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NEUBERGER & BERMAN INCOME FUNDS AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 3, 1997
Neuberger & Berman Neuberger & Berman
Government Money Fund Ultra Short Bond Fund
(and Neuberger & Berman (and Neuberger & Berman
Government Money Portfolio) Ultra Short Bond 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
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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 February 3, 1997. The 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 administered by Neuberger & Berman Management Incorporated ("N&B
Management"), provides 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.
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TABLE OF CONTENTS
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INVESTMENT INFORMATION....................................................... 1
Investment Policies and Limitations......................................1
Rating Agencies..........................................................5
Overview of Each Fund....................................................6
Additional Investment Information........................................8
Risks of Fixed Income Securities........................................28
PERFORMANCE INFORMATION......................................................28
Yield Calculations......................................................28
Tax Equivalent Yield - State and Local Taxes............................29
Total Return Computations...............................................30
Comparative Information.................................................31
Other Performance Information...........................................32
CERTAIN RISK CONSIDERATIONS..................................................33
TRUSTEES AND OFFICERS........................................................34
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES............................40
Investment Manager and Administrator....................................40
Sub-Adviser.............................................................42
Investment Companies Managed............................................43
Management and Control of N&B Management................................45
DISTRIBUTION ARRANGEMENTS....................................................46
ADDITIONAL PURCHASE INFORMATION..............................................47
Automatic Investing and Dollar Cost Averaging...........................47
ADDITIONAL EXCHANGE INFORMATION..............................................47
ADDITIONAL REDEMPTION INFORMATION............................................50
Suspension of Redemptions...............................................50
Redemptions in Kind.....................................................51
DIVIDENDS AND OTHER DISTRIBUTIONS............................................51
ADDITIONAL TAX INFORMATION...................................................52
Taxation of the Funds...................................................52
Taxation of the Portfolios..............................................53
Taxation of the Funds' Shareholders.....................................56
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VALUATION OF PORTFOLIO SECURITIES............................................57
PORTFOLIO TRANSACTIONS.......................................................57
Portfolio Turnover......................................................59
REPORTS TO SHAREHOLDERS......................................................59
ORGANIZATION.................................................................59
CUSTODIAN AND TRANSFER AGENT.................................................59
INDEPENDENT AUDITORS.........................................................59
LEGAL COUNSEL................................................................59
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................60
REGISTRATION STATEMENT.......................................................60
FINANCIAL STATEMENTS.........................................................61
Appendix A --
RATINGS OF SECURITIES..................................................A-1
Appendix B --
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER.................................B-1
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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 securities 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. 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. 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. These percentages
are required by the Investment Company Act of 1940 ("1940 Act") and are 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 are identical
to those of its corresponding Portfolio. Therefore, although the following
discusses the investment policies and limitations of the Portfolios, it applies
equally to their corresponding Funds.
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For purposes of the investment limitation on concentration in a
particular industry, N&B Management determines the "issuer" of a municipal
obligation that is not a general obligation note or bond based on the
obligation's characteristics. The most significant of these characteristics is
the source of funds for the repayment of principal and payment of 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 or Neuberger & Berman
CASH RESERVES 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. Also
for purposes of the investment limitation on concentration in a particular
industry, both mortgage-backed and asset-backed securities are grouped together
as a single industry.
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 leveraging 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
("GNMA").
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.
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4. SENIOR SECURITIES. The Portfolio may not issue senior securities,
except as permitted under the 1940 Act.
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. BORROWING. The Portfolio may not purchase securities if outstanding
borrowings exceed 5% of its total assets.
2. 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.
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 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 certificates 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 (excluding Sundays and holidays) to the extent necessary to comply with the
33-1/3% limitation.
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2. COMMODITIES. Neuberger & Berman ULTRA SHORT Bond Portfolio and
Neuberger & Berman LIMITED MATURITY Bond 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 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.
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.
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8. UNDERWRITING. No 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 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 U.S. Government and Agency Securities)
if, as a result, more than 5% of the Portfolio'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 15% of its net assets (10% in the case of Neuberger & Berman
CASH RESERVES Portfolio) 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. BORROWING. No Portfolio may purchase securities if outstanding
borrowings, including any reverse repurchase agreements, exceed 5% of its total
assets.
4. LENDING. Except for the purchase of debt securities and engaging in
repurchase agreements, no Portfolio may make any loans other than securities
loans.
5. 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.
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. Although the Portfolios may rely on the ratings of any NRSRO,
the Portfolios mainly refer to ratings assigned by S&P and Moody's, which are
described in Appendix A to this SAI.
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OVERVIEW OF EACH FUND
N&B Management offers a group of taxable mutual funds designed with
varying degrees of risk and return based on the duration and/or maturity of each
Portfolio. Duration measures a bond's exposure to interest rate risk. Duration
incorporates a bond's yield, coupon interest payments, final maturity and call
features into one measure. In general, the longer you extend a bond's duration,
the greater its potential return and exposure to interest rate fluctuations.
For example, GOVERNMENT MONEY and CASH RESERVES are money market funds
with average portfolio maturity of up to 90 days. This is followed by ULTRA
SHORT which offers investors the prospect of higher returns than money market
funds in exchange for a moderate incremental increase in risk. This Fund can
invest in a portfolio of bonds with a maximum average duration of two years.
Rounding out the group is LIMITED MATURITY which seeks a higher income but can
experience more price fluctuation. Its Portfolio of bonds has a maximum average
duration of four years. A more detailed discussion of each Fund follows. In all
cases, these Funds pursue attractive current income with low risk to principal
and vary according to their investment guidelines. These guidelines include
maturity or duration, type of bonds, and the credit quality of these bonds.
MONEY MARKET FUNDS
NEUBERGER & BERMAN GOVERNMENT MONEY FUND
GOVERNMENT MONEY is oriented to investors who seek maximum liquidity
with virtually no credit risk. It is managed to maintain a constant one dollar
net asset value. Through its corresponding Portfolio, the Fund invests
exclusively in securities issued or guaranteed by the United States Government.
The income earned by investors in U.S. Treasury issues is generally free of
state taxation. Thus, this Fund will have particular appeal to investors who
live in states that levy a tax on interest income and who are looking for a
temporary investment vehicle.
NEUBERGER & BERMAN CASH RESERVES
CASH RESERVES is oriented to investors who seek a high degree of
liquidity while investing in Government and corporate money market instruments.
The Fund is invested to maintain a constant one dollar net asset value. Through
its corresponding Portfolio, the Fund invests only in securities that enjoy one
of the two highest credit ratings or unrated securities deemed equivalent by N&B
Management.
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BOND FUNDS
Our bond funds are managed on the basis of a strategy of investment in
fixed income sectors we believe are attractively priced, and the selection of
the most attractively priced issues in those sectors based on their perceived
risk and returns. We also manage the duration of the portfolios. Sector
investments include corporate bonds, mortgage-backed securities, asset backed
securities, CMOs (Collateralized Mortgages Obligations), Treasuries and
Government agencies.
NEUBERGER & BERMAN ULTRA SHORT BOND FUND
ULTRA SHORT is oriented to investors who seek attractive current
income with minimal risk to principal and liquidity.
Through its Portfolio, the Fund invests in a broad array of investment
grade fixed income sectors in order to increase the yield of the Portfolio.
Within each bond sector we seek out securities that offer superior yield to
alternative investments while not compromising our credit quality standards.
This is a total return fund so that the investor's return will include earned
income on the underlying bonds, plus or minus changes in their principal values.
Therefore, the duration of the Fund is also actively managed in response to the
trend of interest rates. The Portfolio is limited to a maximum duration of two
years, which, combined with its moderately conservative portfolio of securities,
is intended to result in only limited fluctuation in principal value.
NEUBERGER & BERMAN LIMITED MATURITY BOND FUND
LIMITED MATURITY is appropriate for investors who seek to participate
in the returns of the bond market, but wish to avoid significant fluctuations in
principal value. In order to achieve its investment goal through its Portfolio,
this Fund has the flexibility to invest across the full range of bond sectors
(corporate, mortgage-backed securities, etc.) and may invest a limited portion
of its assets in foreign securities denominated in foreign currencies as well as
lower-rated "high yield" issues.
The investment strategy of this Fund is based upon the demonstrated
ability of short and intermediate duration portfolios to deliver virtually all
of the income of riskier long-term maturity portfolios. Thus, this Fund limits
its maximum average duration to four years. However, in order to improve total
return, it invests across a broad range of fixed income sectors and within each
sector seeks out securities that have a higher yield than counterpart issues
that we believe have a similar credit risk. It may opportunistically invest in
foreign issues when they offer higher yield than U.S. issues. In addition, it
may invest up to 10% of its net assets in "high yield" issues when these issues
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offer the prospect of higher total return to the Portfolio. It is the manager's
belief that the combination of broad sector diversification, active security
selection and flexible maturity and duration management can offer investors the
prospect of total returns that will approximate the bond market as a whole, with
only moderate fluctuation in principal value.
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.
U.S. GOVERNMENT AND AGENCY SECURITIES (ALL Portfolios). U.S.
Government and Agency Securities are direct obligations of the U.S. Government
or its agencies and instrumentalities, such as GNMA, Fannie Mae, Federal Home
Loan Mortgage Corporation ("FHLMC"), Student Loan Marketing Association
("SLMA"), and Tennessee Valley Authority. Many agency securities are not backed
by the full faith and credit of the United States.
INFLATION-INDEXED SECURITIES (NEUBERGER & BERMAN ULTRA SHORT BOND AND
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIOS). The Portfolios may invest
in U.S. Treasury securities whose principal value is adjusted daily in
accordance with changes to the Consumer Price Index. Any increase in principal
value is taxable in the year the increase occurs, even though holders do not
receive cash representing the increase until the security matures. Because each
Fund must pay substantially all of its income to investors to avoid payment of
an excise tax, a Portfolio may have to dispose of other investments to obtain
the cash necessary to distribute the gain on inflation-indexed securities.
REPURCHASE AGREEMENTS (ALL PORTFOLIOS EXCEPT NEUBERGER & BERMAN
GOVERNMENT MONEY PORTFOLIO). In a repurchase agreement, 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. Repurchase agreements with
a maturity of more than seven days are considered to be illiquid securities; no
Portfolio may enter into such a repurchase agreement if, as a result, more than
15% (10% in the case of Neuberger & Berman CASH RESERVES Portfolio) 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 and duration
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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
repurchase price, 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 (ALL PORTFOLIOS EXCEPT NEUBERGER & BERMAN GOVERNMENT
MONEY PORTFOLIO). In order to realize income, each of these 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 a 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. Before they are
registered, such securities may be sold only in a privately negotiated
transaction or pursuant to an exemption from registration. In recognition of the
increased size and liquidity of the institutional market for unregistered
securities and the importance of institutional investors in the formation of
capital, the SEC has adopted Rule 144A under the 1933 Act. Rule 144A is designed
to facilitate efficient trading among institutional investors by permitting the
sale of certain unregistered securities to qualified institutional buyers. To
the extent privately placed securities held by a 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 are freely tradable in their principal markets 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.
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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 restricted
securities, including Rule 144A securities, are illiquid, purchases thereof will
be subject to each Portfolio's 15% (10% in the case of Neuberger & Berman CASH
RESERVES Portfolio) limit on investments in illiquid securities. Restricted
securities for which no market exists are priced by a method that the Portfolio
Trustees believe accurately reflects fair value.
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, usually 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 each
Portfolio's investment policies and limitations concerning borrowings. While a
reverse repurchase agreement is outstanding, a Portfolio will deposit in a
segregated account with its custodian cash or appropriate liquid securities,
marked to market daily, in an amount at least equal to each Portfolio's
obligations under the agreement. There is a risk that the counter-party to a
reverse repurchase agreement will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Portfolio. None of
the Portfolios currently expects to enter into reverse repurchase agreements or
borrow money.
BANKING AND SAVINGS INSTITUTION SECURITIES (ALL PORTFOLIOS EXCEPT
NEUBERGER & BERMAN GOVERNMENT MONEY Portfolio). The Portfolios 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
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commercial transactions. The CDs, time deposits, and bankers' acceptances in
which the Portfolios invest typically are not covered by deposit insurance.
A Portfolio 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 Portfolio. These limitations do not prohibit investments in
securities issued by foreign branches of U.S. banks that meet the foregoing
requirements.
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 or index changes. The interest rate on variable and floating rate
securities (collectively, "Adjustable Rate Securities") ordinarily is determined
by reference to a particular bank's prime rate, the 90-day U.S. Treasury Bill
rate, the rate of return on commercial paper or bank CDs, an index of short-term
tax-exempt rates or some other objective measure.
The Adjustable 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, some Adjustable 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. For
purposes of this limitation, each Portfolio, except for Neuberger & Berman CASH
RESERVES Portfolio and Neuberger & Berman GOVERNMENT MONEY Portfolio, excludes
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 the credit enhancements in purchasing these
securities.
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In calculating its dollar-weighted average maturity and duration, each
Portfolio is permitted to treat certain Adjustable Rate Securities as maturing
on a date prior to the date on which the final repayment of principal must
unconditionally be made. In applying such maturity shortening devices, 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). Mortgage-backed
securities represent direct or indirect participations in, or are secured by and
payable from, pools of mortgage loans. They may be issued or guaranteed by a
U.S. Government agency or instrumentality (such as GNMA, Fannie Mae, and FHLMC),
though not necessarily backed by the full faith and credit of the United States,
or may be issued by private issuers.
Because many mortgages are repaid early, the actual maturity and
duration of mortgage-backed securities are typically shorter than their stated
final maturity and their duration calculated solely on the basis of the stated
life and payment schedule. In calculating its dollar-weighted average maturity
and duration, a Portfolio may apply certain industry conventions regarding the
maturity and duration of mortgage-backed instruments. Different analysts use
different models and assumptions in making these determinations. The Portfolios
use an approach that N&B Management believes is reasonable in light of all
relevant circumstances.
Mortgage-backed securities may be issued in the form of collateralized
mortgage obligations ("CMOs") or mortgage-backed bonds. CMOs are obligations
that are fully collateralized, directly or indirectly, by a pool of mortgages;
payments of principal and interest on the mortgages are passed through to the
holders of the CMOs, although not necessarily on a pro rata basis, on the same
schedule as they are received. Mortgage-backed bonds are general obligations of
the issuer that are fully collateralized, directly or indirectly, by a pool of
mortgages. The mortgages serve as collateral for the issuer's payment
obligations on the bonds, but interest and principal payments on the mortgages
are not passed through either directly (as with mortgage-backed "pass-through"
securities issued or guaranteed by U.S. Government agencies or
instrumentalities) or on a modified basis (as with CMOs). Accordingly, a change
in the rate of prepayments on the pool of mortgages could change the effective
maturity or the duration of a CMO but not that of a mortgage-backed bond
(although, like many bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity). To the extent that rising interest rates cause prepayments
to occur at a slower than expected rate, a CMO could be converted into a
longer-term security that is subject to greater risk of price volatility.
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Governmental, government-related, and private entities (such as
commercial banks, savings institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers, including securities
broker-dealers and special purpose entities that generally are affiliates of the
foregoing established to issue such securities) may create mortgage loan pools
to back mortgage pass-through and mortgage-collateralized investments. Such
issuers may be the originators and/or servicers of the underlying mortgage
loans, as well as the guarantors of the mortgage-backed securities. Pools
created by non-governmental issuers generally offer a higher rate of interest
than governmental and government-related pools because of the absence of direct
or indirect government or agency guarantees. Various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance and
letters of credit, may support timely payment of interest and principal of
non-governmental pools. Governmental entities, private insurers, and mortgage
poolers issue these forms of insurance and guarantees. N&B Management considers
such insurance and guarantees, as well as the creditworthiness of the issuers
thereof, in determining whether a mortgage-backed security meets a Portfolio's
investment quality standards. There can be no assurance that private insurers or
guarantors can meet their obligations under 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 that, in N&B Management's opinion, are illiquid if, as a result, more
than 15% (10% in the case of Neuberger & Berman CASH RESERVES Portfolio) of the
Portfolio's net assets would be invested in illiquid securities. Neuberger &
Berman GOVERNMENT MONEY Portfolio may invest in U.S. Government mortgage-backed
securities only if they are backed by the full faith and credit of the United
States. 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.
