<PAGE>
Neuberger&Berman
INCOME TRUST
No-Load Bond Funds
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Neuberger&Berman ULTRA SHORT BOND TRUST(TRADEMARK)
Neuberger&Berman LIMITED MATURITY BOND TRUST(TRADEMARK)
You can buy, own, and sell Fund shares ONLY through an account
with a pension plan administrator, broker-dealer, or other institution
(each an "Institution") which provides accounting, recordkeeping and other
services to investors and which has an administrative services agreement
with Neuberger&Berman Management Incorporated ("N&B Management").
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EACH OF THE ABOVE-NAMED FUNDS (A "FUND") INVESTS ALL OF ITS NET
INVESTABLE ASSETS IN A CORRESPONDING PORTFOLIO (A "PORTFOLIO") OF INCOME
MANAGERS TRUST ("MANAGERS TRUST"), AN OPEN-END MANAGEMENT INVESTMENT
COMPANY MANAGED BY N&B MANAGEMENT. EACH PORTFOLIO INVESTS IN SECURITIES IN
ACCORDANCE WITH AN INVESTMENT OBJECTIVE, POLICIES, AND LIMITATIONS
IDENTICAL TO THOSE OF ITS CORRESPONDING FUND. THE INVESTMENT PERFORMANCE
OF EACH FUND DIRECTLY CORRESPONDS WITH THE INVESTMENT PERFORMANCE OF ITS
CORRESPONDING PORTFOLIO. THIS "MASTER/FEEDER FUND" STRUCTURE IS DIFFERENT
FROM THAT OF MANY OTHER INVESTMENT COMPANIES WHICH DIRECTLY ACQUIRE AND
MANAGE THEIR OWN PORTFOLIOS OF SECURITIES. FOR MORE INFORMATION ON THIS
UNIQUE STRUCTURE THAT YOU SHOULD CONSIDER, SEE "SUMMARY" ON PAGE AND
"SPECIAL INFORMATION REGARDING ORGANIZATION, CAPITALIZATION, AND OTHER
MATTERS" ON PAGE .
The Funds are no-load mutual funds, so there are no sales
commissions or other charges when buying or redeeming shares. The Funds do
not pay "12b-1 fees" to promote or distribute their shares. The Funds
declare income dividends daily and pay them monthly.
Please read this Prospectus before investing in either of the
Funds and keep it for future reference. It contains information about the
Funds that a prospective investor should know before investing. A
Statement of Additional Information ("SAI") about the Funds and
Portfolios, dated March 1, 1996, is on file with the Securities and
Exchange Commission. The SAI is incorporated herein by reference (so it is
legally considered a part of this Prospectus). You can obtain a free copy
of the SAI by calling N&B Management at 800-877-9700.
Prospectus Dated March 1, 1996
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Funds and Portfolios . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . 5
EXPENSE INFORMATION . . . . . . . . . . . . . . . . . . . . 5
Shareholder Transaction Expenses for Each Fund . . . . . . . 6
Annual Fund Operating Expenses . . . . . . . . . . . . . . . 6
Example . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . 8
Selected Per Share Data and Ratios . . . . . . . . . . . . . 8
Ultra Short Bond Trust . . . . . . . . . . . . . . . . . . . 8
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . 9
Limited Maturity Bond Trust . . . . . . . . . . . . . . . . 9
INVESTMENT PROGRAMS . . . . . . . . . . . . . . . . . . . . 11
Short-Term Trading; Portfolio Turnover . . . . . . . . . . . 12
Ratings of Securities . . . . . . . . . . . . . . . . . . . 12
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Investments . . . . . . . . . . . . . . . . . . . . . 13
Duration . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . 14
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Total Return . . . . . . . . . . . . . . . . . . . . . . . . 15
Yield and Total Return Information . . . . . . . . . . . . . 15
SPECIAL INFORMATION REGARDING ORGANIZATION,
CAPITALIZATION, AND OTHER MATTERS . . . . . . . . . . . . . 15
The Funds . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Portfolios . . . . . . . . . . . . . . . . . . . . . . . 16
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . 17
How to Buy Shares . . . . . . . . . . . . . . . . . . . . . 17
How to Sell Shares . . . . . . . . . . . . . . . . . . . . . 18
Exchanging Shares . . . . . . . . . . . . . . . . . . . . . 18
SHARE PRICES AND NET ASSET VALUE . . . . . . . . . . . . . . 19
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES . . . . . . . . . 19
Distribution Options . . . . . . . . . . . . . . . . . . . . 20
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
MANAGEMENT AND ADMINISTRATION . . . . . . . . . . . . . . . 21
Trustees and Officers . . . . . . . . . . . . . . . . . . . 21
Investment Manager, Administrator, Distributor, and
Sub-Adviser . . . . . . . . . . . . . . . . . . . . . . . . 21
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . 23
DESCRIPTION OF INVESTMENTS . . . . . . . . . . . . . . . . . 23
USE OF JOINT PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 27
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 28
DIRECTORY . . . . . . . . . . . . . . . . . . . . . . . . . 28
FUNDS ELIGIBLE FOR EXCHANGE . . . . . . . . . . . . . . . . 28
<PAGE>
SUMMARY
The Funds and Portfolios
------------------------
Each Fund is a series of Neuberger&Berman Income Trust (the
"Trust") and invests in a corresponding Portfolio that, in turn, invests
in securities in accordance with an investment objective, policies, and
limitations that are identical to those of the Fund. This is sometimes
called a master/feeder fund structure, because each Fund "feeds"
shareholders' investments into its corresponding Portfolio, a "master"
fund. The structure looks like this:
Shareholders
BUY SHARES IN
Funds
INVEST IN
Portfolios
INVEST IN
Debt Securities & Other Securities
The trustees who oversee the Funds believe that this structure
may benefit shareholders; investment in a Portfolio by investors in
addition to a Fund may enable the Portfolio to achieve economies of scale
that could reduce expenses. For more information about the organization of
the Funds and the Portfolios, including certain features of the
master/feeder fund structure, see "Special Information Regarding
Organization, Capitalization, and Other Matters" on page .
The following table is a summary highlighting features of the
Funds and their corresponding Portfolios. You may want to invest in one or
both of the Funds depending on your particular investment needs. Of
course, there can be no assurance that a Fund will meet its investment
objective.
<TABLE>
<CAPTION>
Neuberger&Berman Investment Principal Portfolio Comparative
Income Trust Objective Investments Information
----------------- ---------- -------------------- -----------
<S> <C> <C> <C>
Ultra Short Higher total return than is High-quality money market Lower expected price
available from money market instruments and short-term debt fluctuation; maximum average
funds, with minimal risk to securities of government and duration of two years
principal and liquidity non-government issuers
<PAGE>
Neuberger&Berman Investment Principal Portfolio Comparative
Income Trust Objective Investments Information
----------------- ---------- -------------------- -----------
Limited Maturity Highest current income Short- to intermediate-term More potential price
consistent with low risk to debt securities, primarily fluctuation; maximum average
principal and liquidity; and investment grade; maximum 10% duration of four years
secondarily, total return below Baa or BBB, but no lower
than B*
</TABLE>
* As rated by Moody's Investors Service, Inc. ("Moody's) or
Standard & Poor's ("S&P"), or if unrated, determined to be of
comparable quality.
Risk Factors
------------
An investment in either Fund involves certain risks, depending
upon the types of investments made by its corresponding Portfolio. The
Portfolios invest in fixed income securities, which are likely to decline
in value in times of rising market interest rates and to rise in value in
times of falling interest rates. In general, the longer the maturity of a
fixed income security, the more pronounced is the effect of a change in
interest rates on the value of the security. Special risk factors apply
to investments, which may be made by one or both Portfolios, in foreign
securities, options and futures contracts, zero coupon bonds, and debt
securities rated below investment grade. For more details about each
Portfolio, its investments and their risks, see "Investment Programs" on
page and "Description of Investments" on page .
Management
----------
N&B Management, with the assistance of Neuberger&Berman, L.P.
("Neuberger&Berman") as sub-adviser, selects investments for the
Portfolios. N&B Management also provides administrative services to the
Portfolios and the Funds and acts as distributor of Fund shares. See
"Management and Administration" on page 26. If you want to know how to buy
and sell shares of the Funds or exchange them for shares of other
Neuberger&Berman Funds(SERVICEMARK) made available through an Institution,
see "Shareholder Services -- How to Buy Shares" on page 21, "Shareholder
Services -- How to Sell Shares" on page 21, "Shareholder Services --
Exchanging Shares" on page 21, and the policies of the Institution through
which you are purchasing shares.
EXPENSE INFORMATION
This section gives you certain information about the expenses of
each Fund and its corresponding Portfolio. See "Performance Information"
for important facts about the investment performance of each Fund, after
taking expenses into account.
2
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Shareholder Transaction Expenses for Each Fund
----------------------------------------------
As shown by this table, there are no transaction charges when you
buy or sell Fund shares.
Sales Charge Imposed on Purchases NONE
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charges NONE
Redemption Fees NONE
Exchange Fees NONE
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
----------------------------------------------
The following table shows annual Total Operating Expenses for
each Fund, which are paid out of the assets of the Funds and which include
each Fund's pro rata portion of the Operating Expenses of its
corresponding Portfolio. These expenses are borne indirectly by Fund
shareholders. Each Fund pays N&B Management an administration fee based on
the Fund's average daily net assets. Each Portfolio pays N&B Management a
management fee, based on the Portfolio's average daily net assets; a pro
rata portion of this fee is borne indirectly by the corresponding Fund.
Therefore, the table combines management and administration fees. The
Funds and Portfolios also incur other expenses for things such as
accounting and legal fees, maintaining shareholder records, and furnishing
shareholder statements and Fund reports. "Operating Expenses" exclude
interest, taxes, brokerage commissions, and extraordinary expenses. The
Funds' expenses are factored into their share prices and dividends and are
not charged directly to Fund shareholders. For more information, see
"Management and Administration" and the SAI.
Management and
Neuberger&Berman Administration 12b-1 Other Total Operating
Income Trust Fees* Fees Expenses* Expenses*
--------------- -------------- ---- --------- ------------
ULTRA SHORT 0.00% None 0.75% 0.75%
LIMITED MATURITY 0.00% None 0.80% 0.80%
* (REFLECTS N&B MANAGEMENT'S EXPENSE REIMBURSEMENT UNDERTAKING
DESCRIBED BELOW)
Total Operating Expenses for each Fund are annualized projections
based upon current administration fees for the Fund and management fees
for its corresponding Portfolio, with "Other Expenses" based on each
Fund's and Portfolio's expenses for the past fiscal year. The trustees of
the Trust believe that the aggregate per share expenses of each Fund and
its corresponding Portfolio will be approximately equal to the expenses
the Fund would incur if its assets were invested directly in the type of
securities held by its corresponding Portfolio. The trustees of the Trust
also believe that investment in a Portfolio by investors in addition to a
Fund may enable the Portfolio to achieve economies of scale which could
3
<PAGE>
reduce expenses. The expenses, and accordingly, the returns of other funds
that may invest in the Portfolios may differ from those of the Funds.
The previous table reflects N&B Management's voluntary
undertaking until February 28, 1997, to reimburse each Fund for its
Operating Expenses and pro rata share of its corresponding Portfolio's
Operating Expenses which, in the aggregate, exceed the following
percentage per annum of the Fund's average daily net assets: Ultra Short,
0.75%; Limited Maturity, 0.80%. Each undertaking can be terminated by N&B
Management by giving a Fund at least 60 days' prior written notice. Absent
the reimbursement, Management and Administration Fees would be 0.76% and
0.82%, Other Expenses would be 1.74% and 1.36%, and Total Operating
Expenses would be 2.50% and 2.18% per annum of the average daily net
assets of Ultra Short and Limited Maturity, respectively, based upon the
expenses of each Fund for its 1995 fiscal year.
For more information about the current expense reimbursement
undertakings, see "Expenses" on page 25.
Example
-------
To illustrate the effect of Operating Expenses, let's assume that
each Fund's annual return is 5% and that it had Total Operating Expenses
described in the table above. For every $1,000 you invested in each Fund,
you would have paid the following amounts of total expenses if you closed
your account at the end of each of the following time periods:
Neuberger&Berman
Income Trust 1 year 3 years 5 years 10 years
---------------- ------ ------- ------- --------
ULTRA SHORT $8 $24 $42 $93
LIMITED MATURITY $8 $26 $44 $99
The assumption in this example of a 5% annual return is required
by regulations of the Securities and Exchange Commission applicable to all
mutual funds. The information in the table should not be considered a
representation of past or future expenses or rates of return; actual
expenses or returns may be greater or less than those shown, and may
change if expense reimbursements change.
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios
----------------------------------
The financial information in the following tables is for each
Fund as of October 31, 1995, and the prior periods. This information has
been audited by the Funds' independent auditors. You may obtain, at no
cost, further information about the performance of the Funds in their
annual report to shareholders. The annual report contains the auditors'
4
<PAGE>
reports. Please call 800-877-9700 for a free copy and up-to-date
information. Also, see "Performance Information."
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Ultra Short Bond Trust
----------------------
The following table includes selected data for a share
outstanding throughout each year and other performance information derived
from the Financial Statements. The per share amounts and ratios which are
shown reflect income and expenses, including the Fund's proportionate
share of its corresponding Portfolio's income and expenses. It should be
read in conjunction with its corresponding Portfolio's Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
Period from
September 7,
Year Ended 1993(1) to
October 31, October 31,
---------- ------------
1995 1994 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $9.79 $9.97 $10.00
Income From Investment Operations
Net Investment Income .53 .37 .05
Net Gains or Losses on Securities (both realized and
unrealized) .06 (.18) (.03)
Total From Investment Operations .59 .19 .02
Less Distributions
Dividends (from net investment income) (.53) (.37) (.05)
Net Asset Value, End of Year $9.85 $9.79 $9.97
Total Return* +6.15% +1.92% +0.17%(2)
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $1.7 $1.2 $0.2
Ratio of Expenses to Average Net Assets(3) .72% .65% .65%(4)
Ratio of Net Investment Income to Average Net Assets(3) 5.42% 3.86% 2.98%(4)
See Notes to Financial Highlights.
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
Neuberger&Berman
Limited Maturity Bond Trust
---------------------------
The following table includes selected data for a share
outstanding throughout each year and other performance
information derived from the Financial Statements. The per share
amounts and ratios which are shown reflect income and expenses,
including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction
with its corresponding Portfolio's Financial Statements and notes
thereto.
<TABLE>
<CAPTION>
Period from
Year Ended August 30, 1993(1) to
October 31, October 31,
----------- ----------------------
1995 1994 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $9.43 $9.97 $10.00
Income From Investment Operations
Net Investment Income .58 .54 .08
Net Gains or Losses on Securities (both realized
and unrealized) .18 (.54) (.03)
Total From Investment Operations .76 -- .05
Less Distributions
Dividends (from net investment income) (.58) (.54) (.08)
Net Asset Value, End of Year $9.61 $9.43 $9.97
Total Return* +8.36% -0.01% +0.55%(2)
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $11.9 $6.7 $0.1
Ratio of Expenses to Average Net Assets(3) .77% .70% .65%(4)
Ratio of Net Investment Income to Average Net Assets(3) 6.16% 5.72% 4.99%(4)
</TABLE>
See Notes to Financial Highlights.
6
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
1) The date investment operations commenced.
2) Not annualized.
3) After reimbursement of expenses by N&B Management. Had N&B Management
not undertaken such action the annualized ratios to average daily net
assets would have been:
Period from
Neuberger&Berman September 7,
Ultra Short Year Ended 1993
Bond Trust October 31, to October 31,
----------------- ----------- ---------------
1995 1994 1993
---- ---- ----
Expenses 2.50% 2.50% 2.50%
Net Investment Income 3.64% 2.01% 1.13%
Period from
Neuberger&Berman August 30, 1993
Limited Maturity Year Ended to
Bond Trust October 31, October 31,
---------------- ---------- -------------
1995 1994 1993
---- ---- ----
Expenses 2.18% 2.50% 2.50%
Net Investment Income 4.75% 3.92% 3.14%
4) Annualized.
5) Each Fund invests only in its corresponding Portfolio, and that
Portfolio, rather than the Fund, engages in securities transactions.
Therefore, neither Portfolio calculates a portfolio turnover rate.
The portfolio turnover rates for each Portfolio were as follows:
<TABLE>
<CAPTION>
Period from July 2,
1993 (Commencement
of Operations) to
Year Ended October 31, October 31,
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Neuberger&Berman Ultra Short Bond Portfolio 148% 94% 46%
Neuberger&Berman Limited Maturity Bond Portfolio 88% 102% 71%
</TABLE>
7
<PAGE>
* Total return based on per share net asset value reflects the effects
of changes in net asset value on the performance of each Fund during
each year or other fiscal period shown in the table and assumes
dividends and capital gain distributions, if any, were reinvested.
Results represent past performance and do not guarantee future
results. Investment returns and principal may fluctuate and shares
when redeemed may be worth more or less than original cost. Total
returns would have been lower if N&B Management had not reimbursed
certain expenses.
INVESTMENT PROGRAMS
The investment policies and limitations of each Fund and its
corresponding Portfolio are identical. Each Fund invests only in its
corresponding Portfolio. Therefore, the following shows you the kinds of
securities in which each Portfolio invests. For an explanation of some
types of investments, see "Description of Investments" on page .
Investment policies and limitations of the Funds and the Portfolios
are not fundamental unless otherwise specified in this Prospectus or the
SAI. While a non-fundamental policy or limitation may be changed by the
trustees of the Trust or of Managers Trust without shareholder approval,
the Funds intend to notify shareholders before making any material change
to such policies or limitations. Fundamental policies may not be changed
without shareholder approval.
The investment objectives of the Funds and Portfolios are not
fundamental. The Funds have undertaken not to change their investment
objectives without 30 days' prior notice to shareholders. There can be no
assurance that the Funds or Portfolios will achieve their objectives.
