income tax.
Restricted Securities and Rule 144A Securities
----------------------------------------------
The Portfolios 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 or, if they are unregistered,
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 further
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
Portfolio qualify under Rule 144A, and an institutional market develops
for those securities, the Portfolio likely will be able to dispose of the
securities without registering them under the 1933 Act. To the extent
- 19 -
<PAGE>
that institutional buyers become, for a time, uninterested in purchasing
these securities, investing in Rule 144A securities could increase the
level of a Portfolio's illiquidity. N&B Management, acting under
guidelines established by the Portfolio Trustees, may determine that
certain securities qualified for trading under Rule 144A are liquid.
Where registration is required, a Portfolio may be obli-
gated to pay all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the Portfolio
may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Portfolio might obtain a less favorable price than prevailed
when it decided to sell. To the extent privately placed securities,
including Rule 144A securities, are illiquid, purchases thereof will be
subject to each Portfolio's 10% limit on investments in illiquid
securities. Restricted securities for which no market exists are priced
at fair value as determined in accordance with procedures approved and
periodically reviewed by the Portfolio Trustees.
When-Issued Transactions
------------------------
The Portfolios may purchase securities on a when-issued
basis. In such a transaction, a Portfolio commits to purchase securities
(to secure an advantageous price and yield at the time of the commitment)
and completes the purchase by making payment against delivery of the
securities at a future date. When a Portfolio purchases securities on a
when-issued basis, it will maintain in a segregated account with its
custodian, until payment is made, cash, U.S. Government and Agency
Securities, or other liquid, high-grade debt securities having an
aggregate market value (determined daily) at least equal to the amount of
its purchase commitments.
Futures Contracts and Options Thereon (Neuberger & Berman
Municipal Securities Portfolio and Neuberger & Berman New York
Insured Intermediate Portfolio)
---------------------------------------------------------------
Neuberger & Berman Municipal Securities and Neuberger &
Berman New York Insured Intermediate Portfolios may purchase and sell
Futures Contracts and options thereon in an attempt to hedge against
changes in the prices of municipal obligations resulting from expected
changes in prevailing interest rates. Because the futures markets may be
more liquid than the cash markets, the use of Futures permits a Portfolio
to enhance portfolio liquidity and maintain a defensive position without
having to sell portfolio securities. The Portfolios do not engage in
transactions in Futures or options thereon for speculation. The
Portfolios view investment in Futures and options thereon as a duration
management device and/or a device to reduce risk and preserve total return
in an adverse interest rate environment.
A "sale" of a Futures Contract (or a "short" Futures
position) entails the assumption of a contractual obligation to deliver
the securities underlying the contract at a specified price at a specified
- 20 -
<PAGE>
future time. A "purchase" of a Futures Contract (or a "long" Futures
position) entails the assumption of a contractual obligation to acquire
the securities underlying the contract at a specified price at a specified
future time. Certain Futures, including bond index Futures, are settled
on a net cash payment basis rather than by the sale and delivery of the
securities underlying the Futures.
"Margin" with respect to Futures is the amount of assets
that must be deposited by a Portfolio with, or for the benefit of, a
futures commission merchant in order to initiate and maintain the
Portfolio's Futures positions. The margin deposit made by a Portfolio
when it enters into a Futures Contract ("initial margin") is intended to
assure its performance of the contract. If the price of the Futures
Contract changes -- increases in the case of a short (sale) position or
decreases in the case of a long (purchase) position -- so that the
unrealized loss on the contract causes the margin deposit not to satisfy
margin requirements, the Portfolio will be required to make an additional
margin deposit ("variation margin"). However, if favorable price changes
in the Futures Contract cause the margin deposit to exceed the required
margin, the excess will be paid to the Portfolio. In computing its daily
NAV, each Portfolio marks to market the current value of its open Futures
positions. A Portfolio also must make margin deposits with respect to
options on Futures that it has written. If the futures commission
merchant holding the deposit goes bankrupt, the Portfolio could suffer a
delay in recovering its funds and could ultimately suffer a loss.
U.S. Futures are traded on exchanges that have been
designated as "contract markets" by the Commodity Futures Trading
Commission ("CFTC"), an agency of the U.S. Government; Futures
transactions must be executed through a futures commission merchant that
is a member of the relevant contract market. The exchange's affiliated
clearing organization guarantees performance of the contracts between the
clearing members of the exchange.
Although Futures Contracts by their terms may require the
actual delivery or acquisition of the underlying securities, in most cases
the contractual obligation is extinguished by being offset before the
expiration of the contract, without the parties having to make or take
delivery of the assets. A Futures position is offset by buying (to offset
an earlier sale) or selling (to offset an earlier purchase) an identical
Futures Contract calling for delivery in the same month.
Although each Portfolio believes that the use of Futures
Contracts will benefit it, if N&B Management's judgment about the general
direction of the markets is incorrect, a Portfolio's overall return would
be lower than if it had not entered into any such contracts. Moreover,
the spread between values in the cash and futures markets is subject to
distortion, due to differences in the character of those markets. Because
of the possibility of distortion, even a correct forecast of general mar-
ket trends by N&B Management may not result in a successful transaction.
- 21 -
<PAGE>
An option on a Futures Contract gives the purchaser the
right, in return for the premium paid, to assume a position in the
contract (a long position if the option is a call and a short position if
the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon
exercise to assume a short Futures position (if the option is a call) or a
long Futures position (if the option is a put). Upon exercise of the
option, the assumption of offsetting Futures positions by the writer and
holder of the option is accompanied by delivery of the accumulated cash
balance in the writer's Futures margin account. That balance represents
the amount by which the market price of the Futures Contract at exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option.
The prices of Futures are volatile and are influenced by,
among other things, actual and anticipated changes in interest rates,
which in turn are affected by fiscal and monetary policies and by national
and international political and economic events. At best, the correlation
between changes in prices of Futures and of the securities being hedged
can be only approximate. Decisions regarding whether, when, and how to
hedge involve skill and judgment. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or
interest rate trends, or lack of correlation between the futures markets
and the securities markets. Because of the low margin deposits required,
Futures trading involves an extremely high degree of leverage; as a
result, a relatively small price movement in a Futures Contract may result
in an immediate and substantial loss, or gain, to the investor. Losses
that may arise from certain Futures transactions are potentially
unlimited.
Most U.S. futures exchanges limit the amount of fluctua-
tion in the price of a Futures Contract or option thereon during a single
trading day; once the daily limit has been reached, no trades thereof may
be made on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day, however; it thus
does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Prices can move to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing liquidation of Futures and option positions and subjecting
investors to substantial losses. If this were to happen with respect to a
position held by a Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
Put and Call Options (Neuberger & Berman New York Insured
Intermediate Portfolio)
------------------------------------------------------------------
Neuberger & Berman New York Insured Intermediate
Portfolio may write or purchase put and call options on municipal
securities and other securities. Generally, the purpose of writing and
purchasing these options is to reduce the effect of price fluctuations of
securities held by the Portfolio on the Portfolio's and its corresponding
- 22 -
<PAGE>
Fund's NAVs. The Portfolio may also write covered call options to earn
premium income.
The obligation under any option terminates upon
expiration of the option or, at an earlier time, when the writer offsets
the option by entering into a "closing purchase transaction" to purchase
an option of the same series. If an option is purchased by the Portfolio
and is never exercised, the Portfolio will lose the entire amount of the
premium paid.
The Portfolio will receive a premium for writing a put
option, which obligates the Portfolio to acquire a certain security at a
certain price at any time until a certain date if the purchaser of the
option decides to sell such security. The Portfolio may be obligated to
purchase the underlying security at more than its current value.
When the Portfolio purchases a put option, it pays a
premium to the writer for the right to sell a security to the writer for a
specified amount at any time until a certain date. The Portfolio would
purchase a put option in order to protect itself against a decline in the
market value of a security it owns.
When the Portfolio writes a call option, it is obligated
to sell a security to a purchaser at a specified price at any time the
purchaser requests until a certain date, and receives a premium for
writing the option. The Portfolio writes only "covered" call options on
securities it owns. So long as the obligation of the call option
continues, the Portfolio may be assigned an exercise notice, requiring it
to deliver the underlying security against payment of the exercise price.
The Portfolio may be obligated to deliver securities underlying an option
at less than the market price, thereby giving up any additional gain on
the security.
When the Portfolio purchases a call option, it pays a
premium for the right to purchase a security from the writer at a
specified price until a specified date. The Portfolio would purchase a
call option to protect against an increase in the price of securities it
intends to purchase or to offset a previously written call option.
Portfolio securities on which call and put options may be
written and purchased by the Portfolio are purchased solely on the basis
of investment considerations consistent with the Portfolio's investment
objective. The writing of covered call options is a conservative
investment technique that is believed to involve relatively little risk
(in contrast to the writing of "naked" or uncovered call options, which
the Portfolio will not do), but is capable of enhancing the Portfolio's
total return. When writing a covered call option, the Portfolio, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security
decline. When writing a put option, the Portfolio, in return for the
premium, takes the risk that it must purchase the underlying security at
- 23 -
<PAGE>
the exercise price, which may be higher than the current market price of
the security. If a call or put option that the Portfolio has written
expires unexercised, the Portfolio will realize a gain in the amount of
the premium; however, in the case of a call option, that gain may be
offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security.
Options are traded both on national securities exchanges
and in the over-the-counter ("OTC") market. Exchange-traded options in
the U.S. are issued by a clearing organization affiliated with the
exchange on which the option is listed; the clearing organization in
effect guarantees completion of every exchange-traded option. In
contrast, OTC options are contracts between the Portfolio and its counter-
party with no clearing organization guarantee. Thus, when the Portfolio
sells (or purchases) an OTC option, it generally will be able to "close
out" the option prior to its expiration only by entering into a "closing
transaction" with the dealer to whom (or from whom) the Portfolio
originally sold (or purchased) the option. There can be no assurance that
the Portfolio would be able to liquidate an OTC option at any time prior
to expiration. Unless the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option it has written, it will not be
able to liquidate securities used as cover until the option expires or is
exercised or until different cover is substituted. In the event of the
counter-party's insolvency, the Portfolio may be unable to liquidate its
options position and the associated cover. N&B Management monitors the
creditworthiness of dealers with which the Portfolio may engage in OTC
options transactions, and limits the Portfolio's counter-parties in such
transactions to dealers with a net worth of at least $20 million as
reported in their latest financial statements.
The assets used as cover for OTC options written by the
Portfolio will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Portfolio may repurchase any OTC
option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC call option written
subject to this procedure will be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
The premium received (or paid) by the Portfolio when it
writes (or purchases) a call or put option is the amount at which the
option is currently traded on the applicable exchange, less (or plus) a
commission. The premium may reflect, among other things, the current
market price of the underlying security, the relationship of the exercise
price to the market price, the historical price volatility of the
underlying security, the length of the option period, the general supply
of and demand for credit, and the general interest rate environment. The
premium received by the Portfolio for writing a covered call or put option
is recorded as a liability on the Portfolio's statement of assets and
liabilities. This liability is adjusted daily to the option's current
market value, which is the sales price on the option's last reported trade
- 24 -
<PAGE>
on that day before the time the Portfolio's NAV is computed or, in the
absence of any trades thereof on that day, the mean between the closing
bid and ask prices.