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 of principal and interest on asset-backed
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securities. Asset-backed securities are subject to the same risk of prepayment
described with respect to mortgage-backed securities. 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 ReceivablesSM ("CARSSM") represent
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 CARSSM 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 receivables 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 which signal a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates. 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
non-deductibility 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
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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 the collateral for 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 of foreign issuers (including banks,
governments and quasi-governmental organizations) and foreign branches of U.S.
banks, including negotiable CDs, bankers' acceptances, and commercial paper.
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 unavailability of public
information regarding issuers, less governmental supervision and regulation of
financial markets, reduced liquidity of certain financial markets, and the lack
of uniform accounting, auditing, and financial reporting standards or the
application of standards that are different or less stringent than those applied
in the United States.
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, their subdivisions,
agencies, and instrumentalities, international agencies, and supranational
entities. Investing in foreign currency denominated securities involves the
special risks associated with investing in non-U.S. issuers, as described in the
preceding section, and the additional risks of (1) adverse changes in foreign
exchange rates, (2) nationalization, expropriation, or confiscatory taxation,
and (3) adverse changes in investment or exchange control regulations (which
could prevent cash from being brought back to the United States). Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes, including taxes withheld from those payments.
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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.
Foreign markets also have different clearance and settlement
procedures. 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. Delays in settlement could result in
temporary periods when a portion of the assets of the Portfolio are uninvested
and no return is earned thereon. The inability of the 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 the Portfolio
due to subsequent declines in value of the securities or, if the Portfolio has
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
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 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.
In order to limit the risks inherent in investing in foreign currency
denominated securities, the Portfolio may not purchase any such security if, as
a result, 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 (i.e., 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 securities position that matures on or before the
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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 transaction as scheduled, which may result
in losses to the Portfolio.
WHEN-ISSUED TRANSACTIONS (NEUBERGER & BERMAN GOVERNMENT MONEY
PORTFOLIO, NEUBERGER & BERMAN CASH RESERVES PORTFOLIO, 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, Fannie Mae, and FHLMC certificates) on a when-issued basis. These
transactions involve a commitment by a Portfolio to purchase securities that
will be issued at a future date (ordinarily within two months, although the
Portfolio may agree to a longer settlement period). The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases are negotiated
directly with the other party, and such commitments are not traded on exchanges.
When-issued transactions enable a Portfolio to "lock in" what N&B
Management believes to be an attractive price or yield on a particular security
for a period of time, regardless of future changes in interest rates. In periods
of falling interest rates and rising prices, a 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. Because the Portfolio has not yet paid for the
securities, this produces an effect similar to leverage. 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.
A Portfolio will purchase securities on a when-issued basis only with
the intention of completing the transaction and actually purchasing 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.
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When a Portfolio purchases securities on a when-issued basis, it will
deposit in a segregated account with its custodian, until payment is made,
appropriate liquid securities having an aggregate market value (determined
daily) at least equal to the amount of the Portfolio's purchase commitments.
This procedure is designed to ensure that the Portfolio maintains sufficient
assets at all times to cover its obligations under when-issued purchases.
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 and bond index Futures and
options transactions in an attempt to hedge against changes in securities prices
resulting from 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 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 investment in (1) interest rate and bond index
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 for the hedged securities and (2) foreign currency Futures and
options thereon as a means of establishing more definitely the effective return
on, or the purchase price of, securities denominated in foreign currencies held
or intended to be acquired by the Portfolios.
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.
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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"); 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.
"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 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.
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 accumulated cash balance in the
writer's Futures margin account is delivered to the holder of the option. 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.
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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. 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 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 fluctuation in the
price of a Futures Contract or option thereon during a single trading day; once
the daily limit has been reached, no trades 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. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable 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.
PUT AND CALL OPTIONS (NEUBERGER & BERMAN LIMITED MATURITY BOND
PORTFOLIO). The Portfolio may write and 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. 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 Portfolio will receive a premium for writing a put option, which
obligates the Portfolio to acquire a security at a certain price at any time
until a certain date if the purchaser of the option decides to exercise the
option. The Portfolio may be obligated to purchase the underlying security at
more than its current value.
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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 until a certain date if
the purchaser decides to exercise the option. The Portfolio 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 a call 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.
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 a 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.
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.
Options normally have expiration dates between three and nine months from the
date written. 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.
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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 a 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) an 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 interest rate environment. The
premium received by the Portfolio for writing an 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 last
reported sales price before the time the Portfolio's NAV is computed on the day
the option is being valued or, in the absence of any trades thereof on that day,
the mean between the bid and asked prices as of that time.
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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 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. 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; however, the Portfolio could be in a less
advantageous position than if it had not written the call option.
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. 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.
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 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, or the purchase price of, 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
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<PAGE>
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 "proxy-hedges," can provide significant protection of NAV
in the event of a general rise in the U.S. dollar against foreign currencies.
For example, the return available from securities denominated in a particular
foreign currency would diminish if the value of the U.S. dollar increased
against that currency. Such a decline could be partially or completely offset by
an increase in value of a hedge involving a Forward Contract to sell that
foreign currency or a proxy-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. However, a hedge or proxy-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 proxy-hedge had not been
established. If the Portfolio uses proxy-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. Because
forward contracts are not traded on an exchange, the assets used to cover such
contracts may be illiquid.
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. 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, as
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.
REGULATORY LIMITATIONS ON USING FUTURES, OPTIONS ON FUTURES, OPTIONS
ON SECURITIES AND FOREIGN CURRENCIES, AND FORWARD CONTRACTS (COLLECTIVELY,
"HEDGING INSTRUMENTS") (NEUBERGER & BERMAN ULTRA SHORT BOND PORTFOLIO AND
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). 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
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<PAGE>
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, Neuberger & Berman LIMITED MATURITY Bond Portfolio does not currently
intend to purchase a put option if, as a result, more than 5% of its total
assets would be invested in put options.
COVER FOR HEDGING INSTRUMENTS (NEUBERGER & BERMAN ULTRA SHORT BOND
PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). Each
Portfolio 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 the prescribed amount of cash or appropriate liquid
securities. 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.
GENERAL RISKS OF HEDGING INSTRUMENTS (NEUBERGER & BERMAN ULTRA SHORT
BOND PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). The
primary risks in using Hedging Instruments are (1) imperfect correlation or no
correlation between changes in market value of the securities or currencies held
or to be acquired by a Portfolio and changes in 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; (4) the fact
that, although use of Hedging 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 Hedging Instruments whose behavior is
expected to resemble or offset that of a Portfolio's underlying securities or
currency. 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.
There can be no assurance that a Portfolio's use of Hedging Instruments will be
successful.
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<PAGE>
A Portfolio's use of Hedging Instruments may be limited by the
provisions of the Internal Revenue Code of 1986, as amended ("Code"), with which
it must comply if its corresponding Fund is to continue to qualify as a
regulated investment company ("RIC"). See "Additional Tax Information --
Taxation of Portfolios."
INDEXED SECURITIES (NEUBERGER & BERMAN LIMITED MATURITY BOND
PORTFOLIO). The Portfolio may invest in securities whose value is linked to
interest rates, commodities, foreign currencies, indices, or other financial
indicators ("indexed securities"). Most indexed securities are short- to
intermediate-term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified underlying
instruments. The value of indexed securities may increase or decrease if the
underlying instrument appreciates, and they may have return characteristics
similar to direct investment in the underlying instrument or to one or more
options thereon. An indexed security may be more volatile than the underlying
instrument itself.
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")
must be taken into income ratably by each such Portfolio prior to the receipt of
any actual payments. Because its corresponding Fund must distribute
substantially all of its net income (including its share of the Portfolio's
accrued original issue discount) to its shareholders each year for income and
excise tax purposes, each such 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. See "Additional Tax Information."
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 and
credit quality.
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<PAGE>
MUNICIPAL OBLIGATIONS (NEUBERGER & BERMAN CASH RESERVES PORTFOLIO,
NEUBERGER & BERMAN ULTRA SHORT BOND PORTFOLIO, AND NEUBERGER & BERMAN LIMITED
MATURITY BOND PORTFOLIO). Neuberger & Berman LIMITED MATURITY Bond Portfolio may
invest up to 5% of its net assets in municipal obligations, which are securities
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. Neuberger & Berman CASH RESERVES
Portfolio may invest in municipal obligations that otherwise meet its criteria
for quality and maturity; Neuberger & Berman ULTRA SHORT Bond Portfolio may also
invest in municipal obligations. 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 rates generally will reduce the value
of a Portfolio's investments in municipal obligations, whereas a decline in
interest rates generally will increase that value. Efforts are underway that may
result in a restructuring of the federal income tax system. Any of these factors
could affect the value of municipal securities.
<PAGE>
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 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. 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
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<PAGE>
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
no longer 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 securities that are below investment
grade will not exceed 5% of its net assets (10% in the case of Neuberger &
Berman LIMITED MATURITY Bond Portfolio). 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.
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical results 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 similarly, but the
base period return is assumed to be reinvested. The assumed reinvestment is
calculated by adding 1 to the base period return, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result, according to
the following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1.
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<PAGE>
For the seven calendar days ended October 31, 1996, the current yields
of GOVERNMENT MONEY and CASH RESERVES were 4.62% and 4.84%, respectively. For
the same period, the effective yields were 4.73% and 4.96%, respectively.
ULTRA SHORT AND LIMITED MATURITY. Each of these Funds may advertise
its "yield" based on a 30-day (or one month) 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, 1996, were 6.24% and 5.45%, respectively.
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. From time to time, this Fund may advertise a "tax equivalent yield"
for one or more of those states or localities that reflects the taxable yield
that an investor subject to the highest marginal rate of state or local income
tax would have had to receive in order to realize the same level of after-tax
yield produced by an investment in the Fund. TAX EQUIVALENT YIELD is calculated
according to the following formula:
Tax Equivalent Yield = Y1 + Y2
----
1-MR
where Y1 equals that portion of the 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 illustrated by the
following example. If the current yield for a 7-day period was 5%, and during
that period 100% of the income was attributable to interest on direct
obligations of the U.S. Government and, therefore, was not subject to income
taxation in most states and localities, a taxpayer residing in New York (and
subject to that state's highest marginal 1997 tax rate of 7.35%) would have to
have received a taxable current yield of 5.40% 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 1997 rate of 4.46%, the taxpayer would have to
have received a taxable current yield of 5.67% to equal the 5% after-tax yield.
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<PAGE>
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
LIMITED MATURITY and ULTRA SHORT 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:
P(1+T)n = ERV
Average annual total return smoothes out year-to-year variations in performance
and, in that respect, differs from actual year-to-year results.
For the one-, five-, and ten-year periods ended October 31, 1996, the
average annual total returns for LIMITED MATURITY and its predecessor were
+5.44%, +5.72%, and +6.82%, 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 $20,173 on October 31, 1996.
For the one- and five-year periods ended October 31, 1996, and for the
period from November 7, 1986 (commencement of operations) through October 31,
1996, the average annual total returns for ULTRA SHORT and its predecessor were
+5.23%, +4.27%, and +5.83%, 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 $17,611 on October 31, 1996.
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.
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<PAGE>
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, Kiplinger's 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 U.S. Department of Labor 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 may invest in different types of securities
from those included in some of the above 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' 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.
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<PAGE>
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, 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 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.
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<PAGE>
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 investing 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
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.
Although each Portfolio seeks to reduce risk by investing in a
diversified portfolio of securities, diversification does not eliminate all
risk. There can, of course, be no assurance that any Portfolio will achieve its
investment objective.
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 their
corresponding portfolios administered or managed by N&B Management and Neuberger
& Berman.
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<PAGE>
Positions
Name, Address Held With
AND AGE(1) THE TRUSTS PRINCIPAL OCCUPATION(S)(2)
- ----------- ----------- -----------------------
John Cannon (67) Trustee of President, AMA Investment Advisers,
CDC Associates, Inc. each Trust Inc. (registered investment
620 Sentry Parkway adviser) (1976 - 1991); Senior Vice
Suite 220 President AMA Investment Advisers,
Blue Bell, PA 19422 Inc. (1991 - 1993); President of
AMA Family Funds (investment
companies) (1976 - 1991); Chairman
and Chief Investment Officer of CDC
Associates, Inc. (registered
investment adviser) (1993 -
present).
Stanley Egener* (62) Chairman of Principal of Neuberger & Berman;
the Board, President and Director of N&B
Chief Management; Chairman of the Board,
Executive Chief Executive Officer and Trustee
Officer, and of eight other mutual funds for
Trustee of which N&B Management acts as
each Trust investment manager or
administrator.
Theodore P. Giuliano* (44) President and Principal of Neuberger & Berman;
Trustee of Vice President and Director of N&B
each Trust Management; President and Trustee
of one other mutual fund for which
N&B Management acts as
administrator.
Barry Hirsch (63) Trustee of Senior Vice President, Secretary,
Loews Corporation each Trust and General Counsel of Loews
667 Madison Avenue Corporation (diversified financial
8th Floor corporation).
New York, NY 10021
Robert A. Kavesh (69) Trustee of Professor of Finance and Economics
110 Bleecker Street each Trust at Stern School of Business, New
Apt. 24B York University; Director of Del
New York, NY 10012 Laboratories, Inc. and Greater New
York Mutual Insurance Co.
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<PAGE>
William E. Rulon (64) Trustee of Retired. Senior Vice President of
Foodmaker, Inc. each Trust Foodmaker, Inc. (operator and
1761 Hotel Circle South franchiser of restaurants) until
San Diego, CA 92108 January 1997; Secretary of
Foodmaker, Inc. until July 1996.
Candace L. Straight (49) Trustee of Private investor and consultant
518 E. Passaic Avenue each Trust specializing in the insurance
Bloomfield, NJ 07003 industry; Principal of Head &
Company, LLC (limited liability
company providing investment
banking and consulting services to
the insurance industry) until March
1996; President of Integon
Corporation, (marketer of life
insurance, annuities, and property
and casualty insurance), 1990-1992;
Director of Drake Holdings (U.K.
motor insurer)until June 1996.
Daniel J. Sullivan (57) Vice Senior Vice President of N&B
President of Management since 1992; prior
each Trust 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.
Michael J. Weiner (49) Vice Senior Vice President of N&B
President and Management since 1992; Treasurer of
Principal N&B Management from 1992 to 1996;
Financial prior thereto, Vice President and
Officer of Treasurer of N&B Management and
each Trust 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.
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<PAGE>
Claudia A. Brandon (40) Secretary of Vice President of N&B Management;
each Trust Secretary of eight other mutual
funds for which N&B Management acts
as investment manager or
administrator.
Richard Russell (50) Treasurer Vice President of N&B Management
and since 1993; prior thereto,
Principal Assistant Vice President of N&B
Accounting Management; Treasurer and Principal
Officer of Accounting Officer of eight other
each Trust mutual funds for which N&B
Management acts as investment
manager or administrator.
Stacy Cooper-Shugrue (33) Assistant Assistant Vice President of N&B
Secretary of Management since 1993; prior
each Trust 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 (59) Assistant Principal of Neuberger & Berman
Secretary of since 1992; prior thereto, employee
each Trust of Neuberger & Berman; Assistant
Secretary of eight other mutual
funds for which N&B Management acts
as investment manager or
administrator.
Barbara DiGiorgio (38) Assistant Assistant Vice President of N&B
Treasurer of Management since 1993; prior
each Trust thereto, employee of N&B
Management; Assistant Treasurer of
eight other mutual funds for which
N&B Management acts as investment
manager or administrator.
- 36 -
<PAGE>
Celeste Wischerth (36) Assistant Assistant Vice President of N&B
Treasurer of Management since 1994; prior
each Trust thereto, employee of N&B
Management; Assistant Treasurer of
eight other mutual funds for which
N&B Management acts as investment
manager or administrator.
- --------------------
(1) Unless otherwise indicated, the business address of each listed person
is 605 Third Avenue, New York, NY 10158.
(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. Messrs. Egener and Giuliano are interested persons
by virtue of the fact that they are officers and directors of N&B Management and
principals of Neuberger & Berman.
