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NEUBERGER & BERMAN INCOME FUNDS AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 2, 1998
Neuberger & Berman Neuberger & Berman
Government Money Fund Limited Maturity Bond Fund
(and Neuberger & Berman (and Neuberger & Berman
Government Money Limited Maturity Bond
Portfolio) Portfolio)
Neuberger & Berman Neuberger & Berman
Cash Reserves High Yield Bond Fund
(and Neuberger & Berman (and Neuberger & Berman
Cash Reserves Portfolio) High Yield Bond Portfolio)
Portfolio)
No-Load Mutual Funds
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
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Neuberger & Berman GOVERNMENT MONEY Fund ("GOVERNMENT MONEY"),
Neuberger & Berman CASH RESERVES ("CASH RESERVES"), Neuberger & Berman LIMITED
MATURITY Bond Fund ("LIMITED MATURITY") and Neuberger & Berman HIGH YIELD Bond
Fund ("HIGH YIELD")(each a "Fund") are no-load mutual funds that offer shares
pursuant to a Prospectus dated March 2, 1998. The Funds invest all of their net
investable assets in Neuberger & Berman GOVERNMENT MONEY Portfolio, Neuberger &
Berman CASH RESERVES Portfolio, Neuberger & Berman LIMITED MATURITY Bond
Portfolio, and Neuberger & Berman HIGH YIELD Bond Portfolio (each a
"Portfolio"), respectively.
The Funds' Prospectus, which is also the prospectus for certain
municipal funds administered by Neuberger & Berman Management Incorporated ("N&B
Management"), provides basic information that an investor should know before
investing. A copy of the Prospectus may be obtained, without charge, from N&B
Management, 605 Third Avenue, 2nd Floor, New York, NY 10158-0180 or by calling
800-877-9700.
This Statement of Additional Information ("SAI") is not a prospectus
and should be read in conjunction with the Prospectus.
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No person has been authorized to give any information or to make any
representations not contained in the Prospectus or in this SAI in connection
with the offering made by the Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by a Fund or its distributor. The Prospectus and this SAI do not constitute an
offering by a Fund or its distributor in any jurisdiction in which such offering
may not lawfully be made.
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TABLE OF CONTENTS
INVESTMENT INFORMATION.........................................................1
Investment Policies and Limitations...................................1
Rating Agencies.......................................................7
Overview of Each Fund.................................................8
Additional Investment Information....................................10
Risks of Fixed Income Securities.....................................35
Risks of Equity Securities...........................................36
CERTAIN RISK CONSIDERATIONS...................................................37
PERFORMANCE INFORMATION.......................................................37
Yield Calculations...................................................38
Tax Equivalent Yield - State and Local Taxes.........................38
Total Return Computations............................................39
Comparative Information..............................................40
Other Performance Information........................................42
TRUSTEES AND OFFICERS.........................................................43
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES.............................49
Investment Manager and Administrator.................................49
Sub-Adviser..........................................................52
Investment Companies Managed.........................................53
Management and Control of N&B Management.............................54
DISTRIBUTION ARRANGEMENTS.....................................................55
ADDITIONAL PURCHASE INFORMATION...............................................56
Automatic Investing and Dollar Cost Averaging........................56
ADDITIONAL EXCHANGE INFORMATION...............................................57
ADDITIONAL REDEMPTION INFORMATION.............................................60
Suspension of Redemptions............................................60
Redemptions in Kind..................................................60
DIVIDENDS AND OTHER DISTRIBUTIONS.............................................60
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ADDITIONAL TAX INFORMATION....................................................62
Taxation of the Funds................................................62
Taxation of the Portfolios...........................................63
Taxation of the Funds' Shareholders..................................65
VALUATION OF PORTFOLIO SECURITIES.............................................66
PORTFOLIO TRANSACTIONS........................................................66
Portfolio Turnover...................................................68
REPORTS TO SHAREHOLDERS.......................................................68
ORGANIZATION..................................................................68
CUSTODIAN AND TRANSFER AGENT..................................................68
INDEPENDENT AUDITORS..........................................................69
LEGAL COUNSEL.................................................................69
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................69
REGISTRATION STATEMENT........................................................70
FINANCIAL STATEMENTS..........................................................70
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INVESTMENT INFORMATION
Each Fund is a separate series of Neuberger & Berman Income Funds
("Trust"), a Delaware business trust that is registered with the Securities and
Exchange Commission ("SEC") as an open-end management investment company. Each
Fund seeks its investment objective by investing all of its net investable
assets in a Portfolio of Income Managers Trust ("Managers Trust") that has an
investment objective identical to, and a name similar to, that of the Fund. Each
Portfolio, in turn, invests in securities in accordance with an investment
objective, policies, and limitations identical to those of its corresponding
Fund. (The Trust and Managers Trust, which is an open-end management investment
company managed by N&B Management, are together referred to below as the
"Trusts.")
The following information supplements the discussion in the Prospectus
of the investment objective, policies, and limitations of each Fund and
Portfolio. The investment objective and, unless otherwise specified, the
investment policies and limitations of each Fund and Portfolio are not
fundamental. Any investment objective, policy or limitation that is not
fundamental may be changed by the trustees of the Trust ("Fund Trustees") or of
Managers Trust ("Portfolio Trustees") without shareholder approval. The
fundamental investment policies and limitations of a Fund or a Portfolio may not
be changed without the approval of the lesser of (1) 67% of the total units of
beneficial interest ("shares") of the Fund or Portfolio represented at a meeting
at which more than 50% of the outstanding Fund or Portfolio shares are
represented or (2) a majority of the outstanding shares of the Fund or
Portfolio. These percentages are required by the Investment Company Act of 1940
("1940 Act") and are referred to in this SAI as a "1940 Act majority vote."
Whenever a Fund is called upon to vote on a change in a fundamental investment
policy or limitation of its corresponding Portfolio, the Fund casts its votes
thereon in proportion to the votes of its shareholders at a meeting thereof
called for that purpose.
INVESTMENT POLICIES AND LIMITATIONS
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Each Fund has the following fundamental investment policy, to enable it
to invest in its corresponding Portfolio:
Notwithstanding any other investment policy of the Fund, the Fund
may invest all of its investable assets (cash, securities, and
receivables relating to securities) in an open-end management
investment company having substantially the same investment
objective, policies, and limitations as the Fund.
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All other fundamental investment policies and limitations and the
non-fundamental investment policies and limitations of each Fund are identical
to those of its corresponding Portfolio. Therefore, although the following
discusses the investment policies and limitations of the Portfolios, it applies
equally to their corresponding Funds.
For purposes of the investment limitation on concentration in a
particular industry, Neuberger & Berman LIMITED MATURITY Bond Portfolio
determines the "issuer" of a municipal obligation that is not a general
obligation note or bond based on the obligation's characteristics. The most
significant of these characteristics is the source of funds for the repayment of
principal and payment of interest on the obligation. If an obligation is backed
by an irrevocable letter of credit or other guarantee, without which the
obligation would not qualify for purchase under the Portfolio's quality
restrictions, the issuer of the letter of credit or the guarantee is considered
an issuer of the obligation. If an obligation meets the Portfolio's quality
restrictions without credit support, the Portfolio treats the commercial
developer or the industrial user, rather than the governmental entity or the
guarantor, as the only issuer of the obligation, even if the obligation is
backed by a letter of credit or other guarantee. Neuberger & Berman CASH
RESERVES Portfolio determines the "issuer" of a municipal obligation for
purposes of its policy on industry concentration in accordance with the
principles of Rule 2a-7 under the 1940 Act. 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.
With respect to the limitation on borrowings, Neuberger & Berman HIGH
YIELD Bond Portfolio may pledge assets in connection with permitted borrowings.
For purposes of its limitation on commodities, Neuberger & Berman LIMITED
MATURITY Bond Portfolio does not consider foreign currencies or forward
contracts to be physical commodities.
Except for the limitation on borrowing and the limitation on illiquid
securities, any maximum percentage of securities or assets contained in any
investment policy or limitation will not be considered to be exceeded unless the
percentage limitation is exceeded immediately after, and because of, a
transaction by a Portfolio. If events subsequent to a transaction result in a
Portfolio exceeding the percentage limitation on borrowing or illiquid
securities, N&B Management will take appropriate steps to reduce the percentage
of borrowings or the percentage held in illiquid securities, as may be required
by law, within a reasonable amount of time.
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The fundamental investment policies and limitations of Neuberger &
Berman GOVERNMENT MONEY Portfolio are as follows:
1. BORROWING. The Portfolio may not borrow money, except from banks for
temporary or emergency purposes and not for leveraging or investment, in an
amount not exceeding 33-1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings). If at any time
borrowings exceed 33-1/3% of the value of the Portfolio's total assets, it will
reduce its borrowings within three days (excluding Sundays and holidays) to the
extent necessary to comply with the 33-1/3% limitation.
2. COMMODITIES AND REAL ESTATE. The Portfolio may not purchase or sell
commodities, commodity contracts, foreign exchange, or real estate, including
interests in real estate investment trusts and real estate mortgage loans,
except securities issued by the Government National Mortgage Association
("GNMA").
3. LENDING. The Portfolio may not make loans. The acquisition of a
portion of an issue of publicly distributed bonds, debentures, notes, and other
securities as permitted by Managers Trust's Declaration of Trust shall not be
deemed to be the making of loans.
4. SENIOR SECURITIES. The Portfolio may not issue senior securities,
except as permitted under the 1940 Act.
5. UNDERWRITING. The Portfolio may not underwrite securities of other
issuers, except to the extent that the Portfolio, in disposing of portfolio
securities, may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 ("1933 Act").
6. SHORT SALES AND PUTS, CALLS, STRADDLES, OR SPREADS. The Portfolio
may not effect short sales of securities or write or purchase any puts, calls,
straddles, spreads, or any combination thereof.
The non-fundamental investment policies and limitations of Neuberger &
Berman GOVERNMENT MONEY Portfolio are as follows:
1. BORROWING. The Portfolio may not purchase securities if outstanding
borrowings exceed 5% of its total assets.
2. MARGIN TRANSACTIONS. The Portfolio may not purchase securities on
margin from brokers or other lenders, except that the Portfolio may obtain such
short-term credits as are necessary for the clearance of securities
transactions.
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3. INDUSTRY CONCENTRATION. The Portfolio may not purchase any security
if, as a result, 25% or more of its total assets (taken at current value) would
be invested in the securities of issuers having their principal business
activities in the same industry. This limitation does not apply to (i) purchases
of securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government and Agency Securities") or (ii) investments
in certificates of deposit ("CDs") or banker's acceptances issued by domestic
branches of U.S. banks.
The following investment policies and limitations are fundamental and
apply to each of Neuberger & Berman CASH RESERVES Portfolio and Neuberger &
Berman LIMITED MATURITY Bond Portfolio unless otherwise indicated:
1. BORROWING. Neither Portfolio may borrow money, except that a
Portfolio may (i) borrow money from banks for temporary or emergency purposes
and not for leveraging or investment, and (ii) enter into reverse repurchase
agreements; provided that (i) and (ii) in combination do not exceed 33-1/3% of
the value of its total assets (including the amount borrowed) less liabilities
(other than borrowings). If at any time borrowings exceed 33-1/3% of the value
of a Portfolio's total assets, that Portfolio will reduce its borrowings within
three days (excluding Sundays and holidays) to the extent necessary to comply
with the 33-1/3% limitation.
2. COMMODITIES. Neuberger & Berman LIMITED MATURITY Bond Portfolio may
not purchase physical commodities or contracts thereon, unless acquired as a
result of the ownership of securities or instruments, but this restriction shall
not prohibit a Portfolio from purchasing futures contracts or options (including
options on futures contracts, but excluding options or futures contracts on
physical commodities) or from investing in securities of any kind. Neuberger &
Berman CASH RESERVES Portfolio may not purchase commodities or contracts
thereon, but this restriction shall not prohibit the Portfolio from purchasing
the securities of issuers that own interests in any of the foregoing.
3. DIVERSIFICATION. Neither Portfolio may, with respect to 75% of the
value of its total assets, purchase the securities of any issuer (other than
U.S. Government and Agency Securities) if, as a result, (i) more than 5% of the
value of the Portfolio's total assets would be invested in the securities of
that issuer or (ii) the Portfolio would hold more than 10% of the outstanding
voting securities of that issuer.
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4. INDUSTRY CONCENTRATION. Neither Portfolio may purchase any security
if, as a result, 25% or more of its total assets (taken at current value) would
be invested in the securities of issuers having their principal business
activities in the same industry. This limitation does not apply to (i) purchases
of U.S. Government and Agency Securities, or (ii) investments by Neuberger &
Berman CASH RESERVES Portfolio in CDs or banker's acceptances issued by domestic
branches of U.S. banks.
5. LENDING. Neither Portfolio may lend any security or make any other
loan if, as a result, more than 33-1/3% of its total assets (taken at current
value) would be lent to other parties, except, in accordance with its investment
objective, policies, and limitations, (i) through the purchase of a portion of
an issue of debt securities or (ii) by engaging in repurchase agreements.
6. REAL ESTATE. Neither Portfolio may purchase real estate unless
acquired as a result of the ownership of securities or instruments, but this
restriction shall not prohibit a Portfolio from purchasing securities issued by
entities or investment vehicles that own or deal in real estate or interests
therein, or instruments secured by real estate or interests therein.
7. SENIOR SECURITIES. Neither Portfolio may issue senior securities,
except as permitted under the 1940 Act.
8. UNDERWRITING. Neither Portfolio may underwrite securities of other
issuers, except to the extent that a Portfolio, in disposing of portfolio
securities, may be deemed to be an underwriter within the meaning of the 1933
Act.
The fundamental investment policies and limitations of Neuberger &
Berman HIGH YIELD Bond 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. COMMODITIES. The Portfolio may not purchase physical commodities or
contracts thereon, unless acquired as a result of the ownership of securities or
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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
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. This limitation does not apply to purchases of
U.S. Government and Agency Securities.
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 securities, may be deemed to be an underwriter within
the meaning of the 1933 Act.