Closing transactions are effected in order to realize a
profit on an outstanding option, to prevent an underlying security from
being called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits the Portfolio to
write another call option on the underlying security with either a
different exercise price or expiration date or both. If the Portfolio
desires to sell a security on which it has written a call option, it will
seek to effect a closing transaction prior to, or concurrently with, the
sale of the security. There is, of course, no assurance that the
Portfolio will be able to effect closing transactions at favorable prices.
If the Portfolio cannot enter into such a transaction, it may be required
to hold a security that it might otherwise have sold (or purchase a
security that it would not have otherwise bought), in which case it would
continue to be at market risk on the security.
The Portfolio will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the call or put option.
However, because increases in the market price of a call option generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the
Portfolio.
The Portfolio pays brokerage commissions in connection
with purchasing or writing options, including those used to close out
existing positions. These brokerage commissions normally are higher than
those applicable to purchases and sales of portfolio securities.
Options normally have expiration dates between three and
nine months from the date written. The exercise price of an option may be
below, equal to, or above the market value of the underlying security at
the time the option is written. From time to time, the Portfolio may
purchase an underlying security for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering
the security from its portfolio. In those cases, additional brokerage
commissions are incurred.
GENERAL CONSIDERATIONS INVOLVING FUTURES, OPTIONS
THEREON, AND OPTIONS ON SECURITIES (COLLECTIVELY,
"HEDGING INSTRUMENTS")
Futures Contracts and Options on Futures Contracts. To
the extent a Portfolio sells or purchases Futures Contracts and/or writes
options thereon other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums on these positions
(excluding the amount by which options are "in-the-money") may not exceed
5% of the Portfolio's net assets.
- 25 -
<PAGE>
In addition, pursuant to state securities laws, (1) the
aggregate premiums paid by a Portfolio on all options (both exchange-
traded and OTC) held by it at any time may not exceed 20% of its net
assets and (2) the aggregate margin deposits required on all exchange-
traded Futures Contracts and related options held at any time by a Portfo-
lio may not exceed 5% of its total assets.
Risks Involved in Using Hedging Instruments. The primary
risks in using Hedging Instruments are (1) imperfect correlation or no
correlation between changes in market value of the securities held or to
be acquired by a Portfolio and changes in market value of Hedging
Instruments; (2) possible lack of a liquid secondary market for Hedging
Instruments and the resulting inability to close out Hedging Instruments
when desired; (3) the fact that the skills needed to use Hedging
Instruments are different from those needed to select a Portfolio's
securities; (4) the fact that, although use of these instruments for
hedging purposes can reduce the risk of loss, they also can reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in hedged investments; and (5) the possible inability of a
Portfolio to purchase or sell a portfolio security at a time that would
otherwise be favorable for it to do so, or the possible need for a
Portfolio to sell a portfolio security at a disadvantageous time, due to
its need to maintain "cover" or to segregate securities in connection with
its use of Hedging Instruments. N&B Management intends to reduce the risk
of imperfect correlation by investing only in those Hedging Instruments
whose behavior is expected to resemble or offset that of a Portfolio's
underlying securities. N&B Management intends to reduce the risk that a
Portfolio will be unable to close out Hedging Instruments by entering into
such transactions only if N&B Management believes there will be an active
and liquid secondary market. The Hedging Instruments used by the
Portfolios are generally considered "derivatives." There can be no
assurance that a Portfolio's use of Hedging Instruments will be
successful.
Neuberger & Berman Municipal Securities and Neuberger &
Berman New York Insured Intermediate Portfolios' use of Hedging
Instruments may be limited by provisions of the Internal Revenue Code of
1986, as amended ("Code"), with which each of those Portfolios must comply
if its corresponding Fund is to continue to qualify as a regulated
investment company ("RIC"). See "Additional Tax Information."
Cover for Hedging Instruments. Neuberger & Berman
Municipal Securities and Neuberger & Berman New York Insured Intermediate
Portfolios will comply with SEC guidelines regarding cover for Hedging
Instruments and, if the guidelines so require, set aside in a segregated
account with its custodian cash, U.S. Government or Agency Securities, or
other liquid, high-grade debt securities in the prescribed amount.
Securities held in a segregated account cannot be sold while the Futures
or option strategy covered by those securities is outstanding, unless they
are replaced with other suitable assets. As a result, segregation of a
large percentage of a Portfolio's assets could impede portfolio management
or the Portfolio's ability to meet current obligations. A Portfolio may
- 26 -
<PAGE>
be unable promptly to dispose of assets which cover, or are segregated
with respect to, an illiquid Futures or options position; this inability
may result in a loss to the Portfolio.
Reverse Repurchase Agreements
----------------------------
In a reverse repurchase agreement, a Portfolio 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;
these agreements are considered borrowings for purposes of the Portfolios'
investment policies and limitations concerning borrowings. While a
reverse repurchase agreement is outstanding, a Portfolio will maintain
with its custodian in a segregated account cash, U.S. Government or Agency
Securities or other liquid, high-grade debt securities, marked to market
daily, in an amount at least equal to the Portfolio's obligations under
the agreement. There is a risk that the contra-party to a reverse
repurchase agreement will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Portfolio.
Risks of Fixed Income Securities
--------------------------------
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, market perception of the
creditworthiness of the issuer, and general market liquidity ("market
risk"). Lower-rated securities 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.
Subsequent to its purchase by a Portfolio, an issue of debt
securities may cease to be rated or its rating may be reduced, so that the
securities would not be eligible for purchase by that Portfolio. In such
a case, N&B Management will engage in an orderly disposition of the
downgraded securities to the extent necessary to ensure that Neuberger &
Berman Municipal Securities or Neuberger & Berman New York Insured
Intermediate Portfolio's holdings of such securities will not exceed 5% of
its net assets. With respect to Neuberger & Berman Municipal Money
Portfolio, N&B Management will consider the need to dispose of such
securities in accordance with the requirements of Rule 2a-7 under the 1940
Act.
- 27 -
<PAGE>
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical
earnings and are not intended to indicate future performance. The yield
and total return of each Fund will vary. The share prices of Municipal
Securities and New York Insured Intermediate will vary, and an investment
in either of these Funds, when redeemed, may be worth more or less than an
investor's original cost.
Yield Calculations
------------------
Municipal Money may advertise its "current yield" and
"effective yield" in the financial press and other publications. The
Fund'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 Municipal Money 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:
365/7]
Effective Yield = [(Base Period Return + 1) - 1
For the seven calendar days ended October 31, 1995, the
current yield and effective yield of Municipal Money were 3.35% and 3.41%,
respectively.
Each of Municipal Securities and New York Insured
Intermediate may advertise its "yield" based on a 30-day period. This
YIELD is computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day
of the period. The result then is annualized and shown as an annual
percentage of the investment. For the 30-day period ended October 31,
1995, the annualized yields of Municipal Securities and New York Insured
Intermediate were 4.11% and 3.98%, respectively.
Tax Equivalent Yield
--------------------
Each of Municipal Money and Municipal Securities may
advertise a "tax equivalent yield" that reflects the taxable yield that an
investor subject to the highest marginal rate of federal income tax
(currently 39.6%) would have had to receive in order to realize the same
- 28 -
<PAGE>
level of after-tax yield that an investment in a Fund produced. TAX
EQUIVALENT YIELD is calculated according to the following formula:
Tax Equivalent Yield = Y1 + Y2
--
1-MR
where Y1 equals that portion of a Fund's current or effective yield that
is not subject to federal income tax, Y2 equals that portion of the Fund'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
income subject to federal income tax, and the maximum tax rate is 39.6%,
the computation is:
4% / (1 - .396) = 4 / .604 = 6.62% Tax Equivalent Yield
In this example, the after-tax yield will be lower than the 4% tax-free
investment if available taxable yields are below 6.62%; conversely, the
taxable investment will provide a higher after-tax yield, when taxable
yields exceed 6.62%. The tax equivalent current yield and tax-equivalent
effective yield of Municipal Money for the 7-day period ended October 31,
1995, were 5.55% and 5.70%, respectively. The tax-equivalent yield of
Municipal Securities for the 30-day period ended that date was 6.80%,
assuming a marginal tax rate of 39.4%.
The use of a 4% yield in these examples is for
illustrative purposes only and is not indicative of the Funds' future
performance.
New York Insured Intermediate also may advertise a "tax
equivalent yield" that reflects the taxable yield that an investor subject
to the highest marginal rates of federal individual, and New York State
and New York City personal, income taxes (currently totaling 46.6%) would
have had to receive in order to realize the same level of after-tax yield
that an investment in the Fund produced. This TAX-EQUIVALENT YIELD is
calculated by dividing the Fund's yield (calculated as described above) by
the decimal resulting from subtracting the combined maximum income tax
rate from one.
For example, if the tax-free yield is 4%, there is no income
subject to federal income tax, and the maximum combined tax rate is 46.6%,
the computation is:
4 / (1 - .466) = 4 / .534 = 7.49% Tax-Equivalent Yield
In this example, the after-tax yield will be higher from the 4% tax-free
investment if available taxable yields are below 7.49%; conversely, the
taxable investment will provide a higher after-tax yield when taxable
yields exceed 7.49%. This example assumes that all of the Fund's
- 29 -
<PAGE>
dividends are exempt from federal income tax and New York State and New
York City personal income taxes.
The tax-equivalent yield of New York Insured Intermediate
for the 30-day period ended October 31, 1995 was 7.49%, assuming a
combined tax rate of 46.6%.
Total Return Computations
-------------------------
Municipal Securities and New York Insured Intermediate
may advertise certain total return information. An average annual
compounded rate of return ("T") may be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment of $1,000 ("P") over a period of time ("n") according to the
formula:
n
P (1+T) = ERV
Average annual total return smooths out year-to-year
variations and, in that respect, differs from actual year-to-year results.
For the one- and five-year periods ended October 31,
1995, and the period from July 9, 1987 (commencement of operations)
through October 31, 1995, the average annual total returns for Municipal
Securities and its predecessor were +10.35%, +6.72%, and +6.70%,
respectively. If an investor had invested $10,000 in that predecessor's
shares on July 9, 1987, and had reinvested all distributions and income
dividends, the NAV of that investor's holdings would have been $17,141 on
October 31, 1995.
For the one-year period ended October 31, 1995 and for
the period from February 1, 1994 (commencement of operations) to October
31, 1995, the average annual total returns for New York Insured
Intermediate were +12.88% and +4.30%, respectively. If an investor had
invested $10,000 in Fund shares on February 1, 1994, and had reinvested
all distributions, the NAV of that investor's holdings would have been
$10,765 on October 31, 1995.
N&B Management has reimbursed the Funds and, in the case
of Municipal Securities, its predecessor for certain expenses during the
periods mentioned above, which has the effect of increasing yield and
total return.
Comparative Information
-----------------------
From time to time each Fund's performance may be compared
with:
(1) data (that may be expressed as rankings or ratings)
published by independent services or publications
(including newspapers, newsletters, and financial
periodicals) that monitor the performance of mutual
- 30 -
<PAGE>
funds, such as Lipper Analytical Services, Inc., C.D.A.
Investment Technologies, Inc., Wiesenberger Investment
Companies Service, IBC/Donoghue's Money Market Fund
Report, Investment Company Data Inc., Morningstar Inc.,
Micropal Incorporated and quarterly mutual fund rankings
by Money, Fortune, Forbes, Business Week, Personal
Investor, and U.S. News & World Report magazines, The
Wall Street Journal, New York Times, Kiplingers Personal
Finance, and Barron's Newspaper, or
(2) recognized bond, stock, and other indices such as the
Municipal Bond Buyers Indices (and other indices of
municipal obligations), Shearson Lehman Bond Index, the
Standard & Poor's 500 Composite Stock Price Index ("S&P
500 Index"), Dow Jones Industrial Average ("DJIA"),
S&P/BARRA Index, Russell Index, and various other domes-
tic, international, and global indices and changes in the
Consumer Price Index. The S&P 500 Index is a broad index
of common stock prices, while the DJIA represents a
narrower segment of industrial companies. Each assumes
reinvestment of distributions and is calculated without
regard to tax consequences or the costs of investing.