Each Fund, by itself, does not represent a comprehensive investment
program.
Additional investment techniques, features, and limitations
concerning the Portfolios' investment programs are described in the SAI.
The value of fixed income securities is likely to rise in times of
falling market interest rates and fall in times of rising interest rates.
Investments in shorter-term income securities normally are less affected
by interest rate changes than are investments in longer-term securities.
The value of income securities is also affected by changes in the
creditworthiness of the issuer.
The investment objective of Neuberger&Berman Ultra Short Bond Trust
and Portfolio is to provide a higher total return than is available from
money market funds, with minimal risk to principal and liquidity. The
investment objective of Neuberger&Berman Limited Maturity Bond Trust and
Portfolio is to provide the highest current income consistent with low
risk to principal and liquidity; and secondarily, total return.
8
<PAGE>
Each Portfolio invests in a diversified portfolio of fixed and
variable rate debt securities and seeks to increase income and preserve or
enhance total return by actively managing average portfolio duration in
light of market conditions and trends.
Neuberger&Berman Ultra Short Bond Portfolio invests in a diversified
portfolio of U.S. Government and Agency Securities and high-quality debt
securities issued by financial institutions, corporations, and others. The
Portfolio's dollar-weighted average duration will not exceed two years.
Securities in which the Portfolio may invest include mortgage-backed and
asset-backed securities, money market instruments, repurchase agreements
with respect to U.S. Government and Agency Securities, and U.S.
dollar-denominated securities of foreign issuers. The Portfolio may also
purchase and sell options, futures contracts and options on futures
contracts. The Portfolio may invest 25% or more of its total assets in
U.S. Government and Agency Securities or in certificates of deposit or
bankers' acceptances issued by domestic branches of U.S. banks.
Neuberger&Berman Limited Maturity Bond Portfolio invests in a
diversified portfolio consisting primarily of short- to intermediate-term
U.S. Government and Agency Securities and investment grade debt securities
issued by financial institutions, corporations, and others. The dollar-
weighted average duration of the Portfolio will not exceed four years.
The Portfolio's dollar-weighted average portfolio maturity may range up to
five years. Securities, in which the Portfolio may invest, include
mortgage-backed and asset-backed securities, repurchase agreements with
respect to U.S. Government and Agency Securities, and foreign investments.
The Portfolio may invest up to 10% of its net assets in fixed income
securities that are rated below investment grade but rated B or higher by
Moody's or Standard & Poor's (or, if unrated, determined by N&B Management
to be of comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Ratings of
Securities." The Portfolio may purchase and sell covered call and put
options, interest-rate futures contracts, and options on those futures
contracts and may lend portfolio securities. The Portfolio may invest up
to 5% of its net assets in municipal securities when N&B Management
believes such securities may outperform other available issues.
Short-Term Trading; Portfolio Turnover
--------------------------------------
Although neither Portfolio purchases securities with the intention
of profiting from short-term trading, each Portfolio may sell portfolio
securities prior to maturity when N&B Management believes that such action
is advisable. The portfolio turnover rates for the periods of
Neuberger&Berman Ultra Short Bond Portfolio and Neuberger&Berman Limited
Maturity Bond Portfolio for 1995 and earlier years are set forth under
"Notes to Financial Highlights." Turnover rates in excess of 100%
generally result in higher transaction costs (which are borne directly by
the Portfolio) and a possible increase in realized short-term capital
gains or losses.
9
<PAGE>
Ratings of Securities
---------------------
HIGH-QUALITY DEBT SECURITIES. High-quality debt securities are
securities that have received a rating from at least one nationally
recognized statistical rating organization ("NRSRO"), such as Standard &
Poor's ("S&P") or Moody's, in one of the two highest rating categories
(the highest category in the case of commercial paper) or, if not rated by
any NRSRO, such as U.S. Government and Agency Securities, have been
determined by N&B Management to be of comparable quality.
INVESTMENT GRADE DEBT SECURITIES. Investment grade debt securities
are securities that have received a rating from at least one NRSRO in one
of the four highest rating categories or, if not rated by any NRSRO, have
been determined by N&B Management to be of comparable quality. Moody's
deems securities rated in its fourth highest category (Baa) to have
speculative characteristics; a change in economic factors could lead to a
weakened capacity of the issuer to repay.
Neuberger&Berman Limited Maturity Bond Portfolio may invest up to 10%
of its assets in fixed income securities that are rated below investment
grade, i.e., rated below Baa by Moody's or BBB by S&P, but at least B (or,
if unrated, determined by N&B Management to be of comparable quality).
Securities rated below investment grade are described as "speculative" by
both Moody's and S&P. Securities rated B are judged to be predominantly
speculative with respect to their capacity to pay interest and repay
principal in accordance with the terms of the obligations. Changes in
economic conditions or developments regarding the individual issuer are
more likely to cause price volatility and weaken the capacity of the
issuer of such securities to make principal and interest payments than is
the case for higher grade debt securities. An economic downturn affecting
the issuer may result in an increased incidence of default. The market for
lower-rated securities may be thinner and less active than for higher-
rated securities. N&B Management seeks to reduce the risks associated with
investing in such securities by limiting the Portfolio's holdings in them
and by extensively analyzing the potential benefits of such an investment
in relation to the associated risks.
If the quality of securities held by a Portfolio deteriorates so that
the securities would no longer satisfy that Portfolio's standards, the
Portfolio will engage in an orderly disposition of the downgraded
securities to the extent necessary to ensure that the Portfolio's holdings
of such securities not exceed 5% of its net assets. Further information
regarding the ratings assigned to securities purchased by the Portfolios,
and the meanings of those ratings, is included in the SAI and the Funds'
annual report.
10
<PAGE>
Borrowings
----------
Each Portfolio has a fundamental policy that it may not borrow money,
except that it may (1) borrow money from banks for temporary or emergency
purposes and not for leveraging or investment and (2) enter into reverse
repurchase agreements for any purpose, so long as the aggregate amount of
borrowings and reverse repurchase agreements does not exceed one-third of
the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). Neither Portfolio expects to borrow
money. As a non-fundamental policy, neither Portfolio may purchase
portfolio securities if its outstanding borrowings, including reverse
repurchase agreements, exceed 5% of its total assets. Dollar rolls are
treated as reverse repurchase agreements.
Other Investments
-----------------
For temporary defensive purposes, each Portfolio may invest up to
100% of its total assets in cash or cash equivalents, commercial paper,
U.S. Government and Agency Securities and certain other money market
instruments, as well as repurchase agreements on U.S. Government and
Agency Securities, and may adopt shorter weighted average maturities or
durations than normal.
Duration
--------
Duration is a measure of the sensitivity of debt securities to
changes in market interest rates, based on the entire cash flow associated
with the securities, including interest payments occurring before the
final repayment of principal. N&B Management utilizes duration as a tool
in portfolio selection instead of the more traditional measure known as
"term to maturity." "Term to maturity" measures only the time until a debt
security provides its final payment, taking no account of the pattern of
the security's payments prior to maturity. Duration incorporates a bond's
yield, coupon interest payments, final maturity and call features into one
measure. Duration therefore provides a more accurate measurement of a
bond's likely price change in response to a given change in market
interest rates. The longer the duration, the greater the bond's price
movement will be as interest rates change. For any fixed income security
with interest payments occurring prior to the payment of principal,
duration is always less than maturity.
Futures, options and options on futures have durations which are
generally related to the duration of the securities underlying them.
Holding long futures or call option positions will lengthen a Fund's
duration by approximately the same amount as would holding an equivalent
amount of the underlying securities. Short futures or put options have
durations roughly equal to the negative duration of the securities that
underlie these positions, and have the effect of reducing portfolio
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<PAGE>
duration by approximately the same amount as would selling an equivalent
amount of the underlying securities.
There are some situations where even the standard duration
calculation does not properly reflect the interest rate exposure of a
security. For example, floating and variable rate securities often have
final maturities of ten or more years; however, their interest rate
exposure corresponds to the frequency of the coupon reset. Another
example where the interest rate exposure is not properly captured by
duration is the case of mortgage-backed securities. The stated final
maturity of such securities is generally 30 years, but current prepayment
rates are critical in determining the securities' interest rate exposure.
In these and other similar situations, N&B Management, where permitted,
will use more sophisticated analytical techniques that incorporate the
economic life of a security into the determination of its interest rate
exposure.
PERFORMANCE INFORMATION
The performance of the Funds can be measured as YIELD or as TOTAL
RETURN. The Portfolios invest in various kinds of fixed income securities,
so their performance is related to changes in interest rates. Generally,
investments in shorter-term income securities are less affected by
interest rate changes than are investments in longer-term income
securities. For this reason, longer-term bond funds usually have higher
yields and carry more risk than shorter-term bond funds. The
creditworthiness of issuers of income securities also affects their risk;
for example, U.S. Government and Agency Securities are generally
considered to have less risk than bonds rated "investment grade."
The table under "Summary -- The Funds and Portfolios" shows the
investment objective, principal types of investments, and comparative
information for each Fund and its corresponding Portfolio. This should
help you decide which Fund best fits your needs. For more detailed
information, see "Investment Programs" and "Description of Investments."
Further information regarding each Fund's performance is presented in its
annual report to shareholders, which is available without charge by
calling 800-877-9700.
Yield
-----
Yield refers to the income generated by an investment over a
particular period of time, which is annualized (assumed to have been
generated for one year) and expressed as an annual percentage rate.
EFFECTIVE YIELD is yield assuming that all distributions are reinvested.
12
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Total Return
------------
Total return is the change in value of an investment in a fund over a
particular period, assuming that all distributions have been reinvested.
Thus, total return reflects not only income earned, but also variations in
share prices from the beginning to the end of a period.
An average annual total return is a hypothetical rate of return that,
if achieved annually, would result in the same cumulative total return as
was actually achieved for the period. This smooths out year-to-year
variations in actual performance. Past results do not, of course,
guarantee future performance. Share prices may vary, and your shares when
redeemed may be worth more or less than your original purchase price.
Yield and Total Return Information
----------------------------------
You can obtain current performance information about each Fund by
calling N&B Management at 800-877-9700. N&B Management has reimbursed the
Funds for certain expenses, which has the effect of increasing their
yields and total returns.
SPECIAL INFORMATION REGARDING ORGANIZATION,
CAPITALIZATION, AND OTHER MATTERS
The Funds
---------
Each Fund is a separate series of the Trust, a Delaware business
trust organized pursuant to a Trust Instrument dated as of May 6, 1993.
The Trust is registered under the Investment Company Act of 1940 (the
"1940 Act") as a diversified, open-end management investment company,
commonly known as a mutual fund. The Trust has two separate series. Each
Fund invests all of its net investable assets in its corresponding
Portfolio, in each case receiving a beneficial interest in that Portfolio.
The trustees of the Trust may establish additional series or classes of
shares without the approval of shareholders. The assets of each series
belong only to that series, and the liabilities of each series are borne
solely by that series and no other.
DESCRIPTION OF SHARES. Each Fund is authorized to issue an unlimited
number of shares of beneficial interest (par value $0.001 per share).
Shares of each Fund represent equal proportionate interests in the assets
of that Fund only and have identical voting, dividend, redemption,
liquidation, and other rights. All shares issued are fully paid and
non-assessable, and shareholders have no preemptive or other right to
subscribe to any additional shares.
SHAREHOLDER MEETINGS. The trustees of the Trust do not intend to hold
annual meetings of shareholders of the Funds. The trustees will call
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<PAGE>
special meetings of shareholders of a Fund only if required under the 1940
Act or in their discretion or upon the written request of holders of 10%
or more of the outstanding shares of that Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the
shareholders of a Fund will not be personally liable for the obligations
of any Fund; a shareholder is entitled to the same limitation of personal
liability extended to shareholders of corporations. To guard against the
risk that Delaware law might not be applied in other states, the Trust
Instrument requires that every written obligation of the Trust or a Fund
contain a statement that such obligation may be enforced only against the
assets of the Trust or Fund and provides for indemnification out of Trust
or Fund property of any shareholder nevertheless held personally liable
for Trust or Fund obligations, respectively.
The Portfolios
--------------
Each Portfolio is a separate series of Managers Trust, a New York
common law trust organized as of December 1, 1992. Managers Trust is
registered under the 1940 Act as a diversified, open-end management
investment company. Managers Trust has seven separate operating
portfolios. The assets of each Portfolio belong only to that Portfolio,
and the liabilities of each Portfolio are borne solely by that Portfolio
and no other.
FUNDS' INVESTMENTS IN PORTFOLIOS. Each Fund is a "feeder fund" that
seeks to achieve its investment objective by investing all of its net
investable assets in its corresponding Portfolio, which is a "master
fund." The Portfolio, which has the same investment objective, policies,
and limitations as the Fund, in turn invests in securities; its
corresponding Fund thus acquires an indirect interest in those securities.
Historically, N&B Management, which is the administrator of each Fund and
the investment manager of each Portfolio, has sponsored, with
Neuberger&Berman, traditionally structured funds since 1950. However, it
has operated 12 master funds and 20 feeder funds since August 1993 and now
operates 21 master funds and 28 feeder funds. This "master/feeder fund"
structure is depicted in the "Summary" on page .
Each Fund's investment in its corresponding Portfolio is in the form
of a non-transferable beneficial interest. Members of the general public
may not purchase a direct interest in a Portfolio. Two mutual funds that
are series of Neuberger&Berman Income Funds ("N&B Income Funds"),
Neuberger&Berman Ultra Short Bond Fund and Neuberger&Berman Limited
Maturity Bond Fund, invest all of their respective net investable assets
in the two Portfolios described herein. The shares of each series of N&B
Income Funds are available for purchase by members of the general public.
Each Portfolio may also permit other investment companies and/or other
institutional investors to invest in the Portfolio. All investors will
invest in a Portfolio on the same terms and conditions as a Fund and will
pay a proportionate share of the Portfolio's expenses. The Trust does not
14
<PAGE>
sell its shares directly to members of the general public. Other investors
in a Portfolio (including the series of N&B Income Funds) that might sell
shares to members of the general public are not required to sell their
shares at the same public offering price as a Fund, could have a different
administration fee and expenses than a Fund, and (except N&B Income Funds)
might charge a sales commission. Therefore, Fund shareholders may have
different returns than shareholders in another investment company that
invests exclusively in the Portfolio. Information regarding any fund that
may invest in a Portfolio in the future will be available from N&B
Management by calling 800-877-9700.
The trustees of the Trust believe that investment in a Portfolio by a
series of N&B Income Funds or other potential investors in addition to a
Fund may enable the Portfolio to realize economies of scale that could
reduce its operating expenses, thereby producing higher returns and
benefitting all shareholders. However, a Fund's investment in its
corresponding Portfolio may be affected by the actions of other large
investors in the Portfolio, if any. For example, if a large investor in a
Portfolio (other than a Fund) redeemed its interest in the Portfolio, the
Portfolio's remaining investors (including the Fund) might, as a result,
experience higher pro rata operating expenses, thereby producing lower
returns.
Each Fund may withdraw its entire investment from its corresponding
Portfolio at any time, if the trustees of the Trust determine that it is
in the best interests of the Fund and its shareholders to do so. A Fund
might withdraw, for example, if there were other investors in a Portfolio
with power to, and who did by a vote of all investors (including the
Fund), change the investment objective, policies, or limitations of the
Portfolio in a manner not acceptable to the trustees of the Trust. A
withdrawal could result in a distribution in kind of securities (as
opposed to a cash distribution) by the Portfolio. That distribution could
result in a less diversified portfolio of investments for the Fund and
could affect adversely the liquidity of the Fund's investment portfolio.
If the Fund decided to convert those securities to cash, it usually would
incur brokerage fees or other transaction costs. If a Fund withdrew its
investment from a Portfolio, the trustees would consider what action might
be taken, including the investment of all of the Fund's net investable
assets in another pooled investment entity having substantially the same
investment objective as the Fund or the retention by the Fund of its own
investment manager to manage its assets in accordance with its investment
objective, policies, and limitations. The inability of the Fund to find a
suitable replacement could have a significant impact on shareholders.
INVESTOR MEETINGS AND VOTING. Each Portfolio normally will not hold
meetings of investors except as required by the 1940 Act. Each investor in
a Portfolio will be entitled to vote in proportion to its relative
beneficial interest in the Portfolio. On most issues subjected to a vote
of investors, as required by the 1940 Act and other applicable law, a Fund
will solicit proxies from its shareholders and will vote its interest in
the Portfolio in proportion to the votes cast by the Fund's shareholders.
If there are other investors in a Portfolio, there can be no assurance
15
<PAGE>
that any issue that receives a majority of the votes cast by Fund
shareholders will receive a majority of votes cast by all Portfolio
investors; indeed, if other investors hold a majority interest in a
Portfolio, they could have voting control of the Portfolio.
CERTAIN PROVISIONS. Each investor in a Portfolio, including a Fund,
will be liable for all obligations of the Portfolio. However, the risk of
an investor in a Portfolio incurring financial loss on account of such
liability would be limited to circumstances in which the Portfolio had
inadequate insurance and was unable to meet its obligations out of its
assets. Upon liquidation of a Portfolio, investors would be entitled to
share pro rata in the net assets of the Portfolio available for
distribution to investors.
SHAREHOLDER SERVICES
How to Buy Shares
-----------------
You can buy and own Fund shares only through an account with an
Institution which provides accounting, recordkeeping, and other services
to investors and which has an administrative services agreement with N&B
Management. N&B Management and the Funds do not recommend, endorse, or
receive payments from any Institution. N&B Management compensates
Institutions for services they provide under an administrative services
agreement. N&B Management does not provide investment advice to any
Institution or its clients or make decisions regarding their investments.