The following investment policies and limitations are non-fundamental
and apply to each of Neuberger & Berman CASH RESERVES Portfolio, Neuberger &
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Berman LIMITED MATURITY Bond Portfolio, and Neuberger & Berman HIGH YIELD Bond
Portfolio unless otherwise indicated:
1. INVESTMENTS IN ANY ONE ISSUER. Neuberger & Berman CASH RESERVES
Portfolio may not purchase the securities of any one issuer (other than U.S.
Government and Agency Securities or securities subject to a guarantee issued by
a non-controlled person as defined in Rule 2a-7 under the 1940 Act) if, as a
result, more than 5% of the Portfolio's total assets would be invested in the
securities of that issuer.
2. ILLIQUID SECURITIES. No Portfolio may purchase any security if, as a
result, more than 15% of its net assets (10% in the case of Neuberger & Berman
CASH RESERVES Portfolio) would be invested in illiquid securities. Illiquid
securities include securities that cannot be sold within seven days in the
ordinary course of business for approximately the amount at which the Portfolio
has valued the securities, such as repurchase agreements maturing in more than
seven days.
3. BORROWING. No Portfolio may purchase securities if outstanding
borrowings, including any reverse repurchase agreements, exceed 5% of its total
assets.
4. LENDING (NEUBERGER & BERMAN CASH RESERVES PORTFOLIO AND NEUBERGER &
BERMAN LIMITED MATURITY BOND PORTFOLIO). Except for the purchase of debt
securities and engaging in repurchase agreements, neither Portfolio may make any
loans other than securities loans.
LENDING (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO). 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.
5. MARGIN TRANSACTIONS. No Portfolio may purchase securities on margin
from brokers or other lenders, except that a Portfolio may obtain such
short-term credits as are necessary for the clearance of securities
transactions. For Neuberger & Berman HIGH YIELD Bond Portfolio and Neuberger &
Berman LIMITED Maturity Bond Portfolio, margin payments in connection with
transactions in futures contracts and options on futures contracts shall not
constitute the purchase of securities on margin and shall not be deemed to
violate the foregoing limitation.
RATING AGENCIES
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As discussed in the Prospectus, the Portfolios may purchase securities
rated by Standard & Poor's ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
or any other nationally recognized statistical rating organization ("NRSRO").
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The ratings of an NRSRO represent its opinion as to the quality of securities it
undertakes to rate. Ratings are not absolute standards of quality; consequently,
securities with the same maturity, duration, coupon, and rating may have
different yields. Although the Portfolios may rely on the ratings of any NRSRO,
the Portfolios mainly refer to ratings assigned by S&P and Moody's, which are
described in Appendix A to the Prospectus. Each Portfolio may also invest in
unrated securities that are deemed comparable in quality by N&B Management to
the rated securities in which the Portfolio may permissibly invest.
OVERVIEW OF EACH FUND
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N&B Management offers a group of taxable mutual funds designed with
varying degrees of risk and return based on the duration and/or maturity of each
Portfolio. Duration measures a bond's exposure to interest rate risk. Duration
incorporates a bond's yield, coupon interest payments, final maturity and call
features into one measure. In general, the longer you extend a bond's duration,
the greater its potential return and exposure to interest rate fluctuations.
For example, GOVERNMENT MONEY and CASH RESERVES are money market funds
with average portfolio maturity of up to 90 days. This is followed by LIMITED
MATURITY which seeks a higher income but can experience more price fluctuation.
Its Portfolio of bonds has a maximum average duration of four years. Rounding
out the group is HIGH YIELD which invests primarily in lower rated debt
securities. This Fund has even greater potential for higher yields but is
accompanied by increased risk. Its Portfolio has no duration, maturity or
minimum quality limitations. A more detailed discussion of each Fund follows. In
all cases, these Funds pursue attractive current income with varying levels of
risk to principal and differ according to their investment guidelines. These
guidelines include maturity or duration, type of bonds, and the credit quality
of these bonds.
MONEY MARKET FUNDS
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NEUBERGER & BERMAN GOVERNMENT MONEY FUND
GOVERNMENT MONEY is oriented to investors who seek maximum liquidity
with virtually no credit risk. It is managed to maintain a constant one dollar
net asset value. Through its corresponding Portfolio, the Fund invests in
securities issued or guaranteed by the United States Government. The income
earned by investors in U.S. Treasury issues is generally free of state taxation.
Thus, this Fund will have particular appeal to investors who live in states that
levy a tax on interest income and who are looking for a temporary investment
vehicle.
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NEUBERGER & BERMAN CASH RESERVES
CASH RESERVES is oriented to investors who seek a high degree of
liquidity while investing in Government and corporate money market instruments.
The Fund is invested to maintain a constant one dollar net asset value. Through
its corresponding Portfolio, the Fund invests only in securities that enjoy one
of the two highest credit ratings or unrated securities deemed equivalent by N&B
Management.
BOND FUNDS
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Our bond funds are managed on the basis of a strategy of investment in
fixed income sectors we believe are attractively priced, and the selection of
the most attractively priced issues in those sectors based on their perceived
risk and returns. We also manage the duration of the portfolios. Sector
investments include corporate bonds, mortgage-backed securities, asset backed
securities, CMOs (Collateralized Mortgages Obligations), Treasuries and
Government agencies.
NEUBERGER & BERMAN LIMITED MATURITY BOND FUND
LIMITED MATURITY is appropriate for investors who seek to participate
in the returns of the bond market, but wish to avoid significant fluctuations in
principal value. In order to achieve its investment goal through its Portfolio,
this Fund has the flexibility to invest across the full range of bond sectors
(corporate, mortgage-backed securities, etc.) and may invest a limited portion
of its assets in foreign securities denominated in foreign currencies as well as
lower-rated "high yield" issues.
The investment strategy of this Fund is based upon the demonstrated
ability of short and intermediate duration portfolios to deliver virtually all
of the income of riskier long-term maturity portfolios. Thus, this Fund limits
its maximum average duration to four years. However, in order to improve total
return, it invests across a broad range of fixed income sectors and within each
sector seeks out securities that have a higher yield than counterpart issues
that we believe have a similar credit risk. It may opportunistically invest in
foreign issues when they offer higher yield than U.S. issues. In addition, it
may invest up to 10% of its net assets in "high yield" issues when these issues
offer the prospect of higher total return to the Portfolio. It is the manager's
belief that the combination of broad sector diversification, active security
selection and flexible maturity and duration management can offer investors the
prospect of total returns that will approximate the bond market as a whole, with
only moderate fluctuation in principal value.
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NEUBERGER & BERMAN HIGH YIELD BOND FUND
HIGH YIELD may be appropriate for equity investors seeking to rebalance
their portfolios, or for those investors looking for higher rates of return and
willing to take on more risk. The Fund seeks high current income and,
secondarily, capital growth by investing primarily in lower-rated debt
securities. These securities are expected to generate higher returns than
investment grade fixed-income securities. The Fund may be more volatile, because
the performance of high-yield bonds is linked to the financial health of the
overall market. With this in mind, the portfolio co-managers attempt to select
securities of companies with promising upside potential. The Fund is a
well-diversified portfolio of securities that must first pass the intensive,
time-tested selection process that Neuberger & Berman applies to the security
selection in all of its stock funds.
ADDITIONAL INVESTMENT INFORMATION
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Some or all of the Portfolios, as indicated below, may make the
following investments, among others, although they may not buy all of the types
of securities or use all of the investment techniques that are described.
U.S. GOVERNMENT AND AGENCY SECURITIES (ALL PORTFOLIOS). U.S. Government
and Agency Securities are direct obligations of the U.S. Government or its
agencies and instrumentalities, such as GNMA, Fannie Mae (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 (NEUBERGER & BERMAN HIGH YIELD BOND AND
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIOS). The Portfolios may invest
in U.S. Treasury securities whose principal value is adjusted daily in
accordance with changes to the Consumer Price Index. Such securities are backed
by the full faith and credit of the U.S. Government. Because the coupon rate on
inflation-indexed securities is lower than fixed-rate U.S. Treasury securities,
the Consumer Price Index would have to rise at least to the amount of the
difference between the coupon rate of the fixed rate U.S. Treasury issues and
the coupon rate of the inflation-indexed securities, assuming all other factors
are equal, in order for such securities to match the performance of the
fixed-rate Treasury securities. Inflation-indexed securities are expected to
react primarily to changes in the "real" interest rate (I.E., the nominal (or
stated) rate less the rate of inflation), while a typical bond reacts to changes
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in the nominal interest rate. Accordingly, inflation-indexed securities have
characteristics of fixed-rate Treasuries having a shorter duration.
Any increase in principal value is taxable in the year the increase
occurs, even though holders do not receive cash representing the increase until
the security matures. Because each Fund must distribute substantially all of its
income to its shareholders to avoid payment of federal income and excise taxes,
a Portfolio may have to dispose of other investments to obtain the cash
necessary to distribute the accrued taxable income on inflation-indexed
securities.
REPURCHASE AGREEMENTS (ALL PORTFOLIOS EXCEPT NEUBERGER & BERMAN
GOVERNMENT MONEY PORTFOLIO). In a repurchase agreement, a Portfolio purchases
securities from a bank that is a member of the Federal Reserve System or from a
securities dealer that agrees to repurchase the securities from the Portfolio at
a higher price on a designated future date. Repurchase agreements generally are
for a short period of time, usually less than a week. Repurchase agreements with
a maturity of more than seven days are considered to be illiquid securities; no
Portfolio may enter into such a repurchase agreement if, as a result, more than
15% (10% in the case of Neuberger & Berman CASH RESERVES Portfolio) of the value
of its net assets would then be invested in such repurchase agreements and other
illiquid securities. A Portfolio may enter into a repurchase agreement only if
(1) the underlying securities are of the type (excluding maturity and duration
limitations) that the Portfolio's investment policies and limitations would
allow it to purchase directly, (2) the market value of the underlying
securities, including accrued interest, at all times equals or exceeds the
repurchase price, and (3) payment for the underlying securities is made only
upon satisfactory evidence that the securities are being held for the
Portfolio's account by its custodian or a bank acting as the Portfolio's agent.
SECURITIES LOANS (ALL PORTFOLIOS EXCEPT NEUBERGER & BERMAN GOVERNMENT
MONEY PORTFOLIO). In order to realize income, each of these Portfolios may lend
portfolio securities with a value not exceeding 33-1/3% of its total assets to
banks, brokerage firms, or institutional investors judged creditworthy by N&B
Management. Borrowers are required continuously to secure their obligations to
return securities on loan from a Portfolio by depositing collateral in a form
determined to be satisfactory by the Portfolio Trustees. The collateral, which
must be marked to market daily, must be equal to at least 100% of the market
value of the loaned securities, which will also be marked to market daily. N&B
Management believes the risk of loss on these transactions is slight because, if
a borrower were to default for any reason, the collateral should satisfy the
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obligation. However, as with other extensions of secured credit, loans of
portfolio securities involve some risk of loss of rights in the collateral
should the borrower fail financially.
RESTRICTED SECURITIES AND RULE 144A SECURITIES (ALL PORTFOLIOS EXCEPT
NEUBERGER & BERMAN GOVERNMENT MONEY PORTFOLIO). The Portfolios may invest in
restricted securities, which are securities that may not be sold to the public
without an effective registration statement under the 1933 Act. Before they are
registered, such securities may be sold only in a privately negotiated
transaction or pursuant to an exemption from registration. In recognition of the
increased size and liquidity of the institutional market for unregistered
securities and the importance of institutional investors in the formation of
capital, the SEC has adopted Rule 144A under the 1933 Act. Rule 144A is designed
to facilitate efficient trading among institutional investors by permitting the
sale of certain unregistered securities to qualified institutional buyers. To
the extent privately placed securities held by a Portfolio qualify under Rule
144A and an institutional market develops for those securities, the Portfolio
likely will be able to dispose of the securities without registering them under
the 1933 Act. To the extent that institutional buyers become, for a time,
uninterested in purchasing these securities, investing in Rule 144A securities
could increase the level of a Portfolio's illiquidity. N&B Management, acting
under guidelines established by the Portfolio Trustees, may determine that
certain securities qualified for trading under Rule 144A are liquid. Foreign
securities that are freely tradable in their principal markets are not
considered to be restricted. Regulation S under the 1933 Act permits the sale
abroad of securities that are not registered for sale in the United States.
Where registration is required, a Portfolio may be obligated to pay all
or part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. To the extent restricted
securities, including Rule 144A securities, are illiquid, purchases thereof will
be subject to each Portfolio's 15% (10% in the case of Neuberger & Berman CASH
RESERVES Portfolio) limit on investments in illiquid securities. Restricted
securities for which no market exists are priced by a method that the Portfolio
Trustees believe accurately reflects fair value.
COMMERCIAL PAPER (ALL PORTFOLIOS EXCEPT NEUBERGER & BERMAN GOVERNMENT
MONEY PORTFOLIO). Commercial paper is a short-term debt security issued by a
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corporation, bank, municipality, or other issuer, usually for purposes such as
financing current operations. Each Portfolio may invest in commercial paper that
cannot be resold to the public without an effective registration statement under
the 1933 Act. While restricted commercial paper normally is deemed illiquid, N&B
Management may in certain cases determine that such paper is liquid, pursuant to
guidelines established by the Portfolio Trustees.
REVERSE REPURCHASE AGREEMENTS (ALL PORTFOLIOS EXCEPT NEUBERGER & BERMAN
GOVERNMENT MONEY PORTFOLIO). In a reverse repurchase agreement, a Portfolio
sells portfolio securities subject to its agreement to repurchase the securities
at a later date for a fixed price reflecting a market rate of interest; these
agreements are considered borrowings for purposes of each Portfolio's investment
policies and limitations concerning borrowings. While a reverse repurchase
agreement is outstanding, a Portfolio will deposit in a segregated account with
its custodian cash or appropriate liquid securities, marked to market daily, in
an amount at least equal to each Portfolio's obligations under the agreement.
There is a risk that the counter-party to a reverse repurchase agreement will be
unable or unwilling to complete the transaction as scheduled, which may result
in losses to the Portfolio.