Each Portfolio invests in different types of securities
from those included in these indices.
Each Fund's performance also may be compared from time to
time with the following specific indices and other measures of
performance:
Municipal Money's performance may be compared with the
IBC/Donoghue's Tax-Free General Purpose Money Market
Funds average.
Municipal Securities' and New York Insured Intermediate's
performance may be compared with the Lehman Brothers
3-year G.O. and 5-year G.O. Bond Indices, 3-year and 5-
year general obligation bonds, and the Lipper
Intermediate Municipal Debt Funds category.
In addition, each Fund's performance may be compared at
times with that of various bank instruments (including bank money market
accounts and CDs of varying maturities) as reported in publications such
as The Bank Rate Monitor. Any such comparisons may be useful to investors
who wish to compare a Fund's past performance with that of certain of its
competitors. Of course, past performance is not a guarantee of future
results. Unlike an investment in a Fund, bank CDs pay a fixed rate of
interest for a stated period of time and are insured up to $100,000.
- 31 -
<PAGE>
Evaluations of the Funds' performance and their
yield/total returns and comparisons may be used in advertisements and in
information furnished to current and prospective shareholders
(collectively, "Advertisements"). The Funds may also be compared to
individual asset classes such as common stocks, small-cap stocks, or
Treasury bonds, based on information supplied by Ibbotson and Sinquefield.
Other Performance Information
-----------------------------
From time to time, information about a Portfolio's
portfolio allocation and holdings as of a particular date may be included
in Advertisements for its corresponding Fund. This information, for
example, may include the Portfolio's portfolio diversification by asset
type. Information used in Advertisements may include statements or
illustrations relating to the appropriateness of types of securities
and/or mutual funds that may be employed to meet specific financial goals,
such as (1) funding retirement, (2) paying for children's education, and
(3) financially supporting aging parents.
Information (including charts and illustrations) showing
the effects of compounding interest may be included in Advertisements from
time to time. Compounding is the process of earning interest on principal
plus interest that was earned earlier. Interest can be compounded at
different intervals, such as annually, semi-annually, quarterly, monthly,
or daily; for example, $1,000 compounded annually at 9% will grow to
$1,090 at the end of the first year (an increase of $90) and $1,188 at the
end of the second year (an increase of $98). The extra $8 that was earned
on the $90 interest from the first year is the compound interest. One
thousand dollars compounded annually at 9% will grow to $2,367 at the end
of ten years and $5,604 at the end of twenty years. Other examples of
compounding are as follows: at 7% and 12% annually, $1,000 will grow to
$1,967 and $3,106, respectively, at the end of ten years and $3,870 and
$9,646, respectively, at the end of twenty years. All these examples are
for illustrative purposes only and are not indicative of any Fund's
performance.
Information relating to inflation and its effects on the
dollar also may be included in Advertisements. For example, after ten
years, the purchasing power of $25,000 would shrink to $16,621, $14,968,
$13,465, and $12,100, respectively, if the annual rates of inflation
during that period were 4%, 5%, 6%, and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the
inflation rate for the ten-year period.)
Information relating to how much you would have to earn
with a taxable investment in order to match the tax-exempt yield of a
municipal bond fund also may be included in Advertisements. The chart
below illustrates this.
- 32 -
<PAGE>
Federal Tax Bracket 31.0% 36.0% 39.6%
Municipal Bond Yield 4.0% 4.0% 4.0%
Equivalent Taxable Yield 5.8% 6.3% 6.6%
Information regarding the effects of automatic investment
and systematic withdrawal plans, and investing at market highs and/or lows
also may be included in Advertisements, if appropriate.
From time to time the investment philosophy of N&B Man-
agement's founder, Roy R. Neuberger, may be included in the Funds'
Advertisements. This philosophy is described in further detail in "The
Art of Investment: A Conversation with Roy Neuberger," attached as
Appendix B to this SAI.
CERTAIN RISK CONSIDERATIONS
Although each Portfolio seeks to reduce risk by investing
in a diversified portfolio, diversification does not eliminate all risk.
There can, of course, be no assurance any Portfolio will achieve its
investment objective, and an investment in a Fund involves certain risks
that are described in the sections entitled "Investment Programs" and
"Description of Investments" in the Prospectus and "Investment
Information" in this SAI. In addition, each Portfolio's ability to
achieve its investment objective is dependent on the continuing ability of
the issuers of municipal obligations in which the Portfolio 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.
The ratings of New York Municipal Securities and other
municipal securities by S&P, Moody's, and other NRSROs, as well as their
ratings of municipal bond insurers, represent their opinions as to the
quality of municipal obligations and companies they undertake to rate.
Ratings are not absolute standards of quality; consequently, municipal
obligations with the same maturity, duration, coupon, and rating may have
different yields. There are variations in municipal obligations and in
bond insurers, both within a particular classification and between classi-
fications. These variations result from numerous factors, each of which
could affect the obligation's or insurer's rating. See Appendix A to this
SAI for ratings by S&P and Moody's of municipal obligations and claims-
paying ability or financial strength of municipal bond insurers.
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 in the future. 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 by recently amending Rule 15c2-
- 33 -
<PAGE>
12 of 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 initi-
ate bankruptcy proceedings without prior notice to or consent of their
creditors, which proceedings could result in material and adverse changes
in the rights of holders of their obligations. In addition, there have
been lawsuits challenging the issuance of pollution control revenue bonds
and certain general obligation bonds of New York City and the validity of
their issuance under state or federal law that could ultimately affect the
validity of such bonds or the tax-free nature of the interest thereon.
The Tax Reform Act of 1986 eliminated the federal income
tax exemption for interest on certain municipal obligations and, as a
result, has affected the availability of municipal obligations for invest-
ment by each Portfolio. There can be no assurance that similar
legislation affecting the tax-exempt status of other municipal obligations
will not be enacted in the future. In the event such legislation is
enacted, each Fund and its corresponding Portfolio will reevaluate its
investment objective, policies and limitations.
The following information as to certain New York City
("City"), New York State ("State"), and Puerto Rico risk factors is given
to investors in view of the policy of Neuberger & Berman New York Insured
Intermediate Portfolio of concentrating its investments in New York
Municipal Securities. Such information constitutes only a brief
discussion, does not purport to be a complete description, and is based on
information from sources believed to be reliable, including official
statements relating to securities offerings of the State and municipal
issuers, and periodic publications by national ratings organizations.
Such information, however, has not been independently verified by
Neuberger & Berman New York Insured Intermediate Fund or Portfolio.
New York City
-------------
The City faces potential economic problems which could
seriously affect its ability to meet its financial obligations.
The national economic downturn which began in July 1990
adversely affected the City's economy, which had been declining since late
1989. The City's current four-year financial plan assumes that, after
noticeable improvements in the City's economy during calendar year 1994,
- 34 -
<PAGE>
economic growth will slow in calendar years 1995 and 1996 with local
employment increasing modestly.
For each of the 1981 through 1995 fiscal years, the City
achieved balanced operating results as reported in accordance with then-
applicable generally accepted accounting principles ("GAAP"). The City
was required to close substantial budget gaps in recent years in order to
maintain balanced operating results. The City is currently trying to
close a substantial budget gap in fiscal year 1996 and projects
substantial budget gaps for each of the 1997 through 1999 fiscal years.
There can be no assurance that the City will continue to maintain a
balanced budget, as required by New York State law, without additional tax
or other revenue increases or reductions in City services or entitlement
programs, which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares a
four-year annual financial plan, which is reviewed and revised on a
quarterly basis and which includes the City's capital, revenue and expense
projections and outlines proposed gap-closing programs for years with
projected budget gaps. The City submitted to the New York State Financial
Control Board ("Control Board") on July 11, 1995 a financial plan for the
1996 through 1999 fiscal years (the "Financial Plan") which was
subsequently reissued on November 29, 1995 to reflect actual receipts and
expenditures since the release of the Financial Plan. A modification to
the Financial Plan for the City's 1996 through 1999 fiscal years and a
preliminary budget for the City's 1997 fiscal year are expected to be
published in the beginning of 1996. The City's projections set forth in
the Financial Plan are based on various assumptions and contingencies
which are uncertain and which may not materialize. Changes in major
assumptions could significantly affect the City's ability to balance its
budget as required by State law and meet its annual cash flow and
financing requirements.
From 1975 to 1986, the City's financial condition was
subject to oversight and review by the Control Board. As of 1986, the
Control Board's supervisory power was suspended due to the City's
satisfaction of certain statutory conditions required under the Financial
Emergency Act ("Financial Emergency Act"). The City is still required to
submit its four-year financial plan to the Control Board for the Control
Board's limited review until the expiration of the Financial Emergency Act
on July 1, 2008.
In 1975, S&P suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P. On July 2, 1985, S&P
revised its rating of City bonds upward to BBB+ and on November 19, 1987,
to A-. On January 17, 1995, S&P placed the City's general obligation
bonds on CreditWatch with negative implications. On July 10, 1995, S&P
revised downward its rating in City general obligation bonds from A- to
BBB+ and removed City bonds from CreditWatch. Moody's ratings of City
bonds were revised in November 1981 from B (in effect since 1977) to Ba1,
in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and
- 35 -
<PAGE>
again in February 1991, to Baa1. Since July 15, 1993, Fitch has rated
City bonds A-. On July 12, 1995, Fitch stated that the City's credit
trend remains "declining."
New York State
--------------
As of December 15, 1995, the State's general operating
fund ("General Fund"), the major operating fund of the State, projects a
positive margin of $172 million. In addition, the State's economy, as
measured by employment, started to recover near the start of the 1993
calendar year, and the State completed its 1994 fiscal year with a cash-
basis balanced budget in the General Fund.
The State's 1995-1996 Financial Plan projects a balanced
General Fund. The State's second quarterly update which was released on
October 27, 1995, projects continued balance in the State's 1995-1996
Financial Plan. The State Division of the Budget, however, cautioned that
these projections were subject to various risks, including current tax
regulation under consideration by Congress and the President. It also has
been reported that the State could face a revenue shortfall for its 1995-
1996 fiscal year, and for fiscal year 1996-1997. The Governor has
proposed closing the 1996-1997 fiscal year imbalance primarily through
General Fund expenditure reductions. The State Division of Budget also
predicts budget gaps for fiscal years 1997-1998 and 1998-1999 of $1.4
billion and $2.5 billion, respectively. As a result of such budget gaps,
the State would be required to take actions to increase receipts and/or
reduce disbursements from current projected levels. The Governor
submitted a proposed budget for the State's 1996-1997 fiscal year on
December 15, 1995. There can be no assurances that the Budget will be
enacted before April 1, 1996.
There can be no assurance that the State's economy will
not experience worse-than-predicted results in the 1995-1996 fiscal year,
or that the State will not face substantial budget gaps in the future.
Such incidents could cause material and adverse effects on the State's
projections of receipts and disbursements.
New York State's economy is expected to expand modestly
during 1996, but slower than during 1995. On an average annual basis, the
State's employment growth will be about half the rate estimated for 1995.