The Trust's Trust Instrument and Managers Trust's Declaration of Trust
provide that each such Trust will indemnify its trustees and officers against
liabilities and expenses reasonably incurred in connection with litigation in
which they may be involved because of their offices with the Trust, unless it is
adjudicated that they (a) engaged in bad faith, willful misfeasance, gross
negligence, or reckless disregard of the duties involved in the conduct of their
offices, or (b) did not act in good faith in the reasonable belief that their
action was in the best interest of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined (by a court
or other body approving the settlement or other disposition, 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, 1996, each Fund and Portfolio
paid and accrued 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 - $43,965; Neuberger & Berman CASH
RESERVES and CASH RESERVES Portfolio - $68,889; Neuberger & Berman ULTRA SHORT
Bond Fund and Portfolio - $21,175; and Neuberger & Berman LIMITED MATURITY Bond
and Portfolio - $45,557.
- 37 -
<PAGE>
The following table sets forth information concerning the compensation
of the trustees and officers of the Trust. None of the Neuberger & Berman
Funds(R) has any retirement plan for its trustees or officers.
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/96
Total Compensation from
Aggregate Trusts in the Neuberger
Name and Position Compensation & Berman Fund Complex
With The Trust from the Trust Paid To Trustees
- ----------------- -------------- -------------------------
John Cannon $14,758 $31,000
Trustee (2 other investment
companies)
Charles DeCarlo $17,222 $35,000
Trustee (retired 12/96) (2 other investment
companies)
Stanley Egener $ 0 $ 0
Chairman of the Board, (9 other investment
Chief Executive Officer, companies)
and Trustee
Theodore P. Giuliano $ 0 $ 0
President and Trustee (2 other investment
companies)
Barry Hirsch $17,468 $35,500
Trustee (2 other investment
companies)
Robert A. Kavesh $14,758 $31,000
Trustee (2 other investment
companies)
Harold R. Logan $15,005 $30,500
Trustee (retired 12/96) (2 other investment
companies)
William E. Rulon $15,005 $30,500
Trustee (2 other investment
companies)
Candace L. Straight $14,758 $30,500
Trustee (2 other investment
companies)
At January 14, 1997, the trustees and officers of the Trust and
Managers Trust, as a group, owned beneficially or of record less than 1% of the
outstanding shares of each Fund.
- 38 -
<PAGE>
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 all 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 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 pay a material amount of such compensation.
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 principals 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 with the Trust, 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.
- 39 -
<PAGE>
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 accrued management and administration fees of the following
amounts (before any reimbursement of the Funds, described below) for the fiscal
years ended October 31, 1996, 1995, and 1994:
1996 1995 1994
---- ---- ----
GOVERNMENT MONEY $1,476,738 $1,521,937 $1,105,665
CASH RESERVES $2,425,550 $1,738,424 $1,448,365
ULTRA SHORT $ 491,399 $ 459,038 $ 532,340
LIMITED MATURITY $1,480,085 $1,522,574 $1,655,333
As noted in the Prospectus under "Management and Administration --
Expenses," N&B Management has voluntarily undertaken to reimburse each Fund
other than GOVERNMENT MONEY for its Operating Expenses (including fees under the
Administration Agreement) and the Fund's pro rata share of the corresponding
Portfolio's Operating Expenses (including fees under the Management Agreement)
that exceed, in the aggregate, 0.65% per annum (0.70% per annum for LIMITED
MATURITY) of the Fund's average daily net assets. Operating Expenses exclude
interest, taxes, brokerage commissions, and extraordinary expenses. N&B
Management can terminate each undertaking by giving the Fund at least 60 days'
prior written notice. For the fiscal years ended October 31, 1996, 1995, and
1994, N&B Management reimbursed the Funds the following amounts of expenses: (1)
CASH RESERVES $90,855, $109,113, and $171,012, respectively, (2) ULTRA SHORT
$177,129, $196,865, and $222,161, respectively, and (3) LIMITED MATURITY
$16,575, $32,042, and $77,866, respectively.
- 40 -
<PAGE>
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 paid and accrued the
following amounts for the period from November 1, 1994 to April 30, 1995 and the
fiscal year ended October 31, 1994:
November 1, 1994
To April 30, 1995 1994
----------------- ----
GOVERNMENT MONEY $25,750 $39,595
CASH RESERVES $31,746 $55,583
ULTRA SHORT $ 9,038 $21,515
LIMITED MATURITY $29,447 $55,399
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 a majority 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 that 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. Each Agreement terminates automatically if it is assigned.
- 41 -
<PAGE>
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, the same type of
investment recommendations and research that Neuberger & Berman, from time to
time, provides to its principals 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 or a 1940 Act majority vote of the
outstanding interests in that 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.
- 42 -
<PAGE>
INVESTMENT COMPANIES MANAGED
N&B Management currently serves as investment manager of the following
investment companies. As of December 31, 1996, these companies, along with one
other investment company advised by Neuberger & Berman, had aggregate net assets
of approximately $15.2 billion, as shown in the following list:
Approximate
Net Assets at
NAME DECEMBER 31, 1996
Neuberger & Berman Cash Reserves Portfolio........................$ 499,989,187
(investment portfolio for Neuberger & Berman Cash Reserves)
Neuberger & Berman Government Money Portfolio.....................$ 402,843,399
(investment portfolio for Neuberger & Berman Government Money
Fund)
Neuberger & Berman Limited Maturity Bond Portfolio................$ 272,342,178
(investment portfolio for Neuberger & Berman Limited Maturity
Bond Fund and Neuberger & Berman Limited Maturity Bond Trust)
Neuberger & Berman Ultra Short Bond Portfolio......................$ 89,819,435
(investment portfolio for Neuberger & Berman Ultra Short Bond
Fund and Neuberger & Berman Ultra Short Bond Trust)
Neuberger & Berman Municipal Money Portfolio......................$ 135,494,410
(investment portfolio for Neuberger & Berman Municipal Money
Fund)
Neuberger & Berman Municipal Securities Portfolio.................$ 38,634,808
(investment portfolio for Neuberger & Berman Municipal
Securities Trust)
Neuberger & Berman New York Insured Intermediate
Portfolio .....................................................$ 9,877,137
(investment portfolio for Neuberger & Berman New York Insured
Intermediate Fund)
Neuberger & Berman Focus Portfolio..............................$ 1,260,252,029
(investment portfolio for Neuberger & Berman Focus Fund,
Neuberger & Berman Focus Trust, and Neuberger & Berman Focus
Assets)
Neuberger & Berman Genesis Portfolio..............................$ 398,343,946
(investment portfolio for Neuberger & Berman Genesis Fund,
Neuberger & Berman Genesis Trust, and Neuberger & Berman
Genesis Assets)
Neuberger & Berman Guardian Portfolio......................... $ 7,071,702,448
(investment portfolio for Neuberger & Berman Guardian Fund,
Neuberger & Berman Guardian Trust, and Neuberger & Berman
Guardian Assets)
- 43 -
<PAGE>
Neuberger & Berman International Portfolio.................... $ 73,377,704
(investment portfolio for Neuberger & Berman International Fund)
Neuberger & Berman Manhattan Portfolio............................$ 574,606,109
(investment portfolio for Neuberger & Berman Manhattan Fund,
Neuberger & Berman Manhattan Trust, and Neuberger & Berman
Manhattan Assets)
Neuberger & Berman Partners Portfolio...........................$ 2,405,865,742
(investment portfolio for Neuberger & Berman Partners Fund,
Neuberger & Berman Partners Trust, and Neuberger & Berman
Partners Assets)
Neuberger & Berman Socially Responsive Portfolio................$ 188,366,394
(investment portfolio for Neuberger & Berman Socially
Responsive Fund and Neuberger & Berman NYCDC Socially
Responsive Trust)
Advisers Managers Trust (six series)............................$ 1,695,378,078
In addition, Neuberger & Berman serves as investment adviser to one
investment company, Plan Investment Fund, with assets of $70,276,858 at December
31, 1996.
The investment decisions concerning the Portfolios and the other
mutual funds 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. 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.
- 44 -
<PAGE>
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, in
terms of amount, in accordance with a formula considered to be equitable to the
funds involved. Although in some cases this arrangement may have a detrimental
effect on the price or volume of the securities as to a Portfolio, in other
cases it is believed that a Portfolio's ability to participate in volume
transactions may produce better executions for it. In any case, it is the
judgment of the Portfolio Trustees that the desirability of the Portfolios'
having their advisory arrangements with N&B Management outweighs any
disadvantages that may result from contemporaneous transactions.
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; Theodore P.
Giuliano, Vice President and director; Michael M. Kassen, Vice President and
director; Irwin Lainoff, 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;
Patrick T. Byrne, Vice President; William Cunningham, Vice President; Clara Del
Villar, Vice President; Mark R. Goldstein, Vice President; Michael Lamberti,
Vice President; Josephine P. Mahaney, Vice President; Ellen Metzger, Vice
President and Secretary; Paul Metzger, Vice President; 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; Susan Walsh, Vice President; Thomas Wolfe, Vice President;
Andrea Trachtenberg, Vice President of Marketing; Robert Conti, Treasurer; Stacy
Cooper-Shugrue, Assistant Vice President; Barbara DiGiorgio, Assistant Vice
President; Roberta D'Orio, Assistant Vice President; Joseph G. Galli, Assistant
Vice President; Robert I. Gendelman, Assistant Vice President; Leslie
Holliday-Soto, Assistant Vice President; Jody L. Irwin, Assistant Vice
President; Carmen G. Martinez, Assistant Vice President; Joseph S. Quirk,
Assistant Vice President; Kevin L. Risen, Assistant Vice President; Susan
Switzer, Assistant Vice President; Celeste Wischerth, Assistant Vice President;
KimMarie Zamot, Assistant Vice President; and Loraine Olavarria, Assistant
Secretary. Messrs. Cantor, Egener, Gendelman, Giuliano, Lainoff, Zicklin,
Goldstein, Kassen, Risen, Simons and Sundman and Mmes. Prindle and Vale are
principals of Neuberger & Berman.
- 45 -
<PAGE>
Mr. Giuliano and Mr. Egener are trustees and officers, and Messrs.
Sullivan, Weiner, and Russell and Mmes. Brandon, Cooper-Shugrue, DiGiorgio and
Wischerth are officers, of each Trust. C. Carl Randolph, a principal 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 principals 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 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.
The Distributor or one of its affiliates may, from time to time, deem
it desirable to offer to shareholders of the Funds, through use of their
shareholder lists, the shares of other mutual funds for which the Distributor
acts as distributor or other products or services. Any such use of the 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.
- 46 -
<PAGE>
The Trust, on behalf of each Fund, and the Distributor are parties to
a Distribution Agreement that continues until July 2, 1997. 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
terminate automatically 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 automatically invested
in shares of ULTRA SHORT or LIMITED MATURITY 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 or (2) withdrawals from the shareholder's checking account. In either
case, the minimum monthly investment is $100. A shareholder who elects to
participate 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 or 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
would be lower than if the shareholder purchased a fixed number of shares at the
same 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
"Shareholder Services -- Exchange Privilege," shareholders may redeem 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 Equity or Municipal Funds that are briefly described
below, provided that the minimum investment requirements of the other fund(s)
are met.
- 47 -
<PAGE>
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 investments
Genesis Fund primarily in common stocks of companies with small
market capitalizations (i.e., up to $1.5 billion) at
the time of the Portfolio's investment. The
corresponding portfolio uses a value-oriented
approach to the selection of individual securities.
Neuberger & Berman Seeks capital appreciation through investments
Guardian Fund primarily in 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 through
International Fund investments primarily in a diversified portfolio of
equity securities of foreign issuers. Assets will be
allocated among economically mature countries and
emerging industrialized countries.
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<PAGE>
Neuberger & Berman Seeks capital appreciation, without regard to
Manhattan Fund income, through investments generally in securities
of small-, medium- and 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 securities thought to be undervalued.
Neuberger & Berman Seeks capital growth through an investment approach
Partners Fund that is designed to increase capital with reasonable
risk. Its investment program seeks securities
believed to be undervalued based on strong
fundamentals such as a low price-to-earnings ratio,
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 through
Socially Responsive Funds investments primarily in securities of companies
that meet both financial and social criteria.
MUNICIPAL FUNDS
Neuberger & Berman A money market fund seeking the maximum current
Municipal Money Fund income exempt from federal income tax, consistent
with safety and liquidity. The corresponding
Portfolio invests in high quality, short-term
municipal securities. It seeks to maintain a
constant purchase and redemption price of $1.00.
Neuberger & Berman Seeks high current tax-exempt income with low risk
Municipal Securities to principal, limited price fluctuation, and
Trust liquidity; and secondarily, total return. The
corresponding portfolio invests in investment grade
municipal securities. Maximum dollar-weighted
average duration of 10 years.
Neuberger & Berman New Seeks a high level of current income exempt from
York Insured New federal income tax and York State and New York City
Intermediate Fund personal income taxes, consistent with preservation
of capital. Maximum dollar-weighted average duration
of 10 years.
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<PAGE>
Any Fund described herein, and any of the Equity or Municipal Funds,
may terminate or modify its exchange privilege in the future.
Fund shareholders who are considering exchanging shares into any of
the Equity or Municipal Funds should note that (1) like the Funds, the Municipal
Funds are series of the Trust, (2) the Equity Funds 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 of the Equity and
Municipal Funds invests all of its net investable assets in a corresponding
portfolio that has an investment objective, policies, and limitations identical
to those of the 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. The Municipal Funds 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
Neuberger & Berman Municipal Money Fund, 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 its 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 the Fund's
- 50 -
<PAGE>
shareholders. 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
ULTRA SHORT and LIMITED MATURITY reserve 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) exceeding $250,000 or 1% of the
net assets of the Fund, whichever is less, by making payment in whole or in part
in securities valued as described under "Share Prices and Net Asset Value" in
the Prospectus. GOVERNMENT MONEY and CASH RESERVES also reserve the right, under
certain conditions, to honor any request for redemption by making payment in
whole or in part in securities. If payment is made in securities, a shareholder
generally will incur brokerage expenses or other transaction costs in converting
those securities into cash and will be subject to fluctuation in the market
prices of those securities until they are sold. The Funds do not redeem in kind
under normal circumstances, but would do so when the Fund Trustees determined
that it was in the best interests of a Fund's shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders amounts equal to
substantially all of its share of any net investment income (after deducting
expenses incurred directly by the Fund), any net realized capital gains (both
long-term and short-term), and any net realized gains from foreign currency
transactions earned or realized by its corresponding Portfolio. A Portfolio's
net investment income consists of all income accrued on portfolio assets less
accrued expenses but does not include net realized or unrealized capital and
foreign currency gains and losses. Net investment income and net gains and
losses are reflected in a Portfolio's NAV (and, hence, its corresponding Fund's
NAV) until they are distributed. 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).
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<PAGE>
Income dividends are declared daily; dividends declared for each month
are paid on the last Business Day of the month. 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. Distributions of net
realized capital and foreign currency gains, if any, normally are paid once
annually, in December.
Dividends and other distributions are automatically reinvested in
additional shares of the distributing Fund, unless 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. Cash distributions can be paid through an
electronic transfer to a bank account designated in the shareholder's original
account application. To the extent dividends and other distributions are subject
to federal, state, or local income taxation, they are taxable to the
shareholders whether received in cash or reinvested in 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 or if checks remain uncashed for 180 days, the
Fund will terminate the shareholder's cash election. Thereafter, the
shareholder's dividends and other distributions will automatically be 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 its investment company taxable income (consisting generally of net investment
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<PAGE>
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, securities of other RICs and other securities limited, in respect of
any one issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities, and (ii) not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
securities or securities of other RICs) of any one issuer.
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.
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 consequences to (1)
ULTRA SHORT and LIMITED MATURITY of hedging and certain other transactions
engaged in by their corresponding Portfolios and (2) to all the Funds on certain
matters involving the 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, is required to take into
account in determining its federal income tax liability its share of the
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<PAGE>
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 qualifies 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 capital gains and
decreased by (a) the amount of cash and the basis of any property the Portfolio
distributes to the Fund and (b) the Fund's share of the Portfolio's losses.
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, gains from the
disposition of foreign currencies (except certain gains that may be excluded by
future regulations), and gains from 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.