BANKING AND SAVINGS INSTITUTION SECURITIES (ALL PORTFOLIOS EXCEPT
NEUBERGER & BERMAN GOVERNMENT MONEY PORTFOLIO). These include CDs, time
deposits, bankers' acceptances, and other short-term and long-term debt
obligations issued by commercial banks and savings institutions. CDs are
receipts for funds deposited for a specified period of time at a specified rate
of return; time deposits generally are similar to CDs, but are uncertificated.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international commercial transactions. The CDs, time
deposits, and bankers' acceptances in which the Portfolios invest typically are
not covered by deposit insurance.
Neuberger & Berman CASH RESERVES Portfolio may invest in securities
issued by a commercial bank or savings institution only if (1) the bank or
institution has total assets of at least $1,000,000,000, (2) the bank or
institution is on N&B Management's approved list, and (3) in the case of a
foreign bank or institution, the securities are, in N&B Management's opinion, of
an investment quality comparable with other debt securities that may be
purchased by the Portfolio. These limitations do not prohibit investments in
securities issued by foreign branches of U.S. banks that meet the foregoing
requirements.
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VARIABLE OR FLOATING RATE SECURITIES; DEMAND AND PUT FEATURES (ALL
PORTFOLIOS EXCEPT NEUBERGER & BERMAN GOVERNMENT MONEY PORTFOLIO). Variable rate
securities provide for automatic adjustment of the interest rate at fixed
intervals (e.g., daily, monthly, or semi-annually); floating rate securities
provide for automatic adjustment of the interest rate whenever a specified
interest rate or index changes. The interest rate on variable and floating rate
securities (collectively, "Adjustable Rate Securities") ordinarily is determined
by reference to a particular bank's prime rate, the 90-day U.S. Treasury Bill
rate, the rate of return on commercial paper or bank CDs, an index of short-term
tax-exempt rates or some other objective measure.
Adjustable Rate Securities frequently permit the holder to demand
payment of the obligations' principal and accrued interest at any time or at
specified intervals not exceeding one year. The demand feature usually is backed
by a credit instrument (e.g., a bank letter of credit) from a creditworthy
issuer and sometimes by insurance from a creditworthy insurer. Without these
credit enhancements, some Adjustable Rate Securities might not meet a
Portfolios' quality standards. Accordingly, in purchasing these securities, each
Portfolio relies primarily on the creditworthiness of the credit instrument
issuer or the insurer. Except for Neuberger & Berman CASH RESERVES Portfolio, no
Portfolio may invest more than 5% of its total assets in securities backed by
credit instruments from any one issuer or by insurance from any one insurer. For
purposes of this limitation, each Portfolio, except for Neuberger & Berman CASH
RESERVES Portfolio, excludes securities that do not rely on the credit
instrument or insurance for their ratings, i.e., stand on their own credit.
Neuberger & Berman CASH RESERVES Portfolio may invest in securities subject to
demand features or guarantees as permitted by Rule 2a-7 under the 1940 Act.
A Portfolio can also buy fixed rate securities accompanied by a demand
feature or by a put option, which permits the Portfolio to sell the security to
the issuer or third party at a specified price. A Portfolio may rely on the
creditworthiness of issuers of the credit enhancements in purchasing these
securities.
In calculating its dollar-weighted average maturity and duration, each
Portfolio is permitted to treat certain Adjustable Rate Securities as maturing
on a date prior to the date on which the final repayment of principal must
unconditionally be made. In applying such maturity shortening devices, N&B
Management considers whether the interest rate reset is expected to cause the
security to trade at approximately its par value.
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MORTGAGE-BACKED SECURITIES (ALL PORTFOLIOS). Mortgage-backed securities
represent direct or indirect participations in, or are secured by and payable
from, pools of mortgage loans. They may be issued or guaranteed by a U.S.
Government agency or instrumentality (such as GNMA, Fannie Mae, and Freddie
Mac), though not necessarily backed by the full faith and credit of the United
States, or may be issued by private issuers.
Because many mortgages are repaid early, the actual maturity and
duration of mortgage-backed securities are typically shorter than their stated
final maturity and their duration calculated solely on the basis of the stated
life and payment schedule. In calculating its dollar-weighted average maturity
and duration, a Portfolio may apply certain industry conventions regarding the
maturity and duration of mortgage-backed instruments. Different analysts use
different models and assumptions in making these determinations. The Portfolios
use an approach that N&B Management believes is reasonable in light of all
relevant circumstances.
Mortgage-backed securities may be issued in the form of CMOs or
collateralized mortgage-backed bonds ("CBOs"). CMOs are obligations that are
fully collateralized, directly or indirectly, by a pool of mortgages; payments
of principal and interest on the mortgages are passed through to the holders of
the CMOs, although not necessarily on a pro rata basis, on the same schedule as
they are received. CBOs are general obligations of the issuer that are fully
collateralized, directly or indirectly, by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with mortgage-backed "pass-through" securities issued or guaranteed
by U.S. Government agencies or instrumentalities) or on a modified basis (as
with CMOs). Accordingly, a change in the rate of prepayments on the pool of
mortgages could change the effective maturity or the duration of a CMO but not
that of a CBO(although, like many bonds, CBOs may be callable by the issuer
prior to maturity). To the extent that rising interest rates cause prepayments
to occur at a slower than expected rate, a CMO could be converted into a
longer-term security that is subject to greater risk of price volatility.
Governmental, government-related, and private entities (such as
commercial banks, savings institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers, including securities
broker-dealers and special purpose entities that generally are affiliates of the
foregoing established to issue such securities) may create mortgage loan pools
to back CMOs and CBOs. Such issuers may be the originators and/or servicers of
the underlying mortgage loans, as well as the guarantors of the mortgage-backed
securities. Pools created by non-governmental issuers generally offer a higher
rate of interest than governmental and government-related pools because of the
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absence of direct or indirect government or agency guarantees. Various forms of
insurance or guarantees, including individual loan, title, pool, and hazard
insurance and letters of credit, may support timely payment of interest and
principal of non-governmental pools. Governmental entities, private insurers,
and mortgage poolers issue these forms of insurance and guarantees. N&B
Management considers such insurance and guarantees, as well as the
creditworthiness of the issuers thereof, in determining whether a
mortgage-backed security meets a Portfolio's investment quality standards. There
can be no assurance that private insurers or guarantors can meet their
obligations under insurance policies or guarantee arrangements.
A Portfolio may buy mortgage-backed securities without insurance or
guarantees, if N&B Management determines that the securities meet the
Portfolio's quality standards. A Portfolio may not purchase mortgage-backed
securities that, in N&B Management's opinion, are illiquid if, as a result, more
than 15% (10% in the case of Neuberger & Berman CASH RESERVES Portfolio) of the
Portfolio's net assets would be invested in illiquid securities. Neuberger &
Berman GOVERNMENT MONEY Portfolio may invest in U.S. Government mortgage-backed
securities only if they are backed by the full faith and credit of the United
States. N&B Management will, consistent with the Portfolios' investment
objective, policies and limitations and quality standards, consider making
investments in new types of mortgage-backed securities as such securities are
developed and offered to investors.
REAL ESTATE-RELATED INSTRUMENTS (Neuberger & Berman HIGH YIELD Bond
Portfolio). 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,
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self-liquidation, and the possibility of failing to qualify for conduit
treatment of income under the Internal Revenue Code of 1986, as amended ("Code")
and failing to maintain exemption from the 1940 Act.
ASSET-BACKED SECURITIES (ALL PORTFOLIOS EXCEPT NEUBERGER & BERMAN
GOVERNMENT MONEY PORTFOLIO). Asset-backed securities represent direct or
indirect participations in, or are secured by and payable from, pools of assets
such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property, and receivables from
revolving credit (credit card) agreements. These assets are securitized through
the use of trusts and special purpose corporations. Credit enhancements, such as
various forms of cash collateral accounts or letters of credit, may support
payments of principal and interest on asset-backed 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
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issuer's ability to extend the life of an issue of credit card receivable
securities thus depends on the continued generation of principal amounts in the
underlying Accounts and the non-occurrence of the specified events. The
non-deductibility of consumer interest, as well as competitive and general
economic factors, could adversely affect the rate at which new receivables are
created in an Account and conveyed to an issuer, thereby shortening the expected
weighted average life of the related security and reducing its yield. An
acceleration in cardholders' payment rates or any other event that shortens the
period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related security could have a
similar effect on its weighted average life and yield.
Credit cardholders are entitled to the protection of state and federal
consumer credit laws. Many of those laws give a holder the right to set off
certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike the collateral for most other
asset-backed securities, Accounts are unsecured obligations of the cardholder.
U.S. DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES (ALL PORTFOLIOS EXCEPT
NEUBERGER & BERMAN GOVERNMENT MONEY PORTFOLIO). 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. These investments are subject to each Portfolio's quality,
maturity, and duration standards. While investments in foreign securities are
intended to reduce risk by providing further diversification, such investments
involve sovereign and other risks, in addition to the credit and market risks
normally associated with domestic securities. These additional risks include the
possibility of adverse political and economic developments (including political
instability) and the potentially adverse effects of unavailability of public
information regarding issuers, less governmental supervision and regulation of
financial markets, reduced liquidity of certain financial markets, and the lack
of uniform accounting, auditing, and financial reporting standards or the
application of standards that are different or less stringent than those applied
in the United States.
FOREIGN CURRENCY DENOMINATED FOREIGN SECURITIES (NEUBERGER & BERMAN
HIGH YIELD BOND PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND
PORTFOLIO). Each Portfolio may invest up to 25% of its net assets in foreign
securities denominated in foreign currencies and, with respect to Neuberger &
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Berman HIGH YIELD Bond Portfolio, American Depositary Receipts ("ADRs") on such
securities. Within that limitation, however, neither Portfolio is restricted in
the amount it may invest in securities denominated in any one foreign currency.
The Portfolios invest in foreign currency denominated foreign securities of
issuers in countries whose governments are considered stable by N&B Management.
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 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
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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 (Neuberger & Berman HIGH YIELD Bond
Portfolio). 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 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 is less likely to 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 (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO AND
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). In a "dollar roll," a
Portfolio sells securities for delivery in the current month and simultaneously
agrees to repurchase substantially similar (i.e., same type and coupon)
securities on a specified future date from the same party. A "covered roll" is a
specific type of dollar roll in which the Portfolio holds an offsetting cash
position or a cash-equivalent securities position that matures on or before the
forward settlement date of the dollar roll transaction. Dollar rolls are
considered borrowings for purposes of the Portfolios' investment policies and
limitations concerning borrowings. There is a risk that the contra-party will be
unable or unwilling to complete the transaction as scheduled, which may result
in losses to the Portfolio.
WHEN-ISSUED TRANSACTIONS (ALL PORTFOLIOS). These transactions may
involve mortgage-backed securities such as GNMA, Fannie Mae, and Freddie Mac
certificates. These transactions involve a commitment by a Portfolio to purchase
securities that will be issued at a future date (ordinarily within two months,
although the Portfolio may agree to a longer settlement period). The price of
the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases are
negotiated directly with the other party, and such commitments are not traded on
exchanges.
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When-issued transactions enable a Portfolio to "lock in" what N&B
Management believes to be an attractive price or yield on a particular security
for a period of time, regardless of future changes in interest rates. In periods
of falling interest rates and rising prices, a Portfolio might purchase a
security on a when-issued basis and sell a similar security to settle such
purchase, thereby obtaining the benefit of currently higher yields.
The value of securities purchased on a when-issued basis and any
subsequent fluctuations in their value are reflected in the computation of a
Portfolio's net asset value ("NAV") starting on the date of the agreement to
purchase the securities. Because the Portfolio has not yet paid for the
securities, this produces an effect similar to leverage. The Portfolio does not
earn interest on securities it has committed to purchase until the securities
are paid for and delivered on the settlement date.
A Portfolio will purchase securities on a when-issued basis only with
the intention of completing the transaction and actually purchasing the
securities. If deemed advisable as a matter of investment strategy, however, a
Portfolio may dispose of or renegotiate a commitment after it has been entered
into. A Portfolio also may sell securities it has committed to purchase before
those securities are delivered to the Portfolio on the settlement date. The
Portfolio may realize capital gains or losses in connection with these
transactions.
When a Portfolio purchases securities on a when-issued basis, it will
deposit in a segregated account with its custodian, until payment is made,
appropriate liquid securities having an aggregate market value (determined
daily) at least equal to the amount of the Portfolio's purchase commitments.
This procedure is designed to ensure that the Portfolio maintains sufficient
assets at all times to cover its obligations under when-issued purchases.
FUTURES CONTRACTS AND OPTIONS THEREON (NEUBERGER & BERMAN HIGH YIELD
BOND PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). The
Portfolios may purchase and sell interest rate and bond index futures contracts
and options thereon, and may purchase and sell foreign currency futures
contracts (with interest rate and bond index futures contracts, "Futures" or
"Futures Contracts") and options thereon. The Portfolios engage in interest rate
and bond index Futures and options transactions in an attempt to hedge against
changes in securities prices resulting from changes in prevailing interest
rates. The Portfolios engage in foreign currency Futures and options
transactions in an attempt to hedge against changes in prevailing currency
exchange rates. Because the futures markets may be more liquid than the cash
markets, the use of Futures permits a Portfolio to enhance portfolio liquidity
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and maintain a defensive position without having to sell portfolio securities.
The Portfolios do not engage in transactions in Futures or options thereon for
speculation. The Portfolios view investment in (1) interest rate and bond index
Futures and options thereon as a maturity or duration management device and/or a
device to reduce risk and preserve total return in an adverse interest rate
environment for the hedged securities and (2) foreign currency Futures and
options thereon as a means of establishing more definitely the effective return
on, or the purchase price of, securities denominated in foreign currencies held
or intended to be acquired by the Portfolios.
A "sale" of a Futures Contract (or a "short" Futures position) entails
the assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a Futures Contract (or a "long" Futures position) entails the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
Futures, including bond index Futures, are settled on a net cash payment basis
rather than by the sale and delivery of the securities underlying the Futures.
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. This may result in a profit or loss.
"Margin" with respect to Futures is the amount of assets that must be
deposited by a Portfolio with, or for the benefit of, a futures commission
merchant in order to initiate and maintain the Portfolio's Futures positions.