State personal income and wages are expected to record moderate gains in
1996.
Certain State agencies and local governments require
State assistance to meet their financial obligations. The ability of the
State to meet its own obligations or to obtain additional financing could
be adversely affected if there is an increased need for assistance by
State agencies and local governments.
On June 6, 1990, Moody's changed its ratings on all of
the State's outstanding general obligation bonds from A1 to A. On March
26, 1990 and January 13, 1992, S&P changed its ratings on all of the
- 36 -
<PAGE>
State's outstanding general obligation bonds from AA- to A and from A to
A-, respectively.
Puerto Rico
-----------
The economy of Puerto Rico is closely linked with that of
the U.S. and will depend on several factors, including the condition of
the U.S. economy, the exchange rate for the U.S. dollar, the price
stability of oil imports, and interest rates. Businesses may enjoy a
federal tax advantage from locating certain of their operations in Puerto
Rico. However, this program may be phased out over the next several
years, with uncertain effect on the Puerto Rican economy.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the
trustees and officers of the Trusts, including their addresses and
principal business experience during the past five years. Some persons
named as trustees and officers also serve in similar capacities for other
funds, and (where applicable) their corresponding portfolios, administered
or managed by N&B Management and Neuberger & Berman.
- 37 -
<PAGE>
<TABLE>
<CAPTION>
Name, Address Positions Held Principal
and Age(1) With the Trusts Occupation(s) (2)
------------- --------------- -----------------
<S> <C> <C>
John Cannon (66) Trustee of each Trust President, AMA Investment Advisers, Inc.
CDC Associates, Inc. (registered investment adviser) (1976 -
620 Sentry Parkway 1991); Senior Vice President AMA
Suite 220 Investment Advisers, Inc. (1991- 1993);
Blue Bell, PA 19422 President of AMA Family of Funds
(investment companies) (1976 - 1991);
Chairman and Treasurer of CDC
Associates, Inc. (registered investment
adviser) (1993 - present)
Charles DeCarlo (74) Trustee of each Trust President Emeritus of Sarah Lawrence
33 West 67th Street College; Chief Executive Officer of
New York, NY 10023 Xicon Systems (animation company).
Stanley Egener* (61) Chairman of the Board, Chief Partner of Neuberger & Berman; President
Executive Officer, and and Director of N&B Management; Chairman
Trustee of each Trust of the Board, Chief Executive Officer
and Trustee of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
Theresa A. Havell* (49) President and Trustee of Partner of Neuberger & Berman; Vice
each Trust President and Director of N&B Manage-
ment; President and Trustee of one
other mutual fund for which N&B
Management acts as administrator.
Barry Hirsch (62) Trustee of each Trust Senior Vice President, Secretary, and
Loews Corporation General Counsel of Loews Corporation
667 Madison Avenue (diversified financial corporation).
7th Floor
New York, NY 10021
Robert A. Kavesh (68) Trustee of each Trust Professor of Finance and Economics at
110 Blecker Street Stern School of Business, New York
Apt. 24B University; Director of Del
New York, NY 10012 Laboratories, Inc. and Greater New York
Mutual Insurance Co.
- 38 -
<PAGE>
Name, Address Positions Held Principal
and Age(1) With the Trusts Occupation(s) (2)
------------- --------------- -----------------
Harold R. Logan (74) Trustee of each Trust Chairman of Comstock Resources, Inc.
19 Norfield Road (natural resources company); Vice
Weston, CT 06883 Chairman, Retired, of W.R. Grace & Co.
(chemicals, natural resources, and
selected consumer services).
William E. Rulon (63) Trustee of each Trust Senior Vice President and Secretary of
Foodmaker, Inc. Foodmaker, Inc. (operator and franchisor
9330 Balboa Avenue of restaurants).
San Diego, CA 92123
Candace L. Straight (48) Head & Trustee of each Trust Principal of Head & Company, LLC
Company, LLC (limited liability company providing
1330 Avenue of the investment banking and consulting
Americas services to the insurance industry);
12th Floor President of Integon Corporation
New York, NY 10019 (marketer of life insurance, annuities,
and property and casualty insurance),
1990-1992; Director of Drake Holdings
(U.K. motor insurer).
Daniel J. Sullivan (56) Vice President of each Trust Senior Vice President of N&B Management
since 1992; prior thereto, Vice Presi-
dent of N&B Management; Vice President
of eight other mutual funds for which
N&B Management acts as investment
manager or administrator.
Michael J. Weiner (49) Vice President and Principal Senior Vice President of N&B Management
Financial Officer of each since 1992; Treasurer of N&B Management
Trust from 1992 to 1996; prior thereto, Vice
President and Treasurer of N&B
Management and Treasurer of certain
mutual funds for which N&B Management
acted as investment adviser; Vice
President and Principal Financial
Officer of eight other mutual funds for
which N&B Management acts as investment
manager or administrator.
Claudia A. Brandon (39) Secretary of each Trust Vice President of N&B Management;
Secretary of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
- 39 -
<PAGE>
Name, Address Positions Held Principal
and Age(1) With the Trusts Occupation(s) (2)
------------- --------------- -----------------
Richard Russell (49) Treasurer and Principal Ac- Vice President of N&B Management since
counting Officer of each 1993; prior thereto, Assistant Vice
Trust President of N&B Management; Treasurer
and Principal Accounting Officer of
eight other mutual funds for which N&B
Management acts as investment manager or
administrator.
Stacy Cooper-Shugrue (33) Assistant Secretary of each Assistant Vice President of N&B
Trust Management since 1993; prior thereto,
employee of N&B Management; Assistant
Secretary of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
C. Carl Randolph (58) Assistant Secretary of each Partner of Neuberger & Berman since
Trust 1992; prior thereto, employee of
Neuberger & Berman; Assistant Secretary
of eight other mutual funds for which
N&B Management acts as investment
manager or administrator.
</TABLE>
____________________
(1) Unless otherwise indicated, the business address of each listed
person is 605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
(2) Except as otherwise indicated, each individual has held the positions
shown for at least the last five years.
* Indicates a trustee who is an "interested person" of each Trust
within the meaning of the 1940 Act. Mr. Egener and Ms. Havell are
interested persons by virtue of the fact that they are officers and
directors of N&B Management and partners of Neuberger & Berman.
The Trust's Trust Instrument and Managers Trust's
Declaration of Trust each provides that it 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 engaged in bad
faith, willful misfeasance, gross negligence, or reckless disregard of the
duties involved in the conduct of their offices. 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, or by a majority of disinterested trustees based upon a
- 40 -
<PAGE>
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.
For the fiscal year ended October 31, 1995, trustees'
fees and expenses aggregating $31,710 and $15,487 were paid by Neuberger &
Berman Municipal Money Fund and Portfolio and Neuberger & Berman Municipal
Securities Trust and Portfolio, respectively, to Fund and Portfolio
Trustees who were not affiliated with N&B Management or Neuberger &
Berman.
For the fiscal year ending October 31, 1995, trustees'
fees and expenses aggregating $11,469 were paid by Neuberger & Berman New
York Insured Intermediate Fund and Portfolio to Fund and Portfolio
Trustees who were not affiliated with N&B Management or Neuberger &
Berman.
The following table sets forth information concerning the
compensation of the trustees and officers of the Trust. None of the
Neuberger & Berman Funds(SERVICEMARK) has any retirement plan for its
trustees or officers.
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/95
------------------------------
Total Compensation from
Trusts in the Neuberger &
Name and Position Aggregate Compensation Berman Funds Complex Paid
with the Trust from the Trust to Trustees
----------------- ---------------------- -------------------------
<S> <C> <C>
John Cannon $ 9,923 $ 20,500
Trustee (2 other investment
companies)
Charles DeCarlo $ 16,622 $ 33,500
Trustee (2 other investment
companies)
Stanley Egener $ 0 $ 0
Chairman of the Board, Chief (9 other investment
Executive Officer, and Trustee companies)
- 41 -
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/95
------------------------------
Total Compensation from
Trusts in the Neuberger &
Name and Position Aggregate Compensation Berman Funds Complex Paid
with the Trust from the Trust to Trustees
----------------- ---------------------- -------------------------
Theresa Havell $ 0 $ 0
President and Trustee (2 other investment
companies)
Barry Hirsch $ 16,622 $ 33,500
Trustee (2 other investment
companies)
Robert A. Kavesh $ 14,887 $ 30,500
Trustee (2 other investment
companies)
Harold R. Logan $ 13,896 $ 28,000
Trustee (2 other investment
companies)
William E. Rulon $ 15,135 $ 30,500
Trustee (2 other investment
companies)
Candace L. Straight $ 15,631 $ 32,000
Trustee (0 other investment
companies)
</TABLE>
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
Investment Manager and Administrator
Because all of the Funds' net investable assets are
invested in their corresponding Portfolios, the Funds do not need an
investment manager. N&B Management serves as the Portfolios' investment
manager pursuant to a management agreement with Managers Trust, on behalf
of the Portfolios, dated as of July 2, 1993 ("Management Agreement"). The
Management Agreement was approved by the holders of the interests in the
Portfolios (except Neuberger & Berman New York Insured Intermediate
Portfolio) on July 2, 1993, and by the holders of the interests in
Neuberger & Berman New York Insured Intermediate Portfolio on February 1,
1994. Neuberger & Berman New York Insured Intermediate Portfolio was
authorized to become subject to the Management Agreement by vote of the
- 42 -
<PAGE>
Portfolio Trustees on September 30, 1993, and became subject to it on
February 1, 1994.
The Management Agreement provides, in substance, that N&B
Management will make and implement investment decisions for the Portfolios
in its discretion and will continuously develop an investment program for
the Portfolios' assets. The Management Agreement permits N&B Management
to effect securities transactions on behalf of each Portfolio through
associated persons of N&B Management. The Management Agreement also
specifically permits N&B Management to compensate, through higher
commissions, brokers and dealers who provide investment research and
analysis to the Portfolios, although N&B Management has no current plans
to do so.
N&B Management provides to each Portfolio, without
separate cost, office space, equipment, and facilities and the personnel
necessary to perform executive, administrative, and clerical functions.
N&B Management pays all salaries, expenses, and fees of the officers,
trustees, and employees of Managers Trust who are officers, directors, or
employees of N&B Management. Two officers and directors of N&B Management
(who also are partners of Neuberger & Berman) presently serve as trustees
and officers of the Trusts. See "Trustees and Officers." Each Portfolio
pays N&B Management a management fee based on the Portfolio's average
daily net assets, as described in the Prospectus.
N&B Management provides similar facilities, services, and
personnel to each Fund pursuant to an administration agreement dated July
2, 1993 ("Administration Agreement"). New York Insured Intermediate was
authorized to become subject to the Administration Agreement by vote of
the Fund Trustees on September 30, 1993, and became subject to it on
February 1, 1994. For such administrative services, each Fund pays N&B
Management a fee based on the Fund's average daily net assets, as
described in the Prospectus.
Under the Administration Agreement, N&B Management also
provides to each Fund and its shareholders certain shareholder,
shareholder-related, and other services that are not furnished by the
Fund's shareholder servicing agent. N&B 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 Fund'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.
Prior to July 2, 1993, N&B Management provided investment
advisory and administrative services to the predecessors of Municipal
Money and Municipal Securities under an Investment Advisory Agreement
("Prior Agreement") with that predecessor. As compensation for these
services, each of these Fund's predecessors paid N&B Management a fee at
the annual rate of .50% of its average daily net assets.