Each Institution will establish its own procedures for the purchase
of Fund shares in its account, including minimum initial and additional
investments for shares of each Fund and the acceptable methods of payment
for shares. Shares are purchased at the next price calculated on a day the
New York Stock Exchange ("NYSE") is open, after a purchase order is
received and accepted by an Institution. Prices for Fund shares are
usually calculated as of 4 p.m. Eastern time. Your Institution may be
closed on days when the NYSE is open. As a result, prices for Fund shares
may be significantly affected on days when you have no access to your
Institution to buy shares. The Funds will not issue a certificate for your
shares.
Other Information:
. An Institution must pay for shares it purchases in U.S. dollars.
. Each Fund has the right to suspend the offering of its shares for
a period of time. Each Fund also has the right to accept or
reject a purchase order in its sole discretion, including certain
purchase orders through an exchange of shares. See "Shareholder
Services -- Exchanging Shares."
16
<PAGE>
How to Sell Shares
------------------
You can sell (redeem) all or some of your Fund shares only through an
account with an Institution. Each Institution will establish its own
procedures for the sale of Fund shares. Shares are sold at the next price
calculated on a day the NYSE is open, after a sales order is received and
accepted by an Institution. Prices for Fund shares are usually calculated
as of 4 p.m. Eastern time. Your Institution may be closed on days when the
NYSE is open. As a result, prices for Fund shares may be significantly
affected on days when you have no access to your Institution to sell
shares.
Each Fund has reserved the right, if conditions exist which make cash
payments undesirable, to honor any request for a redemption by making
payments in securities valued in the same way as they would be valued for
purposes of computing that Fund's net asset value per share. If payment is
made in securities, an Institution 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.
Other Information:
. Redemption proceeds will be paid to Institutions as agreed with
each Fund but in any case within three calendar days (under
unusual circumstances a Fund may take longer, as permitted by
law).
. Each Fund may suspend redemptions or postpone payments on days
when the NYSE is closed (besides weekends and holidays), when
trading on the NYSE is restricted, or as permitted by the
Securities and Exchange Commission.
Exchanging Shares
-----------------
Through an account with an Institution, you may be able to exchange
shares of a Fund for shares of another Neuberger & Berman Fund. Each
Institution will establish its own exchange policy and procedures for its
accounts. Shares are exchanged at the next price calculated on a day the
NYSE is open, after the exchange order is received and accepted by an
Institution.
. Shares can be exchanged only between accounts registered in the
same name, address, and taxpayer ID number of the Institution.
. An exchange can be made only into a mutual fund whose shares are
eligible for sale in the state where the Institution is located.
. An exchange may have tax consequences.
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<PAGE>
. Each Fund may refuse any exchange orders from any Institution if
for any reason they are not deemed to be in the best interests of
the Fund and its shareholders.
. Each Fund may impose other restrictions on the exchange
privilege, or modify or terminate the privilege, but will try to
give each Institution advance notice whenever it can reasonably
do so.
SHARE PRICES AND NET ASSET VALUE
Each Fund's shares are bought or sold at a price that is the Fund's
net asset value ("NAV") per share. The NAVs for each Fund and its
corresponding Portfolio are calculated by subtracting liabilities from
total assets (in the case of a Portfolio, the market value of the
securities the Portfolio holds plus cash and other assets; in the case of
a Fund, its percentage interest in its corresponding Portfolio, multiplied
by the Portfolio's NAV, plus any other assets). Each Fund's per share NAV
is calculated by dividing its NAV by the number of Fund shares outstanding
and rounding the result to the nearest full cent. Each Fund and its
corresponding Portfolio calculate their NAVs as of the close of regular
trading on the NYSE, usually 4 p.m. Eastern time, on each day the NYSE is
open.
Each Portfolio values its securities on the basis of bid quotations
from independent pricing services or principal market makers, or, if
quotations are not available, by a method that the trustees of Managers
Trust believe accurately reflects fair value. The Portfolios periodically
verify valuations provided by the pricing services. Short-term securities
with remaining maturities of less than 60 days are valued at cost which,
when combined with interest earned, approximates market value.
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES
Each Fund distributes substantially all of its share of any net
investment income (net of the Fund's expenses) and net realized capital
gains earned by its corresponding Portfolio. Income dividends are declared
daily for each Fund at the time its NAV is calculated and are paid
monthly, and net realized capital gains, if any, are normally distributed
annually in December. Investors who are considering the purchase of Fund
shares in December should take this into account because of the tax
consequences of such distributions. Income dividends will accrue beginning
on the day after an investor's purchase order is converted to "federal
funds."
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<PAGE>
Distribution Options
--------------------
REINVESTMENT IN SHARES. All dividends and other distributions, paid
on shares of a Fund are automatically reinvested in additional shares of
that Fund, unless an Institution elects to receive them in cash. Dividends
are reinvested at the Fund's per share NAV on the last business day of
each month. Each other distribution is reinvested at the Fund's per share
NAV, usually as of the date the distribution is payable.
DISTRIBUTIONS IN CASH. An Institution may elect to receive dividends
in cash, with other distributions being reinvested in additional Fund
shares, or to receive all dividends and other distributions in cash.
Taxes
Each Fund intends to continue to qualify for treatment as a regulated
investment company for federal income tax purposes so that it will be
relieved of federal income tax on that part of its taxable income and
realized gains that it distributes to its shareholders.
An investment has certain tax consequences, depending on the type of
account and the type of Fund in which you invest. If you have an account
under a qualified retirement plan or an individual retirement account,
taxes are deferred.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income
tax and may also be subject to state and local income taxes. Distributions
are taxable when they are paid, whether in cash or by reinvestment in
additional Fund shares, except that distributions declared in December to
shareholders of record on a date in that month and paid in the following
January are taxable as if they were paid on December 31 of the year in
which the distributions were declared.
For federal income tax purposes, income dividends and distributions
of net short-term capital gain are taxed as ordinary income. Distributions
of net capital gain (the excess of net long-term capital gain over net
short-term capital loss), when designated as such, are generally taxed as
long-term capital gain no matter how long you have owned your shares.
Distributions of net capital gain may include gains from the sale of
portfolio securities that appreciated in value before you bought your
shares.
Every January, each Fund will send each Institution that is a
shareholder therein a statement showing the amount of distributions paid
in the previous year. Information accompanying that statement shows the
portion of those distributions that generally are not taxable in certain
states.
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<PAGE>
TAXES ON REDEMPTIONS. Capital gains realized on redemption of Fund
shares, including redemptions in connection with exchanges to other
Neuberger&Berman Funds , are subject to tax. A capital gain (or loss) is
the difference between the amount paid for shares (including the amount of
any dividends and other distributions that were reinvested) and the amount
received when shares are sold.
When an Institution sells shares, it will receive a confirmation
statement showing the number of shares sold and the price. Every January,
Institutions will also receive a consolidated transaction statement for
the previous year.
Each Institution annually will send investors in its accounts
statements showing distribution and transaction information for the
previous year.
The foregoing is only a summary of some of the important tax
considerations affecting each Fund and its shareholders. See the SAI for
additional tax information. There may be other federal, state, local, or
foreign tax considerations applicable to a particular investor. Therefore,
investors should consult their tax advisers.
MANAGEMENT AND ADMINISTRATION
Trustees and Officers
---------------------
The trustees of the Trust and the trustees of Managers Trust, who are
currently the same individuals, have oversight responsibility for the
operations of each Fund and each Portfolio, respectively. The SAI contains
general background information about each trustee and officer of the Trust
and of Managers Trust. The trustees and officers of the Trust and of
Managers Trust who are officers and/or directors of N&B Management and/or
partners of Neuberger&Berman serve without compensation from the Funds or
the Portfolios. The trustees of the Trust and of Managers Trust, including
a majority of those trustees who are not "interested persons" (as defined
in the 1940 Act) of any Fund, have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest between the Trust
and Managers Trust, including, if necessary, creating a separate board of
trustees of Managers Trust.
Investment Manager, Administrator, Distributor, and Sub-Adviser
---------------------------------------------------------------
N&B Management serves as the investment manager of each Portfolio, as
administrator of each Fund, and as distributor of the shares of each Fund.
N&B Management and its predecessor firms have specialized in the
management of no-load mutual funds since 1950. In addition to serving the
two Portfolios, N&B Management currently serves as investment manager of
other mutual funds. Neuberger&Berman, which acts as sub-adviser for the
Portfolios and other mutual funds managed by N&B Management, also serves
20
<PAGE>
as investment adviser of three other investment companies. The mutual
funds managed by N&B Management and Neuberger&Berman had aggregate net
assets of approximately $11.9 billion as of December 31, 1995.
As sub-adviser, Neuberger&Berman furnishes N&B Management with
investment recommendations and research without added cost to the
Portfolios. Neuberger&Berman is a member firm of the NYSE and other
principal exchanges and may act as the Portfolios' principal broker to the
extent that a broker is used in the purchase and sale of portfolio
securities and the sale of covered call options. Neuberger&Berman and its
affiliates, including N&B Management, manage securities accounts that had
approximately $38.7 billion of assets as of December 31, 1995. All of the
voting stock of N&B Management is owned by individuals who are general
partners of Neuberger&Berman.
Theresa A. Havell, the President and a Trustee of the Trust and of
Managers Trust, is a general partner of Neuberger&Berman and a director
and Vice President of N&B Management. Ms. Havell is the Manager of the
Fixed Income Group of Neuberger&Berman, which she established in 1984. The
Fixed Income Group manages fixed income accounts that had approximately
$11.1 billion of assets as of December 31, 1995. Ms. Havell has had
overall responsibility for the activities of the Fixed Income Group since
1984.
The following members of the Fixed Income Group are, along with
Theresa Havell, primarily responsible for the day-to-day management of the
listed Portfolios:
Neuberger&Berman Ultra Short Bond Portfolio -- Josephine P. Mahaney.
Ms. Mahaney, who has been a Senior Portfolio Manager in the Fixed Income
Group since 1984, and a Vice President of N&B Management since
November 1994, has been primarily responsible for Neuberger&Berman Ultra
Short Bond Portfolio since July 2, 1993. She was an Assistant Vice
President of N&B Management from 1986 to 1994.
Neuberger&Berman Limited Maturity Bond Portfolio -- Thomas G. Wolfe.
Mr. Wolfe has been primarily responsible for Neuberger&Berman Limited
Maturity Bond Portfolio since October 1, 1995. He has been a Senior
Portfolio Manager in the Fixed Income Group since July 1993, Director of
Fixed Income Credit Research since July 1993 and a Vice President of N&B
Management since October 1995. From November 1987 to June 1993, he was
Vice President in the Corporate Finance Department of Standard & Poor's.
The partners and employees of Neuberger&Berman and officers and
employees of N&B Management, together with their families, have invested
over $100 million of their own money in Neuberger&Berman Funds.
To mitigate the possibility that a Portfolio will be adversely
affected by employees' personal trading, the Trust, Managers Trust, N&B
Management, and Neuberger&Berman have adopted policies that restrict
securities trading in the personal accounts of portfolio managers and
21
<PAGE>
others who normally come into possession of information on portfolio
transactions.
Expenses
--------
N&B Management provides investment management services to each
Portfolio that include, among other things, making and implementing
investment decisions and providing facilities and personnel necessary to
operate the Portfolio. N&B Management provides administrative services to
each Fund that include furnishing similar facilities and personnel for the
Fund and performing accounting, recordkeeping, and other services for
Institutions and their accounts. For such administrative services, each
Fund pays N&B Management a fee at the annual rate of 0.50% of that Fund's
average daily net assets. With a Fund's consent, N&B Management may
subcontract to third parties, including Institutions, some of its
responsibilities to that Fund under the administration agreement and may
compensate third parties that provide such services. For investment
management services, each Portfolio pays N&B Management a fee at the
annual rate of 0.25% of the first $500 million of that Portfolio's average
daily net assets, 0.225% of the next $500 million, 0.20% of the next
$500 million, 0.175% of the next $500 million, and 0.15% of average daily
net assets in excess of $2 billion. During the fiscal year ended
October 31, 1995, each Fund accrued administration fees, and a pro rata
portion of the corresponding Portfolio's management fees, of 0.75% of the
Fund's average daily net assets.
See "Expense Information -- Annual Fund Operating Expenses" for
anticipated fees for the current fiscal year.
Each Fund bears all expenses of its operations other than those borne
by N&B Management as administrator of the Fund and as distributor of its
shares. Each Portfolio bears all expenses of its operations other than
those borne by N&B Management as investment manager of the Portfolio.
These expenses include, but are not limited to, for the Funds and
Portfolios, legal and accounting fees and compensation for trustees who
are not affiliated with N&B Management; for the Funds, transfer agent fees
and the cost of printing and sending reports and proxy materials to
shareholders; and for the Portfolios, custodial fees for securities.
N&B Management has voluntarily undertaken until February 28, 1997, to
reimburse each Fund for its Operating Expenses (including its
administration fees) and its pro rata share of its corresponding
Portfolio's Operating Expenses (including its management fees) that
exceed, in the aggregate, the following percentage per annum of the Fund's
average daily net assets:
Neuberger&Berman Ultra Short Bond Trust 0.75%
Neuberger&Berman Limited Maturity Bond Trust 0.80%
Each undertaking can be terminated by N&B Management by giving a Fund
at least 60 days' prior written notice, and will terminate on February 28,
22
<PAGE>
1997 if not extended by N&B Management. The effect of reimbursement by
N&B Management is to reduce a Fund's expenses and thereby increase its
total return.
For the fiscal year ended October 31, 1995, each Fund bore Total
Operating Expenses as a percentage of its average daily net assets (after
taking into consideration N&B Management's expense reimbursement for each
Fund), as follows:
Neuberger&Berman Ultra Short Bond Trust 0.72%
Neuberger&Berman Limited Maturity Bond Trust 0.77%
Transfer Agent
--------------
The Funds' transfer agent is State Street Bank and Trust Company
("State Street"). State Street administers purchases, redemptions, and
transfers of Fund shares with respect to Institutions and the payment of
dividends and other distributions to Institutions. All correspondence
should be sent to Neuberger&Berman Funds, Institutional Services,
605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
DESCRIPTION OF INVESTMENTS
In addition to the securities referred to in "Investment Programs"
herein, each Portfolio, as indicated below, may make the following
investments, among others, individually or in combination, although it may
not necessarily buy all of the types of securities or use all of the
investment techniques that are described. For additional information on
the following investments or other types of investments which the
Portfolios may make, see the SAI.
U.S. GOVERNMENT AND AGENCY SECURITIES. U.S. Government securities are
obligations of the U.S. Treasury backed by the full faith and credit of
the United States. U.S. Government Agency Securities are issued or
guaranteed by U.S. Government agencies or instrumentalities; by other U.S.
Government-sponsored enterprises, such as the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC"), Student Loan Marketing
Association, and Tennessee Valley Authority; and by various federally
chartered or sponsored banks. Some U.S. Government Agency Securities are
supported by the full faith and credit of the United States, while others
may be supported by the issuer's ability to borrow from the U.S. Treasury,
subject to the Treasury's discretion in certain cases, or only by the
credit of the issuer. U.S. Government Agency Securities include U.S.
Government mortgage-backed securities. The market prices of U.S.
Government securities are not guaranteed by the Government and generally
fluctuate with changing interest rates.
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<PAGE>
VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate
securities have interest rate adjustment formulas that may help to
stabilize their market value. Many of these instruments carry a demand
feature which permits a Portfolio to sell them during a determined time
period at par value plus accrued interest. The demand feature is often
backed by a credit instrument, such as a letter of credit, or by a
creditworthy insurer. A Portfolio may rely on the credit instrument or the
creditworthiness of the insurer in purchasing a variable or floating rate
security. For purposes of determining its dollar-weighted average
maturity, each Portfolio calculates the remaining maturity of variable and
floating rate instruments as provided in Rule 2a-7 under the 1940 Act.
REPURCHASE AGREEMENTS/SECURITIES LOANS. In a repurchase agreement, a
Portfolio buys a security from a Federal Reserve member bank or a
securities dealer and simultaneously agrees to sell it back at a higher
price, at a specified date, usually less than a week later. The underlying
securities must fall within the Portfolio's investment policies and
limitations (but not limitations as to maturity or duration). The
Portfolios also may lend portfolio securities to banks, brokerage firms or
institutional investors to earn income. Costs, delays, or losses could
result if the selling party to a repurchase agreement or the borrower of
portfolio securities becomes bankrupt or otherwise defaults. N&B
Management monitors the creditworthiness of sellers and borrowers.
ILLIQUID SECURITIES. Each Portfolio may invest up to 10% of its net
assets in illiquid securities which are securities that cannot be expected
to be sold within seven days at approximately the price at which they are
valued. Due to the absence of an active trading market, a Portfolio may
experience difficulty in valuing or disposing of illiquid securities. N&B
Management determines the liquidity of the Portfolios' securities, under
general supervision of the trustees of Managers Trust. Securities that are
freely tradeable in their country of origin or in their principal market
are not considered illiquid securities even if they are not registered for
sale in the U.S.
RESTRICTED SECURITIES AND RULE 144A SECURITIES. Each Portfolio may
invest in restricted securities and Rule 144A securities. Restricted
securities cannot be sold to the public without registration under the
Securities Act of 1933 ("1933 Act"). Unless registered for sale, these
securities can be sold only in privately negotiated transactions or
pursuant to an exemption from registration. Restricted securities are
generally considered illiquid. Rule 144A securities, although not
registered, may be resold to qualified institutional buyers in accordance
with Rule 144A under the 1933 Act. Unregistered securities may also be
sold abroad pursuant to Regulation S under the 1933 Act. N&B Management,
acting pursuant to guidelines established by the trustees of Managers
Trust, may determine that some restricted securities are liquid.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse
repurchase agreement, a Portfolio sells securities to a bank or securities
dealer and simultaneously agrees to repurchase the same securities at an
agreed upon price on a specific date. During the period before the
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<PAGE>
repurchase, the Portfolio continues to receive principal and interest
payments on the securities. A Portfolio will maintain a segregated account
consisting of cash or high-grade, liquid debt obligations to cover its
obligations under reverse repurchase agreements. Dollar rolls are similar
to reverse repurchase agreements. In a dollar roll, a Portfolio sells
securities for delivery in the current month and simultaneously contracts
to repurchase substantially similar (same type and coupon) securities on a
specified future date from the same party. During the period before the
repurchase, the Portfolio forgoes principal and interest payments on the
securities. The Portfolio is compensated by the difference between the
current sales price and the forward price for the future purchase (often
referred to as the "drop"), as well as by the interest earned on the cash
proceeds of the initial sale. Reverse repurchase agreements and dollar
rolls may increase the fluctuation in the market value of a Portfolio's
assets and are a form of leverage. N&B Management monitors the
creditworthiness of parties to reverse repurchase agreements and dollar
rolls.