The margin deposit made by a Portfolio when it enters into a Futures Contract
("initial margin") is intended to assure its performance of the contract. If the
price of the Futures Contract changes -- increases in the case of a short (sale)
position or decreases in the case of a long (purchase) position -- so that the
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unrealized loss on the contract causes the margin deposit not to satisfy margin
requirements, the Portfolio will be required to make an additional margin
deposit ("variation margin"). However, if favorable price changes in the Futures
Contract cause the margin on deposit to exceed the required margin, the excess
will be paid to the Portfolio. In computing its daily NAV, each Portfolio marks
to market the value of its open Futures positions. A Portfolio also must make
margin deposits with respect to options on Futures that it has written (but not
with respect to options on futures that it has purchased). 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. Options on futures have characteristics
and risks similar to those of securities options, as discussed herein.
Although each Portfolio believes that the use of Futures Contracts will
benefit it, if N&B Management's judgment about the general direction of the
markets or about interest rate or currency exchange rate trends is incorrect, a
Portfolio's overall return would be lower than if it had not entered into any
such contracts. The prices of Futures are volatile and are influenced by, among
other things, actual and anticipated changes in interest or currency exchange
rates, which in turn are affected by fiscal and monetary policies and by
national and international political and economic events. At best, the
correlation between changes in prices of Futures and of the securities and
currencies being hedged can be only approximate due to differences between the
futures and securities markets or differences between the securities or
currencies underlying a Portfolio's futures position and the securities held by
or to be purchased for the Portfolio. The currency futures market may be
dominated by short-term traders seeking to profit from changes in exchange
rates. This would reduce the value of such contracts used for hedging purposes
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over a short-term period. Such distortions are generally minor and would
diminish as the contract approaches maturity.
Because of the low margin deposits required, Futures trading involves
an extremely high degree of leverage; as a result, a relatively small price
movement in a Futures Contract may result in an immediate and substantial loss,
or gain, to the investor. Losses that may arise from certain Futures
transactions are potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctuation in the
price of a Futures Contract or option thereon during a single trading day; once
the daily limit has been reached, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day, however; it thus does not limit potential losses. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable Futures and options positions and
subjecting investors to substantial losses. If this were to happen with respect
to a position held by a Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
PUT AND CALL OPTIONS (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO AND
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). Each Portfolio may write
and purchase put and covered call options on securities to reduce the effect of
price fluctuations of securities held by each Portfolio on the Portfolio's and
its corresponding Fund's NAVs. Each 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 a Portfolio are purchased solely on the
basis of investment considerations consistent with the Portfolio's investment
objective.
A Portfolio will receive a premium for writing a put option, which
obligates that 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. A Portfolio may be obligated to purchase the underlying security at more
than its current value.
When a 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. A Portfolio would purchase a put option in order
to protect itself against a decline in the market value of a security it owns.
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When a 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. That Portfolio receives a premium
for writing the option. When writing call options, each Portfolio writes only
"covered" call options on securities it owns. So long as the obligation of the
call option continues, that Portfolio may be assigned an exercise notice,
requiring it to deliver the underlying security against payment of the exercise
price. A Portfolio may be obligated to deliver securities underlying a call
option at less than the market price.
When a 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. A 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 Portfolios will not do),
but is capable of enhancing a Portfolio's total return. When writing a covered
call option, a 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, a 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 a Portfolio has written expires unexercised, that 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 written by a Portfolio 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 a Portfolio and is never
exercised or closed out, that Portfolio will lose the entire amount of the
premium paid.
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<PAGE>
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 a
Portfolio and a counterparty, with no clearing organization guarantee. Thus,
when a Portfolio sells (or purchases) an OTC option, it generally will be able
to "close out" the option prior to its expiration only by entering into a
"closing transaction" with the dealer to whom (or from whom) that Portfolio
originally sold (or purchased) the option. There can be no assurance that a
Portfolio would be able to liquidate an OTC option at any time prior to
expiration. Unless a 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 counterparty's insolvency, a
Portfolio may be unable to liquidate its options position and the associated
cover. N&B Management monitors the creditworthiness of dealers with which the
Portfolios may engage in OTC options transactions.
The assets used as cover (or held in a segregated account) for OTC
options written by a 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 market. The premium may reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to the market price, the historical price volatility of the underlying security,
the length of the option period, the general supply of and demand for credit,
and the interest rate environment. The premium received by the Portfolio for
writing an option is recorded as a liability on the Portfolio's statement of
assets and liabilities. This liability is adjusted daily to the option's current
market value, which is the last reported sales price before the time the
Portfolio's NAV is computed on the day the option is being valued or, in the
absence of any trades thereof on that day, the mean between the bid and asked
prices as of that time.
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<PAGE>
Closing transactions are effected in order to realize a profit (or
minimize a loss) 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 a Portfolio to write
another call option on the underlying security with a different exercise price
or expiration date or both. There is, of course, no assurance that the Portfolio
will be able to effect closing transactions at favorable prices. If a 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.
A 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.
A Portfolio pays brokerage commissions or spreads in connection with
purchasing or writing options, including those used to close out existing
positions. These brokerage commissions normally are higher than those applicable
to purchases and sales of portfolio securities. From time to time, the Portfolio
may purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering the security from
its portfolio. In those cases, additional brokerage commissions are incurred.
FORWARD FOREIGN CURRENCY CONTRACTS (NEUBERGER & BERMAN HIGH YIELD BOND
PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). Each
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"). Each
Portfolio enters into Forward Contracts in an attempt to hedge against changes
in prevailing currency exchange rates. The Portfolios do not engage in
transactions in Forward Contracts for speculation; they view 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 them. 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
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by a Portfolio that are denominated in a foreign currency or protecting the U.S.
dollar equivalent of dividends, interest, or other payments on those securities.
N&B Management believes that the use of foreign currency hedging
techniques, including "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, a Portfolio could be in a less
advantageous position than if such a hedge or proxy-hedge had not been
established. If a 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. Using
forward contracts to protect the value of a Portfolio's securities against a
decline in the value of a currency does not eliminate fluctuations in the prices
of the underlying securities. Because forward contracts are not traded on an
exchange, the assets used to cover such contracts may be illiquid. A Portfolio
may experience delays in the settlement of its foreign currency transactions.
OPTIONS ON FOREIGN CURRENCIES (NEUBERGER & BERMAN HIGH YIELD BOND
PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). Each
Portfolio may write and purchase covered call and put options on foreign
currencies. A 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.
Currency options have characteristics and risks similar to those of securities
options, as discussed herein. Certain options on foreign currencies are traded
on the OTC market and involve liquidity and credit risks that may not be present
in the case of exchange-traded currency options.
REGULATORY LIMITATIONS ON USING FUTURES, OPTIONS ON FUTURES, OPTIONS ON
SECURITIES AND FOREIGN CURRENCIES, AND FORWARD CONTRACTS (COLLECTIVELY, "HEDGING
INSTRUMENTS") (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO AND NEUBERGER &
BERMAN LIMITED MATURITY BOND PORTFOLIO). To the extent a Portfolio sells or
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<PAGE>
purchases Futures Contracts and/or writes options thereon or options on foreign
currencies that are traded on an exchange regulated by the CFTC other than for
BONA FIDE hedging purposes (as defined by the CFTC), the aggregate initial
margin and premiums on these positions (excluding the amount by which options
are "in-the-money") may not exceed 5% of the Portfolio's net assets.
COVER FOR HEDGING INSTRUMENTS (NEUBERGER & BERMAN HIGH YIELD BOND
PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). Each
Portfolio will comply with SEC guidelines regarding "cover" for Hedging
Instruments and, if the guidelines so require, set aside in a segregated account
with its custodian the prescribed amount of cash or appropriate liquid
securities. Securities held in a segregated account cannot be sold while the
Futures, option, or forward strategy covered by those securities is outstanding,
unless they are replaced with other suitable assets. As a result, segregation of
a large percentage of a Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet current obligations. A Portfolio may be unable
promptly to dispose of assets which cover, or are segregated with respect to, an
illiquid Futures, options, or forward position; this inability may result in a
loss to the Portfolio.
GENERAL RISKS OF HEDGING INSTRUMENTS (NEUBERGER & BERMAN HIGH YIELD
BOND PORTFOLIO AND NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). The
primary risks in using Hedging Instruments are (1) imperfect correlation or no
correlation between changes in market value of the securities or currencies held
or to be acquired by a Portfolio and changes in the market value of Hedging
Instruments; (2) possible lack of a liquid secondary market for Hedging
Instruments and the resulting inability to close out Hedging Instruments when
desired; (3) the fact that the skills needed to use Hedging Instruments are
different from those needed to select a Portfolio's securities; (4) the fact
that, although use of Hedging Instruments for hedging purposes can reduce the
risk of loss, they also can reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in hedged investments; and (5)
the possible inability of a Portfolio to purchase or sell a portfolio security
at a time that would otherwise be favorable for it to do so, or the possible
need for a Portfolio to sell a portfolio security at a disadvantageous time, due
to its need to maintain cover or to segregate securities in connection with its
use of Hedging Instruments. N&B Management intends to reduce the risk of
imperfect correlation by investing only in Hedging Instruments whose behavior is
expected to resemble or offset that of a Portfolio's underlying securities or
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<PAGE>
currency. N&B Management intends to reduce the risk that a Portfolio will be
unable to close out Hedging Instruments by entering into such transactions only
if N&B Management believes there will be an active and liquid secondary market.
There can be no assurance that a Portfolio's use of Hedging Instruments will be
successful.
A Portfolio's use of Hedging Instruments may be limited by certain
provisions of the Code with which it must comply if its corresponding Fund is to
qualify as a regulated investment company ("RIC"). See "Additional Tax
Information -- Taxation of Portfolios."
INDEXED SECURITIES (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO AND
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO). The Portfolio may invest in
securities whose value is linked to interest rates, commodities, foreign
currencies, indices, or other financial indicators ("indexed securities"). Most
indexed securities are short- to intermediate-term fixed income securities whose
values at maturity or interest rates rise or fall according to the change in one
or more specified underlying instruments. The value of indexed securities may
increase or decrease if the underlying instrument appreciates, and they may have
return characteristics similar to direct investment in the underlying instrument
or to one or more options thereon. An indexed security may be more volatile than
the underlying instrument itself.
ZERO COUPON, STEP COUPON AND PAY-IN-KIND SECURITIES (ALL PORTFOLIOS).
Each Portfolio may invest in zero coupon securities; Neuberger & Berman LIMITED
MATURITY Bond Portfolio and Neuberger & Berman HIGH YIELD Bond Portfolio may
invest in step coupon securities. Neuberger & Berman HIGH YIELD Bond Portfolio
may also invest in pay-in-kind securities. These securities are debt obligations
that do not entitle the holder to any periodic payment of interest prior to
maturity or that specify a future date when the securities begin to pay current
interest. Zero coupon and step coupon securities are issued and traded at a
significant discount from their face amount or par value. This discount varies
depending on prevailing interest rates, the time remaining until cash payments
begin, the liquidity of the security, and the perceived credit quality of the
issuer. Pay-in-kind securities 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 each such Portfolio
prior to the receipt of any actual payments. Because its corresponding Fund must
distribute substantially all of its net income (including its share of the
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Portfolio's accrued OID) to its shareholders each year for income and excise tax
purposes, each such Portfolio may have to dispose of portfolio securities under
disadvantageous circumstances to generate cash, or may be required to borrow, to
satisfy its corresponding Fund's distribution requirements. See "Additional Tax
Information."
The market prices of zero coupon securities generally are more volatile
than the prices of securities that pay interest periodically. Zero coupon
securities are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having similar maturities and credit
quality.
SWAP AGREEMENTS (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO). To help
enhance the value of its portfolio or manage its exposure to different types of
investments, the Portfolio may enter into interest rate and mortgage swap
agreements and may purchase and sell interest rate "caps," "floors," and
"collars." In a swap agreement, one party agrees to make regular payments equal
to a floating rate on a specified amount in exchange for payments equal to a
fixed rate, or a different floating rate, on the same amount for a specified
period.
Swap agreements 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 the Portfolio's
ability to terminate its swap agreements or reduce its exposure through
offsetting transactions. 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. Swap agreements may be illiquid. The swap market is
relatively new and is largely unregulated.
MUNICIPAL OBLIGATIONS (NEUBERGER & BERMAN CASH RESERVES PORTFOLIO,
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO AND NEUBERGER & BERMAN HIGH
YIELD BOND PORTFOLIO). Neuberger & Berman LIMITED MATURITY Bond Portfolio may
invest up to 5% of its net assets in municipal obligations, which are securities
issued by or on behalf of states (as used herein, including the District of
Columbia), territories, and possessions of the United States and their political
subdivisions, agencies, and instrumentalities. Neuberger & Berman CASH Reserves
Portfolio may invest in municipal obligations that otherwise meet its criteria
for quality and maturity. Neuberger & Berman HIGH YIELD Bond Portfolio may
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invest in municipal obligations but has no current intention of doing so.
Municipal obligations include "general obligation" securities, which are backed
by the full taxing power of a municipality, and "revenue" securities, which are
backed only by the income from a specific project, facility, or tax. Municipal
obligations also include industrial development and private activity bonds which
are issued by or on behalf of public authorities, but are not backed by the
credit of any governmental or public authority. "Anticipation notes" are issued
by municipalities in expectation of future proceeds from the issuance of bonds
or from taxes or other revenues, and are payable from those bond proceeds,
taxes, or revenues. Municipal obligations also include tax-exempt commercial
paper, which is issued by municipalities to help finance short-term capital or
operating requirements.
The value of municipal obligations is dependent on the continuing
payment of interest and principal when due by the issuers of the municipal
obligations (or, in the case of industrial development bonds, the revenues
generated by the facility financed by the bonds or, in certain other instances,
the provider of the credit facility backing the bonds). As with other fixed
income securities, an increase in interest rates generally will reduce the value
of a Portfolio's investments in municipal obligations, whereas a decline in
interest rates generally will increase that value. Efforts are underway that may
result in a restructuring of the federal income tax system. Any of these factors
could affect the value of municipal securities.
LOWER RATED DEBT SECURITIES (NEUBERGER & BERMAN LIMITED MATURITY BOND
AND NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIOS). 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.