- 43 -
<PAGE>
For the fiscal years ended October 31, 1995, 1994, and
1993, (1) Municipal Securities and its predecessor accrued advisory or
management and administration fees of $225,079, $407,968, and $307,120,
respectively, and (2) Municipal Money Fund and its predecessor accrued
advisory or management and administration fees of $772,483, $823,482, and
$946,851, respectively. For the fiscal year ended October 31, 1995 and
the fiscal period from February 1, 1994 (commencement of operations)
through October 31, 1994, New York Insured Intermediate accrued management
and administration fees of $58,306 and $56,483, respectively.
For the fiscal years ended October 31, 1995, 1994, and
1993, Municipal Securities and its predecessor were reimbursed for their
expenses by N&B Management pursuant to its undertaking in the amounts of
$145,086, $140,055, and $253,701, respectively. For the fiscal year ended
October 31, 1995 and for the fiscal period ended October 31, 1994, N&B
Management reimbursed New York Insured Intermediate $134,191 and $100,692,
respectively, pursuant to the undertaking.
Prior to May 1, 1995, the shareholder services described
above were provided pursuant to a separate agreement between the Trust and
N&B Management. As compensation for these services, each Fund paid N&B
Management a monthly fee calculated at the annual rate of 0.02% of the
average daily net assets of the Fund. Before February 1, 1994, the
monthly fee paid by Municipal Money and Municipal Securities to N&B
Management was calculated at an annual rate of $6.00 per shareholder
account. For the period November 1, 1994 to April 30, 1995 and for the
fiscal years ended October 31, 1994 and 1993, Municipal Money and its
predecessor paid $15,415, $26,499, and $8,511, respectively, and Municipal
Securities and its predecessor paid $4,376, $12,704, and $6,169,
respectively, for these services. For the fiscal period ended October 31,
1994 and for the period from November 1, 1994 to April 30, 1995, New York
Insured Intermediate paid $2,257 and $1,226, respectively, for these
services.
The Management Agreement continues with respect to each
Portfolio for a period of two years after the date the Portfolio became
subject thereto. The Management Agreement 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 who are not "interested persons" of N&B Management or Managers
Trust ("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 interests in that Portfolio. The Administration Agreement
continues with respect to each Fund for a period of two years after the
date the Fund became subject thereto. The Administration Agreement is
renewable from year to year with respect to a Fund, so long as its
continuance is approved at least annually (1) by the vote of the Fund
Trustees who are not "interested persons" of N&B Management or the Trust
("Independent Fund 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
- 44 -
<PAGE>
the Fund Trustees or by a 1940 Act majority vote of the outstanding shares
in the Fund.
The Management Agreement is terminable, without penalty,
with respect to a Portfolio on 60 days' written notice either by Managers
Trust or by N&B Management. The Administration Agreement is terminable,
without penalty, with respect to a Fund on 60 days' written notice either
by N&B Management or by the Trust if authorized by the Fund Trustees,
including a majority of the Independent Fund Trustees. Each Agreement
terminates automatically if it is assigned.
In addition to the voluntary expense reimbursement N&B
Management has undertaken with respect to Municipal Securities and New
York Insured Intermediate (noted above and described in the Prospectus
under "Management and Administration -- Expenses"), N&B Management has
agreed in the Management Agreement to reimburse each Fund's expenses as
follows. If, in any fiscal year, a Fund's Aggregate Operating Expenses
(as defined below) exceed the most restrictive expense limitation imposed
under the securities laws of the states in which the Fund's shares are
qualified for sale ("State Expense Limitation"), then N&B Management will
pay to the Fund the amount of that excess, less the amount of any reduc-
tion of the administration fee payable by the Fund under a similar State
Expense Limitation contained in the Administration Agreement. N&B
Management will have no obligation to pay a Fund, however, for any
expenses that exceed the pro rata portion of the advisory fees
attributable to that Fund's interest in its corresponding Portfolio. At
the date of this SAI, the most restrictive expense limitation to which the
Funds expect to be subject is 2 1/2% of the first $30 million of average
net assets, 2% of the next $70 million of average net assets, and 1 1/2%
of average net assets over $100 million. For the fiscal year ended
October 31, 1995, there were no expense reimbursements required of N&B
Management because of the State Expense Limitation. Shares of
Neuberger&Berman New York Insured Intermediate Fund are registered only in
New York and Florida. Neither of these states imposes an expense
limitation.
For purposes of the State Expense Limitation, the term
"Aggregate Operating Expenses" means a Fund's operating expenses plus its
pro rata portion of its corresponding Portfolio's operating expenses
(including any fees or expense reimbursements payable to N&B Management
and any compensation payable thereto pursuant to (1) the Administration
Agreement or (2) any other agreement or arrangement with Managers Trust in
regard to the Portfolio, but excluding (with respect to both the Fund and
the Portfolio) interest, taxes, brokerage commissions, litigation and
indemnification expenses, and other extraordinary expenses not incurred in
the ordinary course of business).
Sub-Adviser
-----------
N&B Management retains Neuberger & Berman, 605 Third
Avenue, New York, NY 10158-3698, as sub-adviser with respect to each
Portfolio pursuant to a sub-advisory agreement dated July 2, 1993 ("Sub-
- 45 -
<PAGE>
Advisory Agreement"). The Sub-Advisory Agreement was approved by the
holders of the interests in the Portfolios (except Neuberger & Berman New
York Insured Intermediate Portfolio) on July 2, 1993 and by the holders of
the interests in Neuberger & Berman New York Insured Intermediate
Portfolio on February 1, 1994. Neuberger & Berman New York Insured
Intermediate Portfolio was authorized to become subject to the Sub-
Advisory Agreement by vote of the Portfolio Trustees on September 30,
1993, and became subject to it on February 1, 1994.
The Sub-Advisory Agreement provides in substance that
Neuberger & Berman will furnish to N&B Management, upon reasonable
request, the same type of investment recommendations and research that
Neuberger & Berman, from time to time, provides to its partners and
employees for use in managing client accounts. In this manner, N&B
Management expects to have available to it, in addition to research from
other professional sources, the capability of the research staff of
Neuberger & Berman. This staff consists of approximately fourteen
investment analysts, each of whom specializes in studying one or more
industries, under the supervision of the Director of Research, who is also
available for consultation with N&B Management. The Sub-Advisory
Agreement provides that N&B Management will pay for the services rendered
by Neuberger & Berman based on the direct and indirect costs to Neuberger
& Berman in connection with those services. Neuberger & Berman also
serves as a sub-adviser for all of the other mutual funds managed by N&B
Management.
The Sub-Advisory Agreement continues with respect to each
Portfolio for a period of two years after the date the Portfolio became
subject thereto, and is renewable thereafter from year to year, subject to
approval of its continuance in the same manner as the Management
Agreement. The Sub-Advisory Agreement is subject to termination, without
penalty, with respect to each Portfolio by the Portfolio Trustees, by a
1940 Act majority vote of the outstanding interests in the Portfolio, by
N&B Management, or by Neuberger & Berman on not less than 30 nor more than
60 days' written notice. The Sub-Advisory Agreement also terminates
automatically with respect to each Portfolio if it is assigned or if the
Management Agreement terminates with respect to that Portfolio.
Most money managers that come to the Neuberger & Berman
organization have at least fifteen years experience. Neuberger & Berman
and N&B Management employ experienced professionals that work in a
competitive environment.
Investment Companies Managed
----------------------------
N&B Management currently serves as investment manager of
the following investment companies. As of December 31, 1995, these
companies, along with three investment companies advised by Neuberger &
Berman, had aggregate net assets of approximately $11.9 billion, as shown
in the following list:
- 46 -
<PAGE>
Approximate
Net Assets at
Name December 31, 1995
---- -----------------
Neuberger & Berman Cash Reserves Portfolio . . . . . . . . $ 433,504,363
(investment portfolio for Neuberger & Berman Cash Reserves)
Neuberger & Berman Government Money Portfolio . . . . . . . $ 275,569,350
(investment portfolio for Neuberger & Berman Government Money
Fund)
Neuberger & Berman Limited Maturity Bond Portfolio . . . . $ 318,037,698
(investment portfolio for Neuberger & Berman Limited Maturity
Bond Fund and Neuberger & Berman Limited Maturity Bond Trust)
Neuberger & Berman Ultra Short Bond Portfolio . . . . . . . $ 102,724,936
(investment portfolio for Neuberger & Berman Ultra Short Bond
Fund and Neuberger & Berman Ultra Short Bond Trust)
Neuberger & Berman Municipal Money Portfolio . . . . . . . $ 152,876,653
(investment portfolio for Neuberger & Berman Municipal Money
Fund)
Neuberger & Berman Municipal Securities Portfolio . . . . . $ 43,859,557
(investment portfolio for Neuberger & Berman Municipal Securities
Trust)
Neuberger & Berman New York Insured Intermediate
Portfolio . . . . . . . . . . . . . . . . . . $ 11,742,945
(investment portfolio for Neuberger & Berman New York Insured
Intermediate Fund)
Neuberger & Berman Focus Portfolio . . . . . . . . . . . $ 1,057,224,027
(investment portfolio for Neuberger & Berman Focus Fund,
Neuberger & Berman Focus Trust, and Neuberger & Berman Focus
Assets)
Neuberger & Berman Genesis Portfolio . . . . . . . . . . . $ 152,439,092
(investment portfolio for Neuberger & Berman Genesis Fund and
Neuberger & Berman Genesis Trust)
Neuberger & Berman Guardian Portfolio . . . . . . . . . $ 5,321,221,497
(investment portfolio for Neuberger & Berman Guardian Fund,
Neuberger & Berman Guardian Trust, and Neuberger & Berman
Guardian Assets)
Neuberger & Berman International Portfolio . . . . . . . $ 33,320,099
(investment portfolio for Neuberger & Berman International Fund)
- 47 -
<PAGE>
Neuberger & Berman Manhattan Portfolio . . . . . . . . . $ 638,295,408
(investment portfolio for Neuberger & Berman Manhattan Fund,
Neuberger & Berman Manhattan Trust, and Neuberger & Berman
Manhattan Assets)
Neuberger & Berman Partners Portfolio . . . . . . . . . . $ 1,741,742,815
(investment portfolio for Neuberger & Berman Partners Fund,
Neuberger & Berman Partners Trust, and Neuberger & Berman
Partners Assets)
Neuberger & Berman Socially Responsive
Portfolio . . . . . . . . . . . . . . . . . . $ 115,240,931
(investment portfolio for Neuberger & Berman Socially Responsive
Fund, Neuberger & Berman Socially Responsive Trust, and Neuberger
& Berman NYCDC Socially Responsive Trust)
Advisers Managers Trust (six series) . . . . . . . . . . $ 1,306,566,805
In addition, Neuberger & Berman serves as investment
adviser to three investment companies, Plan Investment Fund, Inc., AHA
Investment Fund, Inc., and AHA Full Maturity, with assets of $64,302,128,
$99,396,468, and $26,077,793, respectively, at December 31, 1995.
The investment decisions concerning the Portfolios and
the other funds and portfolios managed by N&B Management (collectively,
"Other N&B Funds") have been and will continue to be made independently of
one another. In terms of their investment objectives, most of the Other
N&B Funds differ from the Portfolios. Even where the investment
objectives are similar, however, the methods used by the Other N&B Funds
and the Portfolios to achieve their objectives may differ.
