As filed with the Securities and Exchange Commission on November 20, 1997
1933 Act Registration No. 2-85229
1940 Act Registration No. 811-3802
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
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Pre-Effective Amendment No. [ ]
--------
Post-Effective Amendment No. 24 [ X ]
--------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 25 [ X ]
--------
(Check appropriate box or boxes)
NEUBERGER & BERMAN INCOME FUNDS
-------------------------------
(Exact Name of the Registrant as Specified in Charter)
605 Third Avenue
New York, New York 10158-0180
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (212) 476-8800
Theodore P. Giuliano, President
Neuberger & Berman Income Funds
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
(Names and Addresses of agents for service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
____ on _______________ pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on ________________ pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2)
____ on ________________ pursuant to paragraph (a)(2)
For Neuberger & Berman High Yield Bond Fund, the approximate date of
the proposed public offering is February 4, 1998. The public offering of
Registrant's other series is on-going. The title of securities being registered
is shares of beneficial interest.
Neuberger & Berman Income Funds is a "master/feeder fund." This
Post-Effective Amendment No. 24 includes a signature page for the master fund,
Income Managers Trust, and appropriate officers and trustees thereof.
Page ______ of ______
Exhibit Index
Begins on Page _______
<PAGE>
NEUBERGER & BERMAN INCOME FUNDS
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 24 ON FORM N-1A
This Post-Effective Amendment consists of the following papers and
documents.
Cover Sheet
Contents of Post-Effective Amendment No. 24 on Form N-1A
Cross Reference Sheet
NEUBERGER & BERMAN HIGH YIELD BOND FUND
- ---------------------------------------
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Pages
Exhibits
No change is intended to be made by this Post-Effective Amendment No.
24 to the prospectus or statements of additional information for Neuberger &
Berman Government Money Fund, Neuberger & Berman Cash Reserves, Neuberger &
Berman Ultra Short Bond Fund, Neuberger & Berman Limited Maturity Bond Fund,
Neuberger & Berman Municipal Money Fund and Neuberger & Berman Municipal
Securities Trust.
<PAGE>
NEUBERGER & BERMAN INCOME FUNDS
POST-EFFECTIVE AMENDMENT NO. 24 ON FORM N-1A
Cross Reference Sheets
This cross reference sheet relates to the Prospectus for Neuberger & Berman High
Yield Bond Fund.
<TABLE>
<CAPTION>
FORM N-1A ITEM NO. CAPTION IN PART A PROSPECTUS
------------------ ----------------------------
<S> <C> <C>
Item 1. Cover Page Front Cover Page
Item 2. Synopsis Expense Information; Summary
Item 3. Condensed Financial Information Performance Information
Item 4. General Description of Registrant Investment Program; Description of Investments;
Information Regarding Organization, Capitalization
and Other Matters
Item 5. Management of the Fund Management and Administration; Back Cover Page
Item 6. Capital Stock and Other Securities Front Cover Page; Dividends, Other Distributions,
and Taxes; Information Regarding Organization,
Capitalization, and Other Matters
Item 7. Purchase of Securities Being Offered How to Buy Shares; Additional Information on
Telephone Transactions; Shareholder
Services; Share Prices and Net Asset Value;
Management and Administration
Item 8. Redemption or Repurchase How to Sell Shares; Additional Information on
Telephone Transactions; Shareholder Services; Share
Prices and Net Asset Value
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
This cross reference sheet relates to the Statement of Additional Information
for Neuberger & Berman High Yield Bond Fund.
<TABLE>
<CAPTION>
CAPTION IN PART B
FORM N-1A ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
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<S> <C> <C>
Item 10. Cover page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Information; Certain Risk Considerations
Item 14. Management of the Fund Trustees And Officers
Item 15. Control Persons and Principal Not Applicable
Holders of Securities
Item 16. Investment Advisory and Other Investment Management and
Services Administration Services; Trustees And Officers;
Distribution Arrangements; Reports To Shareholders;
Custodian And Transfer Agent; Independent Auditors
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Investment Information; Additional Redemption
Information; Dividends and Other Distributions
Item 19. Purchase, Redemption and Pricing Additional Purchase Information;
of Securities Being Offered Additional Exchange Information;
Additional Redemption Information;
Distribution Arrangements
Item 20. Tax Status Dividends and Other Distributions; Additional Tax
Information
Item 21. Underwriters Investment Management and
Administration Services; Distribution Arrangements
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
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February 3, 1998
Neuberger & Berman
INCOME FUNDS(Registered Trademark)
Neuberger&Berman
HIGH YIELD BOND FUND
No Sales Charge
No Redemption Fees
No 12b-1 Fees
<PAGE>
NEUBERGER&BERMAN INCOME FUNDS -
NEUBERGER&BERMAN HIGH YIELD BOND FUND
A No-Load Income Fund
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INITIAL PURCHASE -- $2,000 MINIMUM
AUTOMATIC INVESTING -- $100 MINIMUM PER MONTH
GIFT PROGRAMS AND IRAS -- $250 MINIMUM
CALL 800-877-9700
- --------------------------------------------------------------------------------
Neuberger & Berman High Yield Bond Fund ("Fund") invests all of its net
investable assets in a corresponding portfolio ("Portfolio") of Income Managers
Trust("Managers Trust"), an open-end management investment company managed by
Neuberger&Berman Management Incorporated ("N&B Management"). The Portfolio
invests in securities in accordance with an investment objective, policy, and
limitations identical to those of its corresponding Fund. The investment
performance of the Fund directly corresponds with the investment performance of
the Portfolio. This "master/feeder fund" structure is different from that of
many other investment companies which directly acquire and manage their own
portfolio of securities. For more information on this structure that you should
consider, see "Summary" on page [ ] and "Information Regarding Organization,
Capitalization, and Other Matters" on page [ ].
The Fund is a no-load mutual fund, so you pay no sales commissions or
other charges when you buy or redeem shares. The Fund does not pay "12b-1 fees"
to promote or distribute its shares. The Fund declares income dividends daily
and pays them monthly.
Please read this Prospectus before investing in the Fund and keep it
for future reference. It contains information about the Fund that a prospective
investor should know before investing. A Statement of Additional Information
("SAI"), dated February 3, 1998, is on file with the Securities and Exchange
Commission ("SEC"). The SAI is incorporated herein by reference (so it is
legally considered a part of this Prospectus). You can obtain a free copy of the
SAI by calling N&B Management at 800-877-9700.
The SEC maintains a Website (http://www.sec.gov) that contains the SAI,
material incorporated by reference, and other information regarding the Fund and
Portfolio.
PROSPECTUS DATED FEBRUARY 3, 1998
The Fund invests predominantly in lower quality debt securities,
commonly referred to as "junk bonds." These securities pose greater risks, such
as the risk of default, than other debt securities.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
SUMMARY
The Fund and Portfolio
Risk Factors
Management
EXPENSE INFORMATION
Shareholder Transaction Expenses for
The Fund
Anticipated Annual Fund Operating Expenses
Example
INVESTMENT PROGRAM
The Portfolio
Short-Term Trading; Portfolio
Turnover
Ratings of Securities
Borrowings
Other Investments
PERFORMANCE INFORMATION
Yield
Total Return
Yield and Total Return Information
HOW TO BUY SHARES
By Mail
By Wire
By Telephone
By Exchanging Shares
Other Information
HOW TO SELL SHARES
By Mail or Facsimile Transmission
(Fax)
By Telephone
By Check
Other Information
ADDITIONAL INFORMATION ON
TELEPHONE TRANSACTIONS
SHAREHOLDER SERVICES
Automatic Investing and Dollar Cost
Averaging
Exchange Privilege
Systematic Withdrawal Plans
Retirement Plans
Electronic Bank Transfers
Internet Access
SHARE PRICES AND
NET ASSET VALUE
DIVIDENDS, OTHER DISTRIBUTIONS,
AND TAXES
Distribution Options
Taxes
<PAGE>
MANAGEMENT AND ADMINISTRATION
Trustees and Officers
Investment Manager, Administrator,
Distributor, and Sub-Adviser
Expenses
Transfer and Shareholder Servicing
Arrangements
INFORMATION REGARDING
ORGANIZATION, CAPITALIZATION,
AND OTHER MATTERS
The Fund
The Portfolio
DESCRIPTION OF INVESTMENTS
APPENDIX A -- RATINGS OF SECURITIES
OTHER INFORMATION
Directory
Funds Eligible for Exchange
ii
<PAGE>
SUMMARY
The Fund and Portfolio
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The Fund is a series of Neuberger&Berman Income Funds (the "Trust") and
invests in the Portfolio which, in turn, invests in securities in accordance
with an investment objective, policies, and limitations that are identical to
those of the Fund. This is sometimes called a master/feeder fund structure,
because the Fund "feeds" shareholders' investments into the Portfolio, a
"master" fund. The structure looks like this:
--------------------------
SHAREHOLDERS
--------------------------
(arrow) BUY SHARES IN
--------------------------
Fund
--------------------------
(arrow) INVESTS IN
--------------------------
Portfolio
--------------------------
(arrow) INVESTS IN
--------------------------
Debt Securities & Other Securities
--------------------------
The trustees who oversee the Fund believe that this structure may benefit
shareholders; investment in the Portfolio by investors in addition to the Fund
may enable the Portfolio to achieve economies of scale that could reduce
expenses. For more information about the organization of the Fund and the
Portfolio, including certain features of the master/feeder fund structure, see
"Information Regarding Organization, Capitalization, and Other Matters" on page
[ ].
The following table is a summary highlighting features of the Fund and the
Portfolio. You may want to invest in a variety of funds to fit your particular
investment needs. Please see "Investment Programs" on page [ ]. Of course, there
can be no assurance that the Fund will meet its investment objective.
<TABLE>
<CAPTION>
PRINCIPAL
NEUBERGER&BERMAN INVESTMENT PORTFOLIO COMPARATIVE
INCOME FUNDS OBJECTIVE INVESTMENTS INFORMATION
============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
HIGH YIELD High current Primarily lower Possible higher
income and, rated debt yields than
secondarily, securities; also investment grade
capital growth investment grade securities of
income producing similar
and non-income maturities;
producing debt and greater risks than
equity securities higher quality
securities
</TABLE>
<PAGE>
Risk Factors
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An investment in the Fund involves certain risks, depending upon the types of
investments made by the Portfolio. The Portfolio invests primarily in fixed
income securities, which are likely to decline in value in times of rising
market interest rates and to rise in value in times of falling interest rates.
In general, the longer the maturity of a fixed income security, the more
pronounced is the effect of a change in interest rates on the value of the
security. The value of debt securities is also affected by the creditworthiness
of the issuer. Lower rated debt securities involve greater risks of default than
higher rated debt securities. Special risk factors apply to certain other
investments which may be made by the Portfolio, such as foreign securities,
options and futures contracts, zero coupon and pay-in-kind bonds, and swap
agreements. For more details about the Portfolio, its investments and their
risks, see "Investment Programs" on page [ ] and "Description of Investments" on
page [ ] .
Management
- --------------------------------------------------------------------------------
N&B Management, with the assistance of Neuberger&Berman, LLC
("Neuberger&Berman") as sub-adviser, selects investments for the Portfolio. N&B
Management also provides administrative services to the Portfolio and the Fund
and acts as distributor of Fund shares. See "Management and Administration" on
page [ ]. If you want to know how to buy and sell shares of the Fund or exchange
them for shares of other Neuberger&Berman Funds-Registered Trademark-, see "How
to Buy Shares" on page [ ], "How to Sell Shares" on page [ ], and "Shareholder
Services -- Exchange Privilege" on page [ ].
EXPENSE INFORMATION
This section gives you certain information about the expenses of the
Fund and Portfolio. See "Performance Information" for important facts about the
investment performance of the Fund, after taking expenses into account.
Shareholder Transaction Expenses for The Fund
- --------------------------------------------------------------------------------
As shown by this table, the Fund imposes no transaction charges when you buy
or sell shares.
Sales Charge Imposed on Purchases NONE
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charges NONE
Redemption Fees NONE
Exchange Fees NONE
If you want to redeem shares by wire transfer, the Fund's transfer
agent charges a fee (currently $8.00) for each wire redemption. Shareholders who
have one or more accounts in the Neuberger&Berman Funds aggregating $200,000 or
more in value are not charged for wire redemptions; the $8.00 fee is borne by
N&B Management.
2
<PAGE>
Annual Fund Operating Expenses
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- --------------------------------------------------------------------------------
The following table shows anticipated annual operating expenses for the
Fund, which are paid out of the assets of the Fund and which include the Fund's
pro rata portion of the total operating expenses of the Portfolio. The Portfolio
pays N&B Management a management fee based on the Portfolio's average daily net
assets; a pro rata portion of this fee is borne indirectly by the Fund. The
Portfolio pays N&B Management a management fee based on the Portfolio's average
daily net assets; a pro rata portion of this fee is borne indirectly by the
Fund. "Management and Administration Fees" in the following table are based on
current management fees for the Portfolio and the current expense reimbursement
undertaking. For more information, see "Management and Administration" and the
SAI.
The Fund and Portfolio incur other expenses for things such as
accounting and legal fees, transfer agency fees, custodial fees, printing and
furnishing shareholder records, furnishing shareholder statements and Fund
reports and compensating trustees who are not affiliated with N&B Management
("Other Expenses"). Other Expenses in the following table are estimated amounts
for the Fund and Portfolio for the current fiscal year and assume average daily
net assets of $25 million. There can be no assurance that the Fund will achieve
that asset level. All expenses are factored into the Fund's share prices and
dividends and are not charged directly to the Fund's shareholders.
NEUBERGER&BERMAN MANAGEMENT AND 12B-1 OTHER TOTAL
INCOME FUNDS ADMINISTRATION FEES EXPENSES EXPENSES
FEES (ESTIMATED)
- --------------------------------------------------------------------------------
HIGH YIELD 0.65%* None 0.35%* 1.00%*
*REFLECTS N&B MANAGEMENT'S EXPENSE REIMBURSEMENT UNDERTAKING, DESCRIBED BELOW
As set forth on page [ ], N&B Management has voluntary undertaken to reimburse
the Fund for a portion of its Total Operating Expenses. Absent the
reimbursement, Management and Administration Fees and Total Operating Expenses
would be 0.72%% and 1.37%, respectively of the Fund's average daily net assets.
Example
- --------------------------------------------------------------------------------
3
<PAGE>
To illustrate the effect of Total Operating Expenses, let's assume that the
Fund's annual return is 5% and that it had Total Operating Expenses described in
the table above. For every $1,000 you invested in the Fund, you would have paid
the following amounts of total expenses if you closed your account at the end of
each of the following time periods:
NEUBERGER&BERMAN
INCOME FUNDS 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
HIGH YIELD $10 $32
The assumption in this example of 5% annual return is required by regulations
of the SEC applicable to all mutual funds. THE INFORMATION IN THE PREVIOUS
TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RATES OF RETURN; ACTUAL EXPENSES OR RETURNS MAY BE GREATER OR LESS THAN THOSE
SHOWN, AND MAY CHANGE IF EXPENSE REIMBURSEMENTS CHANGE.
INVESTMENT PROGRAMS
The investment policies and limitations of the Fund are identical to those of
the Portfolio. The Fund invests only in the Portfolio. Therefore, the following
shows you the kinds of securities in which the Portfolio invests.
Investment policies and limitations of the Fund and Portfolio are not
fundamental unless otherwise specified in this Prospectus or the SAI.
Fundamental policies may not be changed without shareholder approval. A
non-fundamental policy or limitation may be changed by the trustees of the Trust
or of Managers Trust without shareholder approval.
The investment objective of the Portfolio and Fund is high current income
and, secondarily, capital growth by investing primarily in a diversified
portfolio of lower rated debt securities. This investment objective is not
fundamental. Under normal circumstances, the Portfolio will invest at least 65%
of its total assets in these securities. Lower rated debt securities are
securities rated below investment grade or unrated securities deemed by N&B
Management to be of comparable quality. They are also known as "junk bonds" or
"high yield securities." The Portfolio has no limits on the quality or maturity
of its investments. For the definition of lower rated debt securities and
information on the risks associated with these securities, see "Ratings of Debt
Securities."
The Portfolio may also invest in investment grade debt securities,
preferred stocks, warrants, convertible securities and common stocks. The
Portfolio may not invest more than 20% of its total assets in equity securities.
This restriction does not apply to income producing preferred stocks and
convertible securities, nor to equity securities acquired as part of a unit with
a fixed income security. The Portfolio may invest up to 25% of its net assets in
foreign securities denominated in foreign currencies and American Depositary
Receipts ("ADRs") on such securities. Within that limitation, however, the
Portfolio is not restricted in the amount it may invest in securities
denominated in any one foreign currency. The Portfolio may purchase and sell
covered call and put options, interest-rate futures contracts, and options on
those futures contracts and may lend portfolio securities. For an explanation of
4
<PAGE>
some types of investments and information about risks they may entail, see the
following sections and "Description of Investments" on page [ ], as well as the
SAI.
There can be no assurance that the Fund or Portfolio will achieve its
objectives. The Fund, by itself, does not represent a comprehensive investment
program.
Additional investment techniques, features, and limitations concerning the
Portfolio's investment programs are described in the SAI.
Ratings of Debt Securities
- --------------------------------------------------------------------------------
INVESTMENT GRADE DEBT SECURITIES. Investment grade debt securities are
securities that have received a rating from at least one nationally recognized
statistical rating organization ("NRSRO") in one of the four highest rating
categories or, if not rated by any NRSRO, have been determined by N&B Management
to be of comparable quality. Securities rated by Moody's Investors Service, Inc.
("Moody's") in its fourth highest category (Baa) may have speculative
characteristics; a change in economic factors could lead to a weakened capacity
of the issuer to repay.
LOWER RATED DEBT SECURITIES. Lower rated debt securities or "junk bonds" are
those rated below the fourth highest category by an NRSRO (including those
securities rated as low as D by Standard & Poor's, a division of The McGraw Hill
Companies, Inc. ("S&P")) or unrated securities of comparable quality. Securities
rated below investment grade may be considered speculative. Securities rated B
or less are judged to be predominantly speculative with respect to their
capacity to pay interest and repay principal in accordance with the terms of the
obligations. Although these securities generally offer higher yields than
investment grade debt securities with similar maturities, lower quality
securities involve greater risks, including the possibility of default or
bankruptcy by the issuer or the securities may already be in default. Changes in
economic conditions, changes in interest rates, or developments regarding the
entity issuing the security are more likely to cause price volatility and weaken
the capacity of the issuer to make principal and interest payments than is the
case for higher grade debt securities. In addition, a fund that invests in lower
quality securities may incur additional expenses to the extent recovery is
sought on defaulted securities. Because of the many risks involved in investing
in high yield securities, the success of such investments is dependent on the
credit analysis of N&B Management. It is uncertain how high yield securities
will perform in a market with rising or continually high interest rates.
Additionally, lower rated debt securities tend to be less liquid than other
securities because the market for them is not as broad or active; judgment plays
a greater role in pricing such securities than it does for more liquid
securities.
See Appendix A for a discussion of the ratings of debt securities
assigned by S&P and Moody's.
Borrowings
- --------------------------------------------------------------------------------
5
<PAGE>
The Portfolio has a fundamental policy that it may not borrow money, except
that it may (1) borrow money from banks for temporary or emergency purposes and
not for leveraging or investment and (2) enter into reverse repurchase
agreements for any purpose, so long as the aggregate amount of borrowings and
reverse repurchase agreements does not exceed one-third of the Portfolio's total
assets (including the amount borrowed) less liabilities (other than borrowings).
As a non-fundamental policy, the Portfolio may not purchase portfolio securities
if its outstanding borrowings, including reverse repurchase agreements, exceed
5% of its total assets. Dollar rolls are treated as reverse repurchase
agreements for purposes of this limitation.
Other Investments
- --------------------------------------------------------------------------------
For temporary defensive purposes, the Portfolio may invest up to 100% of its
total assets in cash or cash equivalents, commercial paper, U.S. Government and
agency securities and certain other money market instruments, as well as
repurchase agreements on U.S. Government and agency securities. Yields on these
securities are generally lower than yields available on the lower rated debt
securities in which the Portfolio normally invests.
Short-Term Trading; Portfolio Turnover
- --------------------------------------------------------------------------------
Although the Portfolio does not purchase securities with the intention of
profiting from short-term trading, it may sell portfolio securities prior to
maturity when N&B Management believes that such action is advisable. The
Portfolio is not expected to exceed a 300% portfolio turnover rate. Turnover
rates in excess of 100% generally result in higher transaction costs(which are
borne directly by the Portfolio) and a possible increase in realized short-term
capital gains or losses. See "Dividends, Other Distributions and Taxes" on page
[ ] and the SAI.
PERFORMANCE INFORMATION
The performance of the Fund can be measured as YIELD or as TOTAL RETURN. The
Portfolio invests in various kinds of fixed income securities, so its
performance is related to changes in interest rates. Generally, investments in
shorter-term income securities are less affected by interest rate changes than
are investments in longer-term income securities. For this reason, longer-term
bond funds usually have higher yields and carry more interest-rate risk than
shorter-term bond funds. The creditworthiness of issuers of income securities
also affects risk; for example, U.S. Government and agency securities are
generally considered to have less credit risk than investment grade bonds and
below investment grade bonds.
For more detailed information, see "Investment Programs" and "Description of
Investments." Information regarding the Fund's performance will be presented in
its annual report to shareholders.
Past results do not, of course, guarantee future performance. Share prices
may vary, and your shares when redeemed may be worth more or less than your
original purchase price.
6
<PAGE>
Yield
- --------------------------------------------------------------------------------
YIELD refers to the income generated by an investment over a particular
period of time, which is annualized (assumed to have been generated for one
year) and expressed as an annual percentage rate. EFFECTIVE YIELD is yield
assuming that all distributions are reinvested.
Total Return
- --------------------------------------------------------------------------------
TOTAL RETURN is the change in value of an investment in a fund over a
particular period, assuming that all distributions have been reinvested. Thus,
total return reflects not only income earned but also variations in share prices
from the beginning to the end of a period.
An average annual total return is a hypothetical rate of return that, if
achieved annually, would result in the same cumulative total return as was
actually achieved for the period. This evens out year-to-year variations in
actual performance.
Yield and Total Return Information
- --------------------------------------------------------------------------------
You can obtain current performance information about the Fund by calling N&B
Management at 800-877-9700. N&B Management may reimburse the Fund for certain
expenses which has the effect of increasing its yield and total return.
HOW TO BUY SHARES
You can buy shares of the Fund directly by mail, wire, or telephone or
through an exchange of shares with another Neuberger&Berman Fund (see "Funds
Eligible for Exchange"). Shares are purchased at the next price calculated on a
day the New York Stock Exchange ("NYSE") is open, after your purchase order is
received and accepted. Prices for shares of the Fund are usually calculated as
of 4 p.m. Eastern time.
N&B Management, in its discretion, may waive the minimum investment
requirements.
By Mail
- --------------------------------------------------------------------------------
Send your check or money order payable to "Neuberger&Berman Funds" by mail
to:
Neuberger&Berman Funds
7
<PAGE>
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
or by overnight courier, U.S. Express Mail, or registered or certified mail to:
Neuberger&Berman Funds
c/o State Street Bank and Trust Company
2 Heritage Drive
North Quincy, MA 02171
Be sure to specify the name of the Fund whose shares you want to buy. If this
is your FIRST PURCHASE of shares of the Fund, please complete and sign an
application for a new Fund account and send it along with a check or money order
for a minimum of $2,000. For each ADDITIONAL PURCHASE, please send at least $100
for shares of the Fund. YOUR CHECK OR MONEY ORDER MUST BE MADE PAYABLE ON ITS
FACE TO NEUBERGER&BERMAN FUNDS, OTHERWISE IT CANNOT BE ACCEPTED, EXCEPT FOR
THOSE CHECKS IN THE AMOUNT OF $10,000 OR LESS MADE PAYABLE TO THE REGISTERED
OWNER(S) OF AN ESTABLISHED ACCOUNT. Checks or money orders for the purchase of
shares of the Fund are accepted only after the check or money order is received
at one of the two addresses shown above.
By Wire
- --------------------------------------------------------------------------------
Call 800-877-9700 for instructions on how to wire money to buy shares. Your
wire goes to State Street Bank and Trust Company ("State Street") and must
include your name, the name of the Fund whose shares you want to buy, and your
account number. The minimum for a FIRST PURCHASE of shares of a Fund is $2,000.
For an ADDITIONAL PURCHASE, you should wire at least $1,000.
By Telephone
- --------------------------------------------------------------------------------
Call 800-877-9700 to buy shares of the Fund. The minimum for a FIRST PURCHASE
of shares by telephone is $2,000. The minimum for an ADDITIONAL PURCHASE is
$1,000. Your order may be canceled if your payment is not received by the third
business day after your order is placed. In that case you could be liable for
any resulting losses or fees the Fund or its agents have incurred. To recover
those losses or fees, the Fund has the right to redeem shares from your account.
To meet the three-day deadline, you can wire payment, send a check through
overnight mail, or call 800-877-9700 for information on how to make an
electronic transfer through your bank. Please refer to "Additional Information
on Telephone Transactions."
By Exchanging Shares
- --------------------------------------------------------------------------------
Call 800-877-9700 for instructions on how to invest by exchanging shares of
another Neuberger&Berman Fund for shares of the Fund. To buy Fund shares through
8
<PAGE>
an exchange, both fund accounts must be registered in the same name, address,
and taxpayer ID number. The minimum for a FIRST PURCHASE of shares of the Fund
by an exchange is $2,000 worth of shares of the other fund, and the minimum for
an ADDITIONAL PURCHASE is $1,000. For more details, see "Shareholder Services --
Exchange Privilege" and "Funds Eligible for Exchange."
Other Information
- --------------------------------------------------------------------------------
o You must pay for your shares in U.S. dollars by check or money order drawn
on a U.S. bank), by bank or federal funds wire transfer, or by an
electronic bank transfer; cash cannot be accepted.
o The Fund has the right to suspend the offering of its shares for a period
of time. The Fund also has the right to accept or reject a purchase order
in its sole discretion, including certain purchase orders using the
exchange privilege. See "Shareholder Services -- Exchange Privilege."
o If you pay by check and your check does not clear, or if you order shares
by telephone and fail to pay for them, your purchase will be canceled and
you could be liable for any resulting losses or fees the Fund or its agents
have incurred. To recover those losses or fees, the Fund has the right to
bill you or to redeem shares from your account.
o When you sign your application for a new Fund account, you will be
certifying that your Social Security or other taxpayer ID number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Fund to withhold 31% of your distribution and redemption proceeds.
o You can also buy shares of the Fund indirectly through certain
stockbrokers, banks, and other financial institutions, some of which may
charge you a fee. These institutions may have additional requirements to
buy shares. Some of these institutions (or their designees) may be
authorized to accept purchase orders on behalf of the Fund. The Fund will
be deemed to have received your purchase order when an authorized
institution (or its designee) accepts the order. Your order will receive
the next price calculated after the order has been accepted by the
authorized institution (or its designee). You should consult your
institution to determine the time by which it must receive your order for
you to purchase Fund shares at that day's price.
o The Fund will not issue a certificate for your shares unless you write to
State Street and request one. Most shareholders do not want a certificate,
because you must present the certificate to sell or exchange the shares it
represents. This means that you would be able to sell or exchange those
shares only by mail, and not by telephone or fax. If you lose your
certificate, you will have to pay the expense of replacing it.
o You can invest as little as $100 each month under an automatic investing
plan. (See "Automatic Investing and Dollar Cost Averaging" on page [ ].)
HOW TO SELL SHARES
9
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You can sell (redeem) all or some of your shares at any time by mail, fax, or
telephone. HOWEVER, IF YOU HAVE A CERTIFICATE FOR YOUR SHARES, YOU CAN REDEEM
THOSE SHARES ONLY BY SENDING THE CERTIFICATE BY MAIL. You can also sell shares
by exchanging them for shares of other Neuberger&Berman Funds; see "Shareholder
Services -- Exchange Privilege" for details.
TO SELL SHARES HELD IN A RETIREMENT ACCOUNT OR BY A TRUST, ESTATE, GUARDIAN,
OR BUSINESS ORGANIZATION, PLEASE CALL 800-877-9700 FOR INSTRUCTIONS.
Shares are sold at the next price calculated on a day the NYSE is open, after
your sales order is received and accepted. Prices for shares of the Fund are
usually calculated as of 4 p.m. Eastern time.
Unless otherwise instructed, the Fund will mail a check for your sales
proceeds, payable to the owner(s) shown on your account ("record owner"), to the
address shown on your account ("record address"). You may designate in your Fund
application a bank account to which, at your request, State Street will transfer
your sales proceeds electronically (at no charge to you) or will wire your sales
proceeds. State Street currently charges a fee of $8.00 for each wire. However,
if you have one or more accounts in the Neuberger&Berman Funds aggregating
$200,000 or more in value, you will not be charged for wire redemptions; your
$8.00 fee will be paid by N&B Management.
If you purchased shares indirectly through certain stockbrokers, banks, or
other financial institutions, you may sell those shares only through those
organizations, some of which may charge you a fee. These institutions may have
additional requirements to sell shares. Some of these institutions (or their
designees) may be authorized to accept redemption orders on behalf of the Fund.
The Fund will be deemed to have received your redemption order when an
authorized institution (or its designee) accepts the order. Your order will
receive the next price calculated after the order has been accepted by the
authorized institution (or its designee). You should consult your institution to
determine the time by which it must receive your order for you to sell Fund
shares at that day's price.
By Mail or Facsimile Transmission (Fax)
- --------------------------------------------------------------------------------
Write a redemption request letter with your name and account number, the
Fund's name, and the dollar amount or number of shares of the Fund you want to
sell, together with any other instructions, and send it by mail to:
Neuberger&Berman Funds
Boston Service Center
P.O. Box 8403
Boston, MA 02266-8403
or by overnight courier, U.S. Express Mail, or registered or certified mail to:
Neuberger&Berman Funds
c/o State Street Bank and Trust Company
2 Heritage Drive
North Quincy, MA 02171
or by fax, to redeem up to $50,000 worth of shares, to 212-476-8848. Be sure to
have all owners sign the request exactly as their names appear on the account
and include the certificate for your shares if you have one. If shares are
issued in certificate form, they are not eligible to be redeemed by fax. If you
have changed the record address by telephone or fax, shares may not be redeemed
10
<PAGE>
by fax for 15 days after receipt of the address change. Please call 800-877-9700
to confirm receipt and acceptance of any order submitted by fax.
To protect you and the Fund against fraud, your signature on a redemption
request must have a SIGNATURE GUARANTEE if (1) you want to sell more than
$50,000 worth of shares, (2) you want the redemption check to be made out to
someone other than the record owner, (3) you want the check to be mailed
somewhere other than the record address, or (4) you want the proceeds to be
wired or transferred electronically to a bank account not named in your
application or in your prior written instruction with a signature guarantee. You
can obtain a signature guarantee from most banks, stockbrokers and dealers,
credit unions, and financial institutions, but not from a notary public. A
redemption request that requires a signature guarantee should be sent by mail.
For a redemption request sent by FAX, limited to not more than $50,000, the
redemption check may be made out only to the record owner and mailed to the
record address or the proceeds wired or transferred electronically to a bank
account named in your application or in a written instruction from the record
owner with a signature guarantee.
Please call 800-877-9700 for more information about the signature guarantee
requirement.
By Telephone
- --------------------------------------------------------------------------------
To sell shares worth at least $500, call 800-877-9700, giving your name and
account number, the name of the Fund, and the dollar amount or number of shares
you want to sell. You can sell shares by telephone unless (1) you have declined
this service either in your application or later by writing or by submitting an
appropriate form to State Street, (2) you have a certificate for such shares, or
(3) you want to sell shares from a retirement account. In addition, if you have
changed the record address by telephone or fax, shares may not be redeemed by
telephone for 15 days after receipt of the address change.
Please refer to "Additional Information on Telephone Transactions."
Other Information
- --------------------------------------------------------------------------------
o Usually, redemption proceeds will be mailed on the next business day
following the receipt of a proper redemption request, but in any case
within three business days of such receipt (under unusual circumstances,
the Fund may take longer, as permitted by law). You may also call
800-877-9700 for information on how to receive electronic transfers through
your bank.
o The Fund may delay paying for any redemption until it is reasonably
satisfied that the check used to buy shares has cleared, which may take up
to 15 days after the purchase date. So if you plan to sell shares shortly
after buying them, you may want to pay for the purchase with a certified
check or money order or by wire transfer.
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<PAGE>
o The Fund may suspend redemptions or postpone payments on days when the NYSE
is closed, when trading on the NYSE is restricted, or as permitted by the
SEC.
o If you sell shares by writing a check on your account for an amount greater
than the value of your shares, or if the check is for less than $250 or has
an irregularity (such as no signature), your check will be returned to you
and you may be charged $15 by redeeming shares with that value from your
account. The check writing redemption service may be modified or terminated
at any time, or other charges may be imposed on it.
o If, because you sold shares, your account balance falls below $2,000, the
Fund has the right to close your account after giving you at least 60 days'
written notice to reestablish the minimum balance. If you do not do so, the
Fund may redeem your remaining shares at their price on the date of
redemption and will send the redemption proceeds to you.
o No interest will accrue on amounts represented by uncashed redemption or
distribution checks.
ADDITIONAL INFORMATION ON TELEPHONE TRANSACTIONS
The Fund at any time can limit the number of its shares you can buy by
telephone or can stop accepting telephone orders. You can sell or exchange
shares by telephone, unless (1) you have declined these services in your
application or by written notice to N&B Management or State Street, with your
signature guaranteed, or (2) you have a certificate for such shares. The Fund or
its agent follows reasonable procedures -- requiring you to provide a form of
personal identification when you telephone, recording your telephone call, and
sending you a written confirmation of each telephone transaction -- designed to
confirm that telephone instructions are genuine. However, neither the Fund nor
its agent are responsible for the authenticity of telephone instructions or for
any losses caused by fraudulent or unauthorized telephone instructions if the
Fund or its agent reasonably believed that the instructions were genuine.
If you are unable to reach N&B Management by telephone (which might be the
case, for example, during periods of unusual market activity), consider sending
your transaction instructions by fax, overnight courier, or U.S. Express Mail.
You can buy, sell or exchange shares using an automated telephone service
that is available 24 hours a day, every day, to investors using a touch-tone
phone. Further information regarding this service, including use of a Personal
Identification Number (PIN) and a menu of features, is available from N&B
Management by calling 800-877-9700.
SHAREHOLDER SERVICES
Several services are available to assist you in making and managing your
investment in the Fund.
Automatic Investing and Dollar Cost Averaging
- --------------------------------------------------------------------------------
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<PAGE>
If you want to invest regularly, you may participate in a plan that lets you
automatically buy shares each month using dollar cost averaging. Under this
plan, you buy a fixed dollar amount of shares in the Fund at pre-set intervals.
You may pay for the shares by automatic transfers from your accounts in other
Neuberger&Berman Funds or by pre-authorized checks or electronic transfers drawn
on your bank account. You buy more shares when the Fund's share price is
relatively low and fewer shares when the Fund's share price is relatively high.
Thus, under this plan your average cost of shares would generally be lower than
if you bought a fixed number of shares at the same intervals. To benefit from
dollar cost averaging, you should be financially prepared to continue your
participation for a long enough period to include times when Fund share prices
are lower. Of course, the plan does not guarantee a profit and will not protect
you against losses in a declining market. For further information, call
800-877-9700.
Exchange Privilege
- --------------------------------------------------------------------------------
To exchange your shares in the Fund for shares in another Neuberger&Berman
Fund, call 800-877-9700 between 8 a.m. and 4 p.m., Eastern time, on any Monday
through Friday (unless the NYSE is closed). See "Funds Eligible for Exchange."
You may also effect an exchange by sending a letter to Neuberger&Berman
Management Incorporated, 605 Third Avenue, 2nd Floor, New York, NY 10158-0180,
Attention: [Name of Fund], or by submitting the letter by fax to 212-476-8848,
giving your name and account number, the name of the Fund, the dollar amount or
number of shares you want to sell, and the name of the Neuberger&Berman Fund
whose shares you want to buy. Please call 800-877-9700 to confirm receipt and
acceptance of any order submitted by fax. If you have a certificate for your
shares, you can exchange them only by mailing the certificate with your letter
requesting the exchange. You can use the telephone exchange privilege unless (1)
you have declined it in your application or by later writing to N&B Management
or State Street, or (2) you have a certificate for such shares. An exchange must
be for at least $1,000 worth of shares, and, if the exchange is your FIRST
PURCHASE in another Neuberger&Berman Fund, it must be for at least the minimum
initial investment amount for that fund. Shares are exchanged at the next price
calculated on a day the NYSE is open, after your exchange order is received and
accepted. Please note the following about the exchange privilege:
o You can exchange shares ONLY between accounts registered in the same name,
address, and taxpayer ID number.
o An exchange order cannot be modified or canceled.
o You can exchange ONLY into a fund whose shares are eligible for sale in
your state under applicable state securities laws.
o An exchange may have tax consequences for you.
o Because excessive trading (including short-term "market timing" trading)
can hurt a fund's performance, the Fund may refuse any exchange orders (1)
if they appear to the Fund to be market-timing transactions involving
significant portions of the Fund's assets or (2) from any shareholder
account if the shareholder previously has been notified by the Fund that
the shareholder's use of the exchange privilege was considered excessive.
Accounts under common ownership or control, including those with the same
taxpayer ID number, will be considered one account for this purpose.
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<PAGE>
o The Fund may impose other restrictions on the exchange privilege, or modify
or terminate the privilege, but will try to give you advance notice
whenever it can reasonably do so.
Please refer to "Additional Information on Telephone Transactions."
Systematic Withdrawal Plans
- --------------------------------------------------------------------------------
If you own shares of the Fund worth at least $5,000, you can open a
Systematic Withdrawal Plan. Under such a plan, you arrange to withdraw a
specific amount (at least $50) on a monthly, quarterly, semi-annual, or annual
basis, or you can have your account completely paid out over a specified period
of time. You can also arrange for periodic cash withdrawals from your Fund
account to pay fees to your financial planner or investment adviser. Because the
price of shares of the Fund fluctuates, you may incur capital gains or losses
when you redeem shares of the Fund through a Systematic Withdrawal Plan or by
other methods. Call 800-877-9700 for more information.
Retirement Plans
- --------------------------------------------------------------------------------
Retirement plans permit you to defer paying taxes on the Fund's
distributions of investment income and capital gains. Contributions to these
plans may also be tax-deductible, although distributions from these plans
generally are taxable. In the case of so-called "Roth IRAs," contributions are
not tax deductible but distributions from the plan may not be taxable. Please
call 800-877-9700 for information on a variety of retirement plans offered by
N&B Management, including IRAs, simplified employee pension plans, savings
incentive match plans for employees (SIMPLE Retirement Plans) -- IRA version
only self-employed individual retirement plans (so-called "Keogh Plans"),
corporate profit-sharing and money purchase pension plans, section 401(k) plans,
and section 403(b)(7) accounts. The assets of these plans may be invested in the
Fund. An investment in the Fund may not be suitable for retirement accounts.
Electronic Bank Transfers
- --------------------------------------------------------------------------------
You may designate, either in your application or later by writing or by
submitting an appropriate form to State Street, a bank account through which
State Street will electronically transfer monies to you or from you at pre-set
intervals (such as under a Systematic Withdrawal Plan or automatic investing
plan or for payment of cash distributions) or upon your request. Please include
a voided check with your application. This service is not available for
retirement accounts.
State Street does not charge a fee for this service; however, you should
contact your bank to ensure that it is able to process electronic transfers.
Please call 800-877-9700 for more information. If you wish to terminate this
service, you must call at least 10 calendar days before the next scheduled
electronic transfer.
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<PAGE>
Internet Access
- --------------------------------------------------------------------------------
N&B Management now maintains an Internet site on the World Wide Web at
HTTP://WWW.NBFUNDS.COM. Fund prices and yields, informative articles,
interactive worksheets to assist you in financial planning, and the prospectuses
and applications of certain other Neuberger&Berman Funds can be accessed.
SHARE PRICES AND NET ASSET VALUE
The Fund's shares are bought or sold at a price that is the Fund's net asset
value ("NAV") per share. The NAV for the Fund and Portfolio is calculated by
subtracting liabilities from total assets (in the case of a Portfolio, the
market value of the securities the Portfolio holds plus cash and other assets;
in the case of the Fund, its percentage interest in the Portfolio, multiplied by
the Portfolio's NAV, plus any other assets). The Fund's per share NAV is
calculated by dividing its NAV by the number of Fund shares outstanding and
rounding the result to the nearest full cent.
The Portfolio values its securities on the basis of bid quotations from
independent pricing services or principal market makers, or, if quotations are
not available, by a method that the trustees of Managers Trust believe
accurately reflects fair value. The Portfolio periodically verifies valuations
provided by the pricing services. Short-term securities with remaining
maturities of less than 60 days may be valued at cost which, when combined with
interest earned, approximates market value. The Portfolio values equity
securities at the last sale price on the principal exchange or in the principal
over-the-counter market in which such securities are traded, as of the close of
regular trading on the NYSE on the day the securities are being valued or, if
there are no sales, at the last available bid price. Foreign securities are
translated from local currency into U.S. dollars using current exchange rates.
The Portfolio values all other types of securities and assets, including
restricted securities and securities for which market quotations are not readily
available, by a method that the trustees of Managers Trust believe accurately
reflects fair value. The Portfolio and the Fund calculate their NAVs as of the
close of regular trading on the NYSE, usually 4 p.m. Eastern time, on each day
the NYSE is open.
DIVIDENDS, OTHER DISTRIBUTIONS,
AND TAXES
The Fund distributes substantially all of its share of any net investment
income (net of the Fund's expenses), any net capital gains from investment
transactions and, any net gains from foreign currency transactions earned or
realized by the Portfolio. Income dividends are declared daily by the Fund at
the time its NAV is calculated and are paid monthly, and net capital and foreign
currency gains, if any, are normally distributed annually in December. Investors
who are considering the purchase of Fund shares in December should take this
into account because of the tax consequences of such distributions. Income
dividends will accrue beginning on the day after an investor's purchase order is
converted to "federal funds."
15
<PAGE>
Distribution Options
- --------------------------------------------------------------------------------
REINVESTMENT IN SHARES. All dividends and other distributions, if any, paid
on shares of the Fund are automatically reinvested in additional shares of the
Fund, unless you elect to receive them in cash. Dividends are reinvested at the
Fund's per share NAV on the last business day of each month. Each other
distribution is reinvested at the Fund's per share NAV, usually as of the date
the distribution is payable. For RETIREMENT ACCOUNTS, all distributions are
automatically reinvested in shares; when you are at least 59 1/2 years old, you
can receive distributions in cash without incurring a premature distribution
penalty tax.
DIVIDENDS IN CASH. You may elect to receive dividends in cash, with other
distributions being reinvested in additional Fund shares, by checking that
election box on your Fund application.
ALL DISTRIBUTIONS IN CASH. You may elect to receive all dividends and other
distributions in cash, by checking that election box on your Fund application.
Checks for cash dividends and other distributions usually will be mailed no
later than seven days after the payable date. However, if you purchased your
shares with a check, distributions on those shares may not be paid in cash until
the Fund is reasonably satisfied that your check has cleared, which may take up
to 15 days after the purchase date. No interest will accrue on amounts
represented by uncashed distribution checks. Cash dividends and other
distributions may be paid through an electronic transfer to a bank account
designated in your Fund application. Call 800-877-9700 for more information. You
can change any distribution election by writing to State Street, the Fund's
shareholder servicing agent.
Taxes
- --------------------------------------------------------------------------------
An investment has certain tax consequences, depending on the type of account
in which the investment is made. For an account under a qualified retirement
plan or an IRA, taxes are deferred.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax and
generally also are subject to state and local income taxes. Your distributions
are taxable when they are paid, whether in cash or by reinvestment in additional
Fund shares, except that distributions declared in December to shareholders of
record on a date in that month and paid in the following January are taxable as
if they were paid on December 31 of the year in which the distributions were
declared. If you buy shares of the Fund just before it deducts a dividend or
other distribution from its NAV, you will pay the full price for the shares and
then receive a portion of the price back in the form of a taxable distribution.
Investors who are considering the purchase of Fund shares in December should
take this into account.
For federal income tax purposes, income dividends and distributions of
net short-term capital gain and net gains from certain foreign currency
transactions are taxed as ordinary income. Distributions of net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
when designated as such, are generally taxed as long-term capital gain, no
matter how long you have owned your shares. Distributions of net capital gain
may include gains from the sale of portfolio securities that appreciated in
16
<PAGE>
value before you bought your shares. Under the Taxpayer Relief Act of 1997,
different maximum tax rates apply to the Fund's distributions of net capital
gain depending on the Portfolio's holding period. The Portfolio may invest in
municipal securities, but any distributions of income derived from these
securities are not tax-exempt, because the Portfolio does not invest the
percentage of its assets in municipal securities that is required under federal
tax law in order for the Fund to be eligible to distribute tax-free income.
The portion of the dividends paid by the Fund attributable to interest on
U.S. Government securities generally is not subject to state and local income
taxes; however, distributions by the Fund of other net investment income and net
realized capital gains are fully subject to those taxes. You should consult your
tax adviser to determine the taxability of dividends and other distributions in
your state and locality.
OTHER. Every January, your Fund will send you a statement showing the
amount of distributions paid in cash or reinvested in Fund shares for the
previous year. You will also receive information showing (1) the portion, if
any, of those distributions that generally is not subject to state and local
income taxes and (2) capital gain distributions broken down in a manner that
will enable you or your tax adviser to determine the appropriate rate of capital
gains tax on such distributions.
TAXES ON REDEMPTIONS AND DISTRIBUTIONS. Capital gains realized on redemptions of
Fund shares, including redemptions in connection with exchanges to other
Neuberger& Berman Funds, are subject to tax. A capital gain or loss is generally
the difference between the amount you paid for the shares (including the amount
of any dividends and other distributions that were reinvested) and the amount
you receive when you sell them. Capital gain on shares held for more than one
year will be long-term capital gain, in which event it will be subject to
federal income tax at the capital gains rates applicable to your holding period
and tax bracket.
When you sell Fund shares, you will receive a confirmation statement showing
the number of shares you sold and the price.
Every January, you will receive a consolidated transaction statement for the
previous year. Be sure to keep your statements; they will be useful to you and
your tax prepare in determining the capital gains and losses from your
redemptions.
The Fund intends to qualify for treatment as a regulated investment
company for federal income tax purposes so that it will not have to pay federal
income tax on that part of its taxable income and realized gains that it
distributes to its shareholders.
The foregoing is only a summary of some of the important income tax
considerations affecting the Fund and its shareholders. See the SAI for
additional tax information. There may be other federal, state, local, or foreign
tax considerations applicable to a particular investor. Therefore, you should
consult your tax adviser.
MANAGEMENT AND ADMINISTRATION
Trustees and Officers
- --------------------------------------------------------------------------------
17
<PAGE>
The trustees of the Trust and the trustees of Managers Trust, who are
currently the same individuals, have oversight responsibility for the operations
of the Fund and Portfolio. The SAI contains general background information about
each trustee and officer of the Trust and of Managers Trust. The trustees and
officers of the Trust and of Managers Trust who are officers and/or directors of
N&B Management and/or principals of Neuberger&Berman serve without compensation
from the Fund or Portfolio.
Investment Manager, Administrator,
Distributor, and Sub-Adviser
- --------------------------------------------------------------------------------
N&B Management serves as the investment manager of each Portfolio, as
administrator of the Fund, and as distributor of the shares of the Fund. N&B
Management and its predecessor firms have specialized in the management of
no-load mutual funds since 1950. In addition to serving the Portfolio, N&B
Management currently serves as investment manager of other mutual funds.
Neuberger&Berman, which acts as sub-adviser for the Portfolio and other mutual
funds managed by N&B Management, also serves as investment adviser of one other
investment company. The mutual funds managed by N&B Management and
Neuberger&Berman had aggregate net assets of approximately [ ]billion as of
December 31, 1997.
As sub-adviser, Neuberger&Berman furnishes N&B Management with investment
recommendations and research without added cost to the Portfolio. N&B Management
compensates Neuberger & Berman for its costs in connection with those services.
Neuberger&Berman is a member firm of the NYSE and other principal exchanges and
may act as the Portfolio's principal broker to the extent that a broker is used
in the purchase and sale of portfolio securities and the sale of covered call
options. Neuberger&Berman and its affiliates, including N&B Management, manage
securities accounts that had approximately [ ]billion of assets as of December
31, 1997. All of the voting stock of N&B Management is owned by individuals who
are principals of Neuberger&Berman.
Theodore P. Giuliano, the President and a Trustee of the Trust and of
Managers Trust, is a principal of Neuberger&Berman and a director and Vice
President of N&B Management. Mr. Giuliano is the Manager of the Fixed Income
Group of Neuberger&Berman, which he helped to establish in 1984. The Fixed
Income Group manages fixed income accounts that had approximately [ ] billion of
assets as of December 31, 1997.
Thomas G. Wolfe, a member of the Fixed Income Group, along with Theodore P.
Giuliano, is primarily responsible for the day-to-day management of the
Portfolio since its inception on _______, 1998.
Mr. Wolfe has been a Senior Portfolio Manager in the Fixed Income Group since
July 1993, Director of Fixed Income Credit Research since July 1993 and a Vice
President of N&B Management since October 1995. He has been a portfolio manager
of another bond fund managed by Neuberber&Berman since October 1995. From
November 1987 to June 1993, he was Vice President in the Corporate Finance
Department of Standard & Poor's.
The principals and employees of Neuberger&Berman and officers and employees
of N&B Management, together with their families, have invested over $100 million
of their own money in Neuberger&Berman Funds.
To mitigate the possibility that the Portfolio will be adversely affected by
employees' personal trading, the Trust, Managers Trust, N&B Management, and
Neuberger& Berman have adopted policies that restrict securities trading in the
18
<PAGE>
personal accounts of the portfolio managers and others who normally come into
possession of information on portfolio transactions.
Expenses
- --------------------------------------------------------------------------------
N&B Management provides investment management services to the Portfolio that
include, among other things, making and implementing investment decisions and
providing facilities and personnel necessary to operate the Portfolio. For
investment management services, the Portfolio pays N&B Management a fee at the
annual rate of 0.38% of the first $500 million of the Portfolio's average daily
net assets, 0.355% of the next $500 million, 0.33% of the next $500 million,
0.305% of the next $500 million, and 0.28% of average daily net assets in excess
of $2 billion.
N&B Management provides administrative services to the Fund that include
furnishing similar facilities and personnel for the Fund and performing certain
shareholder, shareholder-related and other services. For such administrative
services, the Fund pays N&B Management a fee at the annual rate of 0.27% of that
Fund's average daily net assets. With the Fund's consent, N&B Management may
subcontract to third parties some of its responsibilities to the Fund under the
administration agreement. In addition, the Fund may compensate such third
parties for accounting and other services.
The Fund bears all expenses of its operations other than those borne by N&B
Management as administrator of the Fund and as distributor of its shares. The
Portfolio bears all expenses of its operations other than those borne by N&B
Management as investment manager of the Portfolio. These expenses are the "Other
Expenses" described on page [ ].
See "Expense Information -- Annual Fund Operating Expenses" for information
about how these fees and expenses may affect the value of your investment.
N&B Management has voluntarily undertaken to reimburse the Fund for its Total
Operating Expenses, which exceed, in the aggregate, 1.0% of the Fund's average
daily net assets. N&B Management may terminate this undertaking to any Fund by
giving at least 60 days' prior written notice to the Fund. The Fund has in turn
agreed to repay N&B Management through December 31, 1999, for excess Total
Operating Expenses that N&B Management reimbursed to the Fund. The effect of
reimbursement by N&B Management is to reduce the Fund's expenses and thereby
increase its total return.
Transfer and Shareholder Servicing Arrangements
- --------------------------------------------------------------------------------
The Fund's transfer and shareholder servicing agent is State Street. State
Street administers purchases, redemptions, and transfers of Fund shares and the
payment of dividends and other distributions through its Boston Service Center,
P.O. Box 8403, Boston, MA 02266-8403.
INFORMATION REGARDING ORGANIZATION,
CAPITALIZATION, AND OTHER MATTERS
The Fund
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The Fund is a separate series of the Trust, a Delaware business trust
organized pursuant to a Trust Instrument dated as of December 23, 1992. The
Trust is registered under the 1940 Act as a diversified, open-end management
investment company, commonly known as a mutual fund. The Trust has eight
separate series. The Fund invests all of its net investable assets in the
Portfolio, in each case receiving a beneficial interest in the Portfolio. The
trustees of the Trust may establish additional series or classes of shares
without the approval of shareholders. The assets of each series belong only to
that series, and the liabilities of each series are borne solely by that series
and no other.
DESCRIPTION OF SHARES. The Fund is authorized to issue an unlimited number
of shares of beneficial interest (par value $0.001 per share). Shares of the
Fund represent equal proportionate interests in the assets of the Fund only and
have identical voting, dividend, redemption, liquidation, and other rights. All
shares issued are fully paid and non-assessable, and shareholders have no
preemptive or other rights to subscribe to any additional shares.
SHAREHOLDER MEETINGS. The trustees of the Trust do not intend to hold annual
meetings of shareholders of the Fund. The trustees will call special meetings of
shareholders of the Fund only if required under the 1940 Act or in their
discretion or upon the written request of holders of 10% or more of the
outstanding shares of the Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the shareholders
of the Fund will not be personally liable for the obligations of any other fund;
a shareholder is entitled to the same limitation of personal liability extended
to shareholders of a corporation. To guard against the risk that Delaware law
might not be applied in other states, the Trust Instrument requires that every
written obligation of the Trust or the Fund contain a statement that such
obligation may be enforced only against the assets of the Trust or Fund and
provides for indemnification out of Trust or Fund property of any shareholder
nevertheless held personally liable for Trust or Fund obligations, respectively.
The Portfolio
- --------------------------------------------------------------------------------
The Portfolio is a separate series of Managers Trust, a New York common law
trust organized as of December 1, 1992. Managers Trust is registered under the
1940 Act as a diversified, open-end management investment company. Managers
Trust has eight separate portfolios. The assets of the portfolio belong only to
that portfolio, and the liabilities of the portfolio are borne solely by that
portfolio and no other.
FUND'S INVESTMENTS IN PORTFOLIO. The Fund is a "feeder fund" that seeks to
achieve its investment objective by investing all of its net investable assets
in the Portfolio, which is a "master fund." The Portfolio, which has the same
investment objective, policies, and limitations as the Fund, in turn invests in
securities; the Fund thus acquires an indirect interest in those securities.
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<PAGE>
The Fund's investment in the Portfolio is in the form of a non-transferable
beneficial interest. Members of the general public may not purchase a direct
interest in the Portfolio.
The Portfolio may also permit other investment companies and/or other
institutional investors to invest in the Portfolio. All investors will invest in
the Portfolio on the same terms and conditions as the Fund and will pay a
proportionate share of the Portfolio's expenses. Other investors in the
Portfolio would not be required to sell their shares at the same public offering
price as the Fund, could have a different administration fee and expenses than
the Fund, and might charge a sales commission. Therefore, Fund shareholders may
have different returns than shareholders in another investment company that
invests exclusively in the Portfolio. There is currently no such other
investment company that offers its shares directly to members of the general
public. Information regarding any fund that invests in the Portfolio is
available from N&B Management by calling 800-877-9700.
The trustees of the Trust believe that investment in the Portfolio by a
potential investor in addition to the Fund may enable the Portfolio to realize
economies of scale that could reduce its operating expenses, thereby producing
higher returns and benefiting all shareholders.
The Fund may withdraw its entire investment from the Portfolio at any time,
if the trustees of the Trust determine that it is in the best interests of the
Fund and its shareholders to do so. The Fund might withdraw, for example, if
there were other investors in the Portfolio with power to, and who did by a vote
of all investors (including the Fund), change the investment objective,
policies, or limitations of the Portfolio in a manner not acceptable to the
trustees of the Trust. A withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Portfolio to the
Fund. That distribution could result in a less diversified portfolio of
investments for the Fund and could affect adversely the liquidity of the Fund's
investment portfolio. If the Fund decided to convert, those securities to cash,
it usually would incur brokerage fees or other transaction costs. If the Fund
withdrew its investment from the Portfolio, the trustees of the Trust would
consider what actions might be taken, including the investment of all of the
Fund's net investable assets in another pooled investment entity having
substantially the same investment objective as the Fund or the retention by the
Fund of its own investment manager to manage its assets in accordance with its
investment objective, policies, and limitations. The inability of the Fund to
find a suitable replacement could have a significant impact on shareholders.
INVESTOR MEETINGS AND VOTING. The Portfolio normally will not hold meetings
of investors except as required by the 1940 Act. Each investor in the Portfolio
will be entitled to vote in proportion to its relative beneficial interest in
the Portfolio. On most issues subjected to a vote of investors, the Fund will
solicit proxies from its shareholders and will vote its interest in the
Portfolio in proportion to the votes cast by the Fund's shareholders. If there
are other investors in the Portfolio, there can be no assurance that any issue
that receives a majority of the votes cast by Fund shareholders will receive a
majority of votes cast by all Portfolio investors; indeed, if other investors
hold a majority interest in the Portfolio, they could have voting control of the
Portfolio.
CERTAIN PROVISIONS. Each investor in the Portfolio, including the Fund, will
be liable for all obligations of the Portfolio. However, the risk of an investor
in the Portfolio incurring financial loss beyond the amount of its investment on
account of such liability would be limited to circumstances in which the
Portfolio had inadequate insurance and was unable to meet its obligations out of
its assets. Upon liquidation of the Portfolio, investors would be entitled to
21
<PAGE>
share pro rata in the net assets of the Portfolio available for distribution to
investors.
DESCRIPTION OF INVESTMENTS
In addition to the securities referred to in "Investment Program" herein, the
Portfolio may make the following investments, among others, individually or in
combination, although it may not necessarily buy all of the types of securities
or use all of the investment techniques that are described. For additional
information on the following investments and on other types of investments which
the Portfolio may make, see the SAI.
U.S. GOVERNMENT AND AGENCY SECURITIES. U.S. Government Securities are
obligations of the U.S. Treasury backed by the full faith and credit of the
United States. U.S. Government Agency Securities are issued or guaranteed by
U.S. Government agencies, or by instrumentalities of the U.S. Government, such
as the Government National Mortgage Association ("GNMA"), Fannie Mae (also known
as the Federal National Mortgage Association), Freddie Mac (also know as the
Federal Home Loan Mortgage Corporation), Student Loan Marketing Association
("SLMA"), and Tennessee Valley Authority. Some U.S. Government Agency Securities
are supported by the full faith and credit of the United States, while others
may be supported by the issuer's ability to borrow from the U.S. Treasury,
subject to the Treasury's discretion in certain cases, or only by the credit of
the issuer. U.S. Government Agency Securities include U.S. Government Agency
mortgage-backed securities. The market prices of U.S. Government Agency
Securities are not guaranteed by the Government and generally fluctuate
inversely with changing interest rates.
INFLATION-INDEXED SECURITIES. The Portfolio may invest in U.S. Treasury
securities whose principal value is adjusted daily in accordance with changes to
the Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value. The principal value of inflation-indexed securities
declines in periods of deflation, but holders at maturity receive no less than
par. If inflation is lower than expected during the period the Portfolio holds
the security, the Portfolio may earn less on it than on a conventional bond. 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. Changes in market interest rates from causes other than inflation will
likely affect the market prices of inflation-indexed securities in the same
manner as conventional bonds.
VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate securities
have interest rate adjustment formulas that may help to stabilize their market
value. Many of these instruments carry a demand feature which permits the
Portfolio to sell them during a determined time period at par value plus accrued
interest. The demand feature is often backed by a credit instrument, such as a
letter of credit, or by a creditworthy insurer. The Portfolio may rely on the
credit instrument or the creditworthiness of the insurer in purchasing a
variable or floating rate security.
REPURCHASE AGREEMENTS/SECURITIES LOANS. In a repurchase agreement, the
Portfolio buys a security from a Federal Reserve member bank or a securities
dealer and simultaneously agrees to sell it back at a higher price, at a
specified date, usually less than a week later. The underlying securities must
fall within the Portfolio's investment policies and limitations. The Portfolio
also may lend portfolio securities to banks, brokerage firms or institutional
investors to earn income. Costs, delays, or losses could result if the selling
22
<PAGE>
party to a repurchase agreement or the borrower of portfolio securities becomes
bankrupt or otherwise defaults. N&B Management monitors the creditworthiness of
borrowers and repurchase agreement sellers.
ILLIQUID, RESTRICTED AND RULE 144A SECURITIES. The Portfolio may invest
up to 15% of its net assets in illiquid securities, which are securities that
cannot be expected to be sold within seven days at approximately the price at
which they are valued, including unregistered or other restricted securities and
repurchase agreements maturing in greater than seven days. They may also include
section 4(2) commercial paper and Rule 144A securities (restricted securities
that may be traded freely among qualified institutional buyers pursuant to an
exemption from the registration requirements of the securities laws); these
securities are considered illiquid unless N&B Management, acting pursuant to
guidelines established by the trustees of the Trusts, determine these securities
are liquid. Generally, foreign securities freely tradable in their principal
market are not considered restricted or illiquid. Illiquid securities may be
difficult for the Portfolio to value or dispose of due to the absence of an
active trading market. The sale of some illiquid securities by the Portfolio may
be subject to legal restrictions which could be costly to the Portfolio.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse repurchase
agreement, the Portfolio sells securities to a bank or securities dealer and
simultaneously agrees to repurchase the same securities at a higher price on a
specific date. During the period before the repurchase, the Portfolio continues
to receive principal and interest payments on the securities. The Portfolio will
maintain a segregated account consisting of cash or appropriate liquid
securities to cover its obligations under reverse repurchase agreements. Dollar
rolls are similar to reverse repurchase agreements. In a dollar roll, the
Portfolio sells securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type and coupon) securities
on a specified future date from the same party. During the period before the
repurchase, the Portfolio forgoes principal and interest payments on the
securities. The Portfolio is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop"), as well as by the interest earned on the cash proceeds of the
initial sale. Reverse repurchase agreements and dollar rolls may increase
fluctuations in the Portfolio's and the Fund's NAVs and may be viewed as a form
of leverage. N&B Management monitors the creditworthiness of parties to reverse
repurchase agreements and dollar rolls.
WHEN-ISSUED TRANSACTIONS. In a when-issued transaction, the Portfolio
commits to purchase securities that will be issued at a future date (generally
within three months) in order to secure an advantageous price and yield at the
time of the commitment and pays for the securities when they are delivered. If
the seller fails to complete the sale, the Portfolio may lose the opportunity to
obtain a favorable price and yield. When-issued securities may decline or
increase in value during the period from the Portfolio's investment commitment
to the settlement of the purchase, which may magnify fluctuation in the Fund's
NAV.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent
interests in, or are secured by and payable from, pools of mortgage loans,
including collateralized mortgage obligations. These securities include U.S.
Government agency mortgage-backed securities, which are issued or guaranteed by
a U.S. Government agency or instrumentality (though not necessarily backed by
the full faith and credit of the United States), such as GNMA, Fannie Mae, and
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<PAGE>
Freddie Mac certificates. Other mortgage-backed securities are issued by private
issuers, generally originators of and investors in mortgage loans. These issuers
include savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities. Private mortgage-backed securities may be
supported by U.S. Government agency mortgage-backed securities or some form of
non-governmental credit enhancement. Mortgage-backed securities may have either
fixed or adjustable interest rates. Tax or regulatory changes may adversely
affect the mortgage securities market. In addition, changes in the market's
perception of the issuer may affect the value of mortgage-backed securities. The
rate of return on mortgage-backed securities may be affected by prepayments of
principal on the underlying loans, which generally increase as market interest
rates decline; as a result, when interest rates decline, holders of these
securities normally do not benefit from appreciation in market value to the same
extent as holders of other non-callable debt securities. N&B Management
determines the effective life of mortgage-backed securities based on industry
practice and current market conditions. If N&B Management's determination is not
borne out in practice, it could positively or negatively affect the value of the
Portfolio when market interest rates change.
ASSET-BACKED SECURITIES. Asset-backed securities represent interests in, or
are secured by and payable from, pools of assets, such as consumer loans,
CARS-SM- ("Certificates for Automobile Receivables"), credit card receivables
securities, and installment loan contracts. Although these securities may be
supported by letters of credit or other credit enhancements, payment of interest
and principal ultimately depends upon individuals paying the underlying loans,
which may be affected adversely by general downturns in the economy. The risk
that recovery on repossessed collateral might be unavailable or inadequate to
support payments on asset-backed securities is greater than in the case of
mortgage-backed securities.
The Portfolio may invest in trust preferred securities, which are a type of
asset-backed security. Trust preferred securities represent interests in a trust
formed by a parent company to finance its operations. The trust sells preferred
shares and invests the proceeds in debt securities of the parent. This debt may
be subordinated and unsecured. Dividend payments on the trust preferred
securities match the interest payments on the debt securities; if no interest is
paid on the debt securities, the trust will not make current payments on its
preferred securities. Unlike typical asset-backed securities, which have many
underlying payors and are usually overcollateralized, trust preferred securities
have only one underlying payor and are not overcollateralized. Issuers of trust
preferred securities and their parents currently enjoy favorable tax treatment.
If the tax characterization of trust preferred securities were to change, they
could be redeemed by the issuers, which could result in a loss to the Portfolio.
FOREIGN INVESTMENTS. The Portfolio may invest in foreign securities. Foreign
securities may be affected by potentially adverse local, political, economic,
social or diplomatic developments in foreign countries, the investment
significance of which may be difficult to discern. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and there may be less public information about their operations. In
addition, foreign markets may be less liquid or more volatile than U.S. markets
and may offer less protection to investors. It may be difficult to invoke legal
process or to enforce contractual obligations abroad. Foreign securities
denominated in or indexed to foreign currencies may be affected by special
risks, such as governmental regulation of foreign exchange transactions and the
fluctuation of foreign currencies relative to the U.S. dollar, which could
result in losses irrespective of the performance of the underlying investment.
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<PAGE>
In addition, the Portfolio may enter into forward foreign currency contracts or
futures contracts (agreements to exchange one currency for another at a
specified price at a future date) and related options to manage currency risks
and to facilitate transactions in foreign securities. Although these contracts
can protect the Portfolio from adverse exchange rate changes, they involve a
risk of loss if N&B Management fails to predict foreign currency values
correctly; see the discussion of Hedging Instruments, below.
PUT AND CALL OPTIONS, FUTURES CONTRACTS, AND OPTIONS ON FUTURES CONTRACTS.
The Portfolio may try to reduce the risk of securities price changes (hedge) or
manage portfolio duration by (1) entering into interest-rate futures contracts
traded on futures exchanges and (2) purchasing and writing options on futures
contracts. The Portfolio also may purchase and sell call options and put options
on debt securities or on foreign currencies in its portfolio for hedging
purposes or for the purpose of producing income. The Portfolio will write a call
option on a security or currency only if it holds that security or currency or
has the right to obtain the security or currency at no additional cost. These
investment practices involve certain risks, including price volatility and a
high degree of leverage. The Portfolio may engage in transactions in futures
contracts and related options only as permitted by regulations of the Commodity
Futures Trading Commission.
The primary risks in using put and call options, futures contracts, options
on futures contracts, forward foreign currency contracts or options on foreign
currencies ("Hedging Instruments") are (1) imperfect correlation or no
correlation between changes in market value of the securities or currencies held
by the Portfolio and the prices of Hedging Instruments; (2) possible lack of a
liquid secondary market for Hedging Instruments and the resulting inability to
close out Hedging Instruments when desired; (3) the fact that use of Hedging
Instruments is a highly specialized activity that involves skills, techniques,
and risks (including price volatility and a high degree of leverage) different
from those associated with selection of the Portfolio's securities; and (4) the
fact that, although use of these instruments for hedging purposes can reduce the
risk of loss, they also can reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in hedged investments. When the
Portfolio uses Hedging Instruments, the Portfolio will place cash or appropriate
liquid securities in a segregated account, or will "cover" its position, to the
extent required by SEC staff policy. Another risk of Hedging Instruments is the
possible inability of the Portfolio to purchase or sell a security at a time
that would otherwise be favorable for it to do so, or the possible need for the
Portfolio to sell a security at a disadvantageous time, due to its need to
maintain cover or to segregate securities in connection with its use of these
instruments. Losses that may arise from certain futures transactions are
potentially unlimited.
ZERO COUPON, STEP COUPON AND PAY-IN-KIND SECURITIES. These securities do not
pay interest currently. Instead, zero coupon and step coupon securities are sold
at a deep discount from their face value and are redeemed at face value when
they mature; in calculating its daily income, the Portfolio accrues a portion of
the difference between these securities' purchase price and their face value.
Pay-in-kind securities pay interest through the issuance of additional
securities. Because all of these securities do not pay current income, their
prices can be very volatile when interest rates change. In addition, because the
Fund is required by the federal tax law to distribute to its shareholders at
least annually substantially all of its income, including the non-cash income
attributable to zero coupon, step coupon and pay-in-kind securities, the
Portfolio may have to dispose of securities to obtain cash for such
distributions.
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SWAP AGREEMENTS. To help enhance the value of its investments or manage its
exposure to different types of investments, the Portfolio may enter into
interest rate, currency, and mortgage swap agreements and may purchase and sell
interest-rate "caps," "floors," and "collars."
In a typical interest-rate swap agreement, one party agrees to make regular
payments equal to a floating interest rate on a specified amount (the "notional
principal amount") in return for payments equal to a fixed interest rate on the
same amount for a specified period. If a swap agreement provides for payment in
different currencies, the parties may agree to exchange the principal amount.
Mortgage swap agreements are similar to interest-rate swap agreements, except
the notional principal amount is tied to a reference pool of mortgages.
In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest-rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest-rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
Swap agreements, including caps and floors, may involve leverage and may be
highly volatile; depending on how they are used, they may have a considerable
impact on the Portfolio's performance. The risks of swap agreements depend upon
the other party's creditworthiness and ability to perform, as well as a
Portfolio's ability to terminate its swap agreements or reduce its exposure
through offsetting transactions. Swap agreements may be illiquid. The swap
market is relatively new and is largely unregulated.
REAL ESTATE-RELATED INVESTMENTS. These include real estate investment trusts
(also known as "REITs"), commercial and residential mortgage-backed securities,
and real estate financings. These instruments are sensitive to factors such as
changes in real estate values, property taxes, interest rates, cash flows of
underlying assets, creditworthiness of issuers, and tax and regulatory laws.
EQUITY SECURITIES. Equity securities may include common stocks, preferred
stocks, convertible securities and warrants. Common stocks and preferred stocks
represent shares of ownership in a corporation. Preferred stocks usually have
specific dividends and rank after bonds and before common stock in claims on
assets of the corporation should it be dissolved. Increases and decreases in
earnings are usually reflected in a corporation's stock price. Convertible
securities are debt or preferred equity securities convertible into common
stock. Usually, convertible securities pay dividends or interest at rates higher
than common stock, but lower than other securities. Convertible securities
usually participate to some extent in the appreciation or depreciation of the
underlying stock into which they are convertible. Warrants are options to buy a
stated number of shares of common stock at a specified price anytime during the
life of the warrants. Equity securities' prices fluctuate based on changes in a
corporation's financial condition and on changes in market or economic
conditions. The equity securities of smaller companies are more sensitive to
these changes than those of larger companies.
DIRECT DEBT. Direct debt are loan participations, notes, assignments and
other interests in amounts owed to financial institutions by borrowers, such as
companies and governments, including emerging market countries. The Portfolio
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could buy all or part of a loan or participate in a syndicate organized by a
bank. These loans may be secured or unsecured. Investments in direct debt
involve special risks. The borrower may in be financial distress, the direct
debt may be less liquid than other types of debt instruments there are usually
less legal protections for owners of direct debt than for owners of conventional
debt securities, and the borrowers may default or have a right to borrow
additional cash from the owners of direct debt. In the case of emerging market
countries, there are the additional risks described under Foreign Securities in
this Prospectus.
CALLABLE BONDS. Many bonds give the issuer the right to repay them early. If
the issuer of high yield bond exercises this right during a period of falling
interest rates, the Portfolio may not able to invest the proceeds at a
comparably high rate of return.
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APPENDIX A
RATINGS OF SECURITIES
S&P CORPORATE AND MUNICIPAL BOND RATINGS:
----------------------------------------
INVESTMENT GRADE
----------------
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.
SPECULATIVE GRADE
-----------------
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.
CCC Debt rated 'CCC' has a currently indentifiable vulnerablility to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The `CCC' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'B' or 'B-' rating.
CC Debt rated `CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied `CCC' rating.
A-1
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C Debt rated 'C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' rating. The `C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating 'C' is reserved for income bonds on which no interest is
being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The `D' rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
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.
MOODY'S CORPORATE AND 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
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.
A-2
<PAGE>
CAA-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
CA-Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
MODIFIERS - Moody's may apply numerical modifiers 1, 2, and 3 in each
generic rating classification described above. The modifier 1 indicates that the
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 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.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated `B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated `D' is in payment default. The `D'rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
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.
A-3
<PAGE>
- - 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.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
A-4
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OTHER INFORMATION
DIRECTORY FUNDS ELIGIBLE FOR EXCHANGE
INVESTMENT MANAGER, ADMINISTRATOR, EQUITY FUNDS
AND DISTRIBUTOR Neuberger&Berman Focus Fund
Neuberger&Berman Management Neuberger&Berman Genesis Fund
Incorporated Neuberger&Berman Guardian Fund
605 Third Avenue 2nd Floor Neuberger&Berman International Fund
New York, NY 10158-0180 Neuberger&Berman Manhattan Fund
800-877-9700 Neuberger&Berman Partners Fund
Institutional Services 800-366-6264 Neuberger&Berman Socially
Responsive Fund
SUB-ADVISER
Neuberger&Berman, LLC MONEY MARKET FUNDS
605 Third Avenue Neuberger&Berman Government Money
New York, NY 10158-3698 Fund
Neuberger&Berman Cash Reserves
CUSTODIAN AND SHAREHOLDER
SERVICING AGENT BOND FUNDS
State Street Bank and Trust Company Neuberger&Berman Limited
225 Franklin Street Maturity Bond Fund
Boston, MA 02110
ADDRESS CORRESPONDENCE TO: MUNICIPAL FUNDS
Neuberger&Berman Funds Neuberger&Berman Municipal Money
Boston Service Center Fund
P.O. Box 8403 Neuberger&Berman Municipal
Boston, MA 02266-8403 Securities Trust
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
2nd Floor
Washington, DC 20036-1800
Neuberger&Berman, LLC, Neuberger&Berman Management Inc., and the above-named
Funds are service marks or registered trademarks of Neuberger&Berman Management
Inc.
- -C- 1998 Neuberger&Berman Management Inc.
<PAGE>
- --------------------------------------------------------------------------------
NEUBERGER & BERMAN HIGH YIELD BOND FUND AND PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED February 3, 1998
A No-Load Mutual Fund
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
- --------------------------------------------------------------------------------
Neuberger & Berman High Yield Bond Fund ("Fund") is a no-load mutual
fund that offers shares pursuant to a Prospectus dated February 3, 1998. The
Fund invests all of its net investable assets in Neuberger & Berman High Yield
Bond Portfolio ("Portfolio").
The Fund's Prospectus provides basic information that an investor
should know before investing. A copy of the Prospectus may be obtained, without
charge, from the fund's administrator and distributor, Neuberger & Berman
Management Inc. ("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 the Fund or its distributor. The Prospectus and this SAI do not constitute an
offering by the Fund or its distributor in any jurisdiction in which such
offering may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
INVESTMENT INFORMATION........................................................ 1
Investment Policies and Limitations.................................. 1
Rating Agencies...................................................... 4
Additional Investment Information.................................... 5
Risks of Fixed Income Securities.................................... 29
Risks of Equity Securities.......................................... 30
PERFORMANCE INFORMATION...................................................... 30
Yield Calculations.................................................. 31
Total Return Computations........................................... 31
Comparative Information............................................. 31
Other Performance Information....................................... 32
CERTAIN RISK CONSIDERATIONS.................................................. 30
TRUSTEES AND OFFICERS........................................................ 34
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES............................ 41
Investment Manager and Administrator................................ 41
Sub-Adviser......................................................... 43
Investment Companies Managed........................................ 44
Management and Control of N&B Management............................ 46
DISTRIBUTION ARRANGEMENTS.................................................... 47
ADDITIONAL PURCHASE INFORMATION.............................................. 48
Automatic Investing and Dollar Cost Averaging....................... 48
ADDITIONAL EXCHANGE INFORMATION.............................................. 49
ADDITIONAL REDEMPTION INFORMATION............................................ 53
Suspension of Redemptions........................................... 53
Redemptions in Kind................................................. 54
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DIVIDENDS AND OTHER DISTRIBUTIONS............................................ 54
ADDITIONAL TAX INFORMATION................................................... 55
Taxation of the Fund................................................ 55
Taxation of the Portfolio........................................... 56
Taxation of the Fund's Shareholders................................. 59
PORTFOLIO TRANSACTIONS....................................................... 60
Portfolio Turnover.................................................. 61
REPORTS TO SHAREHOLDERS...................................................... 61
CUSTODIAN AND TRANSFER AGENT................................................. 61
INDEPENDENT AUDITORS......................................................... 61
LEGAL COUNSEL................................................................ 61
REGISTRATION STATEMENT....................................................... 62
Appendix A...................................................................A-1
ii
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INVESTMENT INFORMATION
The 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. The
Fund seeks its investment objective by investing all of its net investable
assets in the Portfolio of Income Managers Trust ("Managers Trust") that has an
investment objective identical to that of the Fund. The Portfolio, in turn,
invests in securities in accordance with an investment objective, policies, and
limitations identical to those of the 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 the Fund and
Portfolio. The investment objective and, unless otherwise specified, the
investment policies and limitations of the 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 the Fund and 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 the Fund is called upon
to vote on a change in a fundamental investment policy or limitation of the
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
- -----------------------------------
The Fund has the following fundamental investment policy, to enable it
to invest in the 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
<PAGE>
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 the Fund are identical to
those of the Portfolio. Therefore, although the following discusses the
investment policies and limitations of the Portfolio, it applies equally to the
Fund.
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, the issuer of the letter of credit or the guarantee is
considered an issuer of the obligation. With respect to the limitation on
borrowings, the Portfolio may pledge assets in connection with permitted
borrowings. 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, 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 the Portfolio.
The fundamental investment policies and limitations of the Portfolio
are as follows:
1. BORROWING. The Portfolio may not borrow money, except that it may
(i) borrow money from banks for temporary or emergency purposes and not for
leveraging or investment, and (ii) enter into reverse repurchase agreements;
provided that (i) and (ii) in combination do not exceed 33-1/3% of the value of
its total assets (including the amount borrowed) less liabilities (other than
borrowings). If at any time borrowings exceed 33-1/3% of the value of 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
<PAGE>
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), foreign
currency, forward contracts, swaps, caps, collars, floors and other financial
instruments, or from investing in securities of any kind.
3. DIVERSIFICATION. The Portfolio may not with respect to 75% of the
value of its total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or its agencies and
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. 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.
5. 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 a portion of
an issue of debt securities, loans, loan participations or other forms of direct
debt instruments or (ii) by engaging in repurchase agreements.
6. 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.
7. SENIOR SECURITIES. The Portfolio may not issue senior securities,
except as permitted under the 1940 Act.
8. UNDERWRITING. The Portfolio may not underwrite securities of other
issuers, except to the extent that the Portfolio, in disposing of portfolio
3
<PAGE>
securities, may be deemed to be an underwriter within the meaning of the 1933
Act.
The non-fundamental investment policies and limitations of the
Portfolio are as follows:
1. 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.
2. BORROWING. The Portfolio may not purchase securities if outstanding
borrowings, including any reverse repurchase agreements, exceed 5% of its total
assets.
3. LENDING. Except for the purchase of debt securities, loans, loan
participations or other forms of direct debt instruments and engaging in
repurchase agreements, the Portfolio may not make any loans other than
securities loans.
4. MARGIN TRANSACTIONS. The Portfolio may not purchase securities on
margin from brokers or other lenders, except that it 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.
RATING AGENCIES
- ---------------
As discussed in the Prospectus, the Portfolio may purchase securities
rated by Standard & Poor's, a division of The McGraw Hill Companies, Inc.
("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 Portfolio may rely on the ratings of any NRSRO, the Portfolio will mainly
refer to ratings assigned by S&P and Moody's, which are described in Appendix A
to the Prospectus.
4
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
- ---------------------------------
The Portfolio, may make the following investments, among others,
although it may not buy all of the types of securities or use all of the
investment techniques that are described.
LOWER RATED DEBT SECURITIES. Debt securities that are below investment
grade are those securities that are rated Ba or lower by Moody's, BB or lower by
S&P, comparably rated by another NRSRO or unrated securities determined by N&B
Management to be of comparable quality. These securities are deemed to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Lower rated debt securities generally offer a higher
current yield than that available for investment grade issues, but they may
involve significant risk under adverse conditions. In particular, they are
subject to: adverse changes in general economic conditions and in the industries
in which the issuers are engaged, changes in the financial condition of the
issuers, and price fluctuations in response to changes in interest rates.
During periods of economic downturn or rising interest rates, highly
leveraged issuers may experience financial stress which could adversely affect
their ability to make payments of interest and principal and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
The market for lower rated debt securities has expanded rapidly in
recent years, and its growth generally paralleled a long economic expansion. In
the past, the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or defaults. There can be no
assurance that such declines will not recur.
The market for lower rated debt issues generally is thinner or less
active than that for higher quality securities, which may limit the Fund's
5
<PAGE>
ability to sell such securities at fair value in response to changes in the
economy or financial markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of lower rated debt securities, especially in a thinly traded market.
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 GNMA, Fannie Mae (also known as the Federal National
Mortgage Association), Freddie Mac (also known as the Federal Home Loan Mortgage
Corporation), 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. The Portfolio 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 the Fund must pay
substantially all of its income to shareholders to avoid payment of federal
income and excise taxes, the Portfolio may have to dispose of other investments
to obtain the cash necessary to distribute the gain on inflation-indexed
securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, the 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; the Portfolio may not enter into such a repurchase agreement if, as
a result, more than 15% of the value of its net assets would then be invested in
such repurchase agreements and other illiquid securities. The 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, (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
6
<PAGE>
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, the 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 the Portfolio by depositing collateral in a form
determined to be satisfactory by the Portfolio Trustees. The collateral, which
must be marked to market daily, must be equal to at least 100% of the market
value of the loaned securities, which will also be marked to market daily. N&B
Management believes the risk of loss on these transactions is slight because, if
a borrower were to default for any reason, the collateral should satisfy the
obligation. However, as with other extensions of secured credit, loans of
portfolio securities involve some risk of loss of rights in the collateral
should the borrower fail financially.
RESTRICTED SECURITIES AND RULE 144A SECURITIES. Restricted securities
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 the 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 the 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.
7
<PAGE>
Where registration is required, the 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 the Portfolio's 15% 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. 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. The 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. In a reverse repurchase agreement, the
Portfolio sells portfolio securities subject to its agreement to repurchase the
securities at a later date for a fixed price reflecting a market rate of
interest; these agreements are considered borrowings for purposes of the
Portfolio's investment policies and limitations concerning borrowings. While a
reverse repurchase agreement is outstanding, the 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 the 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.
BANKING AND SAVINGS INSTITUTION SECURITIES. These include certificates
of deposit ("CDs"), time deposits, bankers' acceptances, and other short-term
debt obligations issued by commercial banks and savings institutions. CDs are
receipts for funds deposited for a specified period of time at a specified rate
of return; time deposits generally are similar to CDs, but are uncertificated.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international commercial transactions. The CDs, time
8
<PAGE>
deposits, and bankers' acceptances in which the Portfolio may invest typically
are not covered by deposit insurance.
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 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. The 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, the Portfolio excludes securities that do not rely
on the credit instrument or insurance for their rating, i.e., stand on their own
credit.
The 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.
In calculating its dollar-weighted average duration, the 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. Mortgage-backed securities represent
direct or indirect participations in, or are secured by and payable from, pools
of mortgage loans. They may be issued or guaranteed by a U.S. Government agency
or instrumentality (such as GNMA, Fannie Mae, and Freddie Mac), though not
9
<PAGE>
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, the 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 Portfolio
uses 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 collateralized mortgage-backed bonds ("CBOs").
CMOs are obligations that are fully collateralized, directly or indirectly, by a
pool of mortgages; payments of principal and interest on the mortgages are
passed through to the holders of the CMOs, although not necessarily on a pro
rata basis, on the same schedule as they are received. CBOs are general
obligations of the issuer that are fully collateralized, directly or indirectly,
by a pool of mortgages. The mortgages serve as collateral for the issuer's
payment obligations on the bonds, but interest and principal payments on the
mortgages are not passed through either directly (as with mortgage-backed
"pass-through" securities issued or guaranteed by U.S. Government agencies or
instrumentalities) or on a modified basis (as with CMOs). Accordingly, a change
in the rate of prepayments on the pool of mortgages could change the effective
maturity or the duration of a CMO but not that of a CBO (although, like many
bonds, CBOs may be callable by the issuer prior to maturity). To the extent that
rising interest rates cause prepayments to occur at a slower than expected rate,
a CMO could be converted into a longer-term security that is subject to greater
risk of price volatility.
Governmental, government-related, and private entities (such as
commercial banks, savings institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers, including securities
broker-dealers and special purpose entities that generally are affiliates of the
foregoing established to issue such securities) may create mortgage loan pools
to back CMOs and CBOs. Such issuers may be the originators and/or servicers of
10
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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. There can be
no assurance that private insurers or guarantors can meet their obligations
under insurance policies or guarantee arrangements.
The Portfolio may buy mortgage-backed securities without insurance or
guarantees. The Portfolio may not purchase mortgage-backed securities that, in
N&B Management's opinion, are illiquid if, as a result, more than 15% of the
Portfolio's net assets would be invested in illiquid securities. N&B Management
will, consistent with the Portfolios' investment objective, policies and
limitations consider making investments in new types of mortgage-backed
securities as such securities are developed and offered to investors.
REAL ESTATE-RELATED INSTRUMENTS. Real estate-related instruments
include real estate investment trusts, commercial and residential
mortgage-backed securities and real estate financings. Such instruments are
sensitive to factors such as real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and the
management skill and creditworthiness of the issuer. Real estate-related
instruments may also be affected by tax and regulatory requirements, such as
those relating to the environment.
Equity real estate investment trusts own real estate properties, while
mortgage real estate investment trusts make construction, development, and
long-term mortgage loans. Their value may be affected by changes in the value of
the underlying property of the trusts, or the quality of the credit extended.
Both types of trusts are dependent upon management skill, are not diversified,
and are subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation, and the possibility of failing to qualify for tax-free status
of income under the Internal Revenue Code and failing to maintain exemption from
the 1940 Act.
ASSET-BACKED SECURITIES. 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
11
<PAGE>
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 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
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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
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. These are securities
of foreign issuers (including banks, governments and quasi-governmental
organizations) and foreign branches of U.S. banks, including negotiable CDs,
bankers' acceptances, and commercial paper. While investments in foreign
securities are intended to reduce risk by providing further diversification,
such investments involve sovereign and other risks, in addition to the credit
and market risks normally associated with domestic securities. These additional
risks include the possibility of adverse political and economic developments
(including political instability) 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. The Portfolio may
invest up to 25% of its net assets in foreign securities denominated in foreign
currencies and ADRs on such securities. Foreign currency denominated foreign
securities 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
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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.
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.
AMERICAN DEPOSITARY RECEIPTS. American Depositary Receipts ("ADRs")
are receipts typically issued by a U.S. bank or trust company evidencing its
ownership of the underlying foreign securities. Most ADRs are denominated in
U.S. dollars and are traded on a U.S. stock exchange. Issuers of the securities
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underlying sponsored ADRs, but not unsponsored ADRs, are contractually obligated
to disclose material information in the United States. Therefore, the market
value of unsponsored ADRs may not reflect the effect of such information. ADRs
on foreign securities which are denominated in foreign currencies are subject to
the Portfolio's 25% limit on foreign securities denominated in foreign
currencies.
DOLLAR ROLLS. In a "dollar roll," the 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 forward
settlement date of the dollar roll transaction. Dollar rolls are considered
borrowings for purposes of the Portfolio's 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. These transactions may involve
mortgage-backed securities such as GNMA, Fannie Mae, and Freddie Mac
certificates. These transactions involve a commitment by the 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 the 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, the 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 the
Portfolio's net asset value ("NAV") starting on the date of the agreement to
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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.
The 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, the
Portfolio may dispose of or renegotiate a commitment after it has been entered
into. The 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 the 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. The Portfolio may purchase and
sell interest rate and bond index futures contracts and options thereon, and may
purchase and sell foreign currency futures contracts (with interest rate and
bond index futures contracts, "Futures" or "Futures Contracts") and options
thereon. The Portfolio engages 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. The 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 the Portfolio
to enhance portfolio liquidity and maintain a defensive position without having
to sell portfolio securities. The Portfolio does not engage in transactions in
Futures or options thereon for speculation. The Portfolio views investment in
(1) interest rate Futures and options thereon as a maturity or duration
management device and/or a device to reduce risk and preserve total return in an
adverse interest rate environment for the hedged securities and (2) foreign
currency Futures and options thereon as a means of establishing more definitely
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the effective return on, or the purchase price of, securities denominated in
foreign currencies held or intended to be acquired by the Portfolio.
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.
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 the 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 the 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
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Contract cause the margin on deposit to exceed the required margin, the excess
will be paid to the Portfolio. In computing its daily NAV, the Portfolio marks
to market the value of its open Futures positions. The 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.
Although the 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, the 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
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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 the Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
PUT AND CALL OPTIONS. 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 the 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 premium
for writing the option. When writing a call option, the Portfolio will write
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 the security underlying a call
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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 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
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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.
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 date or both.
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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. 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
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foreign currency or protecting the U.S. dollar equivalent of dividends,
interest, or other payments on those securities.
N&B Management believes that the use of foreign currency hedging
techniques, including "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. 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"). To the extent the Portfolio sells or purchases Futures
Contracts and/or writes options thereon or options on foreign currencies that
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are traded on an exchange regulated by the CFTC other than for BONA FIDE hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums on
these positions (excluding the amount by which options are "in-the-money") may
not exceed 5% of the Portfolio's net assets.
COVER FOR HEDGING INSTRUMENTS. The 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 the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet current
obligations. The 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. 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 the Portfolio and changes in the 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 the 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 the 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 the 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 the Portfolio's underlying securities or currency. N&B
Management intends to reduce the risk that the 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
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can be no assurance that the Portfolio's use of Hedging Instruments will be
successful.
The Portfolio's use of Hedging Instruments may be limited by certain
provisions of the Internal Revenue Code of 1986, as amended ("Code"), with which
it must comply if the Fund is to qualify as a regulated investment company
("RIC"). See "Additional Tax Information -- Taxation of the Portfolio."
INDEXED SECURITIES. 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, STEP COUPON AND PAY-IN-KIND SECURITIES. The Portfolio may
invest in zero coupon, step coupon, and pay-in-kind 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 and step 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 Portfolio may also invest in pay-in-kind securities which pay
interest through the issuance of additional securities.
The discount on zero coupon and step coupon securities ("original
issue discount" or "OID") must be taken into income ratably by the Portfolio
prior to the receipt of any actual payments. Similarly, the Portfolio must
include in its gross income the securities it receives as "interest" on
pay-in-kind securities. Because the Fund must distribute substantially all of
its net investment income (including its share of the Portfolio's accrued
original issue discount and other non-cash income) to its shareholders each year
for income and excise tax purposes, the Portfolio may have to dispose of
portfolio securities under disadvantageous circumstances to generate cash, or
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may be required to borrow, to satisfy the Fund's distribution requirements. See
"Additional Tax Information."
The market prices of zero coupon, step coupon, and pay-in-kind
securities generally are more volatile than the prices of securities that pay
interest periodically. These 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.
SWAP AGREEMENTS. 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 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.
MUNICIPAL OBLIGATIONS. The 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. 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
26
<PAGE>
income securities, an increase in interest rates generally will reduce the value
of the Portfolio's investments in municipal obligations, whereas a decline in
interest rates generally will increase that value. Any of these factors could
affect the value of municipal securities.
DIRECT DEBT INSTRUMENTS. Direct debt instruments are interests in
amounts owed by a corporate, governmental, or other borrowers (including
emerging market countries) to lenders or lending syndicates. Purchasers of loans
and other forms of direct indebtedness depend primarily upon the
creditworthiness of the borrower for payment of principal and interest. If the
Portfolio does not receive scheduled interest or principal payments on such
indebtedness, the Fund's share price and yield could be adversely affected.
Direct debt instruments may involve a risk of insolvency of the lending bank or
intermediary. Direct indebtedness of developing countries involves a risk that
the governmental entities responsible for the repayment of the debt may be
unable, or unwilling to pay interest and repay principal when due.
Because the Portfolio's ability to receive payments in connection with
loan participations depends on the financial condition of the borrower, N&B
Management will not rely solely on a bank or other lending institution's credit
analysis of the borrower, but will perform its own investment analysis of the
borrowers. N&B Management's analysis may include consideration of the borrower's
financial strength, managerial experience, debt coverage, additional borrowing
requirements or debt maturity schedules, changing financial conditions, and
responsiveness to changes in business conditions and interest rates. Loan
participations are not generally rated by independent rating agencies and
therefore, investments in a particular loan participation will depend almost
exclusively on the credit analysis of the borrower performed by N&B Management
and the original lending institution.
Loans are often administered by a lead bank, which acts as agent for
the lenders in dealing with the borrower. In asserting rights against the
borrower, the Portfolio may be dependent on the willingness of the lead bank to
assert these rights, or upon a vote of all the lenders to authorize the action.
Assets held by the lead bank for the benefit of the Portfolio may be subject to
claims of the lead bank's creditors.
Although some of the loans in which the Portfolio invests may be
secured, there is no assurance that the collateral can be liquidated in
particular cases, or that its liquidation value will be equal to the value of
the debt. Borrowers that are in bankruptcy may pay only a small portion of the
27
<PAGE>
amount owed, if they are able to pay at all. Where the Portfolio purchases a
loan through an assignment, there is a possibility that the Portfolio will, in
the event the borrower is unable to pay the loan, become the owner of the
collateral, and thus will be required to bear the costs of liabilities
associated with owning and disposing of the collateral.
The Portfolio's policies limit the percentage of the Fund's assets
that can be invested in the securities of issuers primarily involved in one
industry. Legal interpretations by the SEC staff may require the Portfolio, in
some instances, to treat both the lending bank and the borrower as "issuers" of
a loan participation by the Portfolio. In combination, the Portfolio's policies
and the SEC staff's interpretations may limit the amount the Portfolio can
invest in loan participations.
There may not be a recognizable, liquid public market for loan
participations. To the extent this is the case, the Portfolio would consider the
loan participation as illiquid and subject to the Portfolio's restriction on
investing no more than 15% of its net assets in illiquid securities.
CONVERTIBLE SECURITIES. A convertible security entitles the holder to
receive the interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Securities convertible into common stock are subject to the
Portfolio's 20% limitation on equity securities. Before conversion, such
securities ordinarily provide a stream of income with generally higher yields
than common stocks of the same or similar issuers, but lower than the yield on
non-convertible debt. Convertible securities are usually subordinated to
comparable-tier non-convertible securities but rank senior to common stock in a
corporation's capital structure. The value of a convertible security is a
function of (1) its yield in comparison to the yields of other securities of
comparable maturity and quality that do not have a conversion privilege and (2)
its worth if converted into the underlying common stock.
The price of a convertible security often reflects variations in the
price of the underlying common stock in a way that non-convertible debt may not.
Convertible securities are typically issued by smaller capitalization companies
whose stock prices may be volatile. A convertible security may be subject to
redemption at the option of the issuer at a price established in the security's
28
<PAGE>
governing instrument. If a convertible security held by the Portfolio is called
for redemption, the Portfolio will be required to convert it into the underlying
common stock, sell it to a third party or permit the issuer to redeem the
security. Any of these actions could have an adverse effect on the Portfolio's
and the Fund's ability to achieve their investment objectives.
PREFERRED STOCK. Unlike interest payments on debt securities,
dividends on preferred stock are generally payable at the discretion of the
issuer's board of directors. Preferred shareholders may have certain rights if
dividends are not paid but generally have no legal recourse against the issuer.
Shareholders may suffer a loss of value if dividends are not paid. The market
prices of preferred stocks are generally more sensitive to changes in the
issuer's creditworthiness than are the prices of debt securities.
WARRANTS. Warrants may be acquired by the Fund in connection with
other securities or separately and provide the Fund with the right to purchase
at a later date other securities of the issuer. Warrants are securities
permitting, but not obligating, their holder to subscribe for other securities
or commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
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
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.
29
<PAGE>
RISKS OF EQUITY SECURITIES
- --------------------------
Equity securities in which the Fund may invest include common stocks,
preferred stocks, convertible securities and warrants. To the extent the
Portfolio invests in such securities, the value of securities held by the
Portfolio will be affected by changes in the stock markets. At times, the stock
markets can be volatile and stock prices can change substantially. This market
risk will affect the Portfolio's and the Fund's NAVs per share, which will
fluctuate as the value of the securities held by the Portfolio change. Not all
stock prices change uniformly or at the same time and not all stock markets move
in the same direction at the same time. Other factors affect a particular
stock's prices, such as poor earnings reports by an issuer, loss of major
customers, major litigation against an issuer, or changes in governmental
regulations affecting an industry. Not all factors can be predicted.
CERTAIN RISK CONSIDERATIONS
The Fund's investment in the Portfolio may be affected by the actions
of other large investors in the Portfolio, if any. For example, if a large
investor in the Portfolio (other than the 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 the 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 the Portfolio will achieve its
investment objective.
PERFORMANCE INFORMATION
The Fund's performance figures are based on historical results and are
not intended to indicate future performance. The yield and total return of the
Fund will vary. The share price of the Fund will vary, and an investment in the
Fund, when redeemed, may be worth more or less than an investor's original cost.
30
<PAGE>
YIELD CALCULATIONS
- ------------------
The Fund 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.
TOTAL RETURN COMPUTATIONS
- -------------------------
The Fund may advertise certain total return information. An average
annual compounded rate of return ("T") may be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment of $1,000 ("P") over a period of time ("n") according to the formula:
n
P(1+T) = ERV
Average annual total return smoothes out year-to-year variations in performance
and, in that respect, differs from actual year-to-year results.
N&B Management may reimburse the Fund for certain expenses which would
have the effect of increasing yield and total return. Of course, past
performance cannot guarantee future results.
COMPARATIVE INFORMATION
- -----------------------
From time to time the 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
31
<PAGE>
(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. The Portfolio may invest in different types of securities
from those included in some of the above indices.
The Fund's performance also may be compared from time to time with the
following specific indices and other measures of performance:
The Fund's performance may be compared with the Merrill Lynch 1-3 year
Treasury Index and the Lehman Brothers Intermediate
Government/Corporate Bond Index, and the Lipper High Yield Bond Fund
Index as well as the performance of Treasury securities and corporate
bonds.
In addition, the 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 the 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 the
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 Fund's performance, its yield/total returns and
comparisons may be used in advertisements and in information furnished to
current and prospective shareholders (collectively, "Advertisements"). The Fund
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 the Portfolio's portfolio
allocation and holdings as of a particular date may be included in
32
<PAGE>
Advertisements for the 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 the Fund's performance.
Information relating to inflation and its effects on the dollar also
may be included in Advertisements. For example, after ten years, the purchasing
power of $25,000 would shrink to $16,621, $14,968, $13,465, and $12,100,
respectively, if the annual rates of inflation during that period were 4%, 5%,
6%, and 7%, respectively. (To calculate the purchasing power, the value at the
end of each year is reduced by the inflation rate for the ten-year period.)
Information (including charts and illustrations) showing the total
return performance for government funds, 6-month CDs and money market funds may
be included in Advertisements from time to time.
Information regarding the effects of automatic 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.
33
<PAGE>
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.
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.
34
<PAGE>
Positions
Name, Address Held With
and Age (1) the Trusts Principal Occupation(s)(2)
- ----------- ---------- -----------------------
John Cannon (67) Trustee of President, AMA Investment
CDC Associates, Inc. each Trust Advisers, Inc. (registered
620 Sentry Parkway investment adviser) (1976 -
Suite 220 1991); Senior Vice President
Blue Bell, PA 19422 AMA Investment Advisers,
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* (63) Chairman Principal of Neuberger &
of the Berman; President and
Chief Exe- Director of N&B Management;
cutive Chairman of the Board, Chief
Officer Executive Officer and
and Trustee of eight other
Trustee of mutual funds for which N&B
each Trust Management acts as invest-
ment manager or adminis-
trator.
Theodore P. Giuliano* (45) President Principal of Neuberger &
and Berman; Vice President and
Trustee of Director of N&B Management;
each Trust President and Trustee of one
other mutual fund for which
N&B Management acts as
administrator.
Barry Hirsch (64) Trustee of Senior Vice President,
Loews Corporation each Trust Secretary, and General
667 Madison Avenue Counsel of Loews Corporation
8th Floor (diversified financial
New York, NY 10021 corporation).
35
<PAGE>
Positions
Name, Address Held With
and Age (1) the Trusts Principal Occupation(s)(2)
- ----------- ---------- -----------------------
Robert A. Kavesh (70) Trustee of Professor of Finance and
110 Bleecker Street each Trust Economics at Stern School of
Apt. 24B Business, New York Univer-
New York, NY 10012 sity; Director of Del
Laboratories, Inc. and
Greater New York Mutual
Insurance Co.
William E. Rulon (65) Trustee of Retired. Senior Vice
1761 Hotel Circle South each Trust President of Foodmaker, Inc.
San Diego, CA 92108 (operator and franchiser of
restaurants) until January
1997; Secretary of
Foodmaker, Inc. until July
1996.
Candace L. Straight (50) Trustee of Private investor and
518 E. Passaic Avenue each Trust consultant specializing in
Bloomfield, NJ 07003 the insurance industry;
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.
36
<PAGE>
Positions
Name, Address Held With
and Age (1) the Trusts Principal Occupation(s)(2)
- ----------- ---------- -----------------------
Daniel J. Sullivan (57) Vice Senior Vice President of N&B
President Management since 1992; prior
of each thereto, Vice President of
Trust N&B Management; Vice
President of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
Michael J. Weiner (50) Vice Senior Vice President of N&B
President Management since 1992;
and Treasurer of N&B Management
Principal from 1992 to 1996; prior
Financial thereto, Vice President and
Officer of Treasurer of N&B Management
each Trust 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 (41) Secretary Vice President of N&B
of each Management; Secretary of
Trust eight other mutual funds for
which N&B Management acts as
investment manager or
administrator.
37
<PAGE>
Positions
Name, Address Held With
and Age (1) the Trusts Principal Occupation(s)(2)
- ----------- ---------- -----------------------
Richard Russell (50) Treasurer Vice President of N&B Man-
and agement since 1993; prior
Principal thereto, Assistant Vice
Accounting President of N&B Management;
Officer Treasurer and Principal Ac-
of each counting Officer of eight
Trust other mutual funds for which
N&B Management acts as
investment manager or
administrator.
Stacy Cooper-Shugrue (34) Assistant Assistant Vice President of
Secretary N&B Management since 1993;
of each prior thereto, employee of
Trust N&B Management; Assistant
Secretary of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
C. Carl Randolph (60) Assistant Principal of Neuberger &
Secretary Berman since 1992; prior
of thereto, employee of
each Trust 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
Treasurer N&B Management since 1993;
of each prior thereto, employee of
Trust N&B Management; Assistant
Treasurer of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
38
<PAGE>
Name, Address Held With
and Age (1) the Trusts Principal Occupation(s)(2)
- ----------- ---------- -----------------------
Celeste Wischerth (36) Assistant Assistant Vice President of
Treasurer N&B Management since 1994;
of each prior thereto, employee of
Trust 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
39
<PAGE>
engaged in willful misfeasance, bad faith, gross negligence, or reckless
disregard of their duties.
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 10/31/97
------------------------------
Name and Position Aggregate Total Compensation from
with the Trust Compensation Trusts in the Neuberger
from the & Berman Fund Complex
Truts Paid to Trustees
- ----------------- ------------ -----------------------
John Cannon $16,504 $34,500
Trustee (2 other investment
companies)
Charles DeCarlo $ 3,923 $8,000
Trustee (retired 12/96) (2 other investment
companies)
Stanley Egener $0 $0
Chairman of the Board, (9 other investment
Chief Executive Offi- companies)
cer, and Trustee
Theodore P. Giuliano $0 $0
President and Trustee (2 other investment
companies)
Barry Hirsch $14,809 $30,500
Trustee (2 other investment
companies)
Robert A. Kavesh $16,504 $35,000
Trustee (2 other investment
companies)
Harold R. Logan $3,923 $8,000
40
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/97
------------------------------
Name and Position Aggregate Total Compensation from
with the Trust Compensation Trusts in the Neuberger
from the & Berman Fund Complex
Truts Paid to Trustees
- ----------------- ------------ -----------------------
Trustee (retired 12/96) (2 other investment
companies)
William E. Rulon $14,809 $30,500
Trustee (2 other investment
companies)
Candace L. Straight $14,809 $31,500
Trustee (2 other investment
companies)
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
INVESTMENT MANAGER AND ADMINISTRATOR
- ------------------------------------
Because the Fund's net investable assets are invested in the
Portfolio, the Fund does not need an investment manager. N&B Management serves
as the Portfolio's investment manager pursuant to a management agreement with
Managers Trust, on behalf of the Portfolio, dated as of July 2, 1993
("Management Agreement"). The Management Agreement was approved by the holders
of the interests in the Portfolio on ___________, 1998.
The Management Agreement provides, in substance, that N&B Management
will make and implement investment decisions for the Portfolio in its discretion
and will continuously develop an investment program for the Portfolio's assets.
The Management Agreement permits N&B Management to effect securities
transactions on behalf of the 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 Portfolio, although N&B Management has
no current plans to pay a material amount of such compensation.
N&B Management provides to the Portfolio, without separate cost,
office space, equipment, and facilities and the personnel necessary to perform
41
<PAGE>
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." The 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
the Fund pursuant to an administration agreement with the Trust, dated May 1,
1995 ("Administration Agreement"). For such administrative services, the Fund
pays N&B Management a fee based on the Fund's average daily net assets, as
described in the Prospectus. The Fund became subject to the Administration
Agreement on __________, 1998.
Under the Administration Agreement, N&B Management also provides to
the 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 the 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 the 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 NAV 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.
As noted in the Prospectus under "Management and Administration --
Expenses," N&B Management has voluntarily undertaken to reimburse the Fund its
Total Operating Expenses (including fees under the Administration Agreement) and
the Fund's pro rata share of the Portfolio's Total Operating Expenses (including
fees under the Management Agreement) that exceed, in the aggregate, 1.0% per
annum of the Fund's average daily net assets. Total Operating Expenses exclude
42
<PAGE>
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.
The Management Agreement continues with respect to the 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
the 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 the Portfolio. The Administration
Agreement continues with respect to the 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 the 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 the Fund.
The Management Agreement is terminable, without penalty, with respect
to the 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 the 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 the 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 _______, 1998.
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
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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 the 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 the
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 the
Portfolio if it is assigned or if the Management Agreement terminates with
respect to the 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, 1997, these companies, along with one
other investment company advised by Neuberger & Berman, had aggregate net assets
of approximately $( ) billion, as shown in the following list:
Approximate
Net Assets at
Name December 31, 1997
- ---- -----------------
Neuberger & Berman Cash Reserves Portfolio.........................$____________
(investment portfolio for Neuberger & Berman Cash Reserves)
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Neuberger & Berman Government Money Portfolio......................$____________
(investment portfolio for Neuberger & Berman Government Money Fund)
Neuberger & Berman Limited Maturity Bond Portfolio.................$____________
(investment portfolio for Neuberger & Berman Limited Maturity Bond Fund and
Neuberger & Berman Limited Maturity Bond Trust)
Neuberger & Berman Municipal Money Portfolio.......................$____________
(investment portfolio for Neuberger & Berman Municipal Money Fund)
Neuberger & Berman Municipal Securities Portfolio..................$____________
(investment portfolio for Neuberger & Berman Municipal Securities Trust)
Neuberger & Berman Focus Portfolio.................................$____________
(investment portfolio for Neuberger & Berman Focus Fund, Neuberger & Berman
Focus Trust, and Neuberger & Berman Focus Assets)
Neuberger & Berman Genesis Portfolio...............................$____________
(investment portfolio for Neuberger & Berman Genesis Fund, Neuberger & Berman
Genesis Trust, and Neuberger & Berman Genesis Assets)
Neuberger & Berman Guardian Portfolio..............................$____________
(investment portfolio for Neuberger & Berman Guardian Fund, Neuberger &
Berman Guardian Trust, and Neuberger & Berman Guardian Assets)
Neuberger & Berman International Portfolio.........................$____________
(investment portfolio for Neuberger & Berman International Fund)
Neuberger & Berman Manhattan Portfolio.............................$____________
(investment portfolio for Neuberger & Berman Manhattan Fund, Neuberger &
Berman Manhattan Trust, and Neuberger & Berman Manhattan Assets)
Neuberger & Berman Partners Portfolio..............................$____________
(investment portfolio for Neuberger & Berman Partners Fund, Neuberger &
Berman Partners Trust, and Neuberger & Berman Partners Assets)
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<PAGE>
Neuberger & Berman Socially Responsive Portfolio...................$____________
(investment portfolio for Neuberger & Berman Socially Responsive Fund,
Neuberger & Berman NYCDC Socially Responsive Trust and Neuberger & Berman
Socially Responsive Trust)
Advisers Managers Trust (eight series).............................$____________
In addition, Neuberger & Berman serves as investment adviser to one
investment company, Plan Investment Fund, with assets of $( ) at December 31,
1997.
The investment decisions concerning the Portfolio and the other mutual
funds managed by N&B Management (collectively, "Other N&B Funds") will be made
independently of one another. In terms of their investment objectives, most of
the Other N&B Funds differ from the Portfolio. Even where the investment
objectives are similar, however, the methods used by the Other N&B Funds and the
Portfolio 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 the 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 the Portfolio, in other
cases it is believed that the 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 Portfolio's
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; Brooke A. Cobb, Vice President; Robert W.
46
<PAGE>
D'Alelio, Vice President; Clara Del Villar, Vice President; Brian J. Gaffney,
Vice President; Joseph Galli, Vice President; Robert I. Gendelman, Vice
President; Josephine P. Mahaney, Vice President; Ellen Metzger, Vice President
and Secretary; Paul Metzger, Vice President; Janet W. Prindle, Vice President;
Kevin L. Risen, Vice President; Richard Russell, Vice President; Jennifer K.
Silver, 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; Valerie Chang, Assistant Vice President; Stacy Cooper-Shugrue,
Assistant Vice President; Barbara DiGiorgio, Assistant Vice President; Michael
J. Hanratty, 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; Josephine
Velez, 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,
Kassen, Risen, Simons and Sundman and Mmes. Prindle, Silver 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 the Fund's shares on a no-load basis. In connection with
the sale of its shares, the 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
47
<PAGE>
electronic means. The Distributor is the Fund's "principal underwriter" within
the meaning of the 1940 Act and, as such, acts as agent in arranging for the
sale of the Fund's shares without sales commission or other compensation and
bears all advertising and promotion expenses incurred in the sale of the Fund's
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 Fund's
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 Fund's shareholders any investment products or
services other than those managed or distributed by N&B Management or Neuberger
& Berman.
The Trust, on behalf of the Fund, and the Distributor are parties to a
Distribution Agreement dated _____, 199__. The Fund became a party to the
Distribution Agreement on ____, 199__. 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 the Fund 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.
48
<PAGE>
Automatic investing enables a shareholder in the Fund to take
advantage of "dollar cost averaging." As a result of dollar cost averaging, a
shareholder's average cost of Fund shares 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 the Fund's shares and invest the proceeds in shares of one or
more of the Equity, Municipal or other Income Funds that are briefly described
below, provided that the minimum investment requirements of the other fund(s)
are met.
Fund shareholders who are considering exchanging shares into any of
the funds described below should note that (1) like the Fund, the Other Income
Funds and 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 Funds, Municipal Funds and the Other 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.
49
<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
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.
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<PAGE>
Neuberger & Berman Seeks long-term capital appreciation
International Fund through investments primarily in a
diversified portfolio of equity
securities of foreign issuers. Assets
will be allocated among economically
mature countries and emerging
industrialized countries.
Neuberger & Berman Seeks capital appreciation, without
Manhattan Fund regard to income, through investments
in securities of small-, medium- and
large-capitalization companies believed
to have the maximum potential for
long-term capital appreciation. The
corresponding portfolio's investment
program involves greater risks and share
price volatility than programs that
invest in more undervalued securities.
Neuberger & Berman Seeks capital growth through an in-
Partners Fund vestment 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 in
the selection of individual securities.
Neuberger & Berman Seeks long-term capital appreciation
Socially Responsive through investments primarily in
Funds securities of companies that meet both
financial and social criteria.
MUNICIPAL FUNDS
- ---------------
Neuberger & Berman A money market fund seeking the maxi-
Municipal Money Fund mum current 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
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<PAGE>
redemption price of $1.00.
Neuberger & Berman Seeks high current tax-exempt income
Municipal Securities with low risk to principal, limited
Trust price fluctuation, and liquidity; and
secondarily, total return. The
corresponding portfolio invests in
investment grade municipal securities.
Maximum dollar-weighted average duration
of 10 years.
OTHER INCOME FUNDS
- ------------------
Neuberger & Berman A U.S. Government money market fund
Government Money 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 A money market fund seeking the
Cash Reserves highest current income consistent with
with safety and liquidity. The
corresponding portfolio invests in
high-quality money market instruments.
It seeks to maintain a constant purchase
and redemption price of $1.00.
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<PAGE>
Neuberger & Berman Seeks the highest current income
Limited Maturity Bond consistent with low risk to principal
Fund 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.
The Fund described herein, and any of the funds described above, may
terminate or modify its exchange privilege in the future.
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. 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 Neuberger & Berman Cash Reserves,
Neuberger & Berman 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 the Fund's shares may be suspended or payment of
the redemption price postponed (1) when the New York Stock Exchange ("NYSE") is
closed (other than weekend and holiday closings), (2) when trading on the NYSE
is restricted, (3) when an emergency exists as a result of which it is not
reasonably practicable for the 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.
- ---------------------
1 As rated by Moody's or S&P or, if unrated by either or those entitles,
deemed by N&B Management to be of comparable quality.
53
<PAGE>
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
- -------------------
The 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 in 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 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 Fund does not redeem in kind under normal circumstances, but would do
so when the Fund Trustees determined that it was in the best interests of the
Fund's shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund distributes to its shareholders substantially all of its
share of any net investment income (after deducting expenses incurred directly
by the Fund), any net realized capital gains, and any net realized gains from
foreign currency transactions earned or realized by the Portfolio. The
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 the Portfolio's NAV (and, hence, the Fund's
NAV) until they are distributed. The Fund calculates its net investment income
and NAV per share as of the close of regular trading on the NYSE on each
Business Day (currently 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 the Fund 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
54
<PAGE>
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 the 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 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 to request that the
cash election be reinstated.
Dividend or other distribution checks that are not cashed or deposited
within 180 days from being issued will be reinvested in additional shares of the
distributing Fund at the Fund's price on the day the check is reinvested. No
interest will accrue on amounts represented by uncashed dividend or distribution
checks.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUNDS
- ---------------------
In order to qualify for treatment as a RIC under the Code, the Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and, net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. 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
55
<PAGE>
of investing in securities or those currencies ("Income Requirement"); and (2)
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.
Certain other series of the Trust have received rulings from the
Internal Revenue Service ("Service") that each series, 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 series
satisfies all the requirements described above to qualify as a RIC. Although
these rulings may not be relied upon as precedent by the Fund, N&B Management
believes the reasoning thereof and, hence, their conclusion apply to the Fund as
well.
The 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 the
Fund of distributions to it from the Portfolio, investments by the Portfolio in
certain securities, and hedging and certain other transactions engaged in by the
Portfolio.
TAXATION OF THE PORTFOLIO
- -------------------------
Certain other portfolios of Managers Trust 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 these rulings may not be relied
upon as precedent by the Portfolio, N&B Management believes the reasoning
thereof and, hence, their conclusion apply to the Portfolio as well. As a
result, the Portfolio is not subject to federal income tax; instead, each
56
<PAGE>
investor in the Portfolio, such as the 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. The
Portfolio also is not subject to Delaware or New York income or franchise tax.
Because the Fund is deemed to own a proportionate share of the
Portfolio's assets and income for purposes of determining whether the Fund
qualifies as a RIC, the Portfolio intends to conduct its operations so that the
Fund will be able to satisfy all those requirements.
Distributions to the Fund from the 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. The Fund's basis for its interest in the
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 the Portfolio, and gains realized
by the Portfolio, may be subject to income, withholding, or other taxes imposed
by foreign countries and U.S. possessions that would reduce the yield and/or
total return on its securities. Tax conventions between certain countries and
the United States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors.
The use by the 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 amount, character, and timing of recognition of the gains and losses the
57
<PAGE>
Portfolio realizes in connection therewith. For the Portfolio, 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 the Fund under the Income Requirement.
Exchange-traded Futures Contracts and listed options thereon and
certain Forward Contracts constitute "Section 1256 contracts." Section 1256
contracts are required to be marked to market (that is, treated as having been
sold at market value) for federal income tax purposes at the end of the
Portfolio's taxable year. Sixty percent of any net 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.
As of the date of this SAI, it is not entirely clear whether that 60% portion
will qualify for the reduced maximum tax rates on net capital gain (the excess
of net long-term capital gain over net short-term capital loss) enacted by the
Taxpayer Relief Act of 1997 -- 20% (10% for taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more than 18 months --
instead the 28% rate in effect before that legislation, which now applies to
gain recognized on capital assets held for more than one year but not more than
18 months. However, proposed technical corrections legislation would clarify
that the 20% rate applies.
The 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 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.
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The Portfolio may acquire zero coupon or other securities
issued with OID or pay-in-kind securities which pay interest through the
issuance of additional securities. As a holder of those securities, the
Portfolio (and, through it, the Fund) must take into income the OID and other
non-cash income that accrues on the securities during the taxable year, even if
it receives no corresponding payment on the securities during the year. Because
the Fund annually must distribute substantially all of its investment company
taxable income (including its share of the Portfolio's accrued OID and other
non-cash income) to satisfy the Distribution Requirement and to avoid imposition
of the Excise Tax, the 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 the Portfolio actually receives. Those distributions will be made from the
Fund's (or its share of the Portfolio's) cash assets or, if necessary, from the
proceeds of sales of the Portfolio's securities. The Portfolio may realize
capital gains or losses from those sales, which would increase or decrease the
Fund's investment company taxable income and/or net capital gain.
TAXATION OF THE FUND'S SHAREHOLDERS
- -----------------------------------
If shares of the Fund 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.
The Fund is required to withhold 31% of all dividends, capital gain
distributions, and 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, the 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 ("IRA") (including an education IRA and a Roth
IRA) 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
59
<PAGE>
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.
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 Portfolio typically
does 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), the 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, the Portfolio may pay higher brokerage commissions in return for
brokerage and research services, although the Portfolio does not have a current
arrangement to do so. In any case, the 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.
No affiliate of the Portfolio receives give-ups or reciprocal business
in connection with its portfolio transactions. The Portfolio does not effect
transactions with or through broker-dealers in accordance with any formula or
for selling shares of the 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
60
<PAGE>
principal in the purchase of portfolio securities from, or the sale of portfolio
securities to, the Portfolio unless an appropriate exemption is available.
PORTFOLIO TURNOVER
- ------------------
The Portfolio calculates 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.
REPORTS TO SHAREHOLDERS
Shareholders of the Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors for the Fund and for the Portfolio. The Fund's statements show the
investments owned by the Portfolio and the market values thereof and provide
other information about the Fund and its operations, including the Fund's
beneficial interest in the Portfolio.
CUSTODIAN AND TRANSFER AGENT
The Fund and Portfolio have selected State Street, 225 Franklin
Street, Boston, MA 02110 as custodian for their securities and cash. State
Street also serves as the 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
The Fund and Portfolio have selected Ernst & Young LLP, 200 Clarendon
Street, Boston, MA 02116, as the independent auditors who will audit their
financial statements.
LEGAL COUNSEL
The Fund and Portfolio have selected Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as their
legal counsel.
61
<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 Fund and Portfolio.
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.
62
<PAGE>
APPENDIX A
THE ART OF INVESTMENT: A CONVERSATION WITH ROY NEUBERGER
<PAGE>
PART C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective Amendment
No. 24.
NEUBERGER & BERMAN INCOME FUNDS
POST-EFFECTIVE AMENDMENT NO. 24 ON FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
- ------- ---------------------------------
(a) Financial Statements:
None included.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
-------
<S> <C>
(1) (a) Certificate of Trust. Incorporated by Reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement, File Nos.
2-85229 and 811-3802, EDGAR Accession No. 0000898432-96-000117.
(b) Trust Instrument of Neuberger & Berman Income Funds. Incorporated
by Reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-96-000117.
(c) Schedule A - Current Series of Neuberger & Berman Income Funds.
Filed Herewith.
(2) By-Laws of Neuberger & Berman Income Funds. Incorporated by Reference to
Post-Effective Amendment No. 21 to Registrant's Registration Statement, File
Nos. 2-85229 and 811-3802, EDGAR Accession No. 0000898432-96-000117.
(3) Voting Trust Agreement. None.
(4) (a) Trust Instrument of Neuberger & Berman Income Funds, Articles IV,
V, and VI. Incorporated by Reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement, File Nos. 2-85229
and 811-3802, EDGAR Accession No. 0000898432-96-00017.
<PAGE>
(b) By-Laws of Neuberger & Berman Income Funds, Articles V, VI, and
VIII. Incorporated by Reference to Post-Effective Amendment No. 21
to Registrant's Registration Statement, File Nos. 2-85229 and
811-3802, EDGAR Accession No. 0000898432-96-00017.
(5) (a) (i) Management Agreement Between Income Managers Trust and
Neuberger & Berman Management Incorporated. Incorporated
by Reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File Nos. 2-85229 and
811-3802, EDGAR Accession No. 0000898432-96-00017.
(ii) Form of Schedule A - Portfolios of Income Managers Trust
Currently Subject to the Management Agreement. Filed
Herewith.
(iii) Form of Schedule B - Schedule of Compensation
under the Management Agreement. Filed Herewith.
(b) (i) Sub-Advisory Agreement Between Neuberger & Berman
Management Incorporated and Neuberger & Berman, L.P. with
respect to Income Managers Trust. Incorporated by
Reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File Nos. 2-85229 and
811-3802, EDGAR Accession No. 0000898432-96-00017.
(ii) Form of Schedule A - Portfolios of Income Managers Trust
Currently Subject to the Sub-Advisory Agreement. Filed
Herewith.
(iii) Substitution Agreement Among Neuberger &
Berman Management Incorporated, Income
Managers Trust, Neuberger & Berman,
L.P., and Neuberger & Berman, LLC.
Incorporated by Reference to Post-
Effective Amendment No. 23 to
Registrant's Registration Statement,
File Nos. 2-85229 and 811-3802; EDGAR
Accession No. 0000898432-96-000117.
(6) (a) Distribution Agreement between Neuberger & Berman Income Funds and
Neuberger & Berman Management Incorporated. Incorporated by
Reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-96-00017.
<PAGE>
(b) Form of Schedule A - Series of Neuberger & Berman Income Funds
Currently Subject to the Distribution Agreement. Filed Herewith.
(7) Bonus, Profit Sharing or Pension Plans. None.
(8) (a) Custodian Contract Between Neuberger & Berman Income Funds and
State Street Bank and Trust Company. Incorporated by Reference to
Post-Effective Amendment No. 21 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802, EDGAR Accession
No. 0000898432-96-00017.
(b) Form of Agreement between Neuberger & Berman Income Funds and State
Street Bank and Trust Company Adding Neuberger & Berman High Yield
Bond Fund as a Series Governed by the Custodian Contract. Filed
Herewith.
(c) Schedule A - Approved Foreign Banking Institutions and Securities
Depositories Under the Custodian Contract. Incorporated by Reference
to Post-Effective Amendment No. 21 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(d) Schedule of Compensation under the Custodian Contract. Incorporated by
Reference to Post-Effective Amendment No. 23 to Registrant's
Registration Statement, File Nos. 2-85229 and 811-3802; EDGAR
Accession No. 0000898432-96-000117.
(9) (a) (i) Transfer Agency Agreement Between Neuberger & Berman
Income Funds and State Street Bank and Trust Company.
Incorporated by Reference to Post-Effective Amendment No.
21 to Registrant's Registration Statement, File Nos.
2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(ii) Form of Agreement between Neuberger & Berman Income
Funds and State Street Bank and Trust Company Adding
Neuberger & Berman High Yield Bond Fund as a Series
Governed by the Transfer Agency Agreement. Filed
Herewith.
<PAGE>
(iii) First Amendment to Transfer Agency and Service
Agreement between Neuberger & Berman Income Funds and
State Street Bank and Trust Company. Incorporated by
Reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File Nos.
2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(iv) Schedule of Compensation under the Transfer Agency
Agreement. Incorporated by Reference Post Effective
Amendment No. 23 to Registrant's Registration Statement,
File Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-000117.
(b) (i) Administration Agreement Between Neuberger & Berman Income
Funds and Neuberger & Berman Management Incorporated.
Incorporated by Reference to Post-Effective Amendment No.
21 to Registrant's Registration Statement, File Nos.
2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(ii) Form of Schedule A - Series
of Neuberger & Berman
Income Funds Currently
Subject to the
Administration Agreement.
Filed Herewith.
(iii) Schedule B - Schedule of
Compensation Under the
Administration Agreement.
Incorporated by Reference
to Post-Effective Amendment
No. 21 to Registrant's
Registration Statement,
File Nos. 2-85229 and
811-3802, EDGAR Accession
No. 0000898432-96-00017.
(10) Opinion and Consent of Kirkpatrick & Lockhart on Securities Matters. Filed
Herewith.
(11) Other Opinions, Appraisals, Rulings and Consents. Not Applicable
(12) Financial Statements Omitted from Prospectus. None.
(13) Letter of Investment Intent. Incorporated by Reference to Pre-Effective
Amendment No. 1 to the Registration Statement of Neuberger & Berman
Multi-Series Fund, Inc., File Nos. 33-19951 and 811-5467.
(14) Prototype Retirement Plan. None.
(15) Plan Pursuant to Rule 12b-1. None.
<PAGE>
(16) Schedule of Computation of Performance Quotations. Incorporated by
Reference to Post-Effective Amendment No. 17 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802.
(17) Financial Data Schedules. Not Applicable.
(18) Plan Pursuant to Rule 18f-3. None.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
- -------- -------------------------------------------------------------
No person is controlled by or under common control with the Registrant.
(Registrant is organized in a master/feeder fund structure, and technically may
be considered to control the master fund in which it invests, Income Managers
Trust.)
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
The following information is given as of November 13, 1997.
TITLE OF CLASS NUMBER OF
-------------- RECORD HOLDERS
---------------
Shares of beneficial
interest, $0.001 par value, of:
Neuberger & Berman High Yield Bond Fund 0
ITEM 27. INDEMNIFICATION.
- ------- ---------------
A Delaware business trust may provide in its governing instrument for
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article IX, Section 2 of the Trust Instrument provides
that the Registrant shall indemnify any present or former trustee, officer,
employee or agent of the Registrant ("Covered Person") to the fullest extent
permitted by law against liability and all expenses reasonably incurred or paid
by him or her in connection with any claim, action, suit or proceeding
("Action") in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been a Covered Person and against amounts paid or
incurred by him or her in settlement thereof. Indemnification will not be
provided to a person adjudged by a court or other body to be liable to the
Registrant or its shareholders by reason of "willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office" ("Disabling Conduct"), or not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of the
Registrant. In the event of a settlement, no indemnification may be provided
unless there has been a determination that the officer or trustee did not engage
in Disabling Conduct (i) by the court or other body approving the settlement;
(ii) by at least a majority of those trustees who are neither interested
persons, as that term is defined in the Investment Company Act of 1940 ("1940
Act"), of the Registrant ("Independent Trustees"), nor parties to the matter
based upon a review of readily available facts; or (iii) by written opinion of
independent legal counsel based upon a review of readily available facts.
<PAGE>
Pursuant to Article IX, Section 3 of the Trust Instrument, if any
present or former shareholder of any series ("Series") of the Registrant shall
be held personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or for some other
reason, the present or former shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of any entity, its
general successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Registrant, on behalf of the affected
Series, shall, upon request by such shareholder, assume the defense of any claim
made against such shareholder for any act or obligation of the Series and
satisfy any judgment thereon from the assets of the Series.
Section 9 of the Management Agreement between Income Managers Trust
("Managers Trust") and Neuberger and Berman Management Incorporated ("N&B
Management") provides that neither N&B Management nor any director, officer or
employee of N&B Management performing services for any series of Managers Trust
(each a "Portfolio") at the direction or request of N&B Management in connection
with N&B Management's discharge of its obligations under the Agreement shall be
liable for any error of judgment or mistake of law or for any loss suffered by a
Portfolio in connection with any matter to which the Agreement relates;
provided, that nothing in the Agreement shall be construed (i) to protect N&B
Management against any liability to Managers Trust or a Portfolio or its
interestholders to which N&B Management would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of N&B Management's reckless disregard of its obligations
and duties under the Agreement, or (ii) to protect any director, officer or
employee of N&B Management who is or was a trustee or officer of Managers Trust
against any liability to Managers Trust or a Portfolio or its interestholders to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office with Managers Trust.
Section 1 of the Sub-Advisory Agreement between N&B Management and
Neuberger & Berman, L.P. ("Neuberger & Berman") with respect to Managers Trust
provides that, in the absence of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or of reckless disregard of its
duties and obligations under the Agreement, Neuberger & Berman will not be
subject to liability for any act or omission or any loss suffered by any
Portfolio or its interestholders in connection with the matters to which the
Agreement relates.
Section 12 of the Administration Agreement between the Registrant and
N&B Management provides that N&B Management will not be liable to the Registrant
for any action taken or omitted to be taken by N&B Management or its employees,
agents or contractors in carrying out the provisions of the Agreement if such
action was taken or omitted in good faith and without negligence or misconduct
on the part of N&B Management, or its employees, agents or contractors. Section
13 of the Administration Agreement provides that the Registrant shall indemnify
N&B Management and hold it harmless from and against any and all losses, damages
and expenses, including reasonable attorneys' fees and expenses, incurred by N&B
Management that result from: (i) any claim, action, suit or proceeding in
connection with N&B Management's entry into or performance of the Agreement; or
(ii) any action taken or omission to act committed by N&B Management in the
performance of its obligations under the Agreement; or (iii) any action of N&B
Management upon instructions believed in good faith by it to have been executed
by a duly authorized officer or representative of a Series; provided, that N&B
<PAGE>
Management will not be entitled to such indemnification in respect of actions or
omissions constituting negligence or misconduct on the part of N&B Management,
or its employees, agents or contractors. Amounts payable by the Registrant under
this provision shall be payable solely out of assets belonging to that Series,
and not from assets belonging to any other Series of the Registrant. Section 14
of the Administration Agreement provides that N&B Management will indemnify the
Registrant and hold it harmless from and against any and all losses, damages and
expenses, including reasonable attorneys' fees and expenses, incurred by the
Registrant that result from: (i) N&B Management's failure to comply with the
terms of the Agreement; or (ii) N&B Management's lack of good faith in
performing its obligations under the Agreement; or (iii) the negligence or
misconduct of N&B Management, or its employees, agents or contractors in
connection with the Agreement. The Registrant shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
misconduct on the part of the Registrant or its employees, agents or contractors
other than N&B Management, unless such negligence or misconduct results from or
is accompanied by negligence or misconduct on the part of N&B Management, any
affiliated person of N&B Management, or any affiliated person of an affiliated
person of N&B Management.
Section 11 of the Distribution Agreement between the Registrant and N&B
Management provides that N&B Management shall look only to the assets of a
Series for the Registrant's performance of the Agreement by the Registrant on
behalf of such Series, and neither the trustees nor any of the Registrant's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF ADVISER AND SUB-ADVISER.
- ------- ---------------------------------------------------------
There is set forth below information as to any other business,
profession, vocation or employment of a substantial nature in which each
director or officer of N&B Management and each principal of Neuberger & Berman
is, or at any time during the past two years has been, engaged for his or her
own account or in the capacity of director, officer, employee, partner or
trustee.
<PAGE>
NAME BUSINESS AND OTHER CONNECTIONS
- ---- ------------------------------
Claudia A. Brandon Secretary, Neuberger & Berman Advisers
Vice President, N&B Management Trust; Secretary, Advisers
Management Managers Trust; Secretary, Neuberger &
Berman Income Funds; Secretary, Neuberger &
Berman Income Trust; Secretary, Neuberger &
Berman Equity Funds; Secretary, Neuberger &
Berman Equity Trust; Secretary, Income
Managers Trust; Secretary, Equity Managers
Trust; Secretary, Global Managers Trust;
Secretary, Neuberger & Berman Equity Assets.
Brooke A. Cobb Chief Investment Officer, Bainco
Vice President, N&B International Investors.1 Senior Vice
Management President and Senior Portfolio Manager,
Putnam Investments.2
Stacy Cooper-Shugrue Assistant Secretary, Neuberger & Berman
Assistant Vice President, Advisers Management Trust; Assistant
N&B Management Secretary, Advisers Managers Trust; Assistant
Secretary, Neuberger & Berman Income Funds;
Assistant Secretary, Neuberger & Berman
Income Trust; Assistant Secretary, Neuberger
& Berman Equity Funds; Assistant Secretary,
Neuberger & Berman Equity Trust; Assistant
Secretary, Income Managers Trust; Assistant
Secretary, Equity Managers Trust; Assistant
Secretary, Global Managers Trust; Assistant
Secretary, Neuberger & Berman Equity Assets.
Robert W. D'Alelio Senior Portfolio Manager, Putnam
Vice President, N&B Investments.3
Management
Barbara DiGiorgio, Assistant Treasurer, Neuberger & Berman
Assistant Vice President, Advisers Management Trust; Assistant
N&B Management Treasurer, Advisers Managers Trust; Assistant
Treasurer, Neuberger & Berman Income Funds;
Assistant Treasurer, Neuberger & Berman
Income Trust; Assistant Treasurer, Neuberger
& Berman Equity Funds; Assistant Treasurer,
Neuberger & Berman Equity Trust; Assistant
Treasurer, Income Managers Trust; Assistant
Treasurer, Equity Managers Trust; Assistant
Treasurer, Global Managers Trust; Assistant
Treasurer, Neuberger & Berman Equity Assets.
Stanley Egener Chairman of the Board and Trustee, Neuberger
President and Director, & Berman Advisers Management Trust; Chairman
- ---------------------
1 Until 1997.
2 Until 1995.
3 Until 1996.
<PAGE>
NAME BUSINESS AND OTHER CONNECTIONS
- ---- ------------------------------
N&B Management; Principal, of the Board and Trustee, Advisers Managers
Neuberger & Berman Trust; Chairman of the Board and Trustee,
Neuberger & Berman Income Funds; Chairman of
the Board and Trustee, Neuberger & Berman
Income Trust; Chairman of the Board and
Trustee, Neuberger & Berman Equity Funds;
Chairman of the Board and Trustee, Neuberger
& Berman Equity Trust; Chairman of the Board
and Trustee, Income Managers Trust; Chairman
of the Board and Trustee, Equity Managers
Trust; Chairman of the Board and Trustee,
Global Managers Trust; Chairman of the Board
and Trustee, Neuberger & Berman Equity
Assets.
Theodore P. Giuliano President and Trustee, Neuberger & Berman
Vice President and Income Funds; President and Trustee,
Director, N&B Management; Neuberger & Berman Income Trust; President
Principal, Neuberger & Berman and Trustee, Income Managers Trust.
C. Carl Randolph Assistant Secretary, Neuberger & Berman
Principal, Neuberger & Berman Advisers Management Trust; Assistant
Secretary, Advisers Managers Trust; Assistant
Secretary, Neuberger & Berman Income Funds;
Assistant Secretary, Neuberger & Berman
Income Trust; Assistant Secretary, Neuberger
& Berman Equity Funds; Assistant Secretary,
Neuberger & Berman Equity Trust; Assistant
Secretary, Income Managers Trust; Assistant
Secretary, Equity Managers Trust; Assistant
Secretary, Global Managers Trust; Assistant
Secretary, Neuberger & Berman Equity Assets.
Jennifer K. Silver Portfolio Manager and Director, Putnam
Vice President, N&B Investments.4
Management; Principal,
Neuberger & Berman
Richard Russell Treasurer, Neuberger & Berman Advisers
Vice President, Management Trust; Treasurer, Advisers
N&B Management Managers Trust; Treasurer, Neuberger & Berman
Income Funds; Treasurer, Neuberger & Berman
Income Trust; Treasurer, Neuberger & Berman
Equity Funds; Treasurer, Neuberger & Berman
Equity Trust; Treasurer, Income Managers
Trust; Treasurer, Equity Managers Trust;
Treasurer, Global Managers Trust; Treasurer,
Neuberger & Berman Equity Assets.
Daniel J. Sullivan Vice President, Neuberger & Berman Advisers
Senior Vice President, Management Trust; Vice President, Advisers
- -------------------
4 Until 1997.
<PAGE>
NAME BUSINESS AND OTHER CONNECTIONS
- ---- ------------------------------
N&B Management Managers Trust; Vice President, Neuberger &
Berman Income Funds; Vice President,
Neuberger & Berman Income Trust; Vice
President, Neuberger & Berman Equity Funds;
Vice President, Neuberger & Berman Equity
Trust; Vice President, Income Managers Trust;
Vice President, Equity Managers Trust; Vice
President, Global Managers Trust; Vice
President, Neuberger & Berman Equity Assets.
Michael J. Weiner Vice President, Neuberger & Berman Advisers
Senior Vice President, Management Trust; Vice President, Advisers
N&B Management Managers Trust; Vice President, Neuberger &
Berman Income Funds; Vice President,
Neuberger & Berman Income Trust; Vice
President, Neuberger & Berman Equity Funds;
Vice President, Neuberger & Berman Equity
Trust; Vice President, Income Managers Trust;
Vice President, Equity Managers Trust; Vice
President, Global Managers Trust; Vice
President, Neuberger & Berman Equity Assets.
Celeste Wischerth, Assistant Treasurer, Neuberger & Berman
Assistant Vice President, Advisers Management Trust; Assistant
N&B Management Treasurer, Advisers Managers Trust; Assistant
Treasurer, Neuberger & Berman Income Funds;
Assistant Treasurer, Neuberger & Berman
Income Trust; Assistant Treasurer, Neuberger
& Berman Equity Funds; Assistant Treasurer,
Neuberger & Berman Equity Trust; Assistant
Treasurer, Income Managers Trust; Assistant
Treasurer, Equity Managers Trust; Assistant
Treasurer, Global Managers Trust; Assistant
Treasurer, Neuberger & Berman Equity Assets.
Lawrence Zicklin President and Trustee, Neuberger & Berman
Director, N&B Management; Advisers Management Trust; President and
Principal, Neuberger & Berman Trustee, Advisers Managers Trust; President
and Trustee, Neuberger & Berman Equity Funds;
President and Trustee, Neuberger & Berman
Equity Trust; President and Trustee, Equity
Managers Trust; President, Global Managers
Trust; President and Trustee, Neuberger &
Berman Equity Assets.
The principal address of N&B Management, Neuberger & Berman, and of
each of the investment companies named above, is 605 Third Avenue, New York, New
York 10158.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
- ------- ----------------------
(a) N&B Management, the principal underwriter distributing securities
of the Registrant, is also the principal underwriter and distributor for each of
the following investment companies:
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Equity Funds
Neuberger & Berman Equity Trust
Neuberger & Berman Equity Assets
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
N&B Management is also the investment manager to the master funds in
which the above-named investment companies invest.
(b) Set forth below is information concerning the directors and
officers of the Registrant's principal underwriter. The principal business
address of each of the persons listed is 605 Third Avenue, New York, New York
10158-0180, which is also the address of the Registrant's principal underwriter.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
- ---- ---------------- ----------
<S> <C> <C>
Claudia A. Brandon Vice President Secretary
Patrick T. Byrne Vice President None
Richard A. Cantor Chairman of the Board None
Valerie Chang Assistant Vice President None
Brooke A. Cobb Vice President None
Robert Conti Treasurer None
Stacy Cooper-Shugrue Assistant Vice President Assistant Secretary
Robert W. D'Alelio Vice President None
Clara Del Villar Vice President None
Barbara DiGiorgio Assistant Vice President Assistant Treasurer
Roberta D'Orio Assistant Vice President None
Stanley Egener President and Director Chairman of the
Board, Chief
Executive Officer,
and Trustee
Brian Gaffney Vice President None
Joseph G. Galli Assistant Vice President None
Robert I. Gendelman Vice President None
Theodore P. Giuliano Vice President and Director None
Michael J. Hanratty Assistant Vice President None
Leslie Holliday-Soto Assistant Vice President None
Jody L. Irwin Assistant Vice President None
<PAGE>
POSITIONS AND OFFICES POSITIONS AND OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
- ---- ---------------- ----------
Michael M. Kassen Vice President and Director None
Irwin Lainoff Director None
Josephine Mahaney Vice President None
Carmen G. Martinez Assistant Vice President None
Ellen Metzger Vice President and Secretary None
Paul Metzger Vice President None
Loraine Olavarria Assistant Secretary None
Janet W. Prindle Vice President None
Joseph S. Quirk Assistant Vice President None
Kevin L. Risen Vice President None
Richard Russell Vice President Treasurer and Principal
Accounting Officer
Jennifer K. Silver Vice President None
Kent C. Simons Vice President None
Frederick B. Soule Vice President None
Daniel J. Sullivan Senior Vice President Vice President
Peter E. Sundman Senior Vice President None
Andrea Trachtenberg Vice President of Marketing None
Judith M. Vale Vice President None
Josephine Velez Assistant Vice President None
Susan Walsh Vice President None
Michael J. Weiner Senior Vice President Vice President and Principal
Financial Officer
Celeste Wischerth Assistant Vice President Assistant Treasurer
Thomas Wolfe Vice President None
KimMarie Zamot Assistant Vice President None
Lawrence Zicklin Director Trustee and President
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
- ------- --------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, as amended, and the rules promulgated thereunder
with respect to the Registrant are maintained at the offices of State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, except
<PAGE>
for the Registrant's Trust Instrument and By-Laws, minutes of meetings of the
Registrant's Trustees and shareholders and the Registrant's policies and
contracts, which are maintained at the offices of the Registrant, 605 Third
Avenue, New York, New York 10158.
ITEM 31. MANAGEMENT SERVICES
- ------- -------------------
Other than as set forth in Parts A and B of this Registration
Statement, the Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS
- ------- ------------
Registrant hereby undertakes to file a Post-Effective Amendment to its
Registration Statement, containing financial statements with respect to
Neuberger & Berman High Yield Bond Fund, which need not be certified, within
four to six months from the date of the Fund's commencement of operations.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, INCOME MANAGERS TRUST has duly caused the
Post-Effective Amendment No. 24 to be signed on its behalf by the undersigned,
thereto duly authorized, in the City and State of New York on the 13th day of
November, 1997.
INCOME MANAGERS TRUST
By: /s/ Theodore P. Giuliano
---------------------------
Theodore P. Giuliano
President
Pursuant to the requirements of the Securities Act of 1933, the
Post-Effective Amendment No. 24 has been signed below by the following persons
in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John Cannon Trustee November 13, 1997
- -------------------------
John Cannon
/s/ Stanley Egener Chairman of the Board, November 13, 1997
- ------------------------- Chief Executive Officer
Stanley Egener and Trustee
/s/ Theodore P. Giuliano President and Trustee November 13, 1997
- -------------------------
Theodore P. Giuliano
/s/ Barry Hirsch Trustee November 13, 1997
- -------------------------
Barry Hirsch
/s/ Robert A. Kavesh Trustee November 13, 1997
- ------------------------
Robert A. Kavesh
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ William E. Rulon Trustee November 13, 1997
- ------------------------
William E. Rulon
/s/ Richard Russell Treasurer and November 13, 1997
- ------------------------- Principal Accounting Officer
Richard Russell
/s/ Candace L. Straight Trustee November 13, 1997
- -------------------------
Candace L. Straight
/s/ Michael J. Weiner Vice President and November 13, 1997
- ------------------------- Principal Financial Officer
Michael J. Weiner
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, NEUBERGER & BERMAN INCOME FUNDS has duly caused
the Post-Effective Amendment No. 24 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City and State of New York on the
13th day of November, 1997.
NEUBERGER & BERMAN INCOME FUNDS
By: /s/ Theodore P. Giuliano
-----------------------------
Theodore P. Giuliano
President
Pursuant to the requirements of the Securities Act of 1933, the
Post-Effective Amendment No. has been signed below by the following persons in
the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John Cannon Trustee November 13, 1997
- -------------------------
John Cannon
/s/ Stanley Egener Chairman of the Board, November 13, 1997
- ------------------------- Chief Executive Officer
Stanley Egener and Trustee
/s/ Theodore P. Giuliano President and Trustee November 13, 1997
- -------------------------
Theodore P. Giuliano
/s/ Barry Hirsch Trustee November 13, 1997
- -------------------------
Barry Hirsch
/s/ Robert A. Kavesh Trustee November 13, 1997
- ------------------------
Robert A. Kavesh
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ William E. Rulon Trustee November 13, 1997
- ------------------------
William E. Rulon
/s/ Richard Russell Treasurer and November 13, 1997
- ------------------------- Principal Accounting Officer
Richard Russell
/s/ Candace L. Straight Trustee November 13, 1997
- -------------------------
Candace L. Straight
/s/ Michael J. Weiner Vice President and November 13, 1997
- ------------------------- Principal Financial Officer
Michael J. Weiner
<PAGE>
NEUBERGER & BERMAN INCOME FUNDS
POST-EFFECTIVE AMENDMENT NO. 23 ON FORM N-1A
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------------- ------------
<S> <C> <C>
(1) (a) Certificate of Trust. Incorporated by Reference to N.A.
Post-Effective Amendment No. 21 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(b) Trust Instrument of Neuberger & Berman Income Funds. N.A.
Incorporated by Reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File Nos. 2-85229 and
811-3802, EDGAR Accession No. 0000898432-96-00017.
(c) Schedule A - Current Series of Neuberger & Berman Income Funds. ___
Filed Herewith.
(2) By-Laws of Neuberger & Berman Income Funds. Incorporated by Reference to N.A.
Post-Effective Amendment No. 21 to Registrant's Registration Statement,
File Nos. 2-85229 and 811-3802, EDGAR Accession No. 0000898432-96-00017.
(3) Voting Trust Agreement. None. N.A.
(4) (a) Trust Instrument of Neuberger & Berman Income Funds, Articles N.A.
IV, V, and VI. Incorporated by Reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement, File
Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(b) By-Laws of Neuberger & Berman Income Funds, Articles V, VI, and N.A.
VIII. Incorporated by Reference to Post-Effective Amendment No.
21 to Registrant's Registration Statement, File Nos. 2-85229 and
811-3802, EDGAR Accession No. 0000898432-96-00017.
(5) (a) (i) Management Agreement Between Income Managers Trust and N.A.
Neuberger & Berman Management Incorporated.
Incorporated by Reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement, File
Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(ii) Form of Schedule A - Portfolios of Income Managers ___
Trust Currently Subject to the Management Agreement.
Filed Herewith.
<PAGE>
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------------- ------------
<S> <C> <C>
(iii) Form of Schedule B - Schedule of ____
Compensation Under the Management
Agreement. Filed Herewith.
(b) (i) Sub-Advisory Agreement Between Neuberger & Berman N.A.
Management Incorporated and Neuberger & Berman, L.P.
with Respect to Income Managers Trust. Incorporated by
Reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File Nos. 2-85229
and 811-3802, EDGAR Accession No. 0000898432-96-00017.
(ii) Form of Schedule A - Portfolios of Income Managers ____
Trust Currently Subject to the Sub-Advisory Agreement.
Filed Herewith.
(iii) Substitution Agreement Among Neuberger & Berman N.A.
Management Incorporated, Income Managers Trust,
Neuberger & Berman, L.P., and Neuberger & Berman, LLC.
Incorporated by Reference to Post-Effective Amendment
No. 23 to Registrant's Registration Statement, File
Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-000117.
(6) (a) Distribution Agreement Between Neuberger & Berman Income Funds N.A.
and Neuberger & Berman Management Incorporated. Incorporated by
Reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-96-00017.
(b) Form of Schedule A - Series of Neuberger & Berman Income Funds ____
Currently Subject to the Distribution Agreement. Filed Herewith.
(7) Bonus, Profit Sharing or Pension Plans. None. N.A.
(8) (a) Custodian Contract Between Neuberger & Berman Income Funds and N.A.
State Street Bank and Trust Company. Incorporated by Reference
to Post-Effective Amendment No. 21 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
<PAGE>
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------------- ------------
<S> <C> <C>
(b) Form of Agreement between Neuberger & Berman Income Funds and ____
State Street Bank and Trust Company Adding Neuberger & Berman
High Yield Bond Fund as a Series Governed by the Custodian
Contract. Filed Herewith.
(c) Schedule A - Approved Foreign Banking Institutions and N.A.
Securities Depositories Under the Custodian Contract.
Incorporated by Reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File Nos. 2-85229 and
811-3802, EDGAR Accession No. 0000898432-96-00017.
(d) Schedule of Compensation under the Custodian Contract. N.A.
Incorporated by Reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement, File Nos. 2-85229 and
811-3802, EDGAR Accession No. 0000898432-96-000117.
(9) (a) (i) Transfer Agency Agreement Between Neuberger & Berman N.A.
Income Funds and State Street Bank and Trust Company.
Incorporated by Reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement, File
Nos. 2-85229 and 811-3802, EDGAR Accession No.
0000898432-96-00017.
(ii) Form of Agreement between Neuberger & Berman Income ___
Funds and State Street Bank and Trust Company adding
Neuberger & Berman High Yield Bond Fund as a Series
Governed by the Transfer Agency Agreement. Filed
Herewith.
(iii) First Amendment to Transfer Agency and Service N.A.
Agreement between Neuberger & Berman Income Funds and
State Street Bank and Trust Company. Incorporated by
Reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File Nos. 2-85229
and 811-3802, EDGAR Accession No. 0000898432-96-00017.
(iv) Schedule of Compensation under the Transfer Agency N.A.
Agreement. Incorporated by Reference to Post-Effective
Amendment No. 23 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-96-000117.
<PAGE>
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------------- ------------
<S> <C> <C>
(b) (i) Administration Agreement Between Neuberger & Berman N.A.
Income Funds and Neuberger & Berman Management
Incorporated. Incorporated by Reference to
Post-Effective Amendment No. 21 to Registrant's
Registration Statement, File Nos. 2-85229 and 811-3802,
EDGAR Accession No. 0000898432-96-00017.
(ii) Form of Schedule A - Series of Neuberger & Berman ___
Income Funds Currently Subject to the Administration
Agreement. Filed Herewith.
(iii) Schedule B - Schedule of Compensation Under the N.A.
Administration Agreement. Incorporated by Reference to
Post-Effective Amendment No. 21 to Registrant's
Registration Statement, File Nos. 2-85229 and 811-3802,
EDGAR Accession No. 0000898432-96-00017.
(10) Opinion and Consent of Kirkpatrick & Lockhart on Securities Matters. ____
Filed Herewith.
(11) Other Opinions, Appraisals, Rulings and Consents. Not Applicable. N.A.
(12) Financial Statements Omitted from Prospectus. None. N.A.
(13) Letter of Investment Intent. Incorporated by Reference to Pre-Effective N.A.
Amendment No. 1 to the Registration Statement of Neuberger & Berman
Multi-Series Fund, Inc., File Nos. 33-19951 and 811-5467.
(14) Prototype Retirement Plan. None. N.A.
(15) Plan Pursuant to Rule 12b-1. None. N.A.
(16) Schedule of Computation Performance Quotations. Incorporated by N.A.
Reference to Post-Effective Amendment No. 17 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802.
(17) Financial Data Schedules. Not Applicable. N.A.
(18) Plan Pursuant to Rule 18f-3. None. N.A.
</TABLE>
NEUBERGER & BERMAN INCOME FUNDS
SCHEDULE A
INITIAL SERIES
--------------
Neuberger & Berman Government Money Fund
Neuberger & Berman Cash Reserves
Neuberger & Berman Ultra Short Bond Fund
Neuberger & Berman Limited Maturity Bond Fund
Neuberger & Berman Municipal Money Fund
Neuberger & Berman Municipal Securities Trust
ADDITIONAL SERIES
-----------------
Neuberger & Berman High Yield Bond Fund
DATED:
NEUBERGER & BERMAN MANAGEMENT INCORPORATED
MANAGEMENT AGREEMENT
SCHEDULE A
The Series of Income Managers Trust currently subject to this Agreement are as
follows:
Neuberger & Berman Cash Reserves
Neuberger & Berman Government Money Fund
Neuberger & Berman High Yield Bond Fund
Neuberger & Berman Limited Maturity Bond Fund
Neuberger & Berman Municipal Money Fund
Neuberger & Berman Municipal Securities Trust
Neuberger & Berman Ultra Short Bond Fund
DATED:
NEUBERGER & BERMAN MANAGEMENT INCORPORATED
MANAGEMENT AGREEMENT
SCHEDULE B
Compensation pursuant to Paragraph 3 of the Income Managers Trust Management
Agreement shall be calculated in accordance with the following schedule:
Neuberger & Berman Cash Reserves
Neuberger & Berman Government Money Fund
Neuberger & Berman Limited Maturity Bond Fund
Neuberger & Berman Municipal Money Fund
Neuberger & Berman Municipal Securities Trust
Neuberger & Berman Ultra Short Bond Fund
.25% on the first $500 million of average daily net assets
.225% on the next $500 million of average daily net assets
.20% on the next $500 million of average daily net assets
.175% on the next $500 million of average daily net assets
.15% of average daily net assets in excess of $2 billion
Neuberger & Berman High Yield Bond Fund
.38% on the first $500 million of average daily net assets
.355% on the next $500 million of average daily net assets
.330% on the next $500 million of average daily net assets
.305% on the next $500 million of average daily net assets
.28% of average daily net assets in excess of $2 billion
DATED:
NEUBERGER & BERMAN MANAGEMENT INCORPORATED
SUB-ADVISORY AGREEMENT
SCHEDULE A
The Series of Income Managers Trust currently subject to this Agreement are as
follows:
Neuberger & Berman Cash Reserves Portfolio
Neuberger & Berman Government Money Portfolio
Neuberger & Berman High Yield Bond Portfolio
Neuberger & Berman Limited Maturity Bond Portfolio
Neuberger & Berman Municipal Money Portfolio
Neuberger & Berman Municipal Securities Portfolio
Neuberger & Berman Ultra Short Bond Portfolio
DATED:
EX. 6(B)
NEUBERGER & BERMAN INCOME FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
The Series of Neuberger & Berman Income Funds currently subject to this
Agreement are as follows:
Neuberger & Berman Cash Reserves Fund
Neuberger & Berman Government Money Fund
Neuberger & Berman High Yield Bond Fund
Neuberger & Berman Limited Maturity Bond Fund
Neuberger & Berman Municipal Money Fund
Neuberger & Berman Municipal Securities Fund
Neuberger & Berman Ultra Short Bond Fund
DATED:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Lori L. Schneider
(202) 778-9305
[email protected]
November __, 1997
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Neuberger & Berman Income Funds: High Yield Bond Fund
------------------------------------------------------
Dear Sir or Madam:
This is to advise you that Neuberger & Berman Income Funds ("Fund") has
established a new series of shares to be known as Neuberger & Berman High Yield
Bond Fund. In accordance with the Additional Funds provision of Section 17 of
the Custodian Contract dated July 2, 1993 and Section 9 of the Transfer Agency
and Services Agreement dated July 2, 1993 between the Fund and State Bank and
Trust Company, the Fund hereby requests that you act as Custodian and Transfer
Agent for the new series under the terms of the respective contracts. The
addition of High Yield Bond Fund is effective as of ________ __, 1997.
Please indicate your acceptance of the foregoing by executing two
copies of this Letter Agreement, returning one to the Fund and retaining one
copy for your records.
By:
---------------------------------
Michael J. Weiner
Vice President
Neuberger & Berman Income Funds
State Street Bank and Trust Company
By:
---------------------------------
Title:
------------------------------
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Lori L. Schneider
(202) 778-9305
[email protected]
November __, 1997
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Neuberger & Berman Income Funds: High Yield Bond Fund
------------------------------------------------------
Dear Sir or Madam:
This is to advise you that Neuberger & Berman Income Funds ("Fund") has
established a new series of shares to be known as Neuberger & Berman High Yield
Bond Fund. In accordance with the Additional Funds provision of Section 17 of
the Custodian Contract dated July 2, 1993 and Section 9 of the Transfer Agency
and Services Agreement dated July 2, 1993 between the Fund and State Bank and
Trust Company, the Fund hereby requests that you act as Custodian and Transfer
Agent for the new series under the terms of the respective contracts. The
addition of High Yield Bond Fund is effective as of ________ __, 1997.
Please indicate your acceptance of the foregoing by executing two
copies of this Letter Agreement, returning one to the Fund and retaining one
copy for your records.
By:
---------------------------------
Michael J. Weiner
Vice President
Neuberger & Berman Income Funds
State Street Bank and Trust Company
By:
---------------------------------
Title:
------------------------------
EX. 9(B)(II)
NEUBERGER & BERMAN INCOME FUNDS
ADMINISTRATION AGREEMENT
SCHEDULE A
The Series of Neuberger & Berman Income Funds currently subject to this
Agreement are as follows:
Neuberger & Berman Cash Reserves Fund
Neuberger & Berman Government Money Fund
Neuberger & Berman High Yield Bond Fund
Neuberger & Berman Limited Maturity Bond Fund
Neuberger & Berman Municipal Money Fund
Neuberger & Berman Municipal Securities Fund
Neuberger & Berman Ultra Short Bond Fund
DATED:
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
November 19, 1997
Neuberger & Berman Income Funds
605 Third Avenue, Second Floor
New York, New York 10158-0180
Ladies and Gentlemen:
Neuberger & Berman Income Funds ("Trust") is a business trust organized
under the laws of the State of Delaware and governed by a Trust Instrument dated
December 23, 1992. You have requested our opinion regarding certain matters in
connection with the Trust's issuance of shares of beneficial interest, par value
$0.001 per share ("Shares"), in its new series, Neuberger & Berman High Yield
Bond Fund ("Series").
As counsel to the Trust, we have participated in various matters of
Trust operations and other matters relating to the Trust. We have examined
copies of the Trust Instrument and the Trust's By-Laws, as now in effect, and
the minutes of meetings of the trustees of the Trust, and we are generally
familiar with its affairs. For certain matters of fact, we have relied upon
representations of officers of the Trust. We are also assuming that, consistent
with prior practice, the Board of Trustees of the Trust, at its meeting of
December 17, 1997, will adopt a resolution authorizing the issuance of Shares of
the Series which will be substantially similar in form to resolutions it has
previously adopted authorizing the issuance of shares of other series of the
Trust. Based upon the foregoing, it is our opinion that, following the adoption
of said resolution, the Shares of the Series that are currently being registered
may be legally and validly issued from time to time in accordance with the
Trust's Trust Instrument and By-Laws; and, when so issued, will be legally
issued, fully paid and non-assessable by the Trust.
The Trust is a business trust established pursuant to the Delaware
Business Trust Act ("Delaware Act"). The Delaware Act provides that a
shareholder of the Trust is entitled to the same limitation of personal
liability extended to shareholders of for-profit corporations. To the extent
that the Trust or any of its shareholders becomes subject to the jurisdiction of
courts in states which do not have statutory or other authority limiting the
liability of business trust shareholders, such courts might not apply the
Delaware Act and could subject Trust shareholders to liability.
To guard against this risk, the Trust Instrument: (i) requires that
every written obligation of the Trust contain a statement that such obligation
may be enforced only against the assets of the Trust; however, the omission of
such a disclaimer will not operate to create personal liability for any
shareholder; and (ii) provides for indemnification out of Trust property of any
shareholder held personally liable, solely by reason of being a shareholder, for
the obligations of the Trust. Thus, the risk of a Trust shareholder incurring
financial loss beyond his or her investment because of shareholder liability is
limited to circumstances in which: (i) a court refuses to apply Delaware law;
<PAGE>
(ii) no contractual limitation of liability is in effect; and (iii) the Trust
itself is unable to meet its obligations.
We express no opinion as to compliance with the Securities Act of 1933,
the Investment Company Act of 1940, or applicable state securities laws in
connection with the sale of Shares.
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 24 to the Trust's Registration Statement on Form
N-1A. We also consent to the reference to our firm under the caption "Legal
Counsel" in the Statement of Additional Information filed as part of the
Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
By: /s/ Arthur C. Delibert
---------------------------------
Arthur C. Delibert