WHEN-ISSUED TRANSACTIONS. In a when-issued transaction, a Portfolio
commits to purchase securities at a future date (generally within three
months) in order to secure an advantageous price and yield at the time of
the commitment and pays for the securities when they are delivered. If the
seller fails to complete the sale, a Portfolio may lose the opportunity to
obtain a favorable price and yield. When-issued securities may decline or
increase in value during the period from the Portfolio's investment
commitment to the settlement of the purchase, which may magnify
fluctuations in a Portfolio's and its corresponding Fund's NAVs.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent
interests in, or are secured by and payable from, pools of mortgage loans,
including collateralized mortgage obligations. These securities include
U.S. Government mortgage-backed securities, which are issued or guaranteed
by a U.S. Government agency or instrumentality (though not necessarily
backed by the full faith and credit of the United States), such as GNMA,
FNMA, and FHLMC certificates. Other mortgage-backed securities are issued
by private issuers, generally originators of and investors in mortgage
loans. These issuers include savings associations, mortgage bankers,
commercial banks, investment bankers, and special purpose entities.
Private mortgage-backed securities may be supported by U.S. Government
mortgage-backed securities or some form of non-governmental credit
enhancement. Mortgage-backed securities may have either fixed or
adjustable interest rates. Tax or regulatory changes may adversely affect
the mortgage securities market. In addition, changes in the market's
perception of the issuer may affect the value of mortgage-backed
securities. The rate of return on mortgage-backed securities may be
affected by prepayments of principal on the underlying loans, which
generally increase as market interest rates decline; as a result, when
interest rates decline, holders of these securities normally do not
benefit from appreciation in market value to the same extent as holders of
other non-callable debt securities. N&B Management determines the
effective life of mortgage-backed securities based on industry practice
and current market conditions. If N&B Management's determination is not
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<PAGE>
borne out in practice, it could positively or negatively affect the value
of the Portfolio when market interest rates change. Increasing market
interest rates generally extend the effective maturities of
mortgage-backed securities.
ASSET-BACKED SECURITIES. Asset-backed securities represent interests
in, or are secured by and payable from, pools of assets, such as consumer
loans, CARS ("Certificates for Automobile Receivables"), credit card
receivables, and installment loan contracts. Although these securities may
be supported by letters of credit or other credit enhancements, payment of
interest and principal ultimately depends upon individuals paying the
underlying loans, which may be affected adversely by general downturns in
the economy. The risk that recovery on repossessed collateral might be
unavailable or inadequate to support payments on asset-backed securities
is greater than in the case of mortgage-backed securities.
FOREIGN INVESTMENTS. The Portfolios may invest in U.S.
dollar-denominated foreign securities. Foreign securities may be affected
by political or economic developments in foreign countries, the investment
significance of which may be difficult to discern. Foreign companies may
not be subject to accounting standards or governmental supervision
comparable to U.S. companies, and there may be less public information
about their operations. In addition, foreign markets may be less liquid or
more volatile than U.S. markets and may offer less protection to
investors. It may be difficult to invoke legal process abroad.
Neuberger&Berman Limited Maturity Bond Portfolio may invest in foreign
securities denominated in or indexed to foreign currencies. Such
securities may also be affected by special risks, such as governmental
regulation of foreign exchange transactions and the fluctuation of the
foreign currencies relative to the U.S. dollar which could result in
losses, irrespective of the performance of the underlying investment. N&B
Management considers these factors in making investments for the
Portfolio. Neuberger&Berman Limited Maturity Bond Portfolio may enter into
forward foreign currency contracts or futures contracts (agreements to
exchange one currency for another at a specified price at a future date)
and related options to manage currency risks and to facilitate
transactions in foreign securities. Although these contracts can protect
the Portfolio from adverse exchange rate changes, they involve a risk of
loss if N&B Management fails to predict foreign currency values correctly;
see the discussion of Hedging Instruments, below.
PUT AND CALL OPTIONS, FUTURES CONTRACTS, AND OPTIONS ON FUTURES
CONTRACTS. Each Portfolio may try to reduce the risk of securities price
changes (hedge) or manage portfolio duration by (1) entering into
interest-rate futures contracts traded on futures exchanges and
(2) purchasing and writing options on futures contracts. Neuberger&Berman
Limited Maturity Bond Portfolio also may write covered call options and
purchase put options on debt securities in its portfolio or on foreign
currencies for hedging purposes or for the purpose of producing income.
Neuberger&Berman Limited Maturity Bond Portfolio will write a call option
on a security or currency only if it holds that security or currency or
has the right to obtain the security or currency at no additional cost.
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<PAGE>
These investment practices involve certain risks, including price
volatility and a high degree of leverage. The Portfolios may engage in
transactions in futures contracts and related options only as permitted by
regulations of the Commodity Futures Trading Commission.
The primary risks in using put and call options, futures contracts,
options on futures contracts, forward foreign currency contracts or
options on foreign currencies ("Hedging Instruments") are (1) imperfect
correlation or no correlation between changes in market value of the
securities held by a Portfolio and the prices of Hedging Instruments;
(2) possible lack of a liquid secondary market for Hedging Instruments and
the resulting inability to close out Hedging Instruments when desired;
(3) the fact that the skills needed to use Hedging Instruments are
different from those needed to select a Portfolio's securities; and
(4) the fact that, although use of these instruments for hedging purposes
can reduce the risk of loss, they also can reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
hedged investments. When a Portfolio uses Hedging Instruments, the
Portfolio will place cash or high-grade, liquid debt securities in a
segregated account to the extent required by SEC staff policy. Another
risk of Hedging Instruments is the possible inability of a Portfolio to
purchase or sell a security at a time that would otherwise be favorable
for it to do so, or the possible need for a Portfolio to sell a security
at a disadvantageous time, due to its need to maintain "cover" or to
segregate securities in connection with its use of these instruments.
Futures, options, and forward contracts are considered "derivatives."
Losses that may arise from certain futures transactions are potentially
unlimited.
MUNICIPAL OBLIGATIONS (NEUBERGER&BERMAN LIMITED MATURITY BOND
PORTFOLIO). Municipal obligations are issued by or on behalf of states,
the District of Columbia, and U.S. territories and possessions and their
political subdivisions, agencies, and instrumentalities. The interest on
municipal obligations is exempt from federal income tax. Municipal
obligations include "general obligation" securities, which are backed by
the full taxing power of a municipality, and "revenue" securities, which
are backed by the full taxing power of a municipality, and "revenue"
securities, and "revenue" securities, which are backed by the income from
a specific project, facility, or tax. Municipal obligations also include
industrial development and other private activity bonds -- the interest on
which may be a tax preference item for purposes of the federal alternative
minimum tax -- which are issued by or on behalf of public authorities and
are not backed by the credit of any governmental or public authority.
"Anticipation notes" are issued by municipalities in expectation of future
proceeds from the issuance of bonds, or from taxes or other revenues, and
are payable from those bond proceeds, taxes, or revenues. Municipal
obligations also include tax-exempt commercial paper, which is issued by
municipalities to help finance short-term capital or operating
requirements. Current efforts to restructure the federal budget and the
relationship between the federal government and state and local
governments may adversely impact the financing of some issuers of
municipal securities. Some states and localities are experiencing
27
<PAGE>
substantial deficits and may find it difficult for political or economic
reasons to increase taxes. Efforts are underway that may result in a
"flat tax" or other restructuring of the federal income tax system. These
developments could reduce the value of all municipal securities or the
securities of particular issuers.
ZERO COUPON SECURITIES. Zero coupon securities do not pay interest
currently; instead, they are sold at a deep discount from their face value
and are redeemed at face value when they mature. Because zero coupon
securities do not pay current income, their prices can be very volatile
when interest rates change. In calculating their daily income, the
Portfolios accrue a portion of the difference between a zero coupon
security's purchase price and its face value.
USE OF JOINT PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
---------------------------------------------------------------
Each Fund and its corresponding Portfolio acknowledges that it is
solely responsible for all information or lack of information about that
Fund and Portfolio in this Prospectus or in the SAI, and no other Fund or
Portfolio is responsible therefor. The trustees of the Trust and of
Managers Trust have considered this factor in approving each Fund's use of
a single combined Prospectus and combined SAI.
28
<PAGE>
OTHER INFORMATION
DIRECTORY FUNDS ELIGIBLE FOR EXCHANGE
Investment Manager, Administrator, Equity Trust
and Distributor
Neuberger&Berman Neuberger&Berman
Management Incorporated Focus Trust
605 Third Avenue, 2nd Floor
New York, NY 10158-0180 Neuberger&Berman
Genesis Trust
Sub-Adviser
Neuberger&Berman, L.P. Neuberger&Berman
605 Third Avenue Guardian Trust
New York, NY 10158-3698
Neuberger&Berman
Custodian and Transfer Agent Manhattan Trust
State Street Bank and Trust Company
225 Franklin Street Neuberger&Berman
Boston, MA 02110 Partners Trust
Address correspondence to: Equity Assets
Neuberger&Berman Funds Neuberger&Berman Socially
Institutional Services Responsive Trust
605 Third Avenue
2nd Floor Income Trust
New York, NY 10158-0180 Neuberger&Berman
800-877-9700 Limited Maturity Bond Trust
Legal Counsel Neuberger&Berman
Kirkpatrick & Lockhart LLP Ultra Short Bond Trust
1800 Massachusetts Avenue, NW, 2nd
Floor
Washington, DC 20036-1800
Neuberger&Berman, Neuberger&Berman Management Inc., and the above named
Funds are service marks of Neuberger&Berman Management Inc.
(COPYRIGHT)1996 Neuberger&Berman Management Inc.
29
<PAGE>
_________________________________________________________________
NEUBERGER & BERMAN INCOME TRUST AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 1996
Neuberger & Berman Neuberger & Berman
Ultra Short Bond Trust Limited Maturity Bond Trust
(and Neuberger & Berman (and Neuberger & Berman
Ultra Short Bond Limited Maturity Bond
Portfolio) Portfolio)
No-Load Mutual Funds
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
_________________________________________________________________
Neuberger & Berman Ultra Short Bond Trust ("Ultra Short") and
Neuberger & Berman Limited Maturity Bond Trust ("Limited Maturity") (each
a "Fund") are no-load mutual funds that offer shares pursuant to a
Prospectus dated March 1, 1996. The above-named Funds invest all of their
net investable assets in Neuberger & Berman Ultra Short Bond Portfolio and
Neuberger & Berman Limited Maturity Bond Portfolio (each a "Portfolio"),
respectively.
An investor can buy, own, and sell Fund shares ONLY through an
account with a broker-dealer, pension plan administrator, or other
institution (each an "Institution") that provides accounting,
recordkeeping, and other services to investors and that has an
administrative services agreement with Neuberger & Berman Management
Incorporated ("N&B Management").
The Funds' Prospectus provides basic information that an investor
should know before investing. A copy of the Prospectus may be obtained,
without charge, from N&B Management, Institutional Services, 605 Third
Avenue, 2nd Floor, New York, NY 10158-0180 or by calling 800-877-9700.
This Statement of Additional Information ("SAI") is not a
prospectus and should be read in conjunction with the Prospectus.
No person has been authorized to give any information or to make
any representations not contained in the Prospectus or in this SAI in
connection with the offering made by the Prospectus, and, if given or
made, such information or representations must not be relied upon as
having been authorized by a Fund or its distributor. The Prospectus and
this SAI do not constitute an offering by a Fund or its distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
Table of Contents
Page
INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Policies and Limitations . . . . . . . . . . . . . . 1
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . 5
Theresa A. Havell and Josephine P. Mahaney: Co-Portfolio
Managers of Neuberger & Berman Ultra Short Bond Portfolio . 5
Additional Investment Information . . . . . . . . . . . . . . . 7
Risks of Fixed Income Securities . . . . . . . . . . . . . . . . 26
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 26
Yield Calculations . . . . . . . . . . . . . . . . . . . . . . . 26
Total Return Computations . . . . . . . . . . . . . . . . . . . 26
Comparative Information . . . . . . . . . . . . . . . . . . . . 28
Other Performance Information . . . . . . . . . . . . . . . . . 29
CERTAIN RISK CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 30
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 30
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES . . . . . . . . . . 36
Investment Manager and Administrator . . . . . . . . . . . . . . 36
Sub-Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Investment Companies Managed . . . . . . . . . . . . . . . . . . 39
Management and Control of N&B Management . . . . . . . . . . . . 42
DISTRIBUTION ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . 42
ADDITIONAL EXCHANGE INFORMATION . . . . . . . . . . . . . . . . . . . 43
ADDITIONAL REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . 45
DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . . 46
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . 46
Taxation of the Funds . . . . . . . . . . . . . . . . . . . . . 46
Taxation of the Portfolios . . . . . . . . . . . . . . . . . . . 47
Taxation of the Funds' Shareholders . . . . . . . . . . . . . . 50
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 50
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . 52
REPORTS TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 52
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . 52
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INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . 52
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . 52
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . 54
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 54
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
RATINGS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 55
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER . . . . . . . . . . . . . 58
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INVESTMENT INFORMATION
Each Fund is a separate series of Neuberger & Berman Income Trust
("Trust"), a Delaware business trust that is registered with the
Securities and Exchange Commission ("SEC") as an open-end management
investment company. Each Fund seeks its investment objective by investing
all of its net investable assets in a Portfolio of Income Managers Trust
("Managers Trust") that has an investment objective identical to, and a
name similar to, that of the Fund. Each Portfolio, in turn, invests in
accordance with an investment objective, policies, and limitations
identical to those of its corresponding Fund. (The Trust and Managers
Trust, which is an open-end management investment company managed by N&B
Management, are together referred to below as the "Trusts.")
The following information supplements the discussion in the
Prospectus of the investment objective, policies, and limitations of each
Fund and Portfolio. The investment objective and, unless otherwise
specified, the investment policies and limitations of each Fund and
Portfolio are not fundamental. Although any investment policy or
limitation that is not fundamental may be changed by the trustees of the
Trust ("Fund Trustees") or of Managers Trust ("Portfolio Trustees")
without shareholder approval, each Fund intends to notify its shareholders
before changing its investment objective or implementing any material
change in any non-fundamental policy or limitation. The fundamental
investment policies and limitations of a Fund or a Portfolio may not be
changed without the approval of the lesser of (1) 67% of the total units
of beneficial interest ("shares") of the Fund or Portfolio represented at
a meeting at which more than 50% of the outstanding Fund or Portfolio
shares are represented or (2) a majority of the outstanding shares of the
Fund or Portfolio. This vote is required by the Investment Company Act of
1940 ("1940 Act") and is referred to in this SAI as a "1940 Act majority
vote." Whenever a Fund is called upon to vote on a change in a
fundamental investment policy or limitation of its corresponding
Portfolio, the Fund casts its votes thereon in proportion to the votes of
its shareholders at a meeting thereof called for that purpose.
Investment Policies and Limitations
-----------------------------------
Each Fund has the following fundamental investment policy, to
enable it to invest in its corresponding Portfolio:
Notwithstanding any other investment policy of the Fund, the Fund
may invest all of its investable assets (cash, securities, and
receivables relating to securities) in an open-end management
investment company having substantially the same investment
objective, policies, and limitations as the Fund.
All other fundamental investment policies and limitations and the
non-fundamental investment policies and limitations of each Fund and its
corresponding Portfolio are identical. Therefore, although the following
- 1 -
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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
particular industries, N&B Management identifies the "issuer" of a
municipal obligation which is not a general obligation note or bond by the
obligation's characteristics. The most significant of these character-
istics is the source of funds for the payment of principal and interest on
the obligation. If an obligation is backed by an irrevocable letter of
credit or other guarantee, without which the obligation would not qualify
for purchase under a Portfolio's quality restrictions, the issuer of the
letter of credit or the guarantee is considered an issuer of the
obligation. If an obligation meets Neuberger & Berman Limited Maturity
Bond Portfolio's quality restrictions without credit support, the
Portfolio treats the commercial developer or the industrial user, rather
than the governmental entity or the guarantor, as the only issuer of the
obligation, even if the obligation is backed by a letter of credit or
other guarantee.
Except for the limitation on borrowing and the limitation on
ownership of portfolio securities by officers and trustees, any investment
policy or limitation that involves a maximum percentage of securities or
assets will not be considered to be violated unless the percentage
limitation is exceeded immediately after, and because of, a transaction by
a Portfolio.
The Portfolios' fundamental investment policies and limitations
are as follows:
1. Borrowing. Neither Portfolio may borrow money, except that a
Portfolio may (i) borrow money from banks for temporary or emergency
purposes and not for leveraging or investment and (ii) enter into reverse
repurchase 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. Neither Portfolio may 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.
3. Diversification. Neither Portfolio may, with respect to 75%
of the value of its total assets, purchase the securities of any issuer
(other than securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities ("U.S. Government and Agency
- 2 -
<PAGE>
Securities")) if, as a result, (i) more than 5% of the value of the
Portfolio's total assets would be invested in the securities of that
issuer or (ii) the Portfolio would hold more than 10% of the outstanding
voting securities of that issuer.
4. Industry Concentration. Neither Portfolio may 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 Ultra Short Bond Portfolio in
certificates of deposit ("CDs") or banker's acceptances issued by domestic
branches of U.S. banks. Mortgage- and asset-backed securities are
considered to be a single industry.