There may be occasions when a Portfolio and one or more
of the Other N&B Funds or other accounts managed by Neuberger & Berman 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 as to amounts 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 N&B Management outweighs any disadvantages that
may result from contemporaneous transactions. The investment results
achieved by all of the funds managed by N&B Management have varied from
one another in the past and are likely to vary in the future.
Management and Control of N&B Management
----------------------------------------
The directors and officers of N&B Management, all of whom
have offices at the same address as N&B Management, are Richard A. Cantor,
Chairman of the Board and director; Stanley Egener, President and
- 48 -
<PAGE>
director; Theresa A. Havell, Vice President and director; Irwin Lainoff,
director; Marvin C. Schwartz, director; Lawrence Zicklin, director; Daniel
J. Sullivan, Senior Vice President; Peter E. Sundman, Senior Vice
President; Michael J. Weiner, Senior Vice President; Claudia A. Brandon,
Vice President; Robert Conti, Treasurer; William Cunningham, Vice
President; Clara Del Villar, Vice President; Mark R. Goldstein, Vice
President; Farha-Joyce Haboucha, Vice President; Michael M. Kassen, Vice
President; Michael Lamberti, Vice President; Josephine P. Mahaney, Vice
President; Lawrence Marx III, Vice President; Ellen Metzger, Vice
President and Secretary; Janet W. Prindle, Vice President; Felix Rovelli,
Vice President; Richard Russell, Vice President; Kent C. Simons, Vice
President; Frederick B. Soule, Vice President; Judith M. Vale, Vice
President; Thomas Wolfe, Vice President; Andrea Trachtenberg, Vice
President of Marketing; Patrick T. Byrne, Assistant Vice President; Stacy
Cooper-Shugrue, Assistant Vice President; Robert Cresci, Assistant Vice
President; Barbara DiGiorgio, Assistant Vice President; Roberta D'Orio,
Assistant Vice President; Robert I. Gendelman, Assistant Vice President;
Joseph G. Galli, Assistant Vice President; Leslie Holliday-Soto, Assistant
Vice President; Jody L. Irwin, Assistant Vice President; Carmen G.
Martinez, Assistant Vice President; Paul Metzger, Assistant Vice
President; Susan Switzer, Assistant Vice President; Susan Walsh, Assistant
Vice President; and Celeste Wischerth, Assistant Vice President. Messrs.
Cantor, Egener, Lainoff, Schwartz, Zicklin, Goldstein, Kassen, Marx, and
Simons and Mmes. Havell and Prindle are general partners of Neuberger &
Berman.
Ms. Havell and Mr. Egener are trustees and officers, and
Messrs. Sullivan, Weiner, and Russell and Mmes. Brandon and Cooper-Shugrue
are officers, of each Trust. C. Carl Randolph, a general partner of
Neuberger & Berman, also is an officer of each Trust.
All of the outstanding voting stock in N&B Management is
owned by persons who are also general partners of Neuberger & Berman.
DISTRIBUTION ARRANGEMENTS
N&B Management serves as the distributor ("Distributor")
in connection with the offering of each Fund's shares on a no-load basis.
In connection with the sale of its shares, each Fund 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 either personally, through the mails, or by electronic
means. The Distributor is the Funds' "principal underwriter" within the
meaning of the 1940 Act and, as such, acts as agent in arranging for the
sale of each Fund's shares without sales commission or other compensation
and bears all advertising and promotion expenses incurred in the sale of
the Funds' shares.
- 49 -
<PAGE>
The Distributor or one of its affiliates may, from time
to time, deem it desirable to offer to a Fund's shareholders, through use
of its shareholder list, the shares of other mutual funds for which the
Distributor acts as distributor or other products or services. Any such
use of the Funds' shareholder lists, however, will be made subject to
terms and conditions, if any, approved by a majority of the Independent
Fund Trustees. These lists will not be used to offer to the Funds'
shareholders any investment products or services other than those managed
or distributed by N&B Management or Neuberger & Berman.
The Trust, on behalf of each Fund, and the Distributor
are parties to a Distribution Agreement that continues until July 2, 1996.
The Distribution Agreement may be renewed annually if specifically
approved by (1) the vote of a majority of the Fund Trustees or a 1940 Act
majority vote of the Fund's outstanding shares and (2) the vote of a
majority of the Independent Fund Trustees, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution
Agreement may be terminated by either party and will automatically
terminate on its assignment, in the same manner as the Management
Agreement.
ADDITIONAL PURCHASE INFORMATION
Automatic Investing and Dollar Cost Averaging
---------------------------------------------
Shareholders may arrange to have a fixed amount automa-
tically invested in Fund shares each month. To do so, a shareholder must
complete an application, available from the Distributor, electing to have
automatic investments funded either through (1) redemptions from his or
her account in a money market fund for which N&B Management serves as
investment manager (subject to a minimum monthly investment of $100) or
(2) withdrawals from the shareholder's checking account (in which case the
minimum monthly investment is $100). A shareholder who elects to partici-
pate in automatic investing through his or her checking account must
include a voided check with the completed application. A completed
application should be sent to Neuberger & Berman Management Incorporated,
605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
Automatic investing enables a shareholder in Municipal
Securities and New York Insured Intermediate to take advantage of "dollar
cost averaging." As a result of dollar cost averaging, a shareholder's
average cost of shares in those Funds generally will be lower than it
would be if the shareholder purchased a fixed number of shares at pre-set
intervals. Additional information on dollar cost averaging may be
obtained from the Distributor.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus
entitled "Exchanging Shares," shareholders may exchange at least $1,000
worth of a Fund's shares and invest the proceeds in one or more of the
- 50 -
<PAGE>
other Funds or Other N&B Funds that are briefly described below, provided
that the minimum investment requirements of the other fund(s) are met.
EQUITY FUNDS
------------
Neuberger & Berman Seeks long-term capital appreciation
Focus Fund through investments principally in common
stocks selected from 13 multi-industry
economic sectors. The corresponding
portfolio uses a value-oriented approach
to select individual securities and then
focuses its investments in the sectors in
which the undervalued stocks are
clustered. Through this approach, 90% or
more of the portfolio's investments are
normally made in not more than six
sectors.
Neuberger & Berman Seeks capital appreciation through
Genesis Fund investments principally in common stocks
of companies with small market
capitalizations, up to $750 million. The
corresponding portfolio uses a value-
oriented approach to the selection of
individual securities.
Neuberger & Berman Seeks capital appreciation through
Guardian Fund investments primarily in a large number of
common stocks of long-established, high-
quality companies that N&B Management
believes are well-managed. The
corresponding portfolio uses a value-
oriented approach to the selection of
individual securities. Current income is
a secondary objective. The fund (or its
predecessor) has paid its shareholders an
income dividend every quarter, and a
capital gain distribution every year,
since its inception in 1950, although
there can be no assurance that it will be
able to continue to do so.
Neuberger & Berman Seeks long-term capital appreciation
International Fund through investments primarily in a
diversified portfolio of equity securities
of foreign issuers. Assets will be
allocated among economically mature
countries and emerging industrialized
countries.
- 51 -
<PAGE>
Neuberger & Berman Seeks capital appreciation, without regard
Manhattan Fund to income, through investments generally
in securities of medium- to large-
capitalization companies that N&B
Management believes have the maximum
potential for increasing total NAV. The
corresponding portfolio's "growth at a
reasonable price" investment approach
involves greater risks and share price
volatility than programs that invest in
more conservative securities.
Neuberger & Berman Seeks capital growth through an investment
Partners Fund approach that is designed to increase
capital with reasonable risk. Its
investment program seeks securities
believed to be undervalued based on strong
fundamentals such as low price-to-earnings
ratios, consistent cash flow and the
company's track record through all parts
of the market cycle. The corresponding
portfolio uses the value oriented
investment approach to the selection of
individual securities.
Neuberger & Berman Seeks long-term capital appreciation
Socially Responsive Fund through investments primarily in
securities of companies that meet both
financial and social criteria.
INCOME FUNDS
------------
Neuberger & Berman A money market fund seeking maximum safety
Government Money Fund and liquidity and the highest available
current income. Through its corresponding
portfolio, the fund invests only in U.S.
Treasury obligations and other money
market instruments backed by the full
faith and credit of the United States. It
seeks to maintain a constant purchase and
redemption price of $1.00.
Neuberger & Berman A money market fund seeking the highest
Cash Reserves current income consistent with safety and
liquidity. Through its corresponding
portfolio, the fund invests in a
diversified portfolio of high quality
money market instruments. It seeks to
maintain a constant purchase and
redemption price of $1.00.
- 52 -
<PAGE>
Neuberger & Berman Seeks a higher total return than is avail-
Ultra Short Bond Fund able from money market funds, with minimal
risk to principal and liquidity. Through
its corresponding portfolio, the fund
invests in a diversified portfolio
consisting of high quality money market
instruments and short-term debt securi-
ties.
Neuberger & Berman Seeks the highest current income con-
Limited Maturity Bond sistent with low risk to principal and
Fund liquidity; and secondarily, total return.
Through its corresponding portfolio, the
fund invests in a diversified portfolio of
short- to intermediate-term debt
securities, primarily investment grade;
maximum 10% below Baa or BBB (as rated by
Moody's and S&P, respectively), but no
lower than B.
Any Fund described herein, and any of the Other N&B
Funds, may terminate or modify its exchange privilege in the future.
Fund shareholders who are considering exchanging shares
into any of the funds listed above should note that (1) like the Funds,
the Income Funds listed above are series of the Trust, (2) the Equity
Funds listed above are series of a Delaware business trust (named "Neuber-
ger & Berman Equity Funds") that is registered with the SEC as an open-end
management investment company, (3) each series of the Trust invests all
its net investable assets in the corresponding portfolio of Managers
Trust, (4) Neuberger & Berman International Fund is a series of Neuberger
& Berman Equity Funds that invests all of its net investable assets in
Neuberger & Berman International Portfolio, a series of Global Managers
Trust, an open-end management investment company that is managed by N&B
Management, and (5) each of the other series of Neuberger & Berman Equity
Funds invests all of its net investable assets in a corresponding
portfolio of Equity Managers Trust, an open-end management investment
company that is managed by N&B Management. Each such portfolio has an
investment objective identical to that of its corresponding fund and
invests in accordance with investment policies and limitations identical
to those of that fund.
Before effecting an exchange, Fund shareholders must
obtain and should review a currently effective prospectus of the fund into
which the exchange is to be made. In this regard, it should be noted that
the Income Funds (each of which is a separate series of the Trust) share a
prospectus with the Funds, while the Equity Funds share a separate
prospectus. 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.
- 53 -
<PAGE>
There can be no assurance that Municipal Money, Cash
Reserves, or Government Money, 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 of the above-
referenced funds, as 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 a Fund's shares may be suspended or
payment of the redemption price postponed (1) when the New York Stock
Exchange ("NYSE") is closed (other than weekend and holiday closings),
(2) when trading on the NYSE is restricted, (3) when an emergency exists
as a result of which it is not reasonably practicable for the
corresponding Portfolio to dispose of securities it owns or fairly to
determine the value of its net assets, or (4) for such other period as the
SEC may by order permit for the protection of a Fund's shareholders; pro-
vided that applicable SEC rules and regulations shall govern whether the
conditions prescribed in (2) or (3) exist. 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 day the NYSE is open ("Business Day") after
termination of the suspension.