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<PAGE>
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 satisfy those requirements to enable its corresponding Fund to qualify
for this treatment for hedging transactions. To the extent a Portfolio does not
so qualify, it may be forced to defer the closing out of certain Hedging
Instruments or foreign currency positions 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.
Neuberger & Berman CASH RESERVES Portfolio, Neuberger & Berman ULTRA
SHORT Bond Portfolio, and Neuberger & Berman LIMITED MATURITY Bond Portfolio may
each 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), 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, the Portfolio may elect to
include market discount in its gross income currently, for each taxable year to
which it is attributable.
Each Portfolio may acquire zero coupon or other securities issued with
OID. As a holder of those securities, each Portfolio (and, through it, its
corresponding Fund) must take into income 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 (including 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
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<PAGE>
share of the total amount of cash its corresponding Portfolio actually receives.
Those distributions will be made from a Fund's (or its 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
or foreign currency positions held for less than three months that it might wish
to sell in the ordinary course of its portfolio management.
TAXATION OF THE FUNDS' SHAREHOLDERSTAXATION OF THE FUNDS'
SHAREHOLDERS67
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.
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 retirement account or a qualified retirement plan (including a
simplified employee pension plan, "Savings Incentive Match Plan for Employees"
("SIMPLE") 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
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 securities at their cost at the time of purchase and
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<PAGE>
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 Portfolios' reliance on Rule
2a-7 and use of the amortized cost 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 either of 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 typically do
not pay brokerage commissions for such purchases and sales. Instead, the price
paid for newly issued securities usually includes a concession or discount paid
by the issuer to the underwriter, and the prices quoted by market-makers reflect
a spread between the bid and the asked prices from which the dealer derives a
profit.
In 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, may designate any dealer to receive
selling concessions, discounts, or other allowances, or otherwise may deal with
any dealer in connection with the acquisition of securities in underwritings.
During the fiscal year ended October 31, 1996, Neuberger & Berman
ULTRA SHORT Bond Portfolio acquired securities of the following of its "regular
brokers or dealers" (as defined in the 1940 Act): Goldman, Sachs & Co.; Merrill
Lynch, Pierce, Fenner & Smith Inc.; and Morgan (J.P.) Securities Inc. At October
31, 1996, that Portfolio held the securities of its "regular brokers or dealers"
with an aggregate value as follows: Morgan (J.P.) Securities Inc., $3,003,150.
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<PAGE>
During the fiscal year ended October 31, 1996, Neuberger & Berman
LIMITED MATURITY Bond Portfolio acquired securities of the following of its
"regular brokers or dealers": Goldman, Sachs & Co. At October 31, 1996, that
Portfolio held the securities of its "regular brokers or dealers" with an
aggregate value as follows: Goldman, Sachs & Co., $5,045,352.
During the fiscal year ended October 31, 1996, Neuberger & Berman CASH
RESERVES Portfolio acquired securities of the following of its "regular brokers
or dealers": CS First Boston; First Chicago Capital Markets; Goldman, Sachs &
Co.; Merrill Lynch, Pierce, Fenner & Smith Inc.; Morgan (J.P.) Securities Inc.;
and Morgan Stanley & Co. Inc. At October 31, 1996, that Portfolio held the
securities of its "regular brokers or dealers" with an aggregate value as
follows: CS First Boston, $15,000,000; First Chicago Capital Markets, Inc.,
$6,437,656; Goldman, Sachs & Co., $9,739,931; Merrill Lynch, Pierce, Fenner &
Smith Inc., $6,000,000; Morgan (J.P.) Securities Inc., $9,983,500; and Morgan
Stanley & Co. Inc., $15,000,000.
During the fiscal year ended October 31, 1996, Neuberger & Berman
GOVERNMENT MONEY Portfolio acquired none of the securities of its "regular
brokers or dealers." At October 31, 1996, 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 effects transactions
with or through broker-dealers in accordance with any formula or for selling
shares of any Fund. However, broker-dealers who 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
Neuberger & Berman ULTRA SHORT Bond Portfolio and Neuberger & Berman
LIMITED MATURITY Bond Portfolio calculate a portfolio turnover rate by dividing
(1) the lesser of the cost of the securities purchased or the proceeds from the
securities sold by the Portfolio during the fiscal year (other than securities,
including options, whose maturity or expiration date at the time of acquisition
was one year or less) by (2) the month-end average of the value of such
securities owned by the Portfolio during the fiscal year.
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<PAGE>
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.
ORGANIZATION
The predecessors of the Funds were converted into separate series of
the Trust on July 2, 1993; these conversions were approved by the shareholders
of the Funds in April 1993.
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street, 225 Franklin
Street, Boston, MA 02110 as custodian for its securities and cash. State Street
also serves as each Fund's transfer 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.
All correspondence should be mailed to Neuberger & Berman Funds, c/o Boston
Service Center, P.O. Box 8403, Boston, MA 02266-8403.
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. 20036-1800, 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 14, 1997:
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<PAGE>
Percentage of
Ownership at
Name And Address January 14,1997
---------------- ---------------
Government Money: Neuberger & Berman* 72.63%
- ---------------- 11 Broadway
New York, NY 10004
Cash Reserves: Neuberger & Berman* 53.42%
- ------------- 11 Broadway
New York, NY 10004
D Leon Leonhardt Retirement 5.83%
Benefit Accumulation Plan for
Employees of Price Waterhouse LLP
3109 W DR Martin Luther King Blvd
Tampa, FL 33607
For Partners & Principals of Price 5.01%
Waterhouse DTD 6/28/95
3109 W DR Martin Luther King Blvd
Tampa, FL 33607
Ultra Short: Charles Schwab & Co., Inc.* 28.12%
- ----------- 101 Montgomery Street
San Francisco, CA 94104-4122
Limited Maturity: Charles Schwab & Co., Inc.* 28.48%
- ---------------- 101 Montgomery Street
San Francisco, CA 94104-4122
Nationwide Life Insurance Plan QPVA 10.61%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
- ---------------------------
* 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
their client accounts unless disclosure is expressly required by law.
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<PAGE>
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information
included in the Trust's registration statement filed with the SEC under the 1933
Act with respect to the securities offered by the Prospectus. The registration
statement, including the exhibits filed therewith, may be examined at the SEC's
offices in Washington, D.C. The SEC maintains a Website (http://www.sec.gov)
that contains this SAI, material incorporated by reference, and other
information regarding the Funds and Portfolios.
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 any 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 from the Funds' Annual Report to Shareholders
for the fiscal year ended October 31, 1996:
The Statements of Assets and Liabilities of the Funds and Portfolios,
including the Schedules of Investments of the Portfolios, as of October 31,
1996, and the related Statements of Operations for the year then ended, the
Statements of Changes in Net Assets for each of the two years in the period
then ended, the Financial Highlights for each of the periods indicated
therein, the notes to each of the foregoing for the fiscal year ended
October 31, 1996, and the reports of Ernst & Young LLP, independent
auditors, with respect to such audited financial statements of Neuberger &
Berman Government Money Fund and Portfolio, Neuberger & Berman Cash
Reserves and Portfolio, Neuberger & Berman Ultra Short Bond Fund and
Portfolio, and Neuberger & Berman Limited Maturity Bond Fund and Portfolio.
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<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.
A-1
<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.
A-2
<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 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 institutions), 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.
A-3
<PAGE>
APPENDIX B
The Art of Investing:
A Conversation with Roy Neuberger
"I firmly believe that if you want to manage your own
money, you must be a student of the market. If you
are unwilling or unable to do that, find someone else
to manage your money for you."
NEUBERGER & BERMAN
B-1
<PAGE>
[THIS PAGE IS BLANK - IT IS AN INSIDE PAGE OF THIS BROCHURE]
B-2
<PAGE>
[PICTURE OF ROY NEUBERGER]
During my more than sixty-five years of buying and selling
securities, I've been asked many questions about my approach to
investing. On the pages that follow are a variety of my thoughts,
ideas and investment principles which have served me well over the
years. If you gain useful knowledge in the pursuit of profit as well
as enjoyment from these comments, I shall be more than content.
\s\ Roy R. Neuberger
<PAGE>
YOU'VE BEEN ABLE TO CONDENSE SOME OF THE
CHARACTERISTICS OF SUCCESSFUL INVESTING INTO
FIVE "RULES." WHAT ARE THEY?
Rule #1: Be flexible. My philosophy has
necessarily changed from time to time because
of events and because of mistakes. My views
change as economic, political, and
technological changes occur both on and
sometimes off our planet. It is imperative
that you be willing to change your thoughts
to meet new conditions.
Rule #2: Take your temperament into account.
Recognize whether you are by nature very
speculative or just the opposite -- fearful,
timid of taking risks. But in any event --
Diversify your investments, Rule #3: Be broad-gauged. Diversify your
make sure that some of your investments, make sure that some of your
principal is kept safe, and principal is kept safe, and try to increase
try to increase your income your income as well as your capital.
as well as your capital.
[PICTURE OF ROY NEUBERGER]
Rule #4: Always remember there are many ways
to skin a cat! Ben Graham and David Dodd did
it by understanding basic values. Warren
Buffet invested his portfolio in a handful of
long-term holdings, while staying involved
with the companies' managements. Peter Lynch
chose to understand, first-hand, the products
of many hundreds of the companies he invested
in. George Soros showed his genius as a hedge
fund investor who could decipher world
currency trends. Each has been successful in
his own way. But to be successful, remember
to-
B-3
<PAGE>
Rule #5: Be skeptical. To repeat a few well-
worn useful phrases:
A. Dig for yourself.
B. Be from Missouri.
C. If it sounds too good to be true, it
probably is.
IN YOUR 65 YEARS OF INVESTING ARE THERE ANY
GENERAL PATTERNS YOU'VE OBSERVED AS TO HOW
THE MARKET BEHAVES?
Every decade that I've been involved with
Wall Street has a nuance of its own, an
economic and social climate that influences
investors. But generally, bull markets tend
to be longer than bear markets, and stock
prices tend to go up more slowly and
erratically than they go down. Bear markets
tend to be shorter and of greater intensity.
The market rarely rises or declines
concurrently with business cycles longer than
six months.
AS A LEGENDARY "VALUE INVESTOR," HOW DO YOU
DEFINE VALUE INVESTING?
Value investing means finding the best values
- - either absolute or relative. Absolute
means a stock has a low market price relative
to its own fundamentals. Relative value means
the price is attractive relative to the
market as a whole.
COULD YOU DESCRIBE A STOCK WITH "GOOD VALUE"?
A classic example is a company that has a low
price to earnings ratio, a low price to book
ratio, free cash flow, a strong balance
sheet, undervalued corporate assets,
unrecognized earnings turnaround and is
selling at a discount to private market
value.
These characteristics usually lead to
companies that are under-researched and have
a high degree of inside ownership and
entrepreneurial management.
B-4
<PAGE>
One of my colleagues at Neuberger & Berman
says he finds his value stocks either "under
a cloud" or "under a rock." "Under a cloud"
stocks are those Wall Street in general
doesn't like, because an entire industry is
out of favor and even the good stocks are
being dropped. "Under a rock" stocks are
those Wall Street is ignoring, so you have to
uncover them on your own.
ARE THERE OTHER KEY CRITERIA YOU USE TO JUDGE
STOCKS?
I'm more interested in longer-term trends in
earnings than short-term trends. Earnings
gains should be the product of long-term
strategies, superior management, taking
advantage of business opportunities and so
on. If these factors are in their proper
place, short-term earnings should not be of
major concern. Dividends are an important
extra because, if they're stable, they help
support the price of the stock.
WHAT ABOUT SELLING STOCKS?
Most individual investors should invest for
the long term but not mindlessly. A sell
discipline, often neglected by investors, is
vitally important.
"One should fall in love One should fall in love with ideas, with
with ideas, with people or people, or with idealism. But in my book, the
with idealism. But in my last thing to fall in love with is a
book, the last thing to particular security. It is after all just a
fall in love with is a sheet of paper indicating a part ownership in
particular security." a corporation and its use is purely
mercenary. If you must love a security, stay
in love with it until it gets overvalued;
then let somebody else fall in love.
[PICTURE OF ROY NEUBERGER]
B-5
<PAGE>
ANY OTHER ADVICE FOR INVESTORS?
I firmly believe that if you want to manage
your own money, you must be a student of the
market. If you're unwilling or unable to do
that, find someone else to manage your money
for you. Two options are a well-managed
no-load mutual fund or, if you have enough
assets for separate account management, a
money manager you trust with a good record.
HOW WOULD YOU DESCRIBE YOUR PERSONAL
INVESTING STYLE?
Every stock I buy is bought to be sold. The
market is a daily event, and I continually
review my holdings looking for selling
opportunities. I take a profit occasionally
on something that has gone up in price over
what was expected and simultaneously take
losses whenever misjudgment seems evident.
This creates a reservoir of buying power that
can be used to make fresh judgments on what
are the best values in the market at that
time. My active investing style has worked
well for me over the years, but for most
investors I recommend a longer-term approach.
I tend not to worry very must about the day
to day swings of the market, which are very
hard to comprehend. Instead, I try to be
rather clever in diagnosing values and trying
to win 70 to 80 percent of the time.
YOU BEGAN INVESTING IN 1929. WHAT WAS YOUR
EXPERIENCE WITH THE "GREAT CRASH"?
B-6
<PAGE>
The only money I managed in the Panic of 1929
was my own. My portfolio was down about 12
percent, and I had an uneasy feeling about
the market and conditions in general. Those
were the days of 10 percent margin. I studied
the lists carefully for a stock that was
overvalued in my opinion and which I could
sell short as a hedge. I came across RCA at
about $100 per share. It had recently split 5
for 1 and appeared overvalued. There were no
dividends, little income, a low net worth and
a weak financial position. I sold RCA short
in the amount equal to the dollar value of my
long portfolio. It proved to be a timely and
profitable move.
HOW DID THE CRASH OF 1929 AFFECT YOUR
INVESTING STYLE?
I am prematurely bearish when the market goes
up for a long time and everybody is happy
because they are richer. I am very bullish
when the market has gone down perceptibly and
I feel it has discounted any troubles we are
going to have.
HOW IMPORTANT ARE PSYCHOLOGICAL FACTORS TO
MARKET BEHAVIOR?
There are many factors in addition to
economic statistics or security analysis in a
buy or sell decision. I believe psychology
plays an important role in the Market. Some
people follow the crowd in hopes they'll be
swept along in the right direction, but if
the crowd is late in acting, this can be a
bad move.
I like to be contrary. When things look bad,
I become optimistic. When everything looks
rosy, and the crowd is optimistic, I like to
be a seller. Sometimes I'm too early, but I
generally profit.
AS A RENOWNED ART COLLECTOR, DO YOU FIND
SIMILARITIES BETWEEN SELECTING STOCKS AND
SELECTING WORKS OF ART?
B-7
<PAGE>
Both are an art, although picking stocks is a
minor art compared with painting, sculpture
"When things look bad, I or literature. I started buying art in the
become optimistic. When 30s, and in the 40s it was a daily, almost
everything looks rosy, and hourly occurrence. My inclination to buy the
the crowd is optimistic, I works of living artists comes from Van Gogh,
like to be a seller." who sold only one painting during his
lifetime. He died in poverty, only then to
become a legend and have his work sold for
millions of dollars.
[PICTURE OF ROY NEUBERGER]
There are more variables to consider now in
both buying art and picking stocks. In the
modern stock markets, the heavy use of
futures and options has changed the nature of
the investment world. In past times, the
stock market was much less complicated, as
was the art world.
Artists rose and fell on their own merits
without a lot of publicity and attention. As
more and more dealers are involved with
artists, the price of their work becomes
inflated. So I almost always buy works of
unknown, relatively undiscovered artists,
which, I suppose is similar to value
investing.
But the big difference in my view of art and
stocks is that I buy a stock to sell it and
make money. I never bought paintings or
sculptures for investment in my life. The
objective is to enjoy their beauty.
B-8
<PAGE>
WHAT DO YOU CONSIDER THE BUSINESS MILESTONES
IN YOUR LIFE?