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<PAGE>
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 a Fund's 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.
DIRECT DEBT INSTRUMENTS (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO).
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
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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
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 its 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 (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO).
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.
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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
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 (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO). 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 (NEUBERGER & BERMAN HIGH YIELD BOND PORTFOLIO). Warrants may
be acquired by the Portfolio in connection with other securities or separately
and provide the Portfolio 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
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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.
Subsequent to its purchase by a Portfolio, an issue of debt securities
may cease to be rated or its rating may be reduced, so that the securities would
no longer be eligible for purchase by that Portfolio. In such a case, with
respect to Neuberger & Berman LIMITED MATURITY Bond Portfolio, N&B Management
will engage in an orderly disposition of the downgraded securities or other
securities to the extent necessary to ensure the Portfolio's holdings of
securities that are considered by the Portfolio to be below investment grade
will not exceed 10% of its net assets. Neuberger & Berman LIMITED MATURITY Bond
Portfolio may hold up to 5% of its net assets in securities that are downgraded
after purchase to a rating below that permissible by the Portfolio's investment
policies. With respect to the money market Portfolios, N&B Management will
consider the need to dispose of such securities in accordance with the
requirements of Rule 2a-7 under the 1940 Act.
RISKS OF EQUITY SECURITIES
- --------------------------
Equity securities in which Neuberger & Berman HIGH YIELD Bond Fund may
invest include common stocks, preferred stocks, convertible securities and
warrants. To the extent this Portfolio invests in such securities, the value of
securities held by the Portfolio will be affected by changes in the stock
markets, which may be the result of domestic or international political or
economic news, changes in interest rates or changing investor sentiment. 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
- 36 -
<PAGE>
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. Adverse news affecting one
company can sometimes depress the stock prices of all companies in the same
industry. Not all factors can be predicted.
CERTAIN RISK CONSIDERATIONS
A Fund's investment in its corresponding Portfolio may be affected by
the actions of other large investors in the Portfolio, if any. For example, if a
large investor in a Portfolio (other than a Fund) redeemed its interest in the
Portfolio, the Portfolio's remaining investors (including the Fund) might, as a
result, experience higher pro rata operating expenses, thereby producing lower
returns.
Although each Portfolio seeks to reduce risk by investing in a
diversified portfolio of securities, diversification does not eliminate all
risk. There can, of course, be no assurance that any Portfolio will achieve its
investment objective.
PERFORMANCE INFORMATION
Each Fund's performance figures (except for HIGH YIELD) are based on
historical results and are not intended to indicate future performance. The
yield and total return of each Fund will vary. The share prices of HIGH YIELD
and LIMITED MATURITY will vary, and an investment in either of these Funds, when
redeemed, may be worth more or less than an investor's original cost.
The Prospectus contains total return information for a private account
managed by Neuberger & Berman with a similar investment objective, policies and
strategy to those of HIGH YIELD ("Private Account"). Custodial fees and any
expenses for services not provided by N&B Management are not reflected in the
Private Account's total return information. The method used to calculate the
total return for the Private Account is a widely-recognized method for
calculating the total return of private accounts. This method may differ in
certain respects from the method mandated by the SEC for calculating the Funds'
total return information. However, N&B Management believes that any differences
in the performance calculations resulting from the differences in these methods
would be slight. If permitted by applicable law, HIGH YIELD may advertise the
Private Account's prior performance information.
- 37 -
<PAGE>
YIELD CALCULATIONS
- ------------------
GOVERNMENT MONEY AND CASH RESERVES. Each of these Funds may advertise
its "current yield" and "effective yield" in the financial press and other
publications. A Fund's CURRENT YIELD is based on the return for a recent
seven-day period and is computed by determining the net change (excluding
capital changes) in the value of a hypothetical account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period. The result is a
"base period return," which is then annualized -- that is, the amount of income
generated during the seven-day period is assumed to be generated each week over
a 52-week period -- and shown as an annual percentage of the investment.
The EFFECTIVE YIELD of these Funds is calculated similarly, but the
base period return is assumed to be reinvested. The assumed reinvestment is
calculated by adding 1 to the base period return, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result, according to
the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1.
For the seven calendar days ended October 31, 1997, the current yields
of GOVERNMENT MONEY and CASH RESERVES were 4.70% and 5.10%, respectively. For
the same period, the effective yields were 4.81% and 5.23%, respectively.
HIGH YIELD AND LIMITED MATURITY. Each of these Funds may advertise its
"yield" based on a 30-day (or one month) period. This YIELD is computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period. The result then
is annualized and shown as an annual percentage of the investment.
The annualized yield for LIMITED MATURITY for the 30-day period ended
October 31, 1997 was 5.85%.
TAX EQUIVALENT YIELD - STATE AND LOCAL TAXES
- --------------------------------------------
GOVERNMENT MONEY. Substantially all of the dividends paid by GOVERNMENT
MONEY represent income received by its corresponding Portfolio on direct
obligations of the U.S. Government and, as a result, are not subject to income
tax in most states and localities. From time to time, this Fund may advertise a
"tax equivalent yield" for one or more of those states or localities that
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<PAGE>
reflects the taxable yield that an investor subject to the highest marginal rate
of state or local income tax would have had to receive in order to realize the
same level of after-tax yield produced by an investment in the Fund. TAX
EQUIVALENT YIELD is calculated according to the following formula:
Tax Equivalent Yield = Y1 + Y2
----
1-MR
where Y1 equals that portion of the Fund's current or effective yield that is
not subject to state or local income tax, Y2 equals that portion of the Fund's
current or effective yield that is subject to that tax, and MR equals the
highest marginal tax rate of the state or locality for which the tax equivalent
yield is being calculated.
The calculation of tax equivalent yield can be illustrated by the
following example. If the current yield for a 7-day period was 5%, and during
that period 100% of the income was attributable to interest on direct
obligations of the U.S. Government and, therefore, was not subject to income
taxation in most states and localities, a taxpayer residing in New York (and
subject to that state's highest marginal 1998 tax rate of 7.35%) would have to
have received a taxable current yield of 5.40% in order to equal the 5%
after-tax yield. Moreover, if that taxpayer also were subject to income taxation
by New York City at a marginal 1998 rate of 4.46%, the taxpayer would have to
have received a taxable current yield of 5.67% to equal the 5% after-tax yield.
The use of a 5% yield in this example is for illustrative purposes only
and is not indicative of the Fund's future performance. Of course, all dividends
paid by GOVERNMENT MONEY are subject to federal income taxation at applicable
rates.
TOTAL RETURN COMPUTATIONS
- -------------------------
LIMITED MATURITY and HIGH YIELD 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.
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<PAGE>
For the one-, five-, and ten-year periods ended October 31, 1997, the
average annual total returns for LIMITED MATURITY and its predecessor were
+6.97%, +5.55%, and +7.20%, respectively. If an investor had invested $10,000 in
that predecessor's shares on June 9, 1986, and had reinvested all capital gain
distributions and income dividends, the value of that investor's holdings would
have been $21,578 on October 31, 1997.
N&B Management may from time to time reimburse a Fund or Portfolio for
a portion of its expenses. Such action has the effect of increasing yield and
total return. Actual reimbursements are described in the Prospectus and in
"Investment Management and Administration Services" below.
COMPARATIVE INFORMATION
- -----------------------
From time to time each Fund's performance may be compared with:
(1) data (that may be expressed as rankings or ratings) published
by independent services or publications (including newspapers,
newsletters, and financial periodicals) that monitor the
performance of mutual funds, such as Lipper Analytical
Services, Inc., C.D.A. Investment Technologies, Inc.,
Wiesenberger Investment Companies Service, IBC/Donoghue's
Money Market Fund Report, Investment Company Data Inc.,
Morningstar Inc., Micropal Incorporated and quarterly mutual
fund rankings by Money, Fortune, Forbes, Business Week,
Personal Investor, and U.S. News & World Report magazines, The
Wall Street Journal, The New York Times, Kiplinger's Personal
Finance, and Barron's Newspaper, or
(2) recognized bond, stock, and other indices such as the Shearson
Lehman Bond Index, the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index"), Dow Jones Industrial Average
("DJIA"), S&P/BARRA Index, Russell Index, and various other
domestic, international, and global indices and changes in the
U.S. Department of Labor Consumer Price Index. The S&P 500
Index is a broad index of common stock prices, while the DJIA
represents a narrower segment of industrial companies. Each
assumes reinvestment of distributions and is calculated
without regard to tax consequences or the costs of investing.
Each Portfolio may invest in different types of securities
from those included in some of the above indices.
- 40 -
<PAGE>
Each Fund's performance also may be compared from time to time with the
following specific indices and other measures of performance:
GOVERNMENT MONEY'S and CASH RESERVES' performance may be compared,
respectively, with IBC/Donoghue's Government Money Market Funds average
and Taxable General Purpose Money Market Funds average.
LIMITED MATURITY'S performance may be compared with the Merrill Lynch
1-3 year Treasury Index, the Lehman Brothers Intermediate
Government/Corporate Bond Index, as well as the performance of Treasury
Securities, corporate bonds, and the Lipper Short Investment Grade Debt
Funds category.
HIGH YIELD'S performance may be compared with the Lehman Brothers
Aggregate Bond Index, the Lehman Brothers Corporate Bond Index, First
Boston High Yield Bond Fund Index, the Merrill Lynch High Yield Master
Index, and the Lipper High Yield Bond Fund Index as well as the
performance of Treasury securities and corporate bonds.
Each Fund may invest some of its assets in different types of
securities than those included in the index used as a comparison with the Fund's
historical performance. A Fund may also compare certain indices, which represent
different segments of the securities markets, for the purpose of comparing the
historical returns and volatility of those particular market segments. Measures
of volatility show the range of historical price fluctuations. Standard
deviation may be used as a measure of volatility. There are other measures of
volatility, which may yield different results.
In addition, each Fund's performance may be compared at times with that
of various bank instruments (including bank money market accounts and CDs of
varying maturities) as reported in publications such as The Bank Rate Monitor.
Any such comparisons may be useful to investors who wish to compare a Fund's
past performance with that of certain of its competitors. Of course, past
performance is not a guarantee of future results. Unlike an investment in a
Fund, bank CDs pay a fixed rate of interest for a stated period of time and are
insured up to $100,000.
The Funds may also be compared to individual asset classes such as
common stocks, small-cap stocks, or Treasury bonds, based on information
supplied by Ibbotson and Sinquefield. Evaluations of the Funds' performance,
their yield/ total returns and comparisons may be used in advertisements and in
- 41 -
<PAGE>
information furnished to current and prospective shareholders (collectively,
"Advertisements").
OTHER PERFORMANCE INFORMATION
- -----------------------------
From time to time, information about a Portfolio's portfolio allocation
and holdings as of a particular date may be included in Advertisements for its
corresponding Fund. This information may include the Portfolio's portfolio
diversification by asset type. Information used in Advertisements may include
statements or illustrations relating to the appropriateness of types of
securities and/or mutual funds that may be employed to meet specific financial
goals, such as (1) funding retirement, (2) paying for children's education, and
(3) financially supporting aging parents.
Information (including charts and illustrations) showing the effects of
compounding interest may be included in Advertisements from time to time.
Compounding is the process of earning interest on principal plus interest that
was earned earlier. Interest can be compounded at different intervals, such as
annually, semi-annually, quarterly, monthly, or daily. For example, $1,000
compounded annually at 9% will grow to $1,090 at the end of the first year (an
increase of $90) and $1,188 at the end of the second year (an increase of $98).
The extra $8 that was earned on the $90 interest from the first year is the
compound interest. One thousand dollars compounded annually at 9% will grow to
$2,367 at the end of ten years and $5,604 at the end of twenty years. Other
examples of compounding are as follows: at 7% and 12% annually, $1,000 will grow
to $1,967 and $3,106, respectively, at the end of ten years and $3,870 and
$9,646, respectively, at the end of twenty years. All these examples are for
illustrative purposes only and are not indicative of any Fund's performance.
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
- 42 -
<PAGE>
versus late for retirement plans also may be included in Advertisements, if
appropriate.
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.
Positions
Name, Address Held With
and Age(1) the Trusts Principal Occupation(s)(2)
- -------------- ---------- --------------------------
John Cannon (68) Trustee of Senior Vice President AMA
CDC Associates, Inc. Investment Advisers, Inc.
620 Sentry Parkway (1991-1993); Chairman and
Suite 220 Chief Investment Officer
P.O. Box 1111 of CDC Associates, Inc.
Blue Bell, PA 19422 (registered investment
adviser) (1993-present).
Stanley Egener* (63) Chairman of Principal of Neuberger &
the Board, Berman; President and
Chief Executive Director of N&B Manage-
Officer, and ment; Chairman of the
Trustee of Board, Chief Executive
each Trust Officer and Trustee of
eight other mutual funds
for which N&B Management
acts as investment manager
or administrator.
Theodore P. Giuliano* (45) President and Principal of Neuberger &
Trustee of Berman; Vice President and
each Trust Director of N&B Manage-
ment; President and
Trustee of one other
mutual fund for which N&B
Management acts as
administrator.
- 43 -
<PAGE>
Positions
Name, Address Held With
and Age(1) the Trusts Principal Occupation(s)(2)
- -------------- ---------- --------------------------
Barry Hirsch (64) Trustee of Senior Vice President,
Loews Corporation each Trust Secretary, and General
667 Madison Avenue Counsel of Loews Corpora-
7th Floor tion (diversified finan-
New York, NY 10021 cial corporation).
Robert A. Kavesh (70) Trustee of Professor of Finance and
110 Bleecker Street each Trust Economics at Stern School
Apt. 24B of Business, New York
New York, NY 10012 University; 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,
San Diego, CA 92108 Inc. (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;
Principal of Head &
Company, LLC (limited
liability company
providing investment
banking and consulting
services to the insurance
industry) until March
1996; Director of Drake
Holdings (U.K. motor
insurer)until June 1996.
- 44 -
<PAGE>
Positions
Name, Address Held With
and Age(1) the Trusts Principal Occupation(s)(2)
- -------------- ---------- --------------------------
Daniel J. Sullivan (58) Vice Senior Vice President of
President of N&B Management since 1992;
each Trust prior thereto, Vice
President of N&B
Management; Vice President
of eight other mutual
funds for which N&B
Management acts as
investment manager or
administrator.