5. Lending. 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 Securities Act of 1933 ("1933 Act").
The Portfolios' non-fundamental investment policies and
limitations are as follows:
1. Investments in Any One Issuer. Neuberger & Berman Ultra Short
Bond Portfolio may not purchase the securities of any one issuer (other
than securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities) if, as a result, more than 5% of the
Portfolio's total assets would be invested in the securities of that
issuer.
2. Illiquid Securities. Neither Portfolio may purchase any
security if, as a result, more than 10% of its net assets would be
invested in illiquid securities. Illiquid securities include securities
that cannot be sold within seven days in the ordinary course of business
for approximately the amount at which the Portfolio has valued the
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<PAGE>
securities, such as repurchase agreements maturing in more than seven
days.
3. Unseasoned Issuers. Neither Portfolio may purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of the Portfolio's total assets would be invested
in the securities of business enterprises that, including predecessors,
have a record of less than three years of continuous operation.
4. Ownership of Portfolio Securities by Officers and Trustees.
Neither Portfolio may purchase or retain the securities of any issuer if,
to the knowledge of N&B Management, those officers and trustees of
Managers Trust and officers and directors of N&B Management who each owns
individually more than 1/2 of 1% of the outstanding securities of such
issuer, together own more than 5% of such securities.
5. Investments in Other Investment Companies. Neither Portfolio
may purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and in the open market at no more than
customary brokerage commission rates. This limitation does not apply to
securities received or acquired as dividends, through offers of exchange,
or as a result of a reorganization, consolidation, or merger.
6. Oil and Gas Programs. Neither Portfolio may invest in
participations or other direct interests in oil, gas, or other mineral
exploration or development programs or leases.
7. Borrowing. Neither Portfolio may purchase securities if out-
standing borrowings, including any reverse repurchase agreements, exceed
5% of its total assets.
8. Lending. Except for the purchase of debt securities and
engaging in repurchase agreements, neither Portfolio may make any loans
other than securities loans.
9. Margin Transactions. Neither Portfolio may purchase
securities on margin from brokers or other lenders, except that a
Portfolio may obtain such short-term credits as are necessary for the
clearance of securities transactions. Margin payments in connection with
transactions in futures contracts and options on futures contracts shall
not constitute the purchase of securities on margin and shall not be
deemed to violate the foregoing limitation.
10. Short Sales. Neither Portfolio may sell securities
short, unless it owns, or has the right to obtain without payment of
additional consideration securities equivalent in kind and amount to the
securities sold. Transactions in forward contracts, futures contracts and
options shall not constitute selling securities short.
11. Puts, Calls, Straddles, or Spreads. Neither Portfolio
may invest in puts, calls, straddles, spreads, or any combination thereof,
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except that each Portfolio may (i) purchase securities with rights to put
the securities to the seller in accordance with its investment program and
(ii) purchase call options and write (sell) put options to close out
options previously written by the Portfolio, and Neuberger & Berman
Limited Maturity Bond Portfolio may write covered call options and
purchase put options. The Portfolios do not construe the foregoing
limitation to preclude them from purchasing or selling options on futures
contracts or from purchasing securities with rights to put the security to
the issuer or a guarantor.
12. Real Estate Limited Partnerships. Neither Portfolio may
invest in real estate limited partnerships.
Rating Agencies
---------------
As discussed in the Prospectus, the Portfolios may purchase
securities rated by Standard & Poor's ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), or any other nationally recognized statistical rating
organization ("NRSRO"). The ratings of an NRSRO represent its opinion as
to the quality of securities it undertakes to rate. Ratings are not
absolute standards of quality; consequently, securities with the same
maturity, duration, coupon, and rating may have different yields. Among
the NRSROs, the Portfolios rely primarily on ratings assigned by S&P and
Moody's, which are described in Appendix A to this SAI.
Theresa A. Havell and Josephine P. Mahaney: Co-Portfolio Managers of
Neuberger & Berman Ultra Short Bond Portfolio
---------------------------------------------------------------------
Investors are accustomed to thinking of yield or interest rate
figures as the same as total return on their investment, because savings
accounts, conventional money market funds, and CDs almost always do indeed
return the stated yield. But bond funds are different -- bonds not only
pay interest, they also fluctuate in value. For example, a decline in
prevailing levels of interest rates generally increases the value of debt
securities in a bond fund's portfolio, while an increase in rates usually
reduces the value of those securities. As a result, interest rate
fluctuations will affect a bond fund's net asset value (and total return)
but not necessarily the income received by the fund from its portfolio
securities. Both the yield and risk of principal usually increase as the
duration of the bond increases.
So looking at yield alone carries high risk because the highest
yielding bonds historically tend to be the ones with the longest
durations. The risk to principal in these bonds can be nearly as great as
the risk in stocks and may not produce the same reward.
What advice does Ms. Theresa Havell, the manager of the Fixed
Income Group of Neuberger & Berman, L.P. ("Neuberger & Berman"), have for
investors seeking the highest returns on their fixed income investments?
"Look beyond interest rates to total return," she states unequivocally.
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Total return includes the yield from the bond and the increase or decrease
in the market value (price) of the bond.
"Once you consider the risk to principal, then total return is
the only concept that can measure what you are actually earning from your
fixed income securities," Ms. Havell says.
Ultra Short is appropriate for investors who seek a higher total
return alternative to money market funds with minimal risk to principal
and liquidity.
Theresa A. Havell and Thomas G. Wolfe: Co-Portfolio Managers of Neuberger
& Berman Limited Maturity Bond Portfolio
--------------------------------------------------------------------------
Limited Maturity is intended for investors who seek the highest
current income with less volatility and risk than that of a longer-term
bond fund. The Fund's corresponding Portfolio provides active fixed
income portfolio management through investments in securities with an
average portfolio duration of no longer than four years. Studies of
historical bond returns have shown that risk-adjusted total returns were
best in bonds having durations of two to five years. The bonds in this
duration range have provided significantly higher returns than shorter-
term securities and nearly the same return as longer-term fixed income
securities with far less volatility. The Portfolio Managers attempt to
increase the Portfolio's value by actively managing duration in response
to interest rate trends and fundamental economic developments. They seek
to protect principal by shortening duration when interest rates are rising
and enhance returns by lengthening duration in a falling interest rate
market.
Limited Maturity also enhances return and limits risk by
following a broadly diversified investment program across the various
sectors of the fixed income market. Over long periods of time, corporate,
mortgage- and asset-backed bonds have provided
higher returns than Treasury securities. Relying on extensive internal
research, the Portfolio Managers attempt to increase the value of the
Portfolio by purchasing securities at significant yield premiums to
Treasury bonds. Neuberger&Berman uses sector weightings, which are based
on an analysis of the key factors that it believes will impact the
relative value and risk for each sector. These factors include the
economic cycle, credit quality trends and supply/demand analysis for each
security type. Within the sectors found attractive, individual bonds are
rigorously analyzed for credit, cash flow and liquidity risk. Those that
appear to offer attractive risk reward ratios are purchased. While
overall portfolio quality is high, Neuberger&Berman believes that by
careful evaluation of credit risk, the Portfolio benefits from the
inclusion of lower-rated bonds with only moderate incremental risk.
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Additional Investment Information
---------------------------------
Some or all of the Portfolios, as indicated below, may make the
following investments, among others, although they may not buy all of the
types of securities or use all of the investment techniques that are
described.
Repurchase Agreements (Both Portfolios). Repurchase agreements
are agreements under which a Portfolio purchases securities from a bank
that is a member of the Federal Reserve System or from a securities dealer
that agrees to repurchase the securities from the Portfolio at a higher
price on a designated future date. Repurchase agreements generally are
for a short period of time, usually less than a week. Neither Portfolio
may enter into a repurchase agreement with a maturity of more than seven
days if, as a result, more than 10% of the value of its net assets would
then be invested in such repurchase agreements and other illiquid securi-
ties. A Portfolio may enter into a repurchase agreement only if (1) the
underlying securities are of the type (excluding maturity or duration
limitations) that the Portfolio's investment policies and limitations
would allow it to purchase directly, (2) the market value of the
underlying securities, including accrued interest, at all times equals or
exceeds the value of the repurchase agreement, and (3) payment for the
underlying securities is made only upon satisfactory evidence that the
securities are being held for the Portfolio's account by its custodian or
a bank acting as the Portfolio's agent.
Securities Loans (Both Portfolios). In order to realize income,
each Portfolio may lend portfolio securities with a value not exceeding
33-1/3% of its total assets to banks, brokerage firms, or institutional
investors judged creditworthy by N&B Management. Borrowers are required
continuously to secure their obligations to return securities on loan from
the Portfolio by depositing collateral in a form determined to be satis-
factory by the Portfolio Trustees. The collateral, which must be marked
to market daily, must be equal to at least 100% of the market value of the
loaned securities, which will also be marked to market daily. N&B
Management believes the risk of loss on these transactions is slight
because, if a borrower were to default for any reason, the collateral
should satisfy the obligation. However, as with other extensions of
secured credit, loans of portfolio securities involve some risk of loss of
rights in the collateral should the borrower fail financially.
Restricted Securities and Rule 144A Securities (Both Portfolios).
Each Portfolio may invest in restricted securities, which are securities
that may not be sold to the public without an effective registration
statement under the 1933 Act or, if they are unregistered, may be sold
only in a privately negotiated transaction or pursuant to an exemption
from registration. In recognition of the increased size and liquidity of
the institutional market for unregistered securities and the importance of
institutional investors in the formation of capital, the SEC has adopted
Rule 144A under the 1933 Act. Rule 144A is designed further to facilitate
efficient trading among institutional investors by permitting the sale of
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<PAGE>
certain unregistered securities to qualified institutional buyers. To the
extent privately placed securities held by a Portfolio qualify under Rule
144A, and an institutional market develops for those securities, the
Portfolio likely will be able to dispose of the securities without
registering them under the 1933 Act. To the extent that institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could increase the level of a
Portfolio's illiquidity. N&B Management, acting under guidelines
established by the Portfolio Trustees, may determine that certain
securities qualified for trading under Rule 144A are liquid. Foreign
securities that can be freely sold in the markets in which they are
principally traded are not considered to be restricted. Regulation S
under the 1933 Act permits the sale abroad of securities that are not
registered for sale in the United States.
Where registration is required, a Portfolio may be obligated to
pay all or part of the registration expenses, and a considerable period
may elapse between the decision to sell and the time the Portfolio may be
permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the
Portfolio might obtain a less favorable price than prevailed when it
decided to sell. To the extent privately placed securities, including
Rule 144A securities, are illiquid, purchases thereof will be subject to
each Portfolio's 10% limit on investments in illiquid securities.
Restricted securities for which no market exists are priced at fair value
as determined in accordance with procedures approved and periodically
reviewed by the Portfolio Trustees.
Commercial Paper (Both Portfolios). Commercial paper is a short-
term debt security issued by a corporation, bank, municipality, or other
issuer for purposes such as financing current operations. Each Portfolio
may invest in commercial paper that cannot be resold to the public without
an effective registration statement under the 1933 Act. While restricted
commercial paper normally is deemed illiquid, N&B Management may in
certain cases determine that such paper is liquid, pursuant to guidelines
established by the Portfolio Trustees.
Reverse Repurchase Agreements (Both Portfolios). In a reverse
repurchase agreement, a Portfolio sells portfolio securities subject to
its agreement to repurchase the securities at a later date for a fixed
price reflecting a market rate of interest; these agreements are
considered borrowings for purposes of the Portfolios' investment policies
and limitations concerning borrowings. While a reverse repurchase
agreement is outstanding, a Portfolio will maintain with its custodian in
a segregated account cash, U.S. Government or Agency Securities, or other
liquid, high-grade debt securities, marked to market daily, in an amount
at least equal to the Portfolio's obligations under the agreement. There
is a risk that the contra-party to a reverse repurchase agreement will be
unable or unwilling to complete the transaction as scheduled, which may
result in losses to the Portfolio.
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<PAGE>
Banking and Savings Institution Securities (Both Portfolios).
The Portfolios may invest in banking and savings institution obligations,
which include CDs, time deposits, bankers' acceptances, and other short-
term debt obligations issued by commercial banks and savings institutions.
CDs are receipts for funds deposited for a specified period of time at a
specified rate of return; time deposits generally are similar to CDs, but
are uncertificated. Bankers' acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with international
commercial transactions. The CDs, time deposits, and bankers' acceptances
in which the Portfolios invest typically are not covered by deposit
insurance.
The Portfolios may invest in securities issued by a commercial
bank or savings institution only if (1) the bank or institution has total
assets of at least $1,000,000,000, (2) the bank or institution is on N&B
Management's approved list, (3) in the case of a U.S. bank or institution,
its deposits are insured by the Federal Deposit Insurance Corporation, and
(4) in the case of a foreign bank or institution, the securities are, in
N&B Management's opinion, of an investment quality comparable with other
debt securities that may be purchased by the Portfolio. These limitations
do not prohibit investments in securities issued by foreign branches of
U.S. banks that meet the foregoing requirements. The Portfolios do not
currently intend to invest in any security issued by a foreign savings
institution.
Variable or Floating Rate Securities; Demand and Put Features
(Both Portfolios). 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 adjust-
ment of the interest rate whenever specified interest rate index changes.
The interest rate on variable and floating rate securities (collectively,
"Variable Rate Securities") ordinarily is determined by reference to a
particular bank's prime rate, the 90-day U.S. Treasury Bill rate, the rate
of return on commercial paper or bank CDs, an index of short-term tax-
exempt rates, or some other objective measure.
The Variable Rate Securities in which the Portfolios invest
frequently permit the holder to demand payment of the obligations'
principal and accrued interest at any time or at specified intervals not
exceeding one year. The demand feature usually is backed by a credit
instrument (e.g., a bank letter of credit) from a creditworthy issuer and
sometimes by insurance from a creditworthy insurer. Without these credit
enhancements, the Variable Rate Securities might not meet the Portfolios'
quality standards. Accordingly, in purchasing these securities, each
Portfolio relies primarily on the creditworthiness of the credit
instrument issuer or the insurer. A Portfolio may not invest more than 5%
of its total assets in securities backed by credit instruments from any
one issuer or by insurance from any one insurer (excluding securities that
do not rely on the credit instrument or insurance for their rating, i.e.,
stand on their own credit).
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<PAGE>
A Portfolio can also buy fixed rate securities accompanied by a
demand feature or a put option, which permits the Portfolio to sell the
security to the issuer or third party at a specified price. A Portfolio
may rely on the creditworthiness of issuers of puts in purchasing these
securities.
In calculating its maturity and duration, each Portfolio is
permitted to treat certain Variable Rate Securities as maturing on a date
prior to the date on which the final repayment of principal is due to be
made. In applying such maturity shortening devices, N&B Management
considers whether the interest rate reset is expected to cause the
security to trade at approximately its par value.
Mortgage-Backed Securities (Both 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 (though not
necessarily backed by the full faith and credit of the United States),
such as the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"), or may be issued by private issuers.
Mortgage-backed securities may be issued in the form of col-
lateralized mortgage obligations ("CMOs") or mortgage-backed bonds. CMOs
are obligations fully collateralized directly or indirectly by a pool of
mortgages; payments of principal and interest on the mortgages are passed
through to the holders of the CMOs, although not necessarily on a pro rata
basis, on the same schedule as they are received. Mortgage-backed bonds
are general obligations of the issuer fully collateralized directly or
indirectly by a pool of mortgages. The mortgages serve as collateral for
the issuer's payment obligations on the bonds, but interest and principal
payments on the mortgages are not passed through either directly (as with
mortgage-backed "pass-through" securities issued or guaranteed by U.S.
Government agencies or instrumentalities) or on a modified basis (as with
CMOs). Accordingly, a change in the rate of prepayments on the pool of
mortgages could change the effective maturity of a CMO but not that of a
mortgage-backed bond (although, like many bonds, mortgage-backed bonds may
be callable by the issuer prior to maturity).
Governmental, government-related, and private entities may create
mortgage loan pools to back mortgage pass-through and mortgage-
collateralized investments. Commercial banks, savings institutions,
private mortgage insurance companies, mortgage bankers, and other
secondary market issuers, including securities broker-dealers and special
purpose entities (which generally are affiliates of the foregoing estab-
lished to issue such securities), also create pass-through pools of
residential mortgage loans. Such issuers may be the originators and/or
servicers of the underlying mortgage loans, as well as the guarantors of
the mortgage-backed securities. Pools created by non-governmental issuers
generally offer a higher rate of interest than government and government-
related pools because of the absence of direct or indirect government or
agency guarantees. Various forms of insurance or guarantees, including
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<PAGE>
individual loan, title, pool, and hazard insurance, and letters of credit
may support timely payment of interest and principal of non-governmental
pools. Governmental entities, private insurers, and the mortgage poolers
issue these forms of insurance and guarantees. Such insurance and
guarantees, as well as the creditworthiness of the issuers thereof, are
considered in determining whether a mortgage-backed security meets a
Portfolio's investment quality standards. There can be no assurance that
the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements.
A Portfolio may buy mortgage-backed securities without insurance
or guarantees, if N&B Management determines that the securities meet the
Portfolio's quality standards. A Portfolio may not purchase mortgage-
backed securities or any other assets that, in N&B Management's opinion,
are illiquid if, as a result, more than 10% of the value of the
Portfolio's net assets would be illiquid. N&B Management will, consistent
with the Portfolios' investment objective, policies and limitations, and
quality standards, consider making investments in new types of mortgage-
backed securities as such securities are developed and offered to
investors.
Because many mortgages are repaid early, the actual maturity and
duration of mortgage-backed securities are typically shorter than their
stated final maturity and their duration calculated solely on the basis of
the stated life and payment schedule. In calculating its maturity and
duration, a Portfolio may apply certain industry conventions regarding the
maturity and duration of mortgage-backed instruments.