Being a founder of Neuberger & Berman and
creating one of the first no-load mutual
funds. I started on Wall Street in 1929, and
during the depression I managed my own money
and that of my clientele. We all prospered,
but I wanted to have my own firm. In 1939 I
became a founder of Neuberger & Berman, and
for about 10 years we managed money for
individuals with substantial financial
assets. But I also wanted to offer the
smaller investor the benefits of professional
money management, so in 1950 I created the
Guardian Mutual Fund (now known as the
Neuberger & Berman Guardian Fund). The Fund
was kind of an innovation in its time because
it didn't charge a sales commission. I
thought the public was being overcharged for
mutual funds, so I wanted to create a fund
that would be offered directly to the public
without a sales charge. Now of course the
"no-load" fund business is a huge industry. I
managed the Fund myself for over 28 years.
[PICTURE OF ROY NEUBERGER]
YOU'RE IN YOUR NINETIES AND STILL YOU GO INTO
THE OFFICE EVERY DAY TO MANAGE YOUR
INVESTMENTS. WHY?
I like the fun of being nimble in the stock
market, and I'm addicted to the market's
fascinations.
WHAT CLOSING WORDS OF ADVICE DO YOU HAVE
ABOUT INVESTING?
Realize that there are opportunities at all
times for the adventuresome investor. And
stay in good physical condition. It's a
strange thing. You do not dissipate your
energies by using them. Exercise your body
and your brain every day, and you'll do
better in investments and in life.
B-9
<PAGE>
ROY NEUBERGER: A BRIEF BIOGRAPHY
Roy Neuberger is a founder of the investment
management firm Neuberger & Berman, and a
renowned value investor. He is also a
recognized collector of contemporary American
art, much of which he has given away to
museums and colleges across the country.
During the 1920s, Roy studied art in
Paris. When he realized he didn't possess the
talent to become an artist, he decided to
collect art, and to support this passion, Roy
turned to investing -- a pursuit for which
his talents have proven more than adequate.
A TALENT FOR INVESTING
Roy began his investment career by
joining a brokerage firm in 1929, seven
months before the "Great Crash." Just weeks
before "Black Monday," he shorted the stock
of RCA, thinking it was overvalued. He
profited from the falling market and gained a
reputation for market prescience and stock
selection that has lasted his entire career.
NEUBERGER & BERMAN'S FOUNDING
Roy's investing acumen attracted many
people who wished to have him manage their
money. In 1939, at the age of 36, after
purchasing a seat on the New York Stock
Exchange, Roy founded Neuberger & Berman to
provide money management services to people
who lacked the time, interest or expertise to
manage their own assets.
B-10
<PAGE>
NEUBERGER & BERMAN -- OVER FIVE DECADES OF
GROWTH
Neuberger & Berman has grown through
the years and now manages approximately $30
billion of equity and fixed income assets,
both domestic and international, for
individuals, institutions, and its family of
no-load mutual funds. Today, as when the firm
was founded, Neuberger & Berman follows a
value approach to investing, designed to
enable clients to advance in good markets and
minimize losses when conditions are less
favorable.
For more complete information about the
Neuberger & Berman Guardian Fund,
including fees and expenses, call
Neuberger & Berman Management at
800-877- 9700 for a free prospectus.
Please read it carefully, before you
invest or send money.
B-11
<PAGE>
Neuberger & Berman Management
Inc.[SERVICE MARK]
605 Third Avenue, 2nd Floor
New York, NY 10158-0006
Shareholder Services
(800) 877-9700
[COPYRIGHT SYMBOL]1995
Neuberger & Berman
PRINTED ON RECYCLED PAPER
WITH SOY BASED INKS
B-12
<PAGE>
- -------------------------------------------------------------------------------
NEUBERGER & BERMAN MUNICIPAL FUNDS AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 3, 1997
Neuberger & Berman Neuberger & Berman
Municipal Money Fund Municipal Securities Trust
(and Neuberger & Berman (and Neuberger & Berman
Municipal 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 February 3, 1997. The 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 available to investors in New York and Florida only.
The Funds' Prospectus, which is also the prospectus for
certain taxable fixed income funds administered by Neuberger & Berman Management
Incorporated ("N&B Management"), provides 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
Page
INVESTMENT INFORMATION........................................................1
Investment Policies and Limitations..................................1
Investment Approaches of Neuberger & Berman MUNICIPAL
SECURITIES Portfolio and Neuberger & Berman
NEW YORK INSURED INTERMEDIATE Portfolio..............................6
Municipal Bond Insurance (Neuberger & Berman NEW YORK
INSURED INTERMEDIATE Portfolio)......................................7
Overview of Each Fund................................................8
Types of Municipal Obligations......................................10
Yield and Price Characteristics of Municipal Obligations............13
Investment in Taxable Securities....................................13
Additional Investment Information...................................15
Risks of Fixed Income Securities....................................26
PERFORMANCE INFORMATION......................................................27
Yield Calculations..................................................27
Tax Equivalent Yield................................................28
Total Return Computations...........................................29
Comparative Information.............................................30
Other Performance Information.......................................31
CERTAIN RISK CONSIDERATIONS..................................................32
New York City.......................................................34
New York State......................................................35
Puerto Rico.........................................................37
TRUSTEES AND OFFICERS........................................................37
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES............................43
Investment Manager and Administrator................................43
Sub-Adviser.........................................................46
Investment Companies Managed........................................47
Management and Control of N&B Management............................49
DISTRIBUTION ARRANGEMENTS....................................................50
-i-
<PAGE>
ADDITIONAL PURCHASE INFORMATION..............................................51
Automatic Investing and Dollar Cost Averaging.......................51
ADDITIONAL EXCHANGE INFORMATION..............................................51
ADDITIONAL REDEMPTION INFORMATION............................................55
Suspension of Redemptions...........................................55
Redemptions in Kind.................................................55
DIVIDENDS AND OTHER DISTRIBUTIONS............................................55
ADDITIONAL TAX INFORMATION...................................................56
Taxation of the Funds...............................................56
Taxation of the Portfolios..........................................58
Taxation of the Funds' Shareholders.................................60
VALUATION OF PORTFOLIO SECURITIES............................................62
PORTFOLIO TRANSACTIONS.......................................................62
Portfolio Turnover..................................................63
REPORTS TO SHAREHOLDERS......................................................64
ORGANIZATION.................................................................64
CUSTODIAN AND TRANSFER AGENT.................................................64
INDEPENDENT AUDITORS.........................................................64
LEGAL COUNSEL................................................................64
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................64
REGISTRATION STATEMENT.......................................................65
FINANCIAL STATEMENTS.........................................................66
Appendix A--
RATINGS OF MUNICIPAL OBLIGATIONS AND COMMERCIAL PAPER...............A-1
Appendix B--
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER...................................B-1
-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 securities 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. 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. 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. These percentages
are required by the Investment Company Act of 1940 ("1940 Act") and are 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 substantially the same investment objective, policies, and
limitations as the Fund.
<PAGE>
NEW YORK INSURED INTERMEDIATE has the following fundamental
investment policy, to enable it to invest in its corresponding Portfolio:
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 are
identical to those of its corresponding Portfolio. 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 concentration in
a particular industry, N&B Management determines the "issuer" of a municipal
obligation that is not a general obligation note or bond based on the
obligation's characteristics. The most significant of these characteristics is
the source of funds for the repayment of principal and payment of 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
2
<PAGE>
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 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 contracts, 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.
3
<PAGE>
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 governmental units located
in any one state, territory, or possession of the United States (but this
limitation does not apply to project notes backed by the full faith and credit
of the United States).
2. ILLIQUID SECURITIES. Neither Portfolio may purchase any
security if, as a result, more than 15% (10% in the case of Neuberger & Berman
MUNICIPAL MONEY Portfolio) 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. BORROWING. Neither Portfolio may purchase securities if
outstanding borrowings, including any reverse repurchase agreements, exceed 5%
of its total assets.
4. LENDING. Except for the purchase of debt securities and
engaging in repurchase agreements, neither Portfolio may make any loans other
than securities loans.
5. 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 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.
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
4
<PAGE>
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 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:
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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 15% 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. BORROWING. The Portfolio may not purchase securities if
outstanding borrowings, including any reverse repurchase agreements, exceed 5%
of its total assets.
4. LENDING. Except for the purchase of debt securities and
engaging in repurchase agreements, the Portfolio may not make any loans other
than securities loans.
5. 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.
INVESTMENT APPROACHES 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, LLC ("Neuberger & Berman"), and currently used by that firm in
managing taxable and tax-exempt fixed income portfolios with an aggregate value
of approximately $10.5 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 municipal 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.
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The dollar-weighted average duration of each Portfolio is
actively managed and may 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.
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 a nationally recognized statistical rating
organization ("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
Standard & Poor's ("S&P") and Moody's Investors Service, Inc. ("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 broker, another investor or the Portfolio after the municipal security is
originally issued. Generally, the Portfolio expects to purchase New York
Municipal Securities that have been insured by another 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 from at least one NRSRO. The
Portfolio may invest more than 25% of its assets in bonds insured by the same
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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 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 $2,421,000,000 (unaudited) and statutory capital of approximately
$1,359,000,000 (unaudited) as of December 31, 1995. 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 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 its shareholder or other reports, as of June 30, 1996, MBIA Corp. had
admitted assets of $4.2 billion (unaudited), total liabilities of $2.8 billion
(unaudited), and total capital and surplus of $1.4 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, 1995, MBIA Corp. had admitted assets of $3.8
billion (audited), total liabilities of $2.5 billion (audited), and total
capital and surplus of $1.3 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 subsidiary of General Electric Capital Corporation. FGIC is licensed to do
business in all 50 states, the District of Columbia, the United Kingdom and
France. FGIC is a leading insurer of municipal bonds, and also insures a variety
of structured debt issues in the taxable market. According to its shareholder or
other reports, as of September 30, 1996, the total capital and surplus of FGIC
was approximately $1,097,000,000. Approximately 86% of the business written to
date by FGIC has been Municipal Bond Insurance.
OVERVIEW OF EACH FUND
- ---------------------
N&B Management offers three municipal funds - MUNICIPAL MONEY,
MUNICIPAL SECURITIES and NEW YORK INSURED INTERMEDIATE. Through their
Portfolios, these Funds invest in municipal securities. These Funds are oriented
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to investors who seek to benefit from the tax-advantaged status of municipal
bonds. (Each Fund may invest in securities whose income is subject to the
federal alternative minimum tax.)
We take a similar approach to the management of all three
Funds' Portfolios. Investments are made in municipal bond sectors that offer
higher yield than other sectors with what we believe is appropriate risk. Within
the sectors, we seek individual securities that offer attractive income as well
as liquidity appropriate to the Fund. The duration of the Portfolios is managed
in order to protect principal in difficult environments and actively manage the
Portfolios to provide a high level of tax-exempt income. Duration incorporates a
bond's yield, coupon interest payments, final maturity and call features into
one measure. In general, the longer you extend a bond's duration, the greater
its potential return and exposure to interest rate fluctuations.
NEUBERGER&BERMAN MUNICIPAL MONEY FUND
- -------------------------------------
MUNICIPAL MONEY is invested in order to provide maximum
current tax-exempt income while seeking to maintain a constant one dollar net
asset value. Through its Portfolio, this Fund invests in high quality,
short-term municipal securities that are selected based upon their perceived
ability to provide high current income consistent with safety and liquidity.
Since this portfolio invests exclusively in short-term municipal securities, its
shareholders avoid the market fluctuations and risk that come with investment in
longer-term municipal bonds, while receiving dividends that are exempt from
federal income tax.
NEUBERGER&BERMAN MUNICIPAL SECURITIES TRUST
- -------------------------------------------
MUNICIPAL SECURITIES seeks to maximize total return on a
risk-adjusted basis by generating high tax-exempt current income and investing
strategically in short-to-intermediate maturities. Our studies have shown that
municipal portfolios of up to ten years in duration deliver a significant
portion of the income and performance of longer, more volatile issues. As we
focus on this intermediate area of the market, we also seek to increase returns
through sector diversification. Sectors utilized include pre-refunded bonds,
general obligation issues and essential service revenue bonds such as water and
sewer authorities. In addition, we selectively choose among Housing Authority,
health care and pollution control revenue issues. In order to further reduce
risk, all the securities we purchase are of at least investment grade. In
addition, we actively manage the Portfolio's duration with the objective of
protecting principal, and enhancing total return through capital appreciation.
The maximum average duration of the Portfolio is ten years.
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NEUBERGER&BERMAN NEW YORK INSURED INTERMEDIATE FUND
- ---------------------------------------------------
NEW YORK INSURED INTERMEDIATE seeks to provide investors with
a high level of income that is exempt from Federal income tax and New York State
and New York City personal income taxes. In order to provide investors with the
highest degree of safety of principal, at least 65% of the Portfolio's value
will be invested in securities that are rated in the highest investment grades
and additionally have coupon and principal payments that are guaranteed by
insurance companies. The balance of the issues will be investment grade issues
that may or may not be insured. We actively seek out issues that, because of
supply and demand considerations, offer better yield than other municipal issues
of comparable quality. Sectors held in the Portfolio will include revenue bonds,
general obligation issues, hospital authority issues, and industrial revenue
bonds. Similar to our MUNICIPAL SECURITIES, this Fund invests in a Portfolio of
securities that has a maximum average duration of ten years. In addition, the
Portfolio's average duration is actively managed with the intention of
controlling risk and providing the possibility of capital appreciation.
TYPES OF MUNICIPAL OBLIGATIONS
- ------------------------------
The tax-exempt status of any issue of municipal obligations is
determined on the basis of an opinion of the issuer's bond counsel at the time
the obligations are issued. 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 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.
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
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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 the 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 obligations of the local issuing agency, the HUD agreement provides the
full faith and credit of the U.S. as additional security.
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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 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 Fannie Mae or the Government National Mortgage Association
("GNMA").
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 quality 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.
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
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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 or the
bond's rating falls below investment grade.
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 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 fixed income
securities, with maturities of one year or less from the time of purchase:
U.S. GOVERNMENT AND AGENCY SECURITIES. U.S. Government and
Agency Securities are direct obligations of the U.S. Government, or its agencies
and instrumentalities, such as the GNMA, Fannie Mae, Federal Home Loan Mortgage
Corporation, Student Loan Marketing Association and Tennessee Valley Authority.
Many agency securities are not backed by the full faith and credit of the United
States.
BANKING SECURITIES. The Portfolios may invest in banking
obligations, which include CDs, time deposits, bankers' acceptances, and other
short-term debt obligations issued by U.S. commercial banks. CDs are receipts
for funds deposited for a specified period of time at a specified rate of
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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.
A Portfolio may invest in securities issued by a U.S.
commercial bank only if (1) the bank has total assets of at least
$1,000,000,000, (2) the bank is on N&B Management's approved list, and (3) its
deposits are insured by the Federal Deposit Insurance Corporation.
REPURCHASE AGREEMENTS. In a repurchase agreement, 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. Repurchase
agreements with a maturity of more than seven days are considered to be illiquid
securities. No Portfolio may enter into such a repurchase agreement if, as a
result, more than 15% (or 10% in the case of Neuberger & Berman MUNICIPAL MONEY
Portfolio) 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 and 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
repurchase price, 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 Portfolio
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 a 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
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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, usually
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
PORTFOLIO 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 INVESTMENT INFORMATION
- ---------------------------------
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 or index changes. The interest rate on variable and
floating rate securities (collectively, "Adjustable Rate Securities") ordinarily
is determined by reference to a particular bank's prime rate, the 90-day U.S.
Treasury Bill rate, the rate of return on commercial paper or bank CDs, an index
of short-term tax-exempt rates, or some other objective measure.
The Adjustable 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
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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, some Adjustable 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. For purposes of this limitation, Neuberger &
Berman MUNICIPAL SECURITIES Portfolio excludes 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 the credit enhancements in purchasing
these securities.
In calculating its dollar-weighted average maturity and
duration, each Portfolio is permitted to treat certain Adjustable Rate
Securities as maturing on a date prior to the date on which the final repayment
of principal must unconditionally be made. In applying such maturity shortening
devices, 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
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 Portfolio will invest
in standby commitments unless it receives an opinion of counsel or a ruling of
the Internal Revenue Service ("Service") satisfactory to the Portfolio Trustees
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that the interest earned by the Portfolio on municipal obligations subject to a
standby commitment will be 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
the flexibility to make commitments for when-issued securities, take advantage
of other buying opportunities, and meet redemptions.