Michael J. Weiner (51) Vice Senior Vice President of
President and N&B Management since 1992;
Principal Treasurer of N&B
Financial Management from 1992 to
Officer of 1996; prior thereto, Vice
each Trust President and Treasurer of
Treasurer of N&B
Management and Treasurer
of certain mutual funds
for which N&B Management
acted as investment
adviser; Vice President
and Principal Financial
Officer of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
Claudia A. Brandon (41) Secretary of Vice President of N&B
each Trust Management; Secretary of
eight other mutual funds
for which N&B Management
acts as investment manager
or administrator.
- 45 -
<PAGE>
Positions
Name, Address Held With
and Age(1) the Trusts Principal Occupation(s)(2)
- -------------- ---------- --------------------------
Richard Russell (51) Treasurer Vice President of N&B Man-
and agement since 1993; prior
Principal thereto, Assistant Vice
Accounting President of N&B Manage-
Officer of ment; Treasurer and
each Trust Principal Accounting
Officer of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
Stacy Cooper-Shugrue (35) Assistant Assistant Vice President
Secretary of of N&B Management since
each Trust 1993; prior thereto,
employee of N&B
Management; Assistant
Secretary of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
C. Carl Randolph (60) Assistant Principal of Neuberger &
Secretary of Berman since 1992; prior
each Trust thereto, employee of
Neuberger & Berman;
Assistant Secretary of
eight other mutual funds
for which N&B Management
acts as investment manager
or administrator.
Barbara DiGiorgio (39) Assistant Assistant Vice President
Treasurer of of N&B Management since
each Trust 1993; prior thereto,
employee of N&B
Management; Assistant
Treasurer of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
- 46 -
<PAGE>
Positions
Name, Address Held With
and Age(1) the Trusts Principal Occupation(s)(2)
- -------------- ---------- --------------------------
Celeste Wischerth (37) Assistant Assistant Vice President
Treasurer of of N&B Management since
each Trust 1994; prior thereto,
employee of N&B
Management; Assistant
Treasurer of eight other
mutual funds for which
N&B Management acts as
investment manager or
administrator.
- --------------------
(1) Unless otherwise indicated, the business address of each listed person is
605 Third Avenue, New York, NY 10158.
(2) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.
* Indicates a trustee who is an "interested person" of each Trust
within the meaning of the 1940 Act. Messrs. Egener and Giuliano are interested
persons by virtue of the fact that they are officers and directors of N&B
Management and principals of Neuberger & Berman.
The Trust's Trust Instrument and Managers Trust's Declaration of Trust
provide that each such Trust will indemnify its trustees and officers against
liabilities and expenses reasonably incurred in connection with litigation in
which they may be involved because of their offices with the Trust, unless it is
adjudicated that they (a) engaged in bad faith, willful misfeasance, gross
negligence, or reckless disregard of the duties involved in the conduct of their
offices, or (b) did not act in good faith in the reasonable belief that their
action was in the best interest of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined (by a court
or other body approving the settlement or other disposition, or by a majority of
disinterested trustees based upon a review of readily available facts, or in a
written opinion of independent counsel) that such officers or trustees have not
engaged in willful misfeasance, bad faith, gross negligence, or reckless
disregard of their duties.
The following table sets forth information concerning the compensation
of the trustees and officers of the Trust. None of the Neuberger & Berman
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<PAGE>
Funds(Registered Trademark) 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
Trust 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
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)
At January 30, 1998, the trustees and officers of the Trust and
Managers Trust, as a group, owned beneficially or of record less than 1% of the
outstanding shares of each Fund.
- 48 -
<PAGE>
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
INVESTMENT MANAGER AND ADMINISTRATOR
- ------------------------------------
Because all of the Funds' net investable assets are invested in their
corresponding Portfolios, the Funds do not need an investment manager. N&B
Management serves as the Portfolios' investment manager pursuant to a management
agreement with Managers Trust, on behalf of the Portfolios, dated as of July 2,
1993 ("Management Agreement"). The Management Agreement was approved by the
holders of the interests in all the Portfolios (except for Neuberger & Berman
HIGH YIELD Bond Portfolio) on July 2, 1993. The Management Agreement was
approved by the holders of the interests in Neuberger & Berman High Yield Bond
Portfolio on March 2, 1998.
The Management Agreement provides, in substance, that N&B Management
will make and implement investment decisions for the Portfolios in its
discretion and will continuously develop an investment program for the
Portfolios' assets. The Management Agreement permits N&B Management to effect
securities transactions on behalf of each Portfolio through associated persons
of N&B Management. The Management Agreement also specifically permits N&B
Management to compensate, through higher commissions, brokers and dealers who
provide investment research and analysis to the Portfolios, although N&B
Management has no current plans to pay a material amount of such compensation.
N&B Management provides to each Portfolio, without separate cost,
office space, equipment, and facilities and the personnel necessary to perform
executive, administrative, and clerical functions. N&B Management pays all
salaries, expenses, and fees of the officers, trustees, and employees of
Managers Trust who are officers, directors, or employees of N&B Management. Two
officers and directors of N&B Management (who also are principals of Neuberger &
Berman) presently serve as trustees and officers of the Trusts. See "Trustees
and Officers." Each Portfolio pays N&B Management a management fee based on the
Portfolio's average daily net assets, as described in the Prospectus.
N&B Management provides similar facilities, services, and personnel to
each Fund pursuant to an administration agreement with the Trust, dated May 1,
1995 ("Administration Agreement"). For such administrative services, each Fund
pays N&B Management a fee based on the Fund's average daily net assets, as
described in the Prospectus. HIGH YIELD became subject to the Administration
Agreement on February 3, 1998.
Under the Administration Agreement, N&B Management also provides to
each Fund and its shareholders certain shareholder, shareholder-related, and
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<PAGE>
other services that are not furnished by the Fund's shareholder servicing agent.
N&B Management provides the direct shareholder services specified in the
Administration Agreement, assists the shareholder servicing agent in the
development and implementation of specified programs and systems to enhance
overall shareholder servicing capabilities, solicits and gathers shareholder
proxies, performs services connected with the qualification of each Fund's
shares for sale in various states, and furnishes other services the parties
agree from time to time should be provided under the Administration Agreement.
From time to time, N&B Management or a Fund may enter into arrangements with
registered broker-dealers or other third parties pursuant to which it pays the
broker-dealer or third party a per account fee or a fee based on a percentage of
the aggregate net asset value of Fund shares purchased by the broker-dealer or
third party on behalf of its customers, in payment for administrative and other
services rendered to such customers.
Each Fund (except HIGH YIELD) accrued management and administration
fees of the following amounts (before any reimbursement of the Funds, described
below) for the fiscal years ended October 31, 1997, 1996, and 1995:
1997 1996 1995
---- ---- ----
GOVERNMENT MONEY $1,703,377 $1,476,738 $1,521,937
CASH RESERVES $3,160,143 $2,425,550 $1,738,424
LIMITED MATURITY $1,275,694 $1,480,085 $1,522,574
As noted in the Prospectus under "Management and Administration --
Expenses," N&B Management has voluntarily undertaken to reimburse each Fund
other than GOVERNMENT MONEY for its Operating Expenses (including fees under the
Administration Agreement) and the Fund's pro rata share of the corresponding
Portfolio's Operating Expenses (including fees under the Management Agreement)
that exceed, in the aggregate, 0.65% per annum for CASH RESERVES; 0.70% per
annum for LIMITED MATURITY; and 1.00% for HIGH YIELD of that Fund's average
daily net assets. Operating Expenses exclude interest, taxes, brokerage
commissions, and extraordinary expenses. N&B Management can terminate each
undertaking by giving the Fund at least 60 days' prior written notice. For the
fiscal years ended October 31, 1997, 1996, and 1995, N&B Management reimbursed
the Funds the following amounts of expenses: (1) CASH RESERVES $0, $90,855 and
$109,113, respectively, and (2) LIMITED Maturity $20,974, $16,575, and $32,042,
respectively. HIGH YIELD has agreed to repay N&B Management through December 31,
1999 for excess Total Operating Expenses that N&B Management previously
reimbursed to the Fund.
- 50 -
<PAGE>
Prior to May 1, 1995, the shareholder services described above were
provided pursuant to a separate agreement between the Trust and N&B Management.
As compensation for these services, each Fund paid N&B Management a monthly fee
calculated at the annual rate of 0.02% of the average daily net assets of the
Fund. Before February 1, 1994, the monthly fee under the shareholder service
agreement then in effect was calculated at an annual rate of $6.00 per
shareholder account. For these services, each Fund paid and accrued the
following amounts for the period from November 1, 1994 to April 30, 1995:
November 1, 1994
to April 30, 1995
-----------------
GOVERNMENT MONEY $25,750
CASH RESERVES $31,746
LIMITED MATURITY $29,447
The Management Agreement continues with respect to each Portfolio for a
period of two years after the date the Portfolio became subject thereto. The
Management Agreement is renewable thereafter from year to year with respect to
each Portfolio, so long as its continuance is approved at least annually (1) by
the vote of a majority of the Portfolio Trustees who are not "interested
persons" of N&B Management or Managers Trust ("Independent Portfolio Trustees"),
cast in person at a meeting called for the purpose of voting on such approval,
and (2) by the vote of a majority of the Portfolio Trustees or by a 1940 Act
majority vote of the outstanding interests in that Portfolio. The Administration
Agreement continues with respect to each Fund for a period of two years after
the date the Fund became subject thereto. The Administration Agreement is
renewable from year to year with respect to a Fund, so long as its continuance
is approved at least annually (1) by the vote of a majority of the Fund Trustees
who are not "interested persons" of N&B Management or the Trust ("Independent
Fund Trustees"), cast in person at a meeting called for the purpose of voting on
such approval and (2) by the vote of a majority of the Fund Trustees or by a
1940 Act majority vote of the outstanding shares in that Fund.
The Management Agreement is terminable, without penalty, with respect
to a Portfolio on 60 days' written notice either by Managers Trust or by N&B
Management. The Administration Agreement is terminable, without penalty, with
respect to a Fund on 60 days' written notice either by N&B Management or by the
Trust. Each Agreement terminates automatically if it is assigned.
- 51 -
<PAGE>
SUB-ADVISER
- -----------
N&B Management retains Neuberger & Berman, 605 Third Avenue, New York,
NY 10158-3698, as sub-adviser with respect to each Portfolio pursuant to a
sub-advisory agreement dated July 2, 1993 ("Sub-Advisory Agreement"). The
Sub-Advisory Agreement was approved by the holders of the interests in the
Portfolios (except for Neuberger & Berman HIGH YIELD Bond Portfolio) on July 2,
1993. The Sub-Advisory Agreement was approved by the holders of the interests in
Neuberger & Berman HIGH YIELD Bond Portfolio on March 2, 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
addition to research from other professional sources, the capability of the
research staff of Neuberger & Berman. This staff consists of numerous investment
analysts, each of whom specializes in studying one or more industries, under the
supervision of the Director of Research, who is also available for consultation
with N&B Management. The Sub-Advisory Agreement provides that N&B Management
will pay for the services rendered by Neuberger & Berman based on the direct and
indirect costs to Neuberger & Berman in connection with those services.
Neuberger & Berman also serves as a sub-adviser for all of the other mutual
funds managed by N&B Management.
The Sub-Advisory Agreement continues with respect to each Portfolio for
a period of two years after the date the Portfolio became subject thereto, and
is renewable thereafter from year to year, subject to approval of its
continuance in the same manner as the Management Agreement. The Sub-Advisory
Agreement is subject to termination, without penalty, with respect to each
Portfolio by the Portfolio Trustees or a 1940 Act majority vote of the
outstanding interests in that Portfolio, by N&B Management, or by Neuberger &
Berman on not less than 30 nor more than 60 days' prior written notice to the
appropriate Fund. The Sub-Advisory Agreement also terminates automatically with
respect to each Portfolio if it is assigned or if the Management Agreement
terminates with respect to that Portfolio.
Most money managers that come to the Neuberger & Berman organization
have at least fifteen years experience. Neuberger & Berman and N&B Management
employ experienced professionals that work in a competitive environment.
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<PAGE>
INVESTMENT COMPANIES MANAGED
- ----------------------------
As of December 31, 1997, the investment companies managed by N&B
Management had aggregate net assets of approximately $20.7 billion. N&B
Management currently serves as investment manager of the following investment
companies:
NAME DECEMBER 31, 1997
---- -----------------
Neuberger & Berman Cash Reserves Portfolio.........................$ 662,861,352
(investment portfolio for Neuberger & Berman Cash Reserves)
Neuberger & Berman Government Money Portfolio......................$ 297,594,922
(investment portfolio for Neuberger & Berman Government Money Fund)
Neuberger & Berman Limited Maturity Bond Portfolio.................$ 294,956,156
(investment portfolio for Neuberger & Berman Limited Maturity
Bond Fund and Neuberger & Berman Limited Maturity Bond Trust)
Neuberger & Berman Municipal Money Portfolio.......................$ 166,832,901
(investment portfolio for Neuberger & Berman Municipal Money Fund)
Neuberger & Berman Municipal Securities Portfolio...................$ 32,970,458
(investment portfolio for Neuberger & Berman Municipal Securities Trust)
Neuberger & Berman Focus Portfolio...............................$ 1,530,971,078
(investment portfolio for Neuberger & Berman Focus Fund,
Neuberger & Berman Focus Trust, and Neuberger & Berman Focus Assets)
Neuberger & Berman Genesis Portfolio.............................$ 1,841,928,659
(investment portfolio for Neuberger & Berman Genesis Fund,
Neuberger & Berman Genesis Trust, and Neuberger & Berman Genesis Assets)
Neuberger & Berman Guardian Portfolio.......................... $ 8,328,032,611
(investment portfolio for Neuberger & Berman Guardian Fund,
Neuberger & Berman Guardian Trust, and Neuberger & Berman
Guardian Assets)
Neuberger & Berman International Portfolio.........................$ 111,718,206
(investment portfolio for Neuberger & Berman International Fund
and Neuberger & Berman International Trust)
Neuberger & Berman Manhattan Portfolio.............................$ 626,632,234
(investment portfolio for Neuberger & Berman Manhattan Fund,
Neuberger & Berman Manhattan Trust, and Neuberger & Berman
Manhattan Assets)
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<PAGE>
Neuberger & Berman Partners Portfolio............................$ 3,830,066,838
(investment portfolio for Neuberger & Berman Partners Fund,
Neuberger & Berman Partners Trust, and Neuberger & Berman Partners
Assets)
Neuberger & Berman Socially Responsive Portfolio...................$ 287,169,564
(investment portfolio for Neuberger & Berman Socially Responsive
Fund, Neuberger & Berman Trust and Neuberger & Berman NYCDC Socially
Responsive Trust)
Advisers Managers Trust (eight series)...........................$ 2,644,430,313
The investment decisions concerning the Portfolios and the other mutual
funds managed by N&B Management (collectively, "Other N&B Funds") have been and
will continue to be made independently of one another. In terms of their
investment objectives, most of the Other N&B Funds differ from the Portfolios.