Asset-Backed Securities (Both Portfolios). The Portfolios may
purchase asset-backed securities, including commercial paper. Asset-
backed securities represent direct or indirect participations in, or are
secured by and payable from, pools of assets such as motor vehicle
installment sales contracts, installment loan contracts, leases of various
types of real and personal property, and receivables from revolving credit
(credit card) agreements. These assets are securitized through the use of
trusts and special purpose corporations. Credit enhancements, such as
various forms of cash collateral accounts or letters of credit, may
support payments or distributions of principal and interest on asset-
backed securities. Like mortgage-backed securities, asset-backed
securities are subject to the risk of prepayment. The risk that recovery
on repossessed collateral might be unavailable or inadequate to support
payments, however, is greater for asset-backed securities, than is the
case for mortgage-backed securities.
Certificates for Automobile Receivables(SERVICEMARK)
("CARS(SERVICEMARK)") 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
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<PAGE>
installment sales contracts are subject to prepayment, which may reduce
the overall return to certificate holders. Certificate holders also may
experience delays in payment or losses on CARS(SERVICEMARK) 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 signaling a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates.
An issuer's ability to extend the life of an issue of credit card
receivable securities thus depends on the continued generation of
principal amounts in the underlying Accounts and the non-occurrence of the
specified events. The nondeductibility of consumer interest, as well as
competitive and general economic factors, could adversely affect the rate
at which new receivables are created in an Account and conveyed to an
issuer, thereby shortening the expected weighted average life of the
related security and reducing its yield. An acceleration in cardholders'
payment rates or any other event that shortens the period during which
additional credit card charges on an Account may be transferred to the
pool of assets supporting the related security could have a similar effect
on its weighted average life and yield.
Credit cardholders are entitled to the protection of state and
federal consumer credit laws. Many of those laws give a holder the right
to set off certain amounts against balances owed on the credit card,
thereby reducing amounts paid on Accounts. In addition, unlike most other
asset-backed securities, Accounts are unsecured obligations of the
cardholder.
U.S. Dollar-Denominated Foreign Debt Securities (Both Portfo-
lios). The Portfolios may invest in U.S. dollar-denominated debt
securities issued by foreign issuers (including banks, governments and
quasi-governmental organizations) and foreign branches of U.S. banks,
including negotiable CDs, bankers' acceptances, and commercial paper.
These investments are subject to each Portfolio's quality, maturity, and
duration standards. While investments in foreign securities are intended
to reduce risk by providing further diversification, such investments
involve sovereign and other risks, in addition to the credit and market
risks normally associated with domestic securities. These additional
risks include the possibility of adverse political and economic
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<PAGE>
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 standards or the application of
standards that are different or less stringent than those applied in the
United States.
Foreign Currency Denominated Foreign Securities (Neuberger &
Berman Limited Maturity Bond Portfolio). The Portfolio may invest in debt
or other income-producing securities (of issuers in countries whose
governments are considered stable by N&B Management) that are denominated
in or indexed to foreign currencies, including (1) CDs, commercial paper,
fixed time deposits, and bankers' acceptances issued by foreign banks,
(2) obligations of other corporations, and (3) obligations of foreign
governments or their subdivisions, agencies, and instrumentalities,
international agencies, and supranational entities. Investing in foreign
currency denominated securities includes the special risks associated with
investing in non-U.S. issuers described in the preceding section and the
additional risks of (1) adverse changes in foreign exchange rates, (2)
nationalization, expropriation, or confiscatory taxation, (3) adverse
changes in investment or exchange control regulations (which could prevent
cash from being brought back to the United States), and (4) expropriation
or nationalization of foreign portfolio companies. Additionally,
dividends and interest payable on foreign securities may be subject to
foreign taxes, including taxes withheld from those payments.
Foreign securities often trade with less frequency and in less
volume than domestic securities and therefore may exhibit greater price
volatility. Additional costs associated with an investment in foreign
securities may include higher custodial fees than apply to domestic
custody arrangements, and transaction costs of foreign currency
conversions.
Interest rates prevailing in other countries may affect prices of
foreign securities and exchange rates for foreign currencies. Local
factors, including the strength of the local economy, the demand for
borrowing, the government's fiscal and monetary policies, and the
international balance of payments often affect the interest rates in other
countries. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource self-
sufficiency, and balance of payments position.
Foreign markets also have different clearance and settlement
procedures, and, in certain markets, there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Such
delays in settlement could result in temporary periods when a portion of
the assets of 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
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<PAGE>
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 portfolio securities,
or, if the Portfolio has entered into a contract to sell the securities,
could result in possible liability to the purchaser.
In order to limit the risk inherent in investing in foreign
currency denominated securities, the Portfolio may not purchase any such
security if, after such purchase, more than 25% of its net assets (taken
at market value) would be invested in foreign currency denominated
securities. Within that limitation, however, the Portfolio is not
restricted in the amount it may invest in securities denominated in any
one foreign currency.
Dollar Rolls (Both Portfolios). In a "dollar roll," a Portfolio
sells securities for delivery in the current month and simultaneously
agrees to repurchase substantially similar (same type and coupon)
securities on a specified future date from the same party. A "covered
roll" is a specific type of dollar roll in which the Portfolio holds an
offsetting cash position or a cash equivalent security position that
matures on or before the forward settlement date of the dollar roll
transaction. Dollar rolls are considered borrowings for purposes of the
Portfolios' investment policies and limitations concerning borrowings.
There is a risk that the contra-party will be unable or unwilling to
complete the transactions as scheduled, which may result in losses to the
Portfolio.
When-Issued Transactions (Both Portfolios). The Port-folios may
purchase securities (including mortgage-backed securities such as GNMA,
FNMA, and FHLMC certificates) on a when-issued basis. In such a
transaction, a Portfolio commits to purchase securities (to secure an
advantageous price and yield at the time of the commitment) and completes
the purchase by making payment against delivery of the securities at a
future date. When-issued purchases are negotiated directly with the other
party, and such commitments are not traded on an exchange.
In periods of falling interest rates and rising prices, a
Portfolio might purchase a security on a when-issued basis and sell a
similar security to settle such purchase, thereby obtaining the benefit of
currently higher yields.
The value of securities purchased on a when-issued basis and any
subsequent fluctuations in their value are reflected in the computation of
a Portfolio's net asset value ("NAV") starting on the date of the
agreement to purchase the securities. The Portfolio does not earn
interest on securities it has committed to purchase until the securities
are paid for and delivered on the settlement date. Settlement of when-
issued purchase transactions generally takes place within two months after
the date of the transaction, but a Portfolio may agree to a longer
settlement period.
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<PAGE>
A Portfolio will purchase securities on a when-issued basis only
with the intention of completing the transaction and actually purchasing
or selling the securities. If deemed advisable as a matter of investment
strategy, however, a Portfolio may dispose of or renegotiate a commitment
after it has been entered into. A Portfolio also may sell securities it
has committed to purchase before those securities are delivered to the
Portfolio on the settlement date. The Portfolio may realize capital gains
or losses in connection with these transactions.
When a Portfolio purchases securities on a when-issued basis, it
will maintain in a segregated account with its custodian, until payment is
made, cash, U.S. Government and Agency Securities, or other liquid, high-
grade debt securities having an aggregate market value (determined daily)
at least equal to the amount of the Portfolio's purchase commitments.
This procedure is designed to ensure that each Portfolio maintains
sufficient assets at all times to cover their obligations under when-
issued purchases.
Futures Contracts and Options Thereon (Both Portfolios). Each
Portfolio may purchase and sell interest-rate and bond index futures
contracts and options thereon, and Neuberger & Berman Limited Maturity
Bond Portfolio may purchase and sell foreign currency futures contracts
(with interest-rate and bond index futures contracts, "Futures" or
"Futures Contracts") and options thereon. The Portfolios engage in inter-
est-rate Futures and options transactions in an attempt to hedge against
changes in securities prices resulting from expected changes in prevailing
interest rates; Neuberger & Berman Limited Maturity Bond Portfolio engages
in foreign currency Futures and options transactions in an attempt to
hedge against expected changes in prevailing currency exchange rates.
Because the futures markets may be more liquid than the cash markets, the
use of Futures permits a Portfolio to enhance portfolio liquidity and
maintain a defensive position without having to sell portfolio securities.
The Portfolios do not engage in transactions in Futures or options thereon
for speculation. The Portfolios view investment in (1) interest-rate
Futures and options thereon as a maturity or duration management device
and/or a device to reduce risk and preserve total return in an adverse
interest rate environment and (2) foreign currency Futures and options
thereon as a means of establishing more definitely the effective return on
securities denominated in foreign currencies held or intended to be
acquired by them.
A "sale" of a Futures Contract (or a "short" Futures position)
entails the assumption of a contractual obligation to deliver the
securities or currency underlying the contract at a specified price at a
specified future time. A "purchase" of a Futures Contract (or a "long"
Futures position) entails the assumption of a contractual obligation to
acquire the securities or currency underlying the contract at a specified
price at a specified future time. Certain Futures, including bond index
Futures, are settled on a net cash payment basis rather than by the sale
and delivery of the securities underlying the Futures.
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<PAGE>
"Margin" with respect to Futures is the amount of assets that
must be deposited by a Portfolio with, or for the benefit of, a futures
commission merchant in order to initiate and maintain the Portfolio's
Futures positions. The margin deposit made by a Portfolio when it enters
into a Futures Contract ("initial margin") is intended to assure its
performance of the contract. If the price of the Futures Contract changes
-- increases in the case of a short (sale) position or decreases in the
case of a long (purchase) position -- so that the unrealized loss on the
contract causes the margin deposit not to satisfy margin requirements, the
Portfolio will be required to make an additional margin deposit ("vari-
ation margin"). However, if favorable price changes in the Futures
Contract cause the margin on deposit to exceed the required margin, the
excess will be paid to the Portfolio. In computing its daily NAV, each
Portfolio marks to market the current value of its open Futures positions.
A Portfolio also must make margin deposits with respect to options on
Futures that it has written. If the futures commission merchant holding
the deposit goes bankrupt, the Portfolio could suffer a delay in
recovering its funds and could ultimately suffer a loss.
U.S. Futures (except certain currency Futures) are traded on
exchanges that have been designated as "contract markets" by the Commodity
Futures Trading Commission ("CFTC"), an agency of the U.S. Government;
Futures transactions must be executed through a futures commission
merchant that is a member of the relevant contract market. The exchange's
affiliated clearing organization guarantees performance of the contracts
between the clearing members of the exchange.
Although Futures Contracts by their terms may require the actual
delivery or acquisition of the underlying securities or currency, in most
cases the contractual obligation is extinguished by being offset before
the expiration of the contract, without the parties having to make or take
delivery of the assets. A Futures position is offset by buying (to offset
an earlier sale) or selling (to offset an earlier purchase) an identical
Futures Contract calling for delivery in the same month.
Although each Portfolio believes that the use of Futures Con-
tracts will benefit it, if N&B Management's judgment about the general
direction of the markets is incorrect, a Portfolio's overall return would
be lower than if it had not entered into any such contracts. Moreover,
the spread between values in the cash and futures markets is subject to
distortion due to differences in the character of those markets. Because
of the possibility of distortion, even a correct forecast of general
market trends by N&B Management may not result in a successful transac-
tion.
An option on a Futures Contract gives the purchaser the right, in
return for the premium paid, to assume a position in the contract (a long
position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume a
short Futures position (if the option is a call) or a long Futures
position (if the option is a put). Upon exercise of the option, the
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<PAGE>
assumption of offsetting Futures positions by the writer and holder of the
option is accompanied by delivery of the accumulated cash balance in the
writer's Futures margin account. That balance represents the amount by
which the market price of the Futures Contract at exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price
of the option.
The prices of Futures are volatile and are influenced by, among
other things, actual and anticipated changes in interest or currency
exchange rates, which in turn are affected by fiscal and monetary policies
and by national and international political and economic events. At best,
the correlation between changes in prices of Futures and of the securities
and currencies being hedged can be only approximate. Decisions regarding
whether, when, and how to hedge involve skill and judgment. Even a well-
conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate or currency exchange rate trends, or lack
of correlation between the futures markets and the securities markets.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage; as a result, a relatively small price
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 thereof may be made
on that day at a price beyond that limit. The daily limit governs only
price movements during a particular trading day, however; it thus does not
limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Prices can move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing
liquidation of Futures and options positions and subjecting investors to
substantial losses. If this were to happen with respect to a position
held by a Portfolio, it could (depending on the size of the position) have
an adverse impact on the NAV of the Portfolio.
Covered Call and Put Options (Neuberger & Berman Limited Maturity
Bond Portfolio). This Portfolio may write or purchase put and call
options on securities. Generally, the purpose of writing and purchasing
these options is to reduce the effect of price fluctuations of securities
held by the Portfolio on the Portfolio's and its corresponding Fund's
NAVs. The Portfolio may also write covered call options to earn premium
income.
The obligation under any option terminates upon expiration of the
option or, at an earlier time, when the writer offsets the option by
entering into a "closing purchase transaction" to purchase an option of
the same series. If an option is purchased by the Portfolio and is never
exercised, the Portfolio will lose the entire amount of the premium paid.
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<PAGE>
The Portfolio will receive a premium for writing a put option,
which obligates the Portfolio to acquire a certain security at a certain
price at any time until a certain date, if the purchaser of the option
decides to sell such security. The Portfolio may be obligated to purchase
the underlying security at more than its current value.
When the Portfolio purchases a put option, it pays a premium to
the writer for the right to sell a security to the writer for a specified
amount at any time until a certain date. The Portfolio would purchase a
put option in order to protect itself against a decline in the market
value of a security it owns.
When the Portfolio writes a call option, it is obligated to sell
a security to a purchaser at a specified price at any time the purchaser
requests until a certain date and receives a premium for writing the
option. The Portfolio writes only "covered" call options on securities it
owns. So long as the obligation of the call option continues, the
Portfolio may be assigned an exercise notice, requiring it to deliver the
underlying security against payment of the exercise price. The Portfolio
may be obligated to deliver securities underlying an option at less than
the market price, thereby giving up any additional gain on the security.
When the Portfolio purchases a call option, it pays a premium for
the right to purchase a security from the writer at a specified price
until a specified date. The Portfolio would purchase a call option in
order to protect against an increase in the price of securities it intends
to purchase or to offset a previously written call option.
Portfolio securities on which call and put options may be written
and purchased by the Portfolio are purchased solely on the basis of
investment considerations consistent with the Portfolio's investment
objective. The writing of covered call options is a conservative
investment technique that is believed to involve relatively little risk
(in contrast to the writing of "naked" or uncovered call options, which
the Portfolio will not do), but is capable of enhancing the Portfolio's
total return. When writing a covered call option, the Portfolio, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security
decline. When writing a put option, the Portfolio, in return for the
premium, takes the risk that it must purchase the underlying security at
the exercise price, which may be higher than the current market price of
the security. If a call or put option that the Portfolio has written
expires unexercised, the Portfolio will realize a gain in the amount of
the premium; however, in the case of a call option, that gain may be
offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security.
Options are traded both on national securities exchanges and in
the over-the-counter ("OTC") market. Exchange-traded options in the U.S.
are issued by a clearing organization affiliated with the exchange on
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<PAGE>
which the option is listed; the clearing organization in effect guarantees
completion of every exchange-traded option. In contrast, OTC options are
contracts between the Portfolio and its counter-party with no clearing
organization guarantee. Thus, when the Portfolio sells (or purchases) an
OTC option, it generally will be able to "close out" the option prior to
its expiration only by entering into a "closing transaction" with the
dealer to whom (or from whom) the Portfolio originally sold (or purchased)
the option. There can be no assurance that the Portfolio would be able to
liquidate an OTC option at any time prior to expiration. Unless the
Portfolio is able to effect a closing purchase transaction in a covered
OTC call option it has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or until
different cover is substituted. In the event of the counter-party's
insolvency, the Portfolio may be unable to liquidate its options position
and the associated cover. N&B Management monitors the creditworthiness of
dealers with which the Portfolio may engage in OTC options transactions
and limits the Portfolio's counter-parties in such transactions to dealers
with a net worth of at least $20 million as reported in their latest
financial statements.
The assets used as cover for OTC options written by the Portfolio
will be considered illiquid unless the OTC options are sold to qualified
dealers who agree that the Portfolio may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC call option written subject to
this procedure will be considered illiquid only to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of
the option.
The premium received (or paid) by the Portfolio when it writes
(or purchases) a call or put option is the amount at which the option is
currently traded on the applicable exchange, less (or plus) a commission.
The premium may reflect, among other things, the current market price of
the underlying security, the relationship of the exercise price to the
market price, the historical price volatility of the underlying security,
the length of the option period, the general supply of and demand for
credit, and the general interest rate environment. The premium received
by the Portfolio for writing a covered call or put option is recorded as a
liability on the Portfolio's statement of assets and liabilities. This
liability is adjusted daily to the option's current market value, which is
the sales price on the option's last reported trade on that day before the
time the Portfolio's NAV is computed or, in the absence of any trades
thereof on that day, the mean between the bid and ask prices as of that
time.
Closing transactions are effected in order to realize a profit on
an outstanding option, to prevent an underlying security from being
called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits the Portfolio to
write another call option on the underlying security with either a
different exercise price or expiration date or both. If the Portfolio
desires to sell a security on which it has written a call option, it will
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<PAGE>
seek to effect a closing transaction prior to, or concurrently with, the
sale of the security. There is, of course, no assurance that the
Portfolio will be able to effect closing transactions at favorable prices.
If the Portfolio cannot enter into such a transaction, it may be required
to hold a security that it might otherwise have sold (or purchase a
security that it would not have otherwise bought), in which case it would
continue to be at market risk on the security.
The Portfolio will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or more than
the premium received from writing the call or put option. However,
because increases in the market price of a call option generally reflect
increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the
Portfolio.
The Portfolio pays brokerage commissions in connection with
purchasing or writing options, including those used to close out existing
positions. These brokerage commissions normally are higher than those
applicable to purchases and sales of portfolio securities.
Options normally have expiration dates between three and nine
months from the date written. The exercise price of an option may be
below, equal to, or above the market value of the underlying security at
the time the option is written. From time to time, the Portfolio may
purchase an underlying security for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering
the security from its portfolio. In those cases, additional brokerage
commissions are incurred.
Options on Foreign Currencies (Neuberger & Berman Limited
Maturity Bond Portfolio). This Portfolio may write and purchase covered
call and put options on foreign currencies. The Portfolio would engage in
such transactions to protect against declines in the U.S. dollar value of
portfolio securities or increases in the U.S. dollar cost of securities to
be acquired, or to protect the dollar equivalent of dividends, interest,
or other payments on those securities. As with other types of options,
however, writing an option on foreign currency constitutes only a partial
hedge, up to the amount of the premium received, and the Portfolio could
be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The risks of currency options
are similar to the risks of other options, discussed herein. Certain
options on foreign currencies are traded on the OTC market and involve
liquidity and credit risks that may not be present in the case of
exchange-traded currency options.
Forward Foreign Currency Contracts (Neuberger & Berman Limited
Maturity Bond Portfolio). This Portfolio may enter into contracts for the
purchase or sale of a specific foreign currency at a future date at a
fixed price ("forward contracts"). The Portfolio enters into forward
contracts in an attempt to hedge against expected changes in prevailing
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<PAGE>
currency exchange rates. The Portfolio does not engage in transactions in
forward contracts for speculation; it views investments in forward
contracts as a means of establishing more definitely the effective return
on securities denominated in foreign currencies that are held or intended
to be acquired by it. Forward contract transactions include forward sales
or purchases of foreign currencies for the purpose of protecting the U.S.
dollar value of securities held or to be acquired by the Portfolio or
protecting the U.S. dollar equivalent of dividends, interest, or other
payments on those securities.
N&B Management believes that the use of foreign currency hedging
techniques, including "cross-hedges," can help protect against declines in
the U.S. dollar value of income available for distribution and declines in
the Portfolio's NAV resulting from adverse changes in currency exchange
rates. For example, the return available from securities 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 cross-hedge involving a
forward contract to sell that foreign currency or a cross-hedge involving
a forward contract to sell a different foreign currency whose behavior is
expected to resemble the currency in which the securities being hedged are
denominated and which is available on more advantageous terms. N&B
Management believes that hedges and cross-hedges can, therefore, provide
significant protection of NAV in the event of a general rise in the U.S.
dollar against foreign currencies. However, a hedge or cross-hedge cannot
protect against exchange rate risks perfectly, and, if N&B Management is
incorrect in its judgment of future exchange rate relationships, the Port-
folio could be in a less advantageous position than if such a hedge or
cross-hedge had not been established. In addition, because forward
contracts are not traded on an exchange, the assets used to cover such
contracts may be illiquid. If the Portfolio uses cross-hedging it may
experience losses on both the currency in which it has invested and the
currency used for hedging if the two currencies do not vary with the
expected degree of correlation.
GENERAL CONSIDERATIONS INVOLVING FUTURES, OPTIONS ON FUTURES,
OPTIONS ON SECURITIES AND FOREIGN CURRENCIES, AND FORWARD
CONTRACTS (COLLECTIVELY, "HEDGING INSTRUMENTS")
Futures Contracts and Options on Futures Contracts and Foreign
Currencies. To the extent a Portfolio sells or purchases Futures
Contracts and/or writes options thereon or options on foreign currencies
that are traded on an exchange regulated by the CFTC other than for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial
margin and premiums on these positions (excluding the amount by which
options are "in-the-money") may not exceed 5% of the Portfolio's net
assets.
In addition, pursuant to state securities laws, (1) the aggregate
premiums paid by a Portfolio on all options (both exchange-traded and OTC)
held by it at any time may not exceed 20% of its net assets and (2) the
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<PAGE>
aggregate margin deposits required on all exchange-traded Futures
Contracts and related options held at any time by a Portfolio may not
exceed 5% of its total assets. Pursuant to an undertaking to a state
securities law administrator, Neuberger & Berman Limited Maturity Bond
Portfolio may not purchase a put option if, as a result, more than 5% of
its total assets would be invested in put options.
Risks Involved in Using Hedging Instruments. The primary risks
in using Hedging Instruments are (1) imperfect correlation or no
correlation between changes in market value of the securities held or to
be acquired by a Portfolio and changes in market value of Hedging
Instruments; (2) possible lack of a liquid secondary market for Hedging
Instruments and the resulting inability to close out Hedging Instruments
when desired; (3) the fact that the skills needed to use Hedging Instru-
ments are different from those needed to select a Portfolio's securities;
(4) the fact that, although use of these instruments for hedging purposes
can reduce the risk of loss, they also can reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
hedged investments; and (5) the possible inability of a Portfolio to
purchase or sell a portfolio security at a time that would otherwise be
favorable for it to do so, or the possible need for a Portfolio to sell a
portfolio security at a disadvantageous time, due to its need to maintain
"cover" or to segregate securities in connection with its use of Hedging
Instruments. N&B Management intends to reduce the risk of imperfect
correlation by investing only in Hedging Instruments whose behavior is
expected to resemble or offset that of a Portfolio's underlying
securities. N&B Management intends to reduce the risk that a Portfolio
will be unable to close out Hedging Instruments by entering into such
transactions only if N&B Management believes there will be an active and
liquid secondary market. Hedging Instruments used by the Portfolios are
generally considered "derivatives." There can be no assurance that a
Portfolio's use of Hedging Instruments will be successful.
The Portfolios' use of Hedging Instruments may be limited by
provisions of the Internal Revenue Code of 1986, as amended ("Code"), with
which each Portfolio must comply if its corresponding Fund is to continue
to qualify as a regulated investment company ("RIC"). See "Additional Tax
Information -- Taxation of Portfolios."
Cover for Hedging Instruments. Each Portfolio will comply with
SEC guidelines regarding cover for Hedging Instruments and, if the guide-
lines so require, set aside in a segregated account with its custodian
cash, U.S. Government or Agency Securities, or other liquid, high-grade
debt securities in the prescribed amount. Securities held in a segregated
account cannot be sold while the Futures, option or forward strategy
covered by those securities is outstanding, unless they are replaced with
other suitable assets. As a result, segregation of a large percentage of
a Portfolio's assets could impede portfolio management or the Portfolio's
ability to meet current obligations. A Portfolio may be unable promptly
to dispose of assets which cover, or are segregated with respect to, an
illiquid Futures, option or forward position; this inability may result in
a loss to the Portfolio.
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<PAGE>
Indexed Securities (Neuberger & Berman Limited Maturity Bond
Portfolio). This Portfolio may invest in securities linked to foreign
currencies, interest rates, commodities, indices, or other financial
indicators ("indexed securities"). Most indexed securities are short- to
intermediate-term fixed income securities whose value at maturity or
interest rate rises or falls according to the change in one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their value may increase or decrease if the
underlying instrument appreciates) and may have return characteristics
similar to direct investments in the underlying instrument or to one or
more options thereon. Indexed securities may be more volatile than the
underlying instrument itself.
Zero Coupon Securities (Both Portfolios). Each Portfolio may
invest in zero coupon securities, which are debt obligations that do not
entitle the holder to any periodic payment of interest prior to maturity
or that specify a future date when the securities begin to pay current
interest. Zero coupon securities are issued and traded at a discount from
their face amount or par value. This discount varies depending on
prevailing interest rates, the time remaining until cash payments begin,
the liquidity of the security, and the perceived credit quality of the
issuer.
The discount on zero coupon securities ("original issue dis-
count") is taken into account ratably by each Portfolio prior to the
receipt of any actual payments. Because each Fund must distribute
substantially all of its net income (including its pro rata share of its
corresponding Portfolio's original issue discount) to its shareholders
each year for income and excise tax purposes (see "Additional Tax Informa-
tion -- Taxation of the Funds"), a Portfolio may have to dispose of
portfolio securities under disadvantageous circumstances to generate cash,
or may be required to borrow, to satisfy its corresponding Fund's
distribution requirements.
The market prices of zero coupon securities generally are more
volatile than the prices of securities that pay interest 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.
Municipal Obligations (Neuberger & Berman Limited Maturity Bond
Portfolio). This Portfolio may invest up to 5% of its net assets in
municipal obligations which are issued by or on behalf of states (as used
herein, including the District of Columbia), territories, and possessions
of the United States and their political subdivisions, agencies, and
instrumentalities, and interest that is exempt from federal income tax.
Municipal obligations include "general obligation" securities, which are
backed by the full taxing power of a municipality, and "revenue"
securities, which are backed only by the income from a specific project,
facility, or tax. Municipal obligations also include industrial
development and private activity bonds which are issued by or on behalf of
public authorities, but are not backed by the credit of any governmental
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<PAGE>
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 the Portfolio's investments in
municipal obligations, whereas a decline in interest rates generally will
increase that value. Current efforts to restructure the federal budget
and the relationship between the federal government and state and local
governments may impact the financing of some issuers of municipal
securities. Some states and localities are experiencing substantial
deficits and may find it difficult for political or economic reasons to
increase taxes. Efforts are underway that may result in a "flat tax" or
other restructuring of the federal income tax system. Any of these
factors could affect the value of municipal securities.
Risks of Fixed Income Securities
--------------------------------
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations
("credit risk") and are subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of
the issuer, and general market liquidity ("market risk"). Lower-rated
securities are more likely to react to developments affecting market and
credit risk than are more highly rated securities, which react primarily
to movements in the general level of interest rates. Neuberger&Berman
Limited Maturity Bond Portfolio may invest up to 10% of its net assets in
fixed income securities that are rated below investment grade, i.e., rated
below Baa by Moody's or BBB by S&P, but rated at least B (or, if unrated,
determined by N&B Management to be of comparable quality). Securities
rated below investment grade are described as "speculative" by both
Moody's and S&P. Moody's also deems securities rated Baa to have
speculative characteristics. Securities rated B are judged to be
predominantly speculative with respect to their capacity to pay interest
and repay principal in accordance with the terms of the obligations.
Changes in economic conditions or developments regarding the
individual issuer are more likely to cause price volatility and weaken the
capacity of the issuer of such securities to make principal and interest
payments than is the case for higher-grade debt securities. An economic
downturn affecting the issuer may result in an increased incidence of
default. The market for lower-rated securities may be thinner and less
active than for higher-rated securities. Pricing of thinly traded
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<PAGE>
securities requires greater judgment than pricing of securities for which
market transactions are regularly reported. Subsequent to its purchase by
a Portfolio, an issue of debt securities may cease to be rated or its
rating may be reduced, so that the securities would not be eligible for
purchase by that Portfolio. In such a case, N&B Management will engage in
an orderly disposition of the downgraded securities to the extent
necessary to ensure that the Portfolio's holdings of such securities will
not exceed 5% of its net assets.
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical earnings
and are not intended to indicate future performance. The yield and total
return of each Fund will vary. The share prices of each Fund will vary,
and an investment in a Fund, when redeemed, may be worth more or less than
an investor's original cost.
Yield Calculations
------------------
Each Fund may advertise its "yield" based on a 30-day (or one-
month) period. This yield is computed by dividing the net investment
income per share earned during the period by the maximum offering price
per share on the last day of the period. The result then is annualized
and shown as an annual percentage of an investment.
The annualized yields for Limited Maturity and Ultra Short for
the 30-day period ended October 31, 1995 were 5.45% and 5.33%,
respectively.
Total Return Computations
-------------------------
Each Fund may advertise certain total return information. An
average annual compounded rate of return ("T") may be computed by using
the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment of $1,000 ("P") over a period of time
("n") according to the formula:
n
P(1+T) = ERV
Average annual total return smooths out year-to-year variations
and, in that respect, differs from actual year-to-year results.
Although Limited Maturity and Ultra Short did not commence
operations until August 30, 1993 and September 7, 1993, respectively, each
Fund's investment objective, limitations, and policies are the same as
another mutual fund administered by N&B Management, which has a name
similar to the Fund's and invests in the same Portfolio ("Sister Fund").
Each Sister Fund had a predecessor. The following total return data is
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<PAGE>
for each Fund since its inception and, for periods prior to each Fund's
inception, its Sister Fund and that Sister Fund's predecessor. The total
returns for periods prior to the Funds' inception would have been lower
had they reflected the higher fees of the Funds, as compared to those of
the Sister Funds and their predecessors. This information is based on
historical performance and is not intended to indicate future performance.
The average annual total returns for Ultra Short, its Sister Fund
and that Sister Fund's predecessor for the one- and five-year periods
ended October 31, 1995, and for the period November 7, 1986 (commencement
of operations of the Sister Fund's predecessor) through October 31, 1995,
were +6.15%, +4.73%, and +5.89%, respectively. If an investor had
invested $10,000 in that predecessor's shares on November 7, 1986 and had
reinvested all capital gain distributions and income dividends, the NAV of
that investor's holdings would have been $16,726 on October 31, 1995.
The average annual total returns for Limited Maturity, its Sister
Fund and that Sister Fund's predecessor for the one- and five-year periods
ended October 31, 1995 and for the period June 9, 1986 (commencement of
operations of the Sister Fund's predecessor) through October 31, 1995,
were +8.36%, +6.81%, and +7.16%, respectively. If an investor had
invested $10,000 in that predecessor's shares on June 9, 1986 and had
reinvested all capital gain distributions and income dividends, the NAV of
that investor's holdings would have been $19,147 on October 31, 1995.
N&B Management reimbursed the Sister Funds and their predecessors
for certain expenses during the periods mentioned above, which has the
effect of increasing yield and total return. Of course, past performance
cannot guarantee future results.
Comparative Information
-----------------------
From time to time each Fund's performance may be compared with:
(1) data (that may be expressed as rankings or ratings) published
by independent services or publications (including newspapers,
newsletters, and financial periodicals) that monitor the
performance of mutual funds, such as Lipper Analytical
Services, Inc., C.D.A. Investment Technologies, Inc.,
Wiesenberger Investment Companies Service, IBC/Donoghue's
Money Market Fund Report, Investment Company Data Inc.,
Morningstar, Inc., Micropal Incorporated, and quarterly mutual
fund rankings by Money, Fortune, Forbes, Business Week,
Personal Investor, and U.S. News & World Report magazines, The
Wall Street Journal, The New York Times, Kiplingers Personal
Finance, and Barron's Newspaper, or
(2) recognized bond, stock, and other indices such as the Shearson
Lehman Bond Index, the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index"), Dow Jones Industrial Average
("DJIA"), S&P/BARRA Index, Russell Index, and various other
- 26 -
<PAGE>
domestic, international, and global indices and changes in the
Consumer Price Index. The S&P 500 Index is a broad index of
common stock prices, while the DJIA represents a narrower
segment of industrial companies. Each assumes reinvestment of
distributions and is calculated without regard to tax
consequences or the costs of investing. Each Portfolio may
invest in different types of securities from those included in
these indices.
Each Fund's performance also may be compared from time to time
with the following specific indices and other measures of performance:
Ultra Short's performance may be compared with the Merrill Lynch
2-year Treasury Index and the Salomon Brothers 6-month and 1-year
Treasury Bill Indices, as well as the performance of Treasury
Securities and the Lipper Short Investment Grade Debt Funds
category.
Limited Maturity's performance may be compared with the Merrill
Lynch 1-3 year Treasury Index and the Lehman Brothers
Intermediate Government/Corporate Bond Index, as well as the
performance of Treasury Securities, corporate bonds, and the
Lipper Short Investment Grade Debt Funds category.
In addition, each Fund's performance may be compared at times
with that of various bank instruments (including bank money market
accounts and CDs of varying maturities) as reported in publications such
as The Bank Rate Monitor. Any such comparisons may be useful to investors
who wish to compare a Fund's past performance with that of certain of its
competitors. Of course, past performance is not a guarantee of future
results. Unlike an investment in a Fund, bank CDs pay a fixed rate of
interest for a stated period of time and are insured up to $100,000.
Evaluations of the Funds' performance and their yield/total
returns and comparisons may be used in advertisements and in information
furnished to current and prospective shareholders (collectively,
"Advertisements"). The Neuberger & Berman Funds(SERVICEMARK) may also be
compared to individual asset classes such as common stocks, small-cap
stocks, or Treasury bonds, based on information supplied by Ibbotson and
Sinquefield.
Other Performance Information
-----------------------------
From time to time, information about a Portfolio's portfolio
allocation and holdings as of a particular date may be included in
Advertisements for its corresponding Fund. This information, for example,
may include the Portfolio's diversification by asset type. 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,
- 27 -
<PAGE>
(2) paying for children's education, and (3) financially supporting aging
parents.
Information (including charts and illustrations) showing the
effects of compounding interest may be included in Advertisements from
time to time. Compounding is the process of earning interest on principal
plus interest that was earned earlier. Interest can be compounded at
different intervals, such as annually, semi-annually, quarterly, monthly,
or daily; for example, $1,000 compounded annually at 9% will grow to
$1,090 at the end of the first year (an increase of $90) and $1,188 at the
end of the second year (an increase of $98). The extra $8 that was earned
on the $90 interest from the first year is the compound interest. One
thousand dollars compounded annually at 9% will grow to $2,367 at the end
of ten years and $5,604 at the end of twenty years. Other examples of
compounding are as follows: at 7% and 12% annually, $1,000 will grow to
$1,967 and $3,106, respectively, at the end of ten years and $3,870 and
$9,646, respectively, at the end of twenty years. All these examples are
for illustrative purposes only and are not indicative of any Fund's
performance.
Information relating to inflation and its effects on the dollar
also may be included in Advertisements. For example, after ten years, the
purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465, and
$12,100, respectively, if the annual rates of inflation during that period
were 4%, 5%, 6%, and 7%, respectively. (To calculate the purchasing
power, the value at the end of each year is reduced by the inflation rate
for the ten year period.) Information (including charts and
illustrations) showing the total return performance for government funds,
6-month CDs and money market funds may be included in Advertisements from
time to time.