Standby commitments are valued at zero in determining net
asset value ("NAV"). The maturity or duration of municipal obligations purchased
by a Portfolio is not shortened by a standby commitment. Therefore, standby
commitments do not affect the dollar-weighted 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 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.
Before they are registered, such securities may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional market for
unregistered securities and the importance of institutional investors in the
formation of capital, the SEC has adopted Rule 144A under the 1933 Act. Rule
144A is designed 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
17
<PAGE>
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 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
restricted securities, including Rule 144A securities are illiquid, purchases
thereof will be subject to each Portfolio's 15% (or 10% in the case of Neuberger
& Berman MUNICIPAL MONEY Portfolio) limit on investments in illiquid securities.
Restricted securities for which no market exists are priced by a method that the
Portfolio Trustees believe accurately reflects fair value.
WHEN-ISSUED TRANSACTIONS. Each Portfolio may purchase
securities on a when-issued basis. These transactions involve a commitment by a
Portfolio to purchase securities that will be issued at a future date
(ordinarily within two months, although the Portfolio may agree to a longer
settlement period). The price of the underlying securities (usually expressed in
terms of yield) and the date when the securities will be delivered and paid for
(the settlement date) are fixed at the time the transaction is negotiated.
When-issued purchases are negotiated directly with the other party, and such
commitments are not traded on exchanges.
When-issued transactions enable a Portfolio to "lock in" what
N&B Management believes to be an attractive price or yield on a particular
security for a period of time, regardless of future changes in interest rates.
In periods of falling interest rates and rising prices, a 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. Because the Portfolio has not yet paid for the
securities, this produces an effect similar to leverage. 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.
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A Portfolio will purchase securities on a when-issued basis
only with the intention of completing the transaction and actually purchasing
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 deposit in a segregated account with its custodian, until payment is
made, appropriate liquid securities having an aggregate market value (determined
daily) at least equal to the amount of the Portfolio's purchase commitments.
This procedure is designed to ensure that the Portfolio maintains sufficient
assets at all times to cover its obligations under when-issued purchases.
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
each Portfolio's investment policies and limitations concerning borrowings.
While a reverse repurchase agreement is outstanding, a Portfolio will deposit in
a segregated account with its custodian cash, or appropriate liquid securities,
marked to market daily, in an amount at least equal to each Portfolio's
obligations under the agreement. There is a risk that the counter-party to a
reverse repurchase agreement will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Portfolio. None of
the Portfolios currently expects to enter into reverse repurchase agreements or
borrow money.
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.
The discount on zero coupon securities ("original issue
discount") must be taken into account ratably by each such Portfolio prior to
the receipt of any actual payments. Because its corresponding Fund must
distribute substantially all of its net income (including its share of the
Portfolio's accrued tax-exempt original issue discount) to its shareholders each
year for income tax purposes, each such Portfolio may have to dispose of
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<PAGE>
portfolio securities under disadvantageous circumstances to generate cash, or
may be required to borrow, to satisfy its corresponding Fund's distribution
requirements. See "Additional Tax Information."
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 the same or similar
maturities and credit quality.
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 and other securities resulting from 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 for the hedged
securities.
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 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.
U.S. Futures are traded on exchanges that have been designated
as "contract markets" by the Commodity Futures Trading Commission ("CFTC");
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.
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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.
"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 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.
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 is delivered
to the holder of the option. 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.
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. 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
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<PAGE>
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 fluctuation in
the price of a Futures Contract or option thereon during a single trading day;
once the daily limit has been reached, no trades 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. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable 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 and 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 Fund's NAVs. The Portfolio
may also write covered call options to earn premium income. 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 Portfolio will receive a premium for writing a put option,
which obligates the Portfolio to acquire a security at a certain price at any
time until a certain date if the purchaser of the option decides to exercise the
option. 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 until a certain
date, if the purchaser decides to exercise the option. The Portfolio receives a
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<PAGE>
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 a call 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.
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 a 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.
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. Options normally have expiration dates between three and nine months
from the date written. 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.
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
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<PAGE>
every exchange-traded option. In contrast, OTC options are contracts between the
Portfolio and a 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) an 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 interest rate
environment. The premium received by the Portfolio for writing an 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 last reported sales price before the time the Portfolio's NAV is computed on
the day the option is being valued or, in the absence of any trades thereof on
that day, the mean between the bid and asked 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 a different exercise price or expiration
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<PAGE>
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. 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; however, the Portfolio could be in a less
advantageous position than if it had not written the call option.
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. 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.
REGULATORY LIMITATIONS ON USING FUTURES, OPTIONS ON FUTURES,
AND OPTIONS ON SECURITIES (COLLECTIVELY, "HEDGING INSTRUMENTS") (NEUBERGER &
BERMAN MUNICIPAL SECURITIES PORTFOLIO AND NEUBERGER & BERMAN NEW YORK INSURED
INTERMEDIATE PORTFOLIO). 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.
COVER FOR HEDGING INSTRUMENTS (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 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 the prescribed amount of cash or
appropriate liquid securities. Securities held in a segregated account cannot be
sold while the Futures or option strategy covered by those securities is
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<PAGE>
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 or options position; this inability may result
in a loss to the Portfolio.
GENERAL RISKS OF HEDGING INSTRUMENTS (NEUBERGER & BERMAN
MUNICIPAL SECURITIES PORTFOLIO AND NEUBERGER & BERMAN NEW YORK INSURED
INTERMEDIATE PORTFOLIO). The primary risks in using Hedging Instruments are (1)
imperfect correlation or no correlation between changes in the prices 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 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. 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."
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 market
26
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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 no longer 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 securities that are below investment grade 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.
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical
results 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:
Effective Yield = [(Base Period Return + 1)365/7] - 1
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For the seven calendar days ended October 31, 1996, the
current yield and effective yield of MUNICIPAL MONEY were 2.84% and 2.88%,
respectively.
Each of MUNICIPAL SECURITIES and NEW YORK INSURED INTERMEDIATE
may advertise its "yield" based on a 30-day (or one month) 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, 1996, the annualized yields
of MUNICIPAL SECURITIES and NEW YORK INSURED INTERMEDIATE were 4.14% and 4.16%,
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 level of after-tax yield
produced by an investment in a Fund. 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, 1996, were 4.70% and
4.81%, respectively. The tax-equivalent yield of MUNICIPAL SECURITIES for the
30-day period ended that date was 6.85%, assuming a marginal tax rate of 39.6%.
The use of a 4% yield in these examples is for illustrative
purposes only and is not indicative of the Funds' future performance.
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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 46.7%) 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 46.7%, the
computation is:
4 / (1 - .467) = 4 / .533 = 7.50% 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 7.50%; conversely, the taxable
investment will provide a higher after-tax yield when taxable yields exceed
7.50%. This example assumes that all of the Fund's 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, 1996 was 7.80%, assuming a combined tax rate
of 46.7%.
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:
P (1+T)n = ERV
Average annual total return smoothes out year-to-year variations in performance
and, in that respect, differs from actual year-to-year results.
For the one- and five-year periods ended October 31, 1996, and
the period from July 9, 1987 (commencement of operations) through October 31,
1996, the average annual total returns for MUNICIPAL SECURITIES and its
predecessor were +3.92%, +5.82%, and +6.39%, 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 $17,813 on October 31, 1996.
29
<PAGE>
For the one-year period ended October 31, 1996 and for the
period from February 1, 1994 (commencement of operations) to October 31, 1996
the average annual total returns for NEW YORK INSURED INTERMEDIATE were +3.58%
and +4.04%, 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 $11,150 on October 31, 1996.
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 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, Kiplinger's 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 domestic, international, and
global indices and changes in the U.S. Department of Labor
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 may
invest in different types of securities from those included in
some of the above indices.
Each Fund's performance also may be compared from time to time
with the following specific indices and other measures of performance:
30
<PAGE>
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.
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 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
31
<PAGE>
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.
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 investing 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
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
A Fund's investment in its corresponding Portfolio may be
affected by the actions of other larger 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.
Although each Portfolio seeks to reduce risk by investing in a
diversified portfolio of securities, diversification does not eliminate all
risk. There can, of course, be no assurance any Portfolio will achieve its
investment objective. Each Portfolio's ability to achieve its investment
32
<PAGE>
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 classifications. 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 15c2-12 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 initiate
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
33
<PAGE>
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 investment 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.
YNEW 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.
After noticeable improvements in the City's economy during calendar year 1994,
economic growth slowed in calendar year 1995, and the City's current four-year
financial plan assumes that moderate growth will continue through calendar year
2000.
For each of the 1981 through 1996 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. 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 New York State Financial Emergency Act for the
City of New York (the "Financial Emergency Act" or the "Act"), the City prepares
34
<PAGE>
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 June 21, 1996 a financial plan for the 1997 through 2000 fiscal years (the
"Financial Plan") which was subsequently modified on November 14, 1996 to
reflect actual receipts and expenditures since the release of the Financial
Plan. A further modification to the Financial Plan for the City's 1997 through
2000 fiscal years is expected to be published shortly. 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. 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 July 10,
1995, S&P revised downward its rating in City general obligation bonds from A-
to BBB+. 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 again in February 1991, to Baa1. Since July 15, 1993, Fitch
has rated City bonds A-. On February 28, 1996, Fitch placed the City's general
obligation bonds on FitchAlert with negative implications. On November 5, 1996,
Fitch removed the City's general obligation bonds from FitchAlert, although
Fitch stated that the outlook remains negative.
NEW YORK STATE
- --------------
The State's 1996-1997 Financial Plan is projected to be
balanced on a cash basis. The State issued its first update to the cash-basis
1996-1997 State Financial Plan on October 25, 1996, reflecting a continued
balance in the State's 1996-1997 Financial Plan with a reserve for contingencies
in the General Fund of $300 million. This reserve will be utilized to help
affect a variety of potential risks and other unexpected contingencies the State
may face during the balance of the 1996-1997 fiscal year. The State Division of
35
<PAGE>
the Budget, however, cautioned that these projections were subject to various
risks, including state and national economic forecasts and recently adopted
federal welfare legislation.
The Governor is required to submit a balanced budget to the
State Legislature and has indicated he will close any potential imbalance in the
1997-1998 Financial Plan primarily through General Fund expenditure reductions
and without increases in taxes or deferrals of scheduled tax reductions. It is
expected that the State's 1997-1998 Financial Plan will reflect a continuing
strategy of substantially reduced State spending, including agency
consolidations, reductions in the State workforce, and efficiency and
productivity initiatives. The Division of the Budget intends to update the State
Financial Plan upon release of the 1997-1998 Executive Budget. The Governor has
not yet submitted a proposed budget for the State's 1997-1998 fiscal year. There
can be no assurances that the Budget will be enacted before April 1, 1997.
The State Financial Plan is comprised of four governmental
funds, of which the General Fund is the largest. The General Fund is the
principal operating fund of the State and is used to account for all financial
transactions, except those required to be accounted for in another fund. It is
the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes. In the State's 1996-1997 fiscal year, the
General Fund is expected to account for approximately 47 percent of total
Governmental Funds disbursements and 71 percent of total State Funds
disbursements.
Based on the revised economic outlook and actual receipts for
the first six months of 1996-1997, projected General Fund receipts for the
1996-1997 State fiscal year have increased. Most of this projected increase is
in the yield of the personal income tax ($241 million), with additional
increases now expected in business taxes ($124 million) and other tax receipts
($49 million). Projected collections from user taxes and fees have been revised
downward slightly ($5 million).
The projected closing fund balance in the General Fund is $337
million and reflects a balance of $252 million in the Tax Stabilization Reserve
Fund (following a payment of $15 million during the current fiscal year) and a
deposit of $85 million to the Contingency Reserve Fund.
There can be no assurance that the State's economy will not
experience worse-than-predicted results in the 1996-1997 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
through the second half of 1996 with employment, wages and incomes continuing
36
<PAGE>
their modest rise. State personal income is projected to increase by 5.2% in
1996 and 4.7% in 1997.
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 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 have enjoyed a federal tax advantage
from locating certain of their operations in Puerto Rico. However, this program
will 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 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 (67) 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 of Funds (investment companies)
(1976 - 1991); Chairman and Chief Investment
Officer of CDC Associates, Inc. (registered
investment adviser) (1993-present).
Stanley Egener* (62) Chairman of the Board, Chief Principal of Neuberger & Berman; President
Executive Officer, and Trustee and Director of N&B Management; Chairman of
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.
Theodore P. Giuliano* (44) President and Trustee of each Principal of Neuberger & Berman; Vice
Trust President and Director of N&B Management;
President and Trustee of one other mutual
fund for which N&B Management acts as
administrator.
Barry Hirsch (63) Trustee of each Trust Senior Vice President, Secretary, and
Loews Corporation General Counsel of Loews Corporation
667 Madison Avenue (diversified financial corporation).
8th Floor
New York, NY 10021
Robert A. Kavesh (69) Trustee of each Trust Professor of Finance and Economics at Stern
110 Bleecker 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.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Name, Address Positions Held Principal
AND AGE(1) WITH THE TRUSTS OCCUPATION(S) (2)
---------- --------------- -----------------
<S> <C> <C>
William E. Rulon (64) Trustee of each Trust Retired. Senior Vice President of
Foodmaker, Inc. Foodmaker, Inc. (operator and franchiser of
1761 Hotel Circle So. restaurants) until January 1997; Secretary
San Diego, CA 92108 of Foodmaker, Inc. until July 1996.
Candace L. Straight (49) Trustee of each Trust Private investor and consultant specializing
578 E. Passaic Avenue in the insurance industry; Principal of Head
Bloomfield, NJ 07003 & Company, LLC (limited liability company
providing investment banking and
consulting services to the insurance
industry) until March 1996; President of
Integon Corporation (marketer of life
insurance, annuities, and property and
casualty insurance), 1990-1992; Director
of Drake Holdings (U.K. motor insurer)
until June 1996.
Daniel J. Sullivan (57) 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.
39
<PAGE>
Name, Address Positions Held Principal
AND AGE(1) WITH THE TRUSTS OCCUPATION(S) (2)
---------- --------------- -----------------
Michael J. Weiner (49) Vice President and Principal Senior Vice President of N&B Management
Financial Officer of each Trust since 1992; Treasurer of N&B Management 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 (40) 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 (50) Treasurer and Principal Vice President of N&B Management since 1993;
Accounting Officer of each Trust prior thereto, Assistant Vice 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.
40
<PAGE>
Name, Address Positions Held Principal
AND AGE(1) WITH THE TRUSTS OCCUPATION(S) (2)
---------- --------------- -----------------
C. Carl Randolph (59) Assistant Secretary of each Principal 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.
Barbara DiGiorgio (38) Assistant Treasurer of each Assistant Vice President of N&B Management
Trust since 1993; prior thereto, employee of N&B
Management; Assistant Treasurer of eight other
mutual funds for which N&B Management acts as
investment manager or administrator.
Celeste Wischerth (36) Assistant Treasurer of each Assistant Vice President of N&B Management
Trust since 1994; prior thereto, employee of N&B
Management; Assistant Treasurer 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, New York, NY 10158.
(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. Messrs. Egener and Giuliano are interested persons by
virtue of the fact that they are officers and directors of N&B Management and
principals of Neuberger & Berman.
The Trust's Trust Instrument and Managers Trust's Declaration
of Trust provide that each such Trust will indemnify its trustees and officers
against liabilities and expenses reasonably incurred in connection with
litigation in which they may be involved because of their offices with the
41
<PAGE>
Trust, unless it is adjudicated that they (a) engaged in bad faith, willful
misfeasance, gross negligence, or reckless disregard of the duties involved in
the conduct of their offices, or (b) did not act in good faith in the reasonable
belief that their action was in the best interest of the Trust. In the case of
settlement, such indemnification will not be provided unless it has been
determined (by a court or other body approving the settlement or other
disposition, 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, 1996, trustees' fees and
expenses aggregating $30,039, $15,163 and $11,290 were paid and accrued by
Neuberger & Berman MUNICIPAL MONEY Fund and Portfolio, Neuberger & Berman
MUNICIPAL SECURITIES Trust and Portfolio, and Neuberger & Berman NEW YORK
INSURED INTERMEDIATE Fund and Portfolio, respectively, 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(R) has any retirement plan for its trustees or officers.