Redemptions in Kind
-------------------
Each Fund reserves the right, under certain conditions,
to honor any request for redemption, or a combination of requests from the
same shareholder in any 90-day period, totaling $250,000 or 1% of the net
assets of the Fund, whichever is less, by making payment in whole or in
part by securities valued as described under "Account and Share
Information -- Share Prices and Net Asset Value" in the Prospectus. If
payment is made in securities, a shareholder generally will incur
brokerage expenses in converting those securities into cash and will be
subject to fluctuations in the market price of those securities until they
are sold. The Funds do not redeem in kind under normal circumstances, but
would do so when the Fund Trustees determine that it would be in the best
interests of a Fund's shareholders as a whole. Redemptions in kind will
be made with readily marketable securities to the extent possible.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders amounts equal
to substantially all of its proportionate share of any net investment
income (after deducting expenses incurred directly by the Fund) and net
capital gains (both long-term and short-term) earned by its corresponding
Portfolio. Municipal Money calculates its net investment income and share
price as of noon (Eastern time) on each Business Day; Municipal Securities
and New York Insured Intermediate calculate their net investment income
and share price as of the close of regular trading on the NYSE on each
Business Day (usually 4 p.m. Eastern time). Shares of Municipal Money
- 54 -
<PAGE>
begin earning income dividends on the Business Day the proceeds of the
purchase order are converted into "federal funds" and continue to earn
dividends through the Business Day before they are redeemed; shares of
Municipal Securities and New York Insured Intermediate begin earning
income dividends on the Business Day after the proceeds of the purchase
order have been converted to "federal funds" and continue to earn
dividends through the Business Day they are redeemed. Dividends declared
for each month are paid on the last Business Day of the month.
A Portfolio's net investment income consists of all
income accrued on portfolio assets less accrued expenses but does not
include realized gains and losses, which are reflected in a Portfolio's
NAV (and, hence, its corresponding Fund's NAV) until they are distributed.
Distributions of net realized capital gains, if any, normally are paid by
Municipal Securities and New York Insured Intermediate once annually, in
December. Income dividends are declared daily and paid monthly
Dividends and other distributions, if any, are
automatically reinvested in additional shares of the distributing Fund,
unless and until the shareholder elects to receive them in cash ("cash
election"). Shareholders may make a cash election on the original 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. 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 Fund shares.
A cash election with respect to any Fund remains in
effect until the shareholder notifies State Street in writing to
discontinue the election. If it is determined, however, that the U.S.
Postal Service cannot properly deliver Fund mailings to the shareholder,
the Fund will terminate the shareholder's cash election. Thereafter, the
shareholder's dividends and other distributions will be automatically
reinvested in additional Fund shares until the shareholder notifies State
Street or the Fund in writing of his or her correct address and requests
in writing that the cash election be reinstated.
ADDITIONAL TAX INFORMATION
Taxation of the Funds
---------------------
In order to continue to qualify for treatment as a RIC
under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable
income (consisting generally of taxable net investment income and net
short-term capital gain) 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 Fund,
these requirements include the following: (1) the Fund 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 (including gains from
- 55 -
<PAGE>
Hedging Instruments) derived with respect to its business of investing in
securities ("Income Requirement"); (2) the Fund must derive less than 30%
of its gross income each taxable year from the sale or other disposition
of securities or Hedging Instruments that were held for less than three
months ("Short-Short Limitation"); and (3) at the close of each quarter of
the Fund'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,
and other securities limited, in respect of any one issuer, to an amount
that does not exceed 5% of the value of the Fund'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) of any one issuer.
In addition, in order to be able to pay "exempt-interest
dividends" to its shareholders, each Fund must (and intends to continue
to) satisfy the additional requirement that, at the close of each quarter
of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is excludable from gross
income under section 103(a) of the Code. "Exempt-interest" dividends
constitute the portion of the aggregate dividends (not including capital
gain distributions), as designated by a Fund, equal to the excess of the
Fund's excludable interest over certain amounts disallowed as deductions.
The shareholders' treatment of dividends from a Fund under local and state
income tax laws may differ from the treatment thereof under the Code.
Municipal Money and Municipal Securities have received
rulings from the Service that each Fund, as an investor in its
corresponding Portfolio, will be deemed to own a proportionate share of
the Portfolio's assets and income for purposes of determining whether the
Fund satisfies all the requirements described above to qualify as a RIC
and to pay "exempt-interest" dividends to its shareholders. The Funds
also have received rulings from the Service that neither Fund will
recognize gain or loss upon the transfer of property to a Portfolio in
exchange for an interest in the Portfolio. Although these rulings may not
be relied on as precedent by New York Insured Intermediate, N&B Management
believes that the reasoning thereof, and hence this conclusion, apply to
this Fund as well.
Each Fund 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 (taxable) ordinary income for that
year and capital gain net income for the one-year period ending on October
31 of that year, plus certain other amounts.
See the next section for a discussion of the tax conse-
quences to Municipal Securities and New York Insured Intermediate of
hedging and certain other transactions engaged in by their corresponding
Portfolios.
Taxation of the Portfolios
--------------------------
Neuberger & Berman Municipal Money Portfolio and
Neuberger & Berman Municipal Securities Portfolio have received rulings
from the Service to the effect that, among other things, each Portfolio
- 56 -
<PAGE>
will be treated as a separate partnership for federal income tax purposes
and will not be a "publicly traded partnership." Although this ruling may
not be relied on as precedent by Neuberger & Berman New York Insured
Intermediate Portfolio, N&B Management believes the reasoning thereof and,
hence, this conclusion apply to that Portfolio as well. As a result, no
Portfolio is subject to federal income tax; instead, each investor in a
Portfolio, such as a Fund, is required to take into account in determining
its federal income tax liability its share of the Portfolio's income,
gains, losses, deductions, credits, and tax preference items, without
regard to whether it has received any cash distributions from the
Portfolio. Each Portfolio also is not subject to Delaware or New York
income or franchise tax.
Because each Fund is deemed to own a proportionate share
of its corresponding Portfolio's assets and income for purposes of
determining whether the Fund satisfies the requirements to qualify as a
RIC and to pay "exempt-interest" dividends to its shareholders, each
Portfolio intends to continue to conduct its operations so that its
corresponding Fund will be able to continue to satisfy all those
requirements.
Distributions to a Fund from its corresponding Portfolio
(whether pursuant to a partial or complete withdrawal or otherwise) will
not result in the Fund's recognition of any gain or loss for federal
income tax purposes, except that (1) gain will be recognized to the extent
any cash that is distributed exceeds the Fund's basis for its interest in
the Portfolio before the distribution, (2) income or gain will be
recognized if the distribution is in liquidation of the Fund's entire
interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio, (3) loss will be recognized
if a liquidation distribution consists solely of cash and/or unrealized
receivables, and (4) gain (and, in certain situations, loss) may be
recognized on an in-kind distribution by the Portfolio. A Fund's basis
for its interest in its corresponding Portfolio generally equals the
amount of cash and the basis of any property the Fund invests in the
Portfolio, increased by the Fund's share of the Portfolio's net income
(including tax-exempt income) and gains and decreased by (1) the amount of
cash and the basis of any property the Portfolio distributes to the Fund
and (2) the Fund's share of the Portfolio's losses.
The use by Neuberger & Berman Municipal Securities
Portfolio and New York Insured Intermediate Portfolio of hedging strate-
gies, such as writing (selling) and purchasing Hedging Instruments,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Portfolios
realize in connection therewith. For each of these Portfolios, income
from transactions in Hedging Instruments derived with respect to its
business of investing in securities will qualify as permissible income for
its corresponding Fund under the Income Requirement. However, income from
the disposition by a Portfolio of Hedging Instruments will be subject to
the Short-Short Limitation for its corresponding Fund if they are held for
less than three months.
- 57 -
<PAGE>
If Neuberger & Berman Municipal Securities Portfolio or
Neuberger & Berman New York Insured Intermediate Portfolio satisfies
certain requirements, any increase in value of a position that is part of
a "designated hedge" will be offset by any decrease in value (whether
realized or not) of the offsetting hedging position during the period of
the hedge for purposes of determining whether its corresponding Fund
satisfies the Short-Short Limitation. Thus, only the net gain (if any)
from the designated hedge will be included in gross income for purposes of
that limitation. Each of these Portfolios will consider whether it should
seek to qualify for this treatment for its hedging transactions. To the
extent a Portfolio does not so qualify, it may be forced to defer the
closing out of certain Hedging Instruments beyond the time when it
otherwise would be advantageous to do so, in order for its corresponding
Fund to continue to qualify as a RIC.
Exchange-traded Futures Contracts and listed options
thereon constitute "Section 1256 contracts." Section 1256 contracts are
required to be marked to market (that is, treated as having been sold at
market value) at the end of a Portfolio's taxable year. Sixty percent of
any gain or loss recognized as a result of these "deemed sales," and 60%
of any net realized gain or loss from any actual sales, of Section 1256
contracts are treated as long-term capital gain or loss, and the remainder
are treated as short-term capital gain or loss.
Each Portfolio may invest in municipal bonds that are
purchased with market discount (that is, at a price less than the bond's
principal amount or, in the case of a bond that was issued with original
issue discount ("OID"), at a price less than the amount of the issue price
plus accrued OID) ("municipal market discount bonds"). If a bond's market
discount is 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
taxpayer acquired the bond, then no market discount is considered to
exist. Gain on the disposition of a municipal market discount bond pur-
chased by a Portfolio (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. Market discount on such a
bond generally is accrued ratably, on a daily basis, over the period from
the acquisition date to the date of maturity. In lieu of treating the
disposition gain as above, a Portfolio may elect to include market dis-
count in its gross income currently, for each taxable year to which it is
attributable.
Each Portfolio may acquire zero coupon or other municipal
securities issued with OID. As a holder of those securities, each Portfo-
lio (and, through it, its corresponding Fund) must take into account the
OID that accrues on the securities during the taxable year, even if it
receives no corresponding payment on the securities during the year.
Because each Fund annually must distribute substantially all of its
investment company taxable income plus its share of its corresponding
Portfolio's accrued tax-exempt OID to satisfy the Distribution
Requirement, a Fund may be required in a particular year to distribute as
a dividend an amount that is greater than its proportionate share of the
- 58 -
<PAGE>
total amount of cash its corresponding Portfolio actually receives. Those
distributions will be made from a Fund's (or its proportionate share of
its corresponding Portfolio's) cash assets or, if necessary, from the
proceeds of sales of that Portfolio's securities. A Portfolio may realize
capital gains or losses from those sales, which would increase or decrease
its corresponding Fund's investment company taxable income and/or net
capital gain (the excess of net long-term capital gain over net short-term
capital loss). In addition, any such gains may be realized on the dispo-
sition of securities held for less than three months. Because of the
Short-Short Limitation, any such gains would reduce a Portfolio's ability
to sell other securities, or certain Hedging Instruments, held for less
than three months, that it might wish to sell in the ordinary course of
its portfolio management.
Taxation of the Funds' Shareholders
-----------------------------------
Interest on indebtedness incurred or continued by a
shareholder to purchase or carry Fund shares is not deductible.
Furthermore, entities or persons who are "substantial users" (or related
persons) of facilities financed by industrial development bonds or private
activity bonds should consult their tax advisers before purchasing shares
of a Fund because, for users of certain of these facilities, the interest
on those bonds is not exempt from federal income tax. For these purposes,
the term "substantial user" is defined generally to include a non-exempt
person who regularly uses in trade or business a part of a facility
financed from the proceeds of those bonds.