Even where the investment objectives are similar, however, the methods used by
the Other N&B Funds and the Portfolios to achieve their objectives may differ.
The investment results achieved by all of the funds managed by N&B Management
have varied from one another in the past and are likely to vary in the future.
There may be occasions when a Portfolio and one or more of the Other
N&B Funds or other accounts managed by Neuberger & Berman are contemporaneously
engaged in purchasing or selling the same securities from or to third parties.
When this occurs, the transactions are averaged as to price and allocated, in
terms of amount, in accordance with a formula considered to be equitable to the
funds involved. Although in some cases this arrangement may have a detrimental
effect on the price or volume of the securities as to a Portfolio, in other
cases it is believed that a Portfolio's ability to participate in volume
transactions may produce better executions for it. In any case, it is the
judgment of the Portfolio Trustees that the desirability of the Portfolios'
having their advisory arrangements with N&B Management outweighs any
disadvantages that may result from contemporaneous transactions.
MANAGEMENT AND CONTROL OF N&B MANAGEMENT
- ----------------------------------------
The directors and officers of N&B Management, all of whom have offices
at the same address as N&B Management, are Richard A. Cantor, Chairman of the
Board and director; Stanley Egener, President and director; Theodore P.
Giuliano, Vice President and director; Michael M. Kassen, Vice President and
director; Irwin Lainoff, director; Lawrence Zicklin, director; Daniel J.
Sullivan, Senior Vice President; Peter E. Sundman, Senior Vice President;
Michael J. Weiner, Senior Vice President; Claudia A. Brandon, Vice President;
Patrick T. Byrne, Vice President; Brooke A. Cobb, Vice President; Robert W.
D'Alelio, Vice President; Roberta D'Orio, Vice President; Clara Del Villar, Vice
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<PAGE>
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;
Frederic 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; Ramesh Babu, Assistant Vice
President; 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; Robert L. Ladd, Assistant
Vice President; Carmen G. Martinez, Assistant Vice President; Joseph S. Quirk,
Assistant Vice President; Ingrid Saukaitis, Assistant Vice President; Josephine
Velez, Assistant Vice President; Celeste Wischerth, Assistant Vice President;
and Loraine Olavarria, Assistant Secretary. Messrs. Cantor, Egener, Gendelman,
Giuliano, Kassen, Lainoff, Zicklin, 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.
Russell, Sullivan and Weiner and Mmes. Brandon, Cooper-Shugrue, DiGiorgio and
Wischerth are officers, of each Trust. C. Carl Randolph, a principal of
Neuberger & Berman, also is an officer of each Trust.
All of the outstanding voting stock in N&B Management is owned by
persons who are also principals of Neuberger & Berman.
DISTRIBUTION ARRANGEMENTS
N&B Management serves as the distributor ("Distributor") in connection
with the offering of each Fund's shares on a no-load basis. In connection with
the sale of its shares, each Fund has authorized the Distributor to give only
the information, and to make only the statements and representations, contained
in the Prospectus and this SAI or that properly may be included in sales
literature and advertisements in accordance with the 1933 Act, the 1940 Act, and
applicable rules of self-regulatory organizations. Sales may be made only by the
Prospectus, which may be delivered personally, through the mails, or by
electronic means. The Distributor is the Funds' "principal underwriter" within
the meaning of the 1940 Act and, as such, acts as agent in arranging for the
sale of each Fund's shares without sales commission or other compensation and
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<PAGE>
bears all advertising and promotion expenses incurred in the sale of the Funds'
shares.
The Distributor or one of its affiliates may, from time to time, deem
it desirable to offer to shareholders of the Funds, through use of their
shareholder lists, the shares of other mutual funds for which the Distributor
acts as distributor or other products or services. Any such use of the Funds'
shareholder lists, however, will be made subject to terms and conditions, if
any, approved by a majority of the Independent Fund Trustees. These lists will
not be used to offer to the Funds' shareholders any investment products or
services other than those managed or distributed by N&B Management or Neuberger
& Berman.
The Trust, on behalf of each Fund, and the Distributor are parties to a
Distribution Agreement that continues until July 2, 1998. Neuberger & Berman
HIGH YIELD Bond Portfolio became a party to the Distribution Agreement on
February 3, 1998. 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 HIGH YIELD or LIMITED MATURITY each month. To do so, a shareholder
must complete an application, available from the Distributor, electing to have
automatic investments funded either through (1) redemptions from his or her
account in a money market fund for which N&B Management serves as investment
manager or (2) withdrawals from the shareholder's checking account. In either
case, the minimum monthly investment is $100. A shareholder who elects to
participate in automatic investing through his or her checking account must
include a voided check with the completed application. A completed application
should be sent to Neuberger & Berman Management Incorporated, 605 Third Avenue,
2nd Floor, New York, NY 10158-0180.
Automatic investing enables a shareholder in LIMITED MATURITY or HIGH
YIELD to take advantage of "dollar cost averaging." As a result of dollar cost
averaging, a shareholder's average cost of shares in those Funds generally would
be lower than if the shareholder purchased a fixed number of shares at the same
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<PAGE>
pre-set intervals. Additional information on dollar cost averaging may be
obtained from the Distributor.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus
entitled "Shareholder Services -- Exchange Privilege," shareholders may redeem
at least $1,000 worth of a Fund's shares and invest the proceeds in shares of
one or more of the 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 Funds, the Municipal Funds
are series of the Trust, (2) the Equity Funds are series of a Delaware business
trust (named "Neuberger & Berman Equity Funds") that is registered with the SEC
as an open-end management investment company, (3) each of the Equity and
Municipal Funds invests all of its net investable assets in a corresponding
portfolio that has an investment objective, policies, and limitations identical
to those of the fund.
EQUITY FUNDS
- ------------
Neuberger & Berman Seeks long-term capital appreciation through
Focus Fund investments principally Focus Fund in common
stocks selected from 13 multi-industry economic
sectors. The corresponding portfolio uses a
value-oriented approach to select individual
securities and then focuses its investments in
the sectors in which the undervalued stocks are
clustered. Through this approach, 90% or more of
the portfolio's investments are normally made in
not more than six sectors.
Neuberger & Berman Seeks capital appreciation through investments
Genesis Fund primarily in common stocks of companies with
small market capitalizations (i.e., up to $1.5
billion) at the time of the Portfolio's
investment. The corresponding portfolio uses a
value-oriented approach to the selection of
individual securities.
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<PAGE>
Neuberger & Berman Seeks capital appreciation through investments
Guardian Fund primarily in common stocks of long-established,
high-quality companies that N&B Management
believes are well-managed. The corresponding
portfolio uses a value-oriented approach to the
selection of individual securities. Current
income is a secondary objective. The fund (or its
predecessor) has paid its shareholders an income
dividend every quarter, and a capital gain
distribution every year, since its inception in
1950, although there can be no assurance that it
will be able to continue to do so.
Neuberger & Berman Seeks long-term capital appreciation through
International Fund investments primarily in a diversified portfolio
of equity securities of foreign issuers. Assets
will be allocated among economically mature
countries and emerging industrialized countries.
Neuberger & Berman Seeks capital appreciation, without regard to
Manhattan Fund income, through investments in securities of
small-, medium- and large-capitalization
companies (with a current focus on
medium-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.
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<PAGE>
Neuberger & Berman Seeks capital growth through an investment
Partners Fund approach that is designed to increase capital
with reasonable risk. Its investment program
seeks securities believed to be undervalued based
on strong fundamentals such as a low
price-to-earnings ratio, consistent cash flow,
and the company's track record through all parts
of the market cycle. The corresponding portfolio
uses the value-oriented investment approach to
the selection of individual securities.
Neuberger & Berman Seeks long-term capital appreciation through
Socially Responsive investments primarily in securities of companies
Fund that meet both financial and social criteria.
MUNICIPAL FUNDS
- ---------------
Neuberger & Berman A money market fund seeking the maximum current
Municipal Money Fund income exempt from federal income tax,
consistent with safety and liquidity. The
corresponding Portfolio invests in high quality,
short-term municipal securities. It seeks to
maintain a constant purchase and redemption price
of $1.00.
Neuberger & Berman Seeks high current tax-exempt income with low
Municipal Securities risk to principal, limited price fluctuation, and
Trust liquidity; and secondarily, total return. The
corresponding portfolio invests in investment
grade municipal securities. Maximum
dollar-weighted average duration of 10 years.
The Funds described herein, and any of the funds described above, may
terminate or modify their exchange privileges 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. The Municipal Funds share a prospectus with the Funds, while the
Equity Funds share a separate prospectus. An exchange is treated as a sale for
federal income tax purposes, and, depending on the circumstances, a short- or
long-term capital gain or loss may be realized.
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<PAGE>
There can be no assurance that CASH RESERVES, GOVERNMENT MONEY, or
Neuberger & Berman Municipal Money Fund, each of which is a money market fund
that seeks to maintain a constant purchase and redemption share price of $1.00,
will be able to maintain that price. An investment in any of the
above-referenced funds, as in any other mutual fund, is neither insured nor
guaranteed by the U.S. Government.
ADDITIONAL REDEMPTION INFORMATION
SUSPENSION OF REDEMPTIONS
- -------------------------
The right to redeem a Fund's shares may be suspended or payment of the
redemption price postponed (1) when the New York Stock Exchange ("NYSE") is
closed, (2) when trading on the NYSE is restricted, (3) when an emergency exists
as a result of which it is not reasonably practicable for its corresponding
Portfolio to dispose of securities it owns or fairly to determine the value of
its net assets, or (4) for such other period as the SEC may by order permit for
the protection of the Fund's shareholders. Applicable SEC rules and regulations
shall govern whether the conditions prescribed in (2) or (3) exist. If the right
of redemption is suspended, shareholders may withdraw their offers of
redemption, or they will receive payment at the NAV per share in effect at the
close of business on the first day the NYSE is open ("Business Day") after
termination of the suspension.
REDEMPTIONS IN KIND
- -------------------
LIMITED MATURITY and HIGH YIELD reserve the right, under certain
conditions, to honor any request for redemption (or a combination of requests
from the same shareholder in any 90-day period) exceeding $250,000 or 1% of the
net assets of the Fund, whichever is less, by making payment in whole or in part
in securities valued as described under "Share Prices and Net Asset Value" in
the Prospectus. GOVERNMENT MONEY and CASH RESERVES also reserve the right, under
certain conditions, to honor any request for redemption by making payment in
whole or in part in securities. If payment is made in securities, a shareholder
generally will incur brokerage expenses or other transaction costs in converting
those securities into cash and will be subject to fluctuation in the market
prices of those securities until they are sold. The Funds do not redeem in kind
under normal circumstances, but would do so when the Fund Trustees determined
that it was in the best interests of a Fund's shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders substantially all of its
share of any net investment income (after deducting expenses incurred directly
by the Fund), any net realized capital gains (both long-term and short-term),
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<PAGE>
and any net realized gains from foreign currency transactions earned or realized
by its corresponding Portfolio. A Portfolio's net investment income consists of
all income accrued on portfolio assets less accrued expenses but does not
include capital and foreign currency gains and losses. Net investment income and
net gains and losses are reflected in a Portfolio's NAV (and, hence, its
corresponding Fund's NAV) until they are distributed. GOVERNMENT MONEY and CASH
RESERVES calculate their net investment income and share price as of noon
(Eastern time) on each Business Day; the other Funds calculate their net
investment income and share price as of the close of regular trading on the NYSE
on each Business Day (usually 4 p.m. Eastern time).
Income dividends are declared daily; dividends declared for each month
are paid on the last Business Day of the month. Shares of GOVERNMENT MONEY and
CASH RESERVES begin earning income dividends on the Business Day the proceeds of
the purchase order are converted into "federal funds" and continue to earn
dividends through the Business Day before they are redeemed; shares of the other
Funds begin earning income dividends on the Business Day after the proceeds of
the purchase order have been converted to "federal funds" and continue to earn
dividends through the Business Day they are redeemed. Distributions of net
realized capital and foreign currency gains, if any, normally are paid once
annually, in December.
Dividends and other distributions are automatically reinvested in
additional shares of the distributing Fund, unless the shareholder elects to
receive them in cash ("cash election"). Shareholders may make a cash election on
the original account application or at a later date by writing to State Street
Bank and Trust Company ("State Street"), c/o Boston Service Center, P.O. Box
8403, Boston, MA 02266-8403. Cash distributions can be paid through an
electronic transfer to a bank account designated in the shareholder's original
account application. To the extent dividends and other distributions are subject
to federal, state, or local income taxation, they are taxable to the
shareholders whether received in cash or reinvested in Fund shares.
A cash election with respect to any Fund remains in effect until the
shareholder notifies State Street in writing to discontinue the election. If it
is determined, however, that the U.S. Postal Service cannot properly deliver
Fund mailings to the shareholder 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.
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<PAGE>
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, each Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and, for LIMITED MATURITY and HIGH YIELD,
net gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. With respect to
each Fund, these requirements include the following: (1) the Fund must derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from Hedging Instruments) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); 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.