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/96
------------------------------
Name and Position Aggregate Total Compensation
With The Trust Compensation from Trusts in the
----------------- From The Trust Neuberger & Berman
-------------- Funds Complex Paid
To Trustees
------------------
John Cannon $14,758 $31,000
Trustee (2 other investment
companies)
Charles DeCarlo $17,222 $35,000
Trustee (retired 12/96) (2 other investment companies)
Stanley Egener $ 0 $ 0
Chairman of the Board,
Chief Executive (9 other investment companies)
Officer, and Trustee
Theodore P. Giuliano $ 0 $ 0
President and Trustee (2 other investment companies)
42
<PAGE>
Name and Position Aggregate Total Compensation
With The Trust Compensation from Trusts in the
----------------- From The Trust Neuberger & Berman
-------------- Funds Complex Paid
To Trustees
------------------
Barry Hirsch $17,468 $35,500
Trustee (2 other investment companies)
Robert A. Kavesh $14,758 $31,000
Trustee (2 other investment companies)
Harold R. Logan $15,005 $30,500
Trustee (retired 12/96) (2 other investment companies)
William E. Rulon $15,005 $30,500
Trustee (2 other investment companies)
Candace L. Straight $14,758 $30,500
Trustee (2 other investment companies)
At January 14, 1997, the trustees and officers of the Trust,
as a group, owned beneficially or of record less than 1% of the outstanding
shares of MUNICIPAL MONEY. As of that date, such trustees and officers, as a
group, owned 3.00% and 11.03% of MUNICIPAL SECURITIES and NEW YORK INSURED
INTERMEDIATE, respectively.
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
43
<PAGE>
authorized to become subject to the Management Agreement by vote of the
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 pay a material amount of such compensation.
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 principals 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 with the Trust
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.
From time to time, N&B Management or a Fund may enter into
arrangements with registered broker-dealers or other third parties pursuant to
44
<PAGE>
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.
For the fiscal years ended October 31, 1996, 1995, and 1994,
(1) MUNICIPAL SECURITIES accrued advisory or management and administration fees
of $215,161, $225,079, and $407,968, respectively, and (2) MUNICIPAL MONEY Fund
accrued advisory or management and administration fees of $832,011, $772,483,
and $823,482, respectively. For the fiscal years ended October 31, 1996 and 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 $52,745, $58,306 and $56,483, respectively.
As noted in the Prospectus under "Management and
Administration -- Expenses," N&B Management has voluntarily undertaken to
reimburse each of MUNICIPAL SECURITIES and NEW YORK INSURED INTERMEDIATE for its
Operating Expenses (including fees under the Administration Agreement) and the
pro rata share of its corresponding Portfolio's Operating Expenses (including
fees under the Management Agreement) that exceed, in the aggregate 0.65% per
annum of the Fund's average daily net assets. Operating Expenses exclude
interest, taxes, brokerage commissions, and extraordinary expenses. N&B
Management can terminate each undertaking by giving the Fund at least 60 days'
prior written notice. For the fiscal years ended October 31, 1996, 1995, and
1994, MUNICIPAL SECURITIES was reimbursed for its expenses in the amounts of
$160,411, $145,086, and $140,055, respectively. For the fiscal years ended
October 31, 1996 and 1995 and the fiscal period ended October 31, 1994, N&B
Management reimbursed NEW YORK INSURED INTERMEDIATE $133,004, $134,191, and
$100,692, respectively.
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 year ended October 31, 1994, MUNICIPAL MONEY paid
$15,415, and $26,499, respectively, and MUNICIPAL SECURITIES paid $4,376, and
$12,704, 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.
45
<PAGE>
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 shares 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 a majority 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 that 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. Each Agreement terminates automatically if it is assigned.
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 (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 principals 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
46
<PAGE>
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 or a 1940 Act majority vote of the
outstanding interests in that 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, 1996, these companies, along
with one other investment company advised by Neuberger & Berman, had aggregate
net assets of approximately $15.2 billion, as shown in the following list:
<TABLE>
<CAPTION>
Approximate
Net Assets at
Name December 31,1996
- ---- ----------------
<S> <C>
Neuberger & Berman Cash Reserves Portfolio..........................................$499,989,187
(investment portfolio for Neuberger & Berman Cash Reserves)
Neuberger & Berman Government Money Portfolio.......................................$402,843,399
(investment portfolio for Neuberger & Berman Government Money Fund)
Neuberger & Berman Limited Maturity Bond Portfolio..................................$272,342,178
(investment portfolio for Neuberger & Berman Limited Maturity
Bond Fund and Neuberger & Berman Limited
Maturity Bond Trust)
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Approximate
Net Assets at
Name December 31,1996
- ---- ----------------
<S> <C>
Neuberger & Berman Ultra Short Bond Portfolio........................................$89,819,435
(investment portfolio for Neuberger & Berman Ultra Short Bond
Fund and Neuberger & Berman Ultra Short Bond Trust)
Neuberger & Berman Municipal Money Portfolio........................................$135,494,410
(investment portfolio for Neuberger & Berman Municipal Money Fund)
Neuberger & Berman Municipal Securities Portfolio....................................$38,634,808
(investment portfolio for Neuberger & Berman Municipal Securities Trust)
Neuberger & Berman New York Insured Intermediate
Portfolio ......................................................................$9,877,137
(investment portfolio for Neuberger & Berman New York Insured
Intermediate Fund)
Neuberger & Berman Focus Portfolio................................................$1,260,252,029
(investment portfolio for Neuberger & Berman Focus Fund,
Neuberger & Berman Focus Trust, and Neuberger & Berman Focus Assets)
Neuberger & Berman Genesis Portfolio................................................$398,343,946
(investment portfolio for Neuberger & Berman Genesis Fund,
Neuberger & Berman Genesis Trust, and Neuberger
& Berman Genesis Assets)
Neuberger & Berman Guardian Portfolio.............................................$7,071,702,448
(investment portfolio for Neuberger & Berman Guardian Fund,
Neuberger & Berman Guardian Trust, and
Neuberger & Berman Guardian Assets)
Neuberger & Berman International Portfolio...........................................$73,377,704
(investment portfolio for Neuberger & Berman International Fund)
Neuberger & Berman Manhattan Portfolio..............................................$574,606,109
(investment portfolio for Neuberger & Berman Manhattan Fund,
Neuberger & Berman Manhattan Trust, and
Neuberger & Berman Manhattan Assets)
Neuberger & Berman Partners Portfolio.............................................$2,405,865,742
(investment portfolio for Neuberger & Berman Partners Fund,
Neuberger & Berman Partners Trust, and
Neuberger & Berman Partners Assets)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Approximate
Net Assets at
Name December 31,1996
- ---- ----------------
<S> <C>
Neuberger & Berman Socially Responsive
Portfolio ....................................................................$188,366,394
(investment portfolio for Neuberger & Berman Socially Responsive
Fund and Neuberger & Berman NYCDC Socially
Responsive Trust)
Advisers Managers Trust (six series)...............................................$1,695,378,078
</TABLE>
In addition, Neuberger & Berman serves as investment adviser
to one investment company, Plan Investment Fund, with assets of $70,276,858 at
December 31, 1996.
The investment decisions concerning the Portfolios and the
other mutual funds 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. 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.
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, in terms of amount, in accordance with a formula considered to be
equitable to the funds involved. Although in some cases this arrangement may
have a detrimental effect on the price or volume of the securities as to a
Portfolio, in other cases it is believed that a Portfolio's ability to
participate in volume transactions may produce better executions for it. In any
case, it is the judgment of the Portfolio Trustees that the desirability of the
Portfolios' having their advisory arrangements with N&B Management outweighs any
disadvantages that may result from contemporaneous transactions.
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; Theodore P.
Giuliano, Vice President and director; Michael M. Kassen, Vice President and
director; Irwin Lainoff, 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;
Patrick T. Byrne, Vice President; William Cunningham, Vice President; Clara Del
Villar, Vice President; Mark R. Goldstein, Vice President; Michael Lamberti,
Vice President; Josephine P. Mahaney, Vice President; Ellen Metzger, Vice
49
<PAGE>
President and Secretary; Paul Metzger, Vice President; 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; Susan Walsh, Vice President, Thomas Wolfe, Vice President;
Andrea Trachtenberg, Vice President of Marketing; Robert Conti, Treasurer; Stacy
Cooper-Shugrue, Assistant Vice President; Barbara DiGiorgio, Assistant Vice
President; Roberta D'Orio, Assistant Vice President; Joseph G. Galli, Assistant
Vice President; Robert I. Gendelman, Assistant Vice President; Leslie
Holliday-Soto, Assistant Vice President; Jody L. Irwin, Assistant Vice
President; Carmen G. Martinez, Assistant Vice President; Joseph S. Quirk,
Assistant Vice President; Kevin L. Risen, Assistant Vice President; Susan
Switzer, Assistant Vice President; and Celeste Wischerth, Assistant Vice
President, KimMarie Zamot, Assistant Vice President; and Loraine Olavarria,
Assistant Secretary. Messrs. Cantor, Egener, Gendelman, Giuliano, Lainoff,
Zicklin, Goldstein, Kassen, Risen, Simons and Sundman and Mmes. Prindle and Vale
are principals of Neuberger & Berman.
Mr. Giuliano and Mr. Egener are trustees and officers, and
Messrs. Sullivan, Weiner, and Russell and Mmes. Brandon, Cooper-Shugrue,
DiGiorgio and Wischerth are officers, of each Trust. C. Carl Randolph, a
principal 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 principals 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 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.
The Distributor or one of its affiliates may, from time to
time, deem it desirable to offer to shareholders of the Funds, through use of
their shareholder lists, the shares of other mutual funds for which the
Distributor acts as distributor or other products or services. Any such use of
the 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, 1997. The
Distribution Agreement may be renewed annually if specifically approved by (1)
50
<PAGE>
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
terminate automatically 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 automatically
invested in shares of MUNICIPAL SECURITIES or NEW YORK INSURED INTERMEDIATE 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 or (2) withdrawals from the
shareholder's checking account. In either case, the minimum monthly investment
is $100. A shareholder who elects to participate 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 would be lower than it would be if the
shareholder purchased a fixed number of shares at the same 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 "Shareholder Services -- Exchange Privilege," shareholders may redeem
at least $1,000 worth of a Fund's shares and invest the proceeds in shares of
51
<PAGE>
one or more of the other Funds or the Equity or Income 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
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 primarily in common
stocks of companies with small
market capitalizations (i.e., up to
$1.5 billion) at the time of the
Portfolio's investment. 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 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
52
<PAGE>
economically mature countries and
emerging industrialized countries.
Neuberger & Berman Seeks capital appreciation, without
Manhattan Fund regard to income, through
investments generally in securities
of small-, medium-, and
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 securities thought to be
undervalued.
Neuberger & Berman
Partners Fund Seeks capital growth through an
investment 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 a low
price-to-earnings ratio, 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 through investments primarily in
Fund securities of companies that meet
both financial and social criteria.
INCOME FUNDS
- ------------
Neuberger & Berman
Government Money Fund A U.S. Government money market fund
seeking maximum safety and liquidity
and the highest available current
income. The corresponding portfolio
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
Cash Reserves A money market fund seeking the
highest current income consistent
with safety and liquidity. The
corresponding portfolio invests in
high-quality money market
instruments. It seeks to maintain a
53
<PAGE>
constant purchase and redemption
price of $1.00.
Neuberger & Berman
Ultra Short Bond Fund Seeks current income, with minimal
risk to principal and liquidity.
Ultra Short Bond Fund The
corresponding portfolio invests in
money market instruments and
investment grade debt securities of
government and non-government
issuers. Maximum dollar-weighted
average duration of two years.
Neuberger & Berman
Limited Maturity Bond Fund Seeks the highest current income
consistent with low risk to
principal and liquidity; and
secondarily, total return. The
corresponding portfolio invests in
debt securities, primarily
investment grade; maximum 10% below
investment grade, but no lower than
B.1/ Maximum dollar-weighted average
duration of four years.
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 Equity or Income Funds should note that (1) like the Funds, the
Income Funds are series of the Trust, (2) the Equity Funds 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
of the Equity and Income Funds invests all of its net investable assets in a
corresponding portfolio that has an investment objective, policies, and
limitations identical to those of the 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. The Income Funds 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 MUNICIPAL MONEY, Neuberger &
Berman Cash Reserves, or Neuberger & Berman Government Money Fund, 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
- ----------------
1/ As rated by Moody's or S&P or, if unrated by either of those
entities, deemed by N&B Management to be of comparable quality.
54
<PAGE>
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 its 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 the
Fund's shareholders. 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) exceeding $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 "Share Prices and Net Asset Value" in the Prospectus.
If payment is made in securities, a shareholder generally will incur brokerage
expenses or other transactions costs in converting those securities into cash
and will be subject to fluctuation in the market prices of those securities
until they are sold. The Funds do not redeem in kind under normal circumstances,
but would do so when the Fund Trustees determined that it was in the best
interests of a Fund's shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders amounts equal to
substantially all of its share of any net investment income (after deducting
expenses incurred directly by the Fund) and any net realized capital gains (both
long-term and short-term) earned by its corresponding Portfolio. A Portfolio's
net investment income consists of all income accrued on portfolio assets less
accrued expenses but does not include net realized or unrealized capital gains
and losses. Net investment income and net capital gains and losses are reflected
in a Portfolio's NAV (and, hence, its corresponding Fund's NAV) until they are
distributed. MUNICIPAL MONEY calculates its net investment income and share
55
<PAGE>
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).
Income dividends are declared daily; dividends declared for
each month are paid on the last Business Day of the month. Shares of MUNICIPAL
MONEY 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. Distributions of net realized capital gains, if any, normally are paid
by MUNICIPAL SECURITIES and NEW YORK INSURED INTERMEDIATE once annually, in
December.
Dividends and other distributions are automatically reinvested
in additional shares of the distributing Fund, unless 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. Cash distributions can be paid through an
electronic transfer to a bank account designated in the shareholder's original
account application. To the extent dividends and other distributions are subject
to federal, state, or local income taxation, they are taxable to the
shareholders whether received in cash or reinvested in 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 or if checks remain uncashed
for 180 days, the Fund will terminate the shareholder's cash election.
Thereafter, the shareholder's dividends and other distributions will
automatically be 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 its investment company taxable income (consisting generally of
56
<PAGE>
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 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, securities of other RICs and other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's total assets and does not represent more
than 10% of the issuer's outstanding voting securities, and (ii) not more than
25% of the value of its total assets may be invested in securities (other than
U.S. Government securities or securities of other RICs) of any one issuer.
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. 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
57
<PAGE>
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 consequences
(1) to MUNICIPAL SECURITIES and NEW YORK INSURED INTERMEDIATE of hedging and
certain other transactions engaged in by their corresponding Portfolios and (2)
to all the Funds of certain other matters involving the 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 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 qualifies 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
58
<PAGE>
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 capital gains and decreased by (a) the amount of cash and the basis of any
property the Portfolio distributes to the Fund and (b) 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 strategies, 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, gains from 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.
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 satisfy those requirements to enable its
corresponding Fund 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
59
<PAGE>
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 purchased 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 discount 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 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 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 share of the
total amount of cash its corresponding Portfolio actually receives. Those
distributions will be made from a Fund's (or its 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
- -----------------------------------
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"
60
<PAGE>
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 Prospectus,
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. There may
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. A shareholder
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 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.
61
<PAGE>
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 Neuberger & Berman NEW YORK INSURED INTERMEDIATE Portfolio's
interest on New York Municipal Securities bears to all of the Portfolio'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
Neuberger & Berman MUNICIPAL MONEY 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 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 Neuberger & Berman MUNICIPAL MONEY Portfolio's reliance on
Rule 2a-7 and use of the amortized cost valuation method should enable 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 typically do not pay brokerage commissions for such purchases and
sales. Instead, the price paid for newly issued securities usually includes a
concession or discount paid by the issuer to the underwriter, and the prices
quoted by market-makers reflect a spread between the bid and the asked prices
from which the dealer derives a profit.
62
<PAGE>
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, may
designate any dealer to receive selling concessions, discounts, or other
allowances, or otherwise may deal with any dealer in connection with the
acquisition of securities in underwritings.