If Municipal Securities or New York Insured Intermediate
shares are sold at a loss after being held for six months or less, the
loss will be disallowed to the extent of any exempt-interest dividends
received on those shares, and the allowed portion of the loss, if any,
will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
Up to 85% of social security and railroad retirement
benefits may be included in taxable income for recipients whose adjusted
gross income (including income from tax-exempt sources such as a Fund)
plus 50% of their benefits exceeds certain base amounts. Exempt-interest
dividends from a Fund still are tax-exempt to the extent described above;
they are only included in the calculation of whether a recipient's income
exceeds the established amounts.
If a Portfolio invests in any instruments that generate
taxable interest income, under the circumstances described in the Prospec-
tus, distributions by its corresponding Fund attributable to that interest
will be taxable to the Fund's shareholders as ordinary income to the
extent of the Fund's earnings and profits. Similarly, if a Portfolio
realizes capital gain as a result of market transactions, any distribution
by its corresponding Fund attributable to that gain will be taxable to the
Fund's shareholders. Investors also should be aware that if shares of a
Fund are purchased shortly before the record date for a distribution of
taxable interest income or capital gain, the purchaser will receive some
portion of the purchase price back as a taxable distribution. There may
- 59 -
<PAGE>
be additional federal income tax consequences regarding the receipt of
tax-exempt dividends by shareholders such as "S" corporations, financial
institutions, and property and casualty insurance companies and
individuals otherwise eligible for the earned income credit. A share-
holder falling into any such category should consult its tax adviser
concerning its investment in shares of a Fund.
Each Fund is required to withhold 31% of all taxable
dividends, and Municipal Securities and New York Insured Intermediate are
required to withhold 31% of all capital gain distributions and redemption
proceeds, payable to any individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from
taxable dividends and capital gain distributions payable to such share-
holders who otherwise are subject to backup withholding.
As described under "How to Sell Shares" in the
Prospectus, a Fund may close a shareholder's account with the Fund and
redeem the remaining shares if the account balance falls below the
specified minimum and the shareholder fails to reestablish the minimum
balance after being given the opportunity to do so.
New York State and New York City Income Taxes. The
portion of New York Insured Intermediate's exempt-interest dividends equal
to the proportion which the Fund's interest on New York Municipal
Securities bears to all of the Fund's tax-exempt interest (whether or not
distributed) also will be exempt from New York State and New York City
personal income taxes. Shareholders subject to income taxation in states
other than New York will realize a lower after-tax rate of return than New
York shareholders because the dividends distributed by the Fund generally
will not be exempt, to any significant degree, from income taxation by
such other states.
Interest on indebtedness incurred or continued to
purchase or carry the Fund's shares is not deductible for New York State
and New York City personal income tax purposes to the extent attributable
to interest income exempt from New York State and New York City personal
income taxes. Tax-exempt dividends paid to a corporate shareholder will
be subject to the New York State corporate franchise tax and New York City
general corporation tax.
VALUATION OF PORTFOLIO SECURITIES
(Municipal Money)
Municipal Money relies on Rule 2a-7 under the 1940 Act to
use the amortized cost method of valuation to enable its corresponding
Fund 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 Municipal Money's reliance on Rule 2a-7 and Neube-
rger & Berman Municipal Money Portfolio's use of that method should enable
- 60 -
<PAGE>
the Fund, under most conditions, to maintain a stable $1.00 share price,
there can be no assurance it will be able to do so. An investment in the
Fund, 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 Portfolios usually do not pay brokerage commissions for such purchases
and sales. Instead, the price paid for newly issued securities typically
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 purchasing and selling portfolio securities other than
as described above (for example, in the secondary market), each Portfolio
seeks to obtain best execution at the most favorable prices through
responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates. In selecting broker-dealers to execute
transactions, N&B Management considers such factors as the price of the
security, the rate of commission, the size and difficulty of the order,
and the reliability, integrity, financial condition, and general execution
and operational capabilities of competing broker-dealers. N&B Management
also may consider the brokerage and research services that broker-dealers
provide to the Portfolio or N&B Management. Under certain conditions, a
Portfolio may pay higher brokerage commissions in return for brokerage and
research services, although no Portfolio has a current arrangement to do
so. In any case, each Portfolio may effect principal transactions with a
dealer who furnishes research services, designate any dealer to receive
selling concessions, discounts, or other allowances, or otherwise deal
with any dealer in connection with the acquisition of securities in
underwritings.
During the fiscal year ended October 31, 1995, no
Portfolio acquired securities of its "regular brokers or dealers" (as
defined in the 1940 Act). At October 31, 1995, no Portfolio held any
securities of its "regular brokers or dealers."
No affiliate of any Portfolio receives give-ups or
reciprocal business in connection with its portfolio transactions. No
Portfolio effects transactions with or through broker-dealers in
accordance with any formula or for selling shares of a Fund. However,
broker-dealers who effect or execute portfolio transactions may from time
to time effect purchases of Fund shares for their customers. The 1940 Act
generally prohibits Neuberger & Berman from acting as principal in the
purchase of portfolio securities from, or the sale of portfolio securities
to, a Portfolio unless an appropriate exemption is available.
- 61 -
<PAGE>
Portfolio Turnover
------------------
The portfolio turnover rate is the lesser of the cost of
the securities purchased or the value of the securities sold, excluding
all securities, including options, whose maturity or expiration date at
the time of acquisition was one year or less, divided by the average
monthly value of such securities owned during the year.
REPORTS TO SHAREHOLDERS
Shareholders of each Fund receive unaudited semi-annual
financial statements, as well as year-end financial statements audited by
the independent auditors for the Fund and for its corresponding Portfolio.
Each Fund's statements show the investments owned by its corresponding
Portfolio and the market values thereof and provide other information
about the Fund and its operations, including the Fund's beneficial
interest in its corresponding Portfolio.
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street Bank
and Trust Company, 225 Franklin Street, Boston, MA 02110 as custodian for
its securities and cash. All correspondence should be mailed to Neuberger
& Berman Funds, c/o Boston Service Center, P.O. Box 8403, Boston, MA
02266-8403. State Street also serves as each Fund's transfer agent and
shareholder servicing agent, administering purchases, redemptions, and
transfers of Fund shares and the payment of dividends and other distri-
butions through its Boston Service Center.
INDEPENDENT AUDITORS
Each Fund and Portfolio has selected Ernst & Young LLP,
200 Clarendon Street, Boston, MA 02116, as the independent auditors who
will audit its financial statements.
LEGAL COUNSEL
Each Fund and Portfolio has selected Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C.
20036, as its legal counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and percentage
of ownership of each person who was known by each Fund to own beneficially
or of record 5% or more of that Fund's outstanding shares at January 31,
1996:
- 62 -
<PAGE>
<TABLE>
<CAPTION
Percentage of
Ownership at
Name and Address: January 31, 1996
---------------- ---------------
<S> <C> <C>
Municipal Money: Neuberger & Berman* 86.85%
--------------- 605 Third Avenue
New York, NY 10158-3698
Municipal Securities: Charles Schwab & Co., Inc.* 26.65%
-------------------- Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
Neuberger & Berman* 16.45%
605 Third Avenue
New York, NY 10158-3698
New York Insured Intermediate: Neuberger & Berman* 34.56%
----------------------------- 11 Broadway
Attn: Operations Control
New York, NY 10004-1303
Stanley Egener 13.39%
605 Third Avenue
New York, NY 10158
Neuberger & Berman 10.41%
Management Inc.
Attn: M. Weiner
605 Third Avenue
New York, NY 10158-0180
Charles Schwab & Co., Inc.* 9.01%
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
_________________________
* Charles Schwab & Co., Inc. and Neuberger & Berman hold these
shares of record for the accounts of certain of their clients and
have informed the Funds of their policy to maintain the
confidentiality of holdings in client accounts unless disclosure
is expressly required by law.
- 63 -
<PAGE>
At January 31, 1996, the trustees and officers of the
Trust, as a group, owned beneficially or of record less than 1% of the
outstanding shares of each Fund (except New York Insured Intermediate).
As of that date, such trustees and officers, as a group, owned 13.39% of
New York Insured Intermediate.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the infor-
mation included in the Trust's registration statement filed with the SEC
under the 1933 Act with respect to the securities offered by the
Prospectus. Certain portions of the registration statement have been
omitted pursuant to SEC rules and regulations. The registration state-
ment, including the exhibits filed therewith, may be examined at the SEC's
offices in Washington, D.C.
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, and in each instance reference is made to the copy
of the contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The following financial statements and related documents
are incorporated herein by reference to the Funds' Annual Report to
Shareholders for the fiscal year ended October 31, 1995:
The audited financial statements of the Funds and
Portfolios and notes thereto for the fiscal year ended
October 31, 1995, and the reports of Ernst & Young LLP,
independent auditors, with respect to such audited
financial statements.
- 64 -
<PAGE>
Appendix A
RATINGS OF MUNICIPAL OBLIGATIONS AND COMMERCIAL PAPER
S&P municipal 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.
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 municipal bond ratings:
------------------------------
Aaa - Bonds rated Aaa are judged to be of the best qual-
ity. 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 such issues.
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 to be considered as 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.
- 65 -
<PAGE>
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.
Modifiers - Moody's may apply numerical modifiers 1, 2, and 3 in
each generic rating classification described above. The modifier 1
indicates that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
S&P municipal note ratings:
--------------------------
SP-1 - This designation denotes very strong or strong
capacity to pay principal and interest. Those issuers determined to
possess overwhelming safety characteristics are given a plus (+)
designation.
SP-2 - This designation denotes satisfactory capacity to
pay principal and interest.
SP-3 - This designation denotes speculative capacity to
pay principal and interest.
Moody's municipal note ratings:
------------------------------
MIG 1/VMIG 1 - This designation denotes best quality.
There is present strong protection by established cash flows, superior
liquidity support, or demonstrated broad-based access to the market for
refinancing.
MIG 2/VMIG 2 - This designation denotes high quality.
Margins of protection are ample, although not so large as in the preceding
group.
MIG 3/VMIG 3 - This designation denotes favorable
quality. All security elements are accounted for, but there is lacking
the undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow, and market access for refinancing is likely to
be less well established.
MIG 4/VMIG 4 - This designation denotes adequate quality,
carrying specific risk but having protection and not distinctly or
predominantly speculative.
The designation VMIG indicates a variable rate demand
note.
- 66 -
<PAGE>
S&P commercial paper ratings:
----------------------------
A-1 - This highest category indicates that the degree of
safety regarding timely payment is strong. Those issuers determined to
possess extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 - This designation denotes satisfactory capacity for
timely payment. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's commercial paper ratings:
--------------------------------
Issuers rated Prime-1 (or related supporting institu-
tions), 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.
Issuers rated Prime-2 (or related supporting institu-
tions), also known as P-2, have a strong capacity for repayment of short-
term promissory obligations. This will normally be evidenced by many of
the characteristics cited above, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
S&P Claims-Paying Ability Ratings of Insurance Companies:
--------------------------------------------------------
AAA - Insurers rated AAA offer superior financial
security on both an absolute and relative basis. They possess the highest
safety and have an overwhelming capacity to meet policyholder obligations.
Moody's Financial Strength Ratings of Insurance
Companies:
-----------------------------------------------
Aaa - Insurers rated Aaa offer exceptional financial
security. While the financial strength of these companies is likely to
change, such changes as can be visualized are most unlikely to impair
their fundamentally strong positions.
- 67 -
<PAGE>
Appendix B
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER
- 68 -
<PAGE>