Information regarding the effects of automatic investment and
systematic withdrawal plans, investing at market highs and/or lows, and
investing early versus late for retirement plans also may be included in
Advertisements, if appropriate.
From time to time the investment philosophy of N&B Management's
founder, Roy R. Neuberger, may be included in the Funds' Advertisements.
This philosophy is described in further detail in "The Art of Investing:
A Conversation with Roy Neuberger," attached as Appendix B to this SAI.
CERTAIN RISK CONSIDERATIONS
Although each Portfolio seeks to reduce risk by investing in a
diversified portfolio, diversification does not eliminate all risk. There
can, of course, be no assurance that any Portfolio will achieve its
investment objective, and an investment in a Fund involves certain risks
that are described in the sections entitled "Investment Programs" and
"Description of Investments" in the Prospectus and "Investment
Information--Additional Investment Information" in this SAI.
- 28 -
<PAGE>
TRUSTEES AND OFFICERS
The following table sets forth information concerning the
trustees and officers of the Trusts, including their addresses and
principal business experience during the past five years. Some persons
named as trustees and officers also serve in similar capacities for other
funds, and (where applicable) their corresponding portfolios, administered
or managed by N&B Management and Neuberger & Berman.
<TABLE>
<CAPTION>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
------------- --------------- --------------------------
<S> <C> <C>
John Cannon (66) Trustee of each Trust President, AMA Investment
CDC Associates, Inc. Advisers, Inc. (registered
620 Sentry Parkway investment adviser) (1976 -
Suite 220 1991); Senior Vice
Blue Bell, PA 19422 President AMA Investment
Advisers, Inc. (1991 -
1993); President of AMA
Family of Funds (investment
companies) (1976 - 1991);
Chairman and Treasurer of
CDC Associates, Inc.
(registered investment
adviser) (1993 - present)
Charles DeCarlo (74) Trustee of each Trust President Emeritus of Sarah
33 West 67th Street Lawrence College; Chief
New York, NY 10023 Executive Officer of Xicon
Systems (animation com-
pany).
Stanley Egener* (61) Chairman of the Partner of Neuberger &
Board, Chief Exec- Berman; President and
utive Officer, and Director of N&B Management;
Trustee of each Trust Chairman of the Board,
Chief Executive Officer,
and Trustee of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
- 29 -
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
------------- --------------- --------------------------
Theresa A. Havell* (49) President and Trustee Partner of Neuberger & Ber-
of each Trust man; Vice President and
Director of N&B Management;
President and Trustee of
one other mutual fund for
which N&B Management serves
as administrator.
Barry Hirsch (62) Trustee of each Trust Senior Vice President,
Loews Corporation Secretary, and General
667 Madison Avenue Counsel of Loews Corpora-
7th Floor tion (diversified financial
New York, NY 10021 corporation).
Robert A. Kavesh (68) Trustee of each Trust Professor of Finance and
110 Blecker Street 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.
Harold R. Logan (74) Trustee of each Trust Chairman of Comstock Re-
19 Norfield Road sources, Inc. (natural
Weston, CT 06883 resources company); Vice
Chairman, Retired, of W.R.
Grace & Co. (chemicals,
natural resources, and
selected consumer serv-
ices).
William E. Rulon (63) Trustee of each Trust Senior Vice President and
Foodmaker, Inc. Secretary of Foodmaker,
9330 Balboa Avenue Inc. (operator and fran-
San Diego, CA 92123 chisor of restaurants).
Candace L. Straight Trustee of each Trust Managing Director of Head &
(48) Company, LLC (limited
Head & Company, LLC liability company providing
1330 Avenue of the investment banking and con-
Americas sulting services to the
12th Floor insurance industry); Presi-
New York, NY 10019 dent of Integon Corporation
(marketer of life insur-
ance, annuities, and prop-
erty and casualty insur-
ance), 1990-1992; Director
of and Drake Holdings (U.K.
motor insurer).
- 30 -
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
------------- --------------- --------------------------
Daniel J. Sullivan (56) Vice President of Senior Vice President of
each Trust N&B Management since 1992;
prior thereto, Vice Presi-
dent of N&B Management;
Vice President of eight
other mutual funds for
which N&B Management acts
as investment manager or
administrator.
Michael J. Weiner (49) Vice President and Senior Vice President and
Principal Financial Treasurer of N&B Management
Officer of each Trust since 1992; Treasurer of
N&B Management from 1992 to
1996; prior thereto, Vice
President and Treasurer of
N&B Management and
Treasurer of certain mutual
funds for which N&B
Management acted as
investment adviser; Vice
President and Principal
Financial Officer of eight
other mutual funds for
which N&B Management acts
as investment manager or
administrator.
Claudia A. Brandon (39) Secretary of each Vice President of N&B Man-
Trust agement; Secretary of eight
other mutual funds for
which N&B Management acts
as investment manager or
administrator.
Richard Russell (49) Treasurer and Princi- Vice President of N&B
pal Accounting Offi- Management since 1993;
cer of each Trust prior thereto, Assistant
Vice President of N&B
Management; Treasurer and
Principal Accounting
Officer of eight other
mutual funds for which N&B
Management acts as invest-
ment manager or
administrator.
- 31 -
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
------------- --------------- --------------------------
Stacy Cooper-Shugrue Assistant Secretary Assistant Vice President of
(33) of each Trust N&B Management since 1993;
prior thereto, employee of
N&B Management; Assistant
Secretary of eight other
mutual funds for which N&B
Management acts as
investment manager or
administrator.
C. Carl Randolph (58) Assistant Secretary Partner of Neuberger &
of each Trust Berman since 1992; prior
thereto, employee of
Neuberger & Berman;
Assistant Secretary of
eight other mutual funds
for which N&B Management
acts as investment manager
or administrator.
</TABLE>
____________________
(1) Unless otherwise indicated, the business address of each listed
person is 605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
(2) Except as otherwise indicated, each individual has held the positions
shown for at least the last five years.
* Indicates a trustee who is an "interested person" of each Trust
within the meaning of the 1940 Act. Mr. Egener and Ms. Havell are
interested persons by virtue of the fact that they are officers and
directors of N&B Management and partners of Neuberger & Berman.
The Trust's Trust Instrument and Managers Trust's Declaration of
Trust each provides that it will indemnify its trustees and officers
against liabilities and expenses reasonably incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, unless it is adjudicated that they engaged in bad faith, willful
misfeasance, gross negligence, or reckless disregard of the duties
involved in the conduct of their offices. In the case of settlement, such
indemnification will not be provided unless it has been determined (by a
court or other body approving the settlement or other disposition, 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.
- 32 -
<PAGE>
The following fees and expenses were accrued and paid to Fund and
Portfolio Trustees who are not affiliated with N&B Management or Neuberger
& Berman for the year ending October 31, 1995: Neuberger & Berman Ultra
Short Bond Trust and Portfolio $468, and Neuberger & Berman Limited
Maturity Bond Trust and Portfolio $1,753.
The following table sets forth information concerning the
compensation of the trustees and officers of the Trust. None of the
Neuberger & Berman Funds(SERVICEMARK) has any retirement plan for its
trustees or officers.
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/95
------------------------------
<S> <C> <C>
Total Compensation from
Trusts in the Neuberger &
Name and Position with Aggregate Compensation Berman Fund Complex Paid to
the Trust from the Trust Trustees
---------------------- ---------------------- ---------------------------
John Cannon $ 77 $ 20,500
Trustee (2 other investment
companies)
Charles DeCarlo $ 128 $ 33,500
Trustee
Stanley Egener $ 0 $0
Chairman of the Board, (9 other investment
Chief Executive Officer, companies)
and Trustee
Theresa Havell $ 0 $ 0
President and Trustee (2 other investment
companies)
Barry Hirsch $ 128 $ 33,500
Trustee (2 other investment
companies)
Robert A. Kavesh $ 113 $ 30,500
Trustee (2 other investment
companies)
Harold R. Logan $ 104 $ 28,000
Trustee (2 other investment
companies)
- 33 -
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/95
------------------------------
<S> <C> <C>
William E. Rulon $ 115 $ 30,500
Trustee (2 other investment
companies)
Candace L. Straight $ 119 $ 32,000
Trustee (2 other investment
companies)
</TABLE>
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
Investment Manager and Administrator
------------------------------------
Because all of the Funds' net investable assets are invested in
their corresponding Portfolios, the Funds do not need an investment
manager. N&B Management serves as the Portfolios' investment manager
pursuant to a management agreement with Managers Trust on behalf of the
Portfolio dated as of July 2, 1993 ("Management Agreement"). The
Management Agreement was approved for each Portfolio by the Portfolio
Trustees, including a majority of the Portfolio Trustees who were not
"interested persons" of N&B Management or Managers Trust ("Independent
Portfolio Trustees"), on April 27, 1993, and was approved by the holders
of the interests in all the Portfolios on July 2, 1993.
The Management Agreement provides, in substance, that N&B
Management will make and implement investment decisions for the Portfolios
in its discretion and will continuously develop an investment program for
the Portfolios' assets. The Management Agreement permits N&B Management
to effect securities transactions on behalf of each Portfolio through
associated persons of N&B Management. The Management Agreement also
specifically permits N&B Management to compensate, through higher
commissions, brokers and dealers who provide investment research and
analysis to the Portfolios, although N&B Management has no current plans
to do so.
N&B Management provides to each Portfolio, without separate cost,
office space, equipment, and facilities and the personnel necessary to
perform executive, administrative, and clerical functions. N&B Management
pays all salaries, expenses, and fees of the officers, trustees, and
employees of Managers Trust who are officers, directors, or employees of
N&B Management. Two officers and directors of N&B Management (who also
are partners of Neuberger & Berman), presently serve as trustees and
officers of the Trusts. See "Trustees and Officers." Each Portfolio pays
- 34 -
<PAGE>
N&B Management a management fee based on the Portfolio's average daily net
assets as described in the Prospectus.
N&B Management provides similar facilities, services, and
personnel to each Fund pursuant to an administration agreement dated July
2, 1993 ("Administration Agreement"). 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. N&B Management enters into
administrative services agreements with Institutions, pursuant to which it
compensates such Institutions for accounting, recordkeeping and other
services that they provide to investors who purchase shares of the Funds.
During the fiscal years ended October 31, 1995 and 1994 and the
fiscal period ended October 31, 1993, each Fund accrued management and
administration fees as follows: Limited Maturity - $65,572, $18,788, and
$111; and Ultra Short - $11,176, $5,804, and $115, respectively.
N&B Management has agreed to reimburse each Fund for its
Operating Expenses (including fees under the Administration Agreement) and
its pro rata share of its corresponding Portfolio's Operating Expenses
(including fees under the Management Agreement) that exceed, in the
aggregate, 0.75% and 0.80% per annum of the average daily net assets
("Expense Limitation") of Ultra Short and Limited Maturity, respectively.
From March 1, 1994 to February 28, 1995, N&B Management reimbursed each
Fund for its Operating Expenses (including fees under the Administration
Agreement) and its pro rata share of its corresponding Portfolio's
Operating Expenses (including fees under the Management Agreement) that
exceeded, in the aggregate, 0.65% and 0.70% per annum of the average daily
net assets of Ultra Short and Limited Maturity, respectively; prior to
that, the limits were 0.65% and 0.65%, respectively. "Operating Expenses"
exclude interest, taxes brokerage costs and extraordinary expenses.
During the fiscal years ended October 31, 1995 and 1994 and the
fiscal period ended October 31, 1993, N&B Management reimbursed each Fund
the following amounts of expenses under the above arrangements: Limited
Maturity - $123,568, $90,718, and $14,957; and Ultra Short - $104,135,
$91,185, and $15,612, respectively.
N&B Management can terminate an expense limitation by giving the
Fund at least 60 days' prior written notice.
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
Independent Portfolio Trustees, cast in person at a meeting called for the
purpose of voting on such approval, and (2) by the vote of a majority of
the Portfolio Trustees or by a 1940 Act majority vote of the outstanding
interests in the Portfolio. The Administration Agreement continues with
respect to each Fund for a period of two years after the date the Fund
became subject thereto. The Administration Agreement is renewable from
- 35 -
<PAGE>
year to year with respect to a Fund, so long as its continuance is
approved at least annually (1) by the vote of the Fund Trustees who are
not "interested persons" of N&B Management or the Trust ("Independent Fund
Trustees"), cast in person at a meeting called for the purpose of voting
on such approval, and (2) by the vote of a majority of the Fund Trustees
or by a 1940 Act majority vote of the outstanding shares in the Fund.
The Management Agreement is terminable, without penalty, with
respect to a Portfolio on 60 days' written notice either by Managers Trust
or by N&B Management. The Administration Agreement is terminable, without
penalty, with respect to a Fund on 60 days' written notice either by N&B
Management or by the Trust if authorized by the Fund Trustees, including a
majority of the Independent Fund Trustees. Each Agreement terminates
automatically if it is assigned.
In addition to the voluntary expense reimbursement noted above
and described in the Prospectus under "Management and Administration --
Expenses," N&B Management has agreed in the Management Agreement to
reimburse each Fund's expenses as follows. If, in any fiscal year, a
Fund's Aggregate Operating Expenses (as defined below) exceed the most
restrictive expense limitation imposed under the securities laws of the
states in which the Fund's shares are qualified for sale ("State Expense
Limitation"), then N&B Management will pay to the Fund the amount of that
excess, less the amount of any reduction of the administration fee payable
by the Fund under a similar State Expense Limitation contained in the
Administration Agreement. N&B Management will have no obligation to pay a
Fund, however, for any expenses that exceed the pro rata portion of the
advisory fees attributable to that Fund's interest in its corresponding
Portfolio. At the date of this SAI, the most restrictive expense limita-
tion to which the Funds expect to be subject is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million of average net
assets, and 1 1/2% of average net assets over $100 million. For the
fiscal year ended October 31, 1995, there were no expense reimbursements
required of N&B Management because of the State Expense Limitation.
For purposes of the State Expense Limitation, the term "Aggregate
Operating Expenses" means a Fund's operating expenses plus its pro rata
portion of its corresponding Portfolio's operating expenses (including any
fees or expense reimbursements payable to N&B Management and any compensa-
tion payable thereto pursuant to (1) the Administration Agreement or
(2) any other agreement or arrangement with Managers Trust in regard to
the Portfolio, but excluding (with respect to both the Fund and the
Portfolio) interest, taxes, brokerage commissions, litigation and
indemnification expenses, and other extraordinary expenses not incurred in
the ordinary course of business).
Sub-Adviser
-----------
N&B Management retains Neuberger & Berman, 605 Third Avenue, New
York, NY 10158-3698, as sub-adviser with respect to each Portfolio
pursuant to a sub-advisory agreement dated July 2, 1993 ("Sub-Advisory
- 36 -
<PAGE>
Agreement"). The Sub-Advisory Agreement was approved by the Portfolio
Trustees, including a majority of the Independent Portfolio Trustees, on
April 27, 1993 and was approved by the holders of the interests in the
Portfolios on July 2, 1993.
The Sub-Advisory Agreement provides in substance that Neuberger &
Berman will furnish to N&B Management, upon reasonable request, such
investment recommendations and research as Neuberger & Berman, from time
to time, provides to its partners and employees for use in managing client
accounts. In this manner, N&B Management expects to have available to
it, in addition to research from other professional sources, the
capability of the research staff of Neuberger & Berman. This staff
consists of approximately fourteen investment analysts, each of whom
specializes in studying one or more industries, under the supervision of
the Director of Research, who is also available for consultation with N&B
Management. The Sub-Advisory Agreement provides that N&B Management will
pay for the services rendered by Neuberger & Berman based on the direct
and indirect costs to Neuberger & Berman in connection with those
services. Neuberger & Berman also serves as a sub-adviser for all of the
other mutual funds managed by N&B Management.
The Sub-Advisory Agreement continues with respect to each
Portfolio for a period of two years after the date the Portfolio became
subject thereto, and is renewable thereafter from year to year, subject to
approval of its continuance in the same manner as the Management
Agreement. The Sub-Advisory Agreement is subject to termination, without
penalty, with respect to each Portfolio by the Portfolio Trustees, by a
1940 Act majority vote of the outstanding interests in the Portfolio, by
N&B Management, or by Neuberger & Berman on not less than 30 nor more than
60 days' written notice. The Sub-Advisory Agreement also terminates
automatically with respect to each Portfolio if it is assigned or if the
Management Agreement terminates with respect to that Portfolio.
Most money managers that come to the Neuberger & Berman
organization have at least fifteen years experience. Neuberger & Berman
and N&B Management employ experienced professionals that work in a
competitive environment.
Investment Companies Managed
----------------------------
N&B Management currently serves as investment manager of the
following investment companies. As of December 31, 1995, these companies,
along with three investment companies advised by Neuberger & Berman, had
aggregate net assets of approximately $11.9 billion, as shown in the
following list:
- 37 -
<PAGE>
Approximate
Net Assets at
Name December 31, 1995
---- -----------------
Neuberger & Berman Cash Reserves Portfolio $ 433,504,363
(investment portfolio for Neuberger &
Berman Cash Reserves)
Neuberger & Berman Government Money Portfolio $ 275,569,350
(investment portfolio for Neuberger &
Berman Government Money Fund)
Neuberger & Berman Limited Maturity Bond Portfolio $ 318,037,698
(investment portfolio for Neuberger & Berman
Limited Maturity Bond Fund and Neuberger &
Berman Limited Maturity Bond Trust)
Neuberger & Berman Ultra Short Bond Portfolio $ 102,724,936
(investment portfolio for Neuberger &
Berman Ultra Short Bond Fund and Neuberger &
Berman Ultra Short Bond Trust)
Neuberger & Berman Municipal Money Portfolio $ 152,876,653
(investment portfolio for Neuberger & Berman
Municipal Money Fund)
Neuberger & Berman Municipal Securities Portfolio $ 43,859,557
(investment portfolio for Neuberger & Berman
Municipal Securities Trust