During the fiscal year ended October 31, 1996, no Portfolio
acquired securities of its "regular brokers or dealers" (as defined in the 1940
Act). At October 31, 1996, 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.
PORTFOLIO TURNOVER
- ------------------
Neuberger & Berman MUNICIPAL SECURITIES Portfolio and
Neuberger & Berman NEW YORK INSURED INTERMEDIATE Portfolio calculate a portfolio
turnover rate by dividing (1) the lesser of the cost of the securities purchased
or the proceeds from the securities sold by the Portfolio during the fiscal year
other than securities, including options, whose maturity or expiration date at
the time of acquisition was one year or less by (2) the month-end average value
of such securities owned by the Portfolio during the fiscal year.
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<PAGE>
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.
ORGANIZATION
The predecessors of MUNICIPAL MONEY and MUNICIPAL SECURITIES were
converted into separate series of the Trust on July 2, 1993; these conversions
were approved by the shareholders of the predecessors of these Funds in April
1993.
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, MA 02110 as
custodian for its securities and cash. State Street also serves as each Fund's
transfer 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. All correspondence should be
mailed to Neuberger & Berman Funds, c/o Boston Service Center, P.O. Box 8403,
Boston, MA 02266-8403.
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. 20036-1800, 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 14, 1997:
64
<PAGE>
<TABLE>
<CAPTION>
Name And Address: Percentage of
----------------- Ownership at
January 14, 1997
----------------
<S> <C> <C>
MUNICIPAL MONEY: Neuberger & Berman* 86.85%
11 Broadway
New York, NY 10004
MUNICIPAL SECURITIES: Neuberger & Berman* 17.14%
11 Broadway
New York, NY 10004
Charles Schwab & Co., Inc.* 11.72%
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
NEW YORK INSURED INTERMEDIATE: Neuberger & Berman* 18.93%
----------------------------- 11 Broadway
Attn: Operations Control
New York, NY 10004-1303
Charles Schwab & Co., Inc.* 13.74%
101 Montgomery Street
San Francisco, CA 94104-4122
Neuberger & Berman 11.15%
Management Inc.
Attn: M. Weiner
605 Third Avenue
2nd Floor
New York, NY 10158-0180
Stanley Egener 11.03%
605 Third Avenue
New York, NY 10158
</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 their client accounts unless disclosure is expressly required by
law.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information
included in the Trust's registration statement filed with the SEC under the 1933
Act with respect to the securities offered by the Prospectus. The registration
statement, including the exhibits filed therewith, may be examined at the SEC's
65
<PAGE>
offices in Washington, D.C. The SEC maintains a Website (http://www.sec.gov)
that contains this SAI, material incorporated by reference, and other
information regarding the Funds and Portfolios.
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 where reference is made to the copy of any
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 from the Funds' Annual Report to Shareholders
for the fiscal year ended October 31, 1996:
The Statements of Assets and Liabilities of the Funds and
Portfolios, including the Schedules of Investments of the Portfolios,
as of October 31, 1996, and the related Statements of Operations for
the year then ended, the Statements of Changes in Net Assets for each
of the two years in the period then ended, the Financial Highlights for
each of the periods indicated therein, the notes to each of the
foregoing for the fiscal year ended October 31, 1996, and the reports
of Ernst & Young LLP, independent auditors, with respect to such
audited financial statements of Neuberger & Berman Municipal Money Fund
and Portfolio, Neuberger & Berman Municipal Securities Trust and
Portfolio, and Neuberger & Berman New York Insured Intermediate Fund
and Portfolio.
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<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 quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or an exceptionally
stable margin, and principal is secure. Although the various protective elements
are likely to change, the changes that can be visualized are most unlikely to
impair the fundamentally strong position of 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
A-1
<PAGE>
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.
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.
A-2
<PAGE>
The designation VMIG indicates a variable rate demand note.
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 institutions),
also known as P-1, have a superior capacity for repayment of short-term
promissory obligations. PRIME-1 repayment capacity will normally be evidenced by
the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions),
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.
A-3
<PAGE>
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.
A-4
<PAGE>
APPENDIX B
The Art of Investing:
A Conversation with Roy Neuberger
"I firmly believe that if you want to manage your own
money, you must be a student of the market. If you
are unwilling or unable to do that, find someone else
to manage your money for you."
NEUBERGER & BERMAN
B-1
<PAGE>
[THIS PAGE IS BLANK - IT IS AN INSIDE PAGE OF THIS BROCHURE]
B-2
<PAGE>
[PICTURE OF ROY NEUBERGER]
During my more than sixty-five years of buying and selling
securities, I've been asked many questions about my approach to
investing. On the pages that follow are a variety of my thoughts,
ideas and investment principles which have served me well over the
years. If you gain useful knowledge in the pursuit of profit as well
as enjoyment from these comments, I shall be more than content.
\s\ Roy R. Neuberger
<PAGE>
YOU'VE BEEN ABLE TO CONDENSE SOME OF THE
CHARACTERISTICS OF SUCCESSFUL INVESTING INTO
FIVE "RULES." WHAT ARE THEY?
Rule #1: Be flexible. My philosophy has
necessarily changed from time to time because
of events and because of mistakes. My views
change as economic, political, and
technological changes occur both on and
sometimes off our planet. It is imperative
that you be willing to change your thoughts
to meet new conditions.
Rule #2: Take your temperament into account.
Recognize whether you are by nature very
speculative or just the opposite -- fearful,
timid of taking risks. But in any event --
Diversify your investments, Rule #3: Be broad-gauged. Diversify your
make sure that some of your investments, make sure that some of your
principal is kept safe, and principal is kept safe, and try to increase
try to increase your income your income as well as your capital.
as well as your capital.
[PICTURE OF ROY NEUBERGER]
Rule #4: Always remember there are many ways
to skin a cat! Ben Graham and David Dodd did
it by understanding basic values. Warren
Buffet invested his portfolio in a handful of
long-term holdings, while staying involved
with the companies' managements. Peter Lynch
chose to understand, first-hand, the products
of many hundreds of the companies he invested
in. George Soros showed his genius as a hedge
fund investor who could decipher world
currency trends. Each has been successful in
his own way. But to be successful, remember
to-
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Rule #5: Be skeptical. To repeat a few well-
worn useful phrases:
A. Dig for yourself.
B. Be from Missouri.
C. If it sounds too good to be true, it
probably is.
IN YOUR 65 YEARS OF INVESTING ARE THERE ANY
GENERAL PATTERNS YOU'VE OBSERVED AS TO HOW
THE MARKET BEHAVES?
Every decade that I've been involved with
Wall Street has a nuance of its own, an
economic and social climate that influences
investors. But generally, bull markets tend
to be longer than bear markets, and stock
prices tend to go up more slowly and
erratically than they go down. Bear markets
tend to be shorter and of greater intensity.
The market rarely rises or declines
concurrently with business cycles longer than
six months.
AS A LEGENDARY "VALUE INVESTOR," HOW DO YOU
DEFINE VALUE INVESTING?
Value investing means finding the best values
- - either absolute or relative. Absolute
means a stock has a low market price relative
to its own fundamentals. Relative value means
the price is attractive relative to the
market as a whole.
COULD YOU DESCRIBE A STOCK WITH "GOOD VALUE"?
A classic example is a company that has a low
price to earnings ratio, a low price to book
ratio, free cash flow, a strong balance
sheet, undervalued corporate assets,
unrecognized earnings turnaround and is
selling at a discount to private market
value.
These characteristics usually lead to
companies that are under-researched and have
a high degree of inside ownership and
entrepreneurial management.
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One of my colleagues at Neuberger & Berman
says he finds his value stocks either "under
a cloud" or "under a rock." "Under a cloud"
stocks are those Wall Street in general
doesn't like, because an entire industry is
out of favor and even the good stocks are
being dropped. "Under a rock" stocks are
those Wall Street is ignoring, so you have to
uncover them on your own.
ARE THERE OTHER KEY CRITERIA YOU USE TO JUDGE
STOCKS?
I'm more interested in longer-term trends in
earnings than short-term trends. Earnings
gains should be the product of long-term
strategies, superior management, taking
advantage of business opportunities and so
on. If these factors are in their proper
place, short-term earnings should not be of
major concern. Dividends are an important
extra because, if they're stable, they help
support the price of the stock.
WHAT ABOUT SELLING STOCKS?
Most individual investors should invest for
the long term but not mindlessly. A sell
discipline, often neglected by investors, is
vitally important.
"One should fall in love One should fall in love with ideas, with
with ideas, with people or people, or with idealism. But in my book, the
with idealism. But in my last thing to fall in love with is a
book, the last thing to particular security. It is after all just a
fall in love with is a sheet of paper indicating a part ownership in
particular security." a corporation and its use is purely
mercenary. If you must love a security, stay
in love with it until it gets overvalued;
then let somebody else fall in love.
[PICTURE OF ROY NEUBERGER]
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ANY OTHER ADVICE FOR INVESTORS?
I firmly believe that if you want to manage
your own money, you must be a student of the
market. If you're unwilling or unable to do
that, find someone else to manage your money
for you. Two options are a well-managed
no-load mutual fund or, if you have enough
assets for separate account management, a
money manager you trust with a good record.
HOW WOULD YOU DESCRIBE YOUR PERSONAL
INVESTING STYLE?
Every stock I buy is bought to be sold. The
market is a daily event, and I continually
review my holdings looking for selling
opportunities. I take a profit occasionally
on something that has gone up in price over
what was expected and simultaneously take
losses whenever misjudgment seems evident.
This creates a reservoir of buying power that
can be used to make fresh judgments on what
are the best values in the market at that
time. My active investing style has worked
well for me over the years, but for most
investors I recommend a longer-term approach.
I tend not to worry very must about the day
to day swings of the market, which are very
hard to comprehend. Instead, I try to be
rather clever in diagnosing values and trying
to win 70 to 80 percent of the time.
YOU BEGAN INVESTING IN 1929. WHAT WAS YOUR
EXPERIENCE WITH THE "GREAT CRASH"?
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The only money I managed in the Panic of 1929
was my own. My portfolio was down about 12
percent, and I had an uneasy feeling about
the market and conditions in general. Those
were the days of 10 percent margin. I studied
the lists carefully for a stock that was
overvalued in my opinion and which I could
sell short as a hedge. I came across RCA at
about $100 per share. It had recently split 5
for 1 and appeared overvalued. There were no
dividends, little income, a low net worth and
a weak financial position. I sold RCA short
in the amount equal to the dollar value of my
long portfolio. It proved to be a timely and
profitable move.
HOW DID THE CRASH OF 1929 AFFECT YOUR
INVESTING STYLE?
I am prematurely bearish when the market goes
up for a long time and everybody is happy
because they are richer. I am very bullish
when the market has gone down perceptibly and
I feel it has discounted any troubles we are
going to have.
HOW IMPORTANT ARE PSYCHOLOGICAL FACTORS TO
MARKET BEHAVIOR?
There are many factors in addition to
economic statistics or security analysis in a
buy or sell decision. I believe psychology
plays an important role in the Market. Some
people follow the crowd in hopes they'll be
swept along in the right direction, but if
the crowd is late in acting, this can be a
bad move.
I like to be contrary. When things look bad,
I become optimistic. When everything looks
rosy, and the crowd is optimistic, I like to
be a seller. Sometimes I'm too early, but I
generally profit.
AS A RENOWNED ART COLLECTOR, DO YOU FIND
SIMILARITIES BETWEEN SELECTING STOCKS AND
SELECTING WORKS OF ART?
B-7
<PAGE>
Both are an art, although picking stocks is a
minor art compared with painting, sculpture
"When things look bad, I or literature. I started buying art in the
become optimistic. When 30s, and in the 40s it was a daily, almost
everything looks rosy, and hourly occurrence. My inclination to buy the
the crowd is optimistic, I works of living artists comes from Van Gogh,
like to be a seller." who sold only one painting during his
lifetime. He died in poverty, only then to
become a legend and have his work sold for
millions of dollars.
[PICTURE OF ROY NEUBERGER]
There are more variables to consider now in
both buying art and picking stocks. In the
modern stock markets, the heavy use of
futures and options has changed the nature of
the investment world. In past times, the
stock market was much less complicated, as
was the art world.
Artists rose and fell on their own merits
without a lot of publicity and attention. As
more and more dealers are involved with
artists, the price of their work becomes
inflated. So I almost always buy works of
unknown, relatively undiscovered artists,
which, I suppose is similar to value
investing.
But the big difference in my view of art and
stocks is that I buy a stock to sell it and
make money. I never bought paintings or
sculptures for investment in my life. The
objective is to enjoy their beauty.
B-8
<PAGE>
WHAT DO YOU CONSIDER THE BUSINESS MILESTONES
IN YOUR LIFE?
Being a founder of Neuberger & Berman and
creating one of the first no-load mutual
funds. I started on Wall Street in 1929, and
during the depression I managed my own money
and that of my clientele. We all prospered,
but I wanted to have my own firm. In 1939 I
became a founder of Neuberger & Berman, and
for about 10 years we managed money for
individuals with substantial financial
assets. But I also wanted to offer the
smaller investor the benefits of professional
money management, so in 1950 I created the
Guardian Mutual Fund (now known as the
Neuberger & Berman Guardian Fund). The Fund
was kind of an innovation in its time because
it didn't charge a sales commission. I
thought the public was being overcharged for
mutual funds, so I wanted to create a fund
that would be offered directly to the public
without a sales charge. Now of course the
"no-load" fund business is a huge industry. I
managed the Fund myself for over 28 years.
[PICTURE OF ROY NEUBERGER]
YOU'RE IN YOUR NINETIES AND STILL YOU GO INTO
THE OFFICE EVERY DAY TO MANAGE YOUR
INVESTMENTS. WHY?
I like the fun of being nimble in the stock
market, and I'm addicted to the market's
fascinations.
WHAT CLOSING WORDS OF ADVICE DO YOU HAVE
ABOUT INVESTING?
Realize that there are opportunities at all
times for the adventuresome investor. And
stay in good physical condition. It's a
strange thing. You do not dissipate your
energies by using them. Exercise your body
and your brain every day, and you'll do
better in investments and in life.
B-9
<PAGE>
ROY NEUBERGER: A BRIEF BIOGRAPHY
Roy Neuberger is a founder of the investment
management firm Neuberger & Berman, and a
renowned value investor. He is also a
recognized collector of contemporary American
art, much of which he has given away to
museums and colleges across the country.
During the 1920s, Roy studied art in
Paris. When he realized he didn't possess the
talent to become an artist, he decided to
collect art, and to support this passion, Roy
turned to investing -- a pursuit for which
his talents have proven more than adequate.
A TALENT FOR INVESTING
Roy began his investment career by
joining a brokerage firm in 1929, seven
months before the "Great Crash." Just weeks
before "Black Monday," he shorted the stock
of RCA, thinking it was overvalued. He
profited from the falling market and gained a
reputation for market prescience and stock
selection that has lasted his entire career.
NEUBERGER & BERMAN'S FOUNDING
Roy's investing acumen attracted many
people who wished to have him manage their
money. In 1939, at the age of 36, after
purchasing a seat on the New York Stock
Exchange, Roy founded Neuberger & Berman to
provide money management services to people
who lacked the time, interest or expertise to
manage their own assets.
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<PAGE>
NEUBERGER & BERMAN -- OVER FIVE DECADES OF
GROWTH
Neuberger & Berman has grown through
the years and now manages approximately $30
billion of equity and fixed income assets,
both domestic and international, for
individuals, institutions, and its family of
no-load mutual funds. Today, as when the firm
was founded, Neuberger & Berman follows a
value approach to investing, designed to
enable clients to advance in good markets and
minimize losses when conditions are less
favorable.
For more complete information about the
Neuberger & Berman Guardian Fund,
including fees and expenses, call
Neuberger & Berman Management at
800-877- 9700 for a free prospectus.
Please read it carefully, before you
invest or send money.
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<PAGE>
Neuberger & Berman Management
Inc.[SERVICE MARK]
605 Third Avenue, 2nd Floor
New York, NY 10158-0006
Shareholder Services
(800) 877-9700
[COPYRIGHT SYMBOL]1995
Neuberger & Berman
PRINTED ON RECYCLED PAPER
WITH SOY BASED INKS
B-12