The Funds (except for HIGH YIELD) 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 HIGH YIELD, N&B Management
believes the reasoning thereof and, hence, their conclusion apply to HIGH YIELD
as well.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its 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.
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<PAGE>
See the next section for a discussion of the tax consequences to HIGH
YIELD and LIMITED Maturity of distributions to them from their corresponding
Portfolios, investments by those Portfolios in certain securities, and hedging
and certain other transactions engaged in by their corresponding Portfolios.
TAXATION OF THE PORTFOLIOS
- --------------------------
The Portfolios (except for Neuberger & Berman HIGH YIELD Bond
Portfolio) have received rulings from the Service to the effect that, among
other things, each Portfolio will be treated as a separate partnership for
federal income tax purposes and will not be a "publicly traded partnership."
Although these rulings may not be relied upon as precedent by Neuberger & Berman
HIGH YIELD Bond Portfolio, N&B Management believes the reasoning thereof and,
hence, their conclusion apply to the Portfolio as well. As a result, no
Portfolio is subject to federal income tax; instead, each investor in a
Portfolio, such as a Fund, is required to take into account in determining its
federal income tax liability its share of the Portfolio's income, gains, losses,
deductions, credits, and tax preference items, without regard to whether it has
received any cash distributions from the Portfolio. Each Portfolio also is not
subject to Delaware or New York income or franchise tax.
Because each Fund is deemed to own a proportionate share of its
corresponding Portfolio's assets and income for purposes of determining whether
the Fund satisfies the requirements to qualify as a RIC, each Portfolio intends
to conduct its operations so that its corresponding Fund will be able to satisfy
all those requirements.
Distributions to a Fund from its corresponding Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, (3)
loss will be recognized if a liquidation distribution consists solely of cash
and/or unrealized receivables and (4) gain (and, in certain situations, loss)
may be recognized on an in-kind distribution by the Portfolio. A Fund's basis
for its interest in its corresponding Portfolio generally equals the amount of
cash and the basis of any property the Fund invests in the Portfolio, increased
by the Fund's share of the Portfolio's net income and capital gains and
decreased by (a) the amount of cash and the basis of any property the Portfolio
distributes to the Fund and (b) the Fund's share of the Portfolio's losses.
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<PAGE>
Dividends and interest received by a Portfolio and gains realized by a
Portfolio may be subject to income, withholding, or other taxes imposed by
foreign countries and U.S. possessions that would reduce the yield 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 Neuberger & Berman HIGH YIELD Bond Portfolio and Neuberger &
Berman LIMITED MATURITY Bond Portfolio of hedging strategies, such as writing
(selling) and purchasing Futures Contracts and options and entering into Forward
Contracts, involves complex rules that will determine for income tax purposes
the amount, character and timing of recognition of the gains and losses the
Portfolios realize in connection therewith. For each of these Portfolios, gains
from the disposition of foreign currencies (except certain gains that may be
excluded by future regulations), and gains from Hedging Instruments derived with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income for its corresponding Fund under the Income
Requirement.
Exchange-traded Futures Contracts, listed options thereon, and certain
Forward 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 a 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
non-corporate taxpayers' 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 of 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,
technical corrections legislation passed by the House of Representatives late in
1997 would clarify that the 20% rate applies.
Each of Neuberger & Berman CASH RESERVES Portfolio and Neuberger &
Berman LIMITED MATURITY Bond Portfolio may invest in municipal bonds that are
purchased with market discount (that is, at a price less than the bond's
principal amount or, in the case of a bond that was issued with OID, a price
less than the amount of the issue price plus accrued OID) ("municipal market
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<PAGE>
discount bonds"). If a bond's market discount is less than the product of (1)
0.25% of the redemption price at maturity times (2) the number of complete years
to maturity after the taxpayer acquired the bond, then no market discount is
considered to exist. Gain on the disposition of a municipal market discount bond
purchased by a Portfolio (other than a bond with a fixed maturity date within
one year from its issuance), generally is treated as ordinary (taxable) income,
rather than capital gain, to the extent of the bond's accrued market discount at
the time of disposition. Market discount on such a bond generally is accrued
ratably, on a daily basis, over the period from the acquisition date to the date
of maturity. In lieu of treating the disposition gain as above, a Portfolio may
elect to include market discount in its gross income currently, for each taxable
year to which it is attributable.
Each Portfolio may acquire zero coupon or other securities issued with
OID. Neuberger & Berman HIGH YIELD Bond Portfolio may also acquire pay-in-kind
securities which pay interest through the issuance of additional securities. As
a holder of those securities, each Portfolio (and, through it, its corresponding
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 each Fund annually must
distribute substantially all of its investment company taxable income (including
its share of its corresponding Portfolio's accrued OID and other non-cash
income) to satisfy the Distribution Requirement and to avoid imposition of the
Excise Tax, a Fund may be required in a particular year to distribute as a
dividend an amount that is greater than its share of the total amount of cash
its corresponding Portfolio actually receives. Those distributions will be made
from a Fund's (or its share of its corresponding Portfolio's) cash assets or, if
necessary, from the proceeds of sales of that Portfolio's securities. A
Portfolio may realize capital gains or losses from those sales, which would
increase or decrease its corresponding Fund's investment company taxable income
and/or net capital gain.
TAXATION OF THE FUNDS' SHAREHOLDERS
- ------------------------------------
If shares of HIGH YIELD or LIMITED MATURITY are sold at a loss after
being held for six months or less, the loss will be treated as long-term,
instead of short-term, capital loss to the extent of any capital gain
distributions received on those shares.
Each Fund is required to withhold 31% of all dividends and capital gain
distributions, and each of HIGH YIELD and LIMITED MATURITY is required to
withhold 31% of redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a correct taxpayer
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identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to such shareholders who otherwise are
subject to backup withholding.
As described under "How to Sell Shares" in the Prospectus, a Fund may
close a shareholder's account with the Fund and redeem the remaining shares if
the account balance falls below the specified minimum and the shareholder fails
to reestablish the minimum balance after being given the opportunity to do so.
If an account that is closed pursuant to the foregoing was maintained for an
individual retirement account ("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
and money purchase pension plan, section 401(k) plan, and section 403(b)(7)
account), the Fund's payment of the redemption proceeds may result in adverse
tax consequences for the accountholder. The accountholder should consult his or
her tax adviser regarding any such consequences.
VALUATION OF PORTFOLIO SECURITIES
Each of Neuberger & Berman GOVERNMENT MONEY Portfolio and Neuberger &
Berman CASH RESERVES Portfolio relies on Rule 2a-7 under the 1940 Act to use the
amortized cost method of valuation to enable its corresponding Fund to stabilize
the purchase and redemption price of its shares at $1.00 per share. This method
involves valuing portfolio securities at their cost at the time of purchase and
thereafter assuming a constant amortization (or accretion) to maturity of any
premium (or discount), regardless of the impact of interest rate fluctuations on
the market value of the securities. Although the Portfolios' reliance on Rule
2a-7 and use of the amortized cost valuation method should enable the Funds,
under most conditions, to maintain a stable $1.00 share price, there can be no
assurance they will be able to do so. An investment in either of these Funds, as
in any mutual fund, is neither insured nor guaranteed by the U.S. Government.
PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities generally are transacted
with issuers, underwriters, or dealers that serve as primary market-makers, who
act as principals for the securities on a net basis. The Portfolios typically do
not pay brokerage commissions for such purchases and sales. Instead, the price
paid for newly issued securities usually includes a concession or discount paid
by the issuer to the underwriter, and the prices quoted by market-makers reflect
a spread between the bid and the asked prices from which the dealer derives a
profit.
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<PAGE>
In purchasing and selling portfolio securities other than as described
above (for example, in the secondary market), each Portfolio seeks to obtain
best execution at the most favorable prices through responsible broker-dealers
and, in the case of agency transactions, at competitive commission rates. In
selecting broker-dealers to execute transactions, N&B Management considers such
factors as the price of the security, the rate of commission, the size and
difficulty of the order, and the reliability, integrity, financial condition,
and general execution and operational capabilities of competing broker-dealers.
N&B Management also may consider the brokerage and research services that
broker-dealers provide to the Portfolio or N&B Management. Under certain
conditions, a Portfolio may pay higher brokerage commissions in return for
brokerage and research services, although no Portfolio has a current arrangement
to do so. In any case, each Portfolio may effect principal transactions with a
dealer who furnishes research services, may designate any dealer to receive
selling concessions, discounts, or other allowances, or otherwise may deal with
any dealer in connection with the acquisition of securities in underwritings.
During the fiscal year ended October 31, 1997, Neuberger & Berman
LIMITED MATURITY Bond Portfolio acquired securities of the following of its
"regular brokers or dealers": Goldman, Sachs & Co. and Merrill Lynch, Pierce,
Fenner & Smith Inc. At October 31, 1997, that Portfolio held the securities of
its "regular brokers or dealers" with an aggregate value as follows: Goldman,
Sachs & Co., $5,211,285; Merrill Lynch, Pierce, Fenner & Smith Inc., $5,269,344.
During the fiscal year ended October 31, 1997, Neuberger & Berman CASH
RESERVES Portfolio acquired securities of the following of its "regular brokers
or dealers": Barclays De Zoete Wedd Securities Inc, Citicorp Securities, Inc.,
First Chicago Capital Markets Inc., Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Inc., Morgan (J.P.) Securities Inc., and Morgan Stanley, Dean
Witter, Discover & Co. At October 31, 1997, that Portfolio held the securities
of its "regular brokers or dealers" with an aggregate value as follows: First
Chicago Capital Markets, Inc., $15,870,167; Goldman, Sachs & Co., $29,862,704;
Merrill Lynch, Pierce, Fenner & Smith Inc., $4,997,617; Morgan (J.P.) Securities
Inc., $15,005,829; and Morgan Stanley, Dean Witter, Discover & Co., $24,000,000.
During the fiscal year ended October 31, 1997, Neuberger & Berman
GOVERNMENT MONEY Portfolio acquired none of the securities of its "regular
brokers or dealers." At October 31, 1997, that Portfolio held none of the
securities of its "regular brokers or dealers."
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No affiliate of any Portfolio receives give-ups or reciprocal business
in connection with its portfolio transactions. No Portfolio effects transactions
with or through broker-dealers in accordance with any formula or for selling
shares of any Fund. However, broker-dealers who execute portfolio transactions
may from time to time effect purchases of Fund shares for their customers. The
1940 Act generally prohibits Neuberger & Berman from acting as principal in the
purchase of portfolio securities from, or the sale of portfolio securities to, a
Portfolio unless an appropriate exemption is available.
PORTFOLIO TURNOVER
- ------------------
Neuberger & Berman HIGH YIELD Bond Portfolio and Neuberger & Berman
LIMITED MATURITY Bond Portfolio calculate their portfolio turnover rates 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 each Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors for the Fund and for its corresponding Portfolio. Each Fund's
statements show the investments owned by its corresponding Portfolio and the
market values thereof and provide other information about the Fund and its
operations, including the Fund's beneficial interest in its corresponding
Portfolio.
ORGANIZATION
The predecessors of the Funds (except for HIGH YIELD) were converted
into separate series of the Trust on July 2, 1993; these conversions were
approved by the shareholders of the Funds in April 1993.
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street, 225 Franklin Street,
Boston, MA 02110 as custodian for its securities and cash. State Street also
serves as each Fund's transfer and shareholder servicing agent, administering
purchases, redemptions, and transfers of Fund shares and the payment of
dividends and other distributions through its Boston Service Center. All
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correspondence should be mailed to Neuberger & Berman Funds, c/o Boston Service
Center, P.O. Box 8403, Boston, MA 02266-8403.
INDEPENDENT AUDITORS
Each Fund and Portfolio has selected Ernst & Young LLP, 200 Clarendon
Street, Boston, MA 02116, as the independent auditors who will audit its
financial statements.
LEGAL COUNSEL
Each Fund and Portfolio has selected Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as its legal
counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and percentage of
ownership of each person who was known by each Fund to own beneficially or of
record 5% or more of that Fund's outstanding shares at January 30, 1998:
Percentage of
NAME AND ADDRESS Ownership at
---------------- January 30, 1998
----------------
GOVERNMENT MONEY: Neuberger & Berman* 74.25%
- ---------------- 11 Broadway
New York, NY 10004
CASH RESERVES: Neuberger & Berman* 61.12%
- ------------- 11 Broadway
New York, NY 10004
LIMITED MATURITY: Charles Schwab & Co., Inc.* 27.17%
- ---------------- 101 Montgomery Street
San Francisco, CA 94104-4122
Nationwide Life Insurance Plan QPVA 9.59%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Neuberger & Berman Trust Co., The 5.44%
Neuberger & Berman Employees
Profit Sharing Plan Utd
5/20/71
Attn Al Boccardo
605 Third Ave
36th Floor
New York, NY 10158
- ---------------------------
<PAGE>
* Charles Schwab & Co., Inc. and Neuberger & Berman hold these shares of
record for the accounts of certain of their clients and have informed
the Funds of their policies to maintain the confidentiality of holdings
in their client accounts unless disclosure is expressly required by
law.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included
in the Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered by the Prospectus. The registration statement,
including the exhibits filed therewith, may be examined at the SEC's offices in
Washington, D.C. The SEC maintains a Website (http://www.sec.gov) that contains
this SAI, material incorporated by reference, and other information regarding
the Funds and Portfolios.
Statements contained in this SAI and in the Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of any contract or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The following financial statements and related documents are
incorporated herein by reference from the Funds' (except for HIGH YIELD) Annual
Report to Shareholders for the fiscal year ended October 31, 1997:
The Statements of Assets and Liabilities of the Funds and Portfolios,
including the Schedules of Investments of the Portfolios, as of October
31, 1997, and the related Statements of Operations for the year then
ended, the Statements of Changes in Net Assets for each of the two
years in the period then ended, the Financial Highlights for each of
the periods indicated therein, the notes to each of the foregoing for
the fiscal year ended October 31, 1997, and the reports of Ernst &
Young LLP, independent auditors, with respect to such audited financial
statements of Neuberger & Berman Government Money Fund and Portfolio,
Neuberger & Berman Cash Reserves and Portfolio, and Neuberger & Berman
Limited Maturity Bond Fund and Portfolio.
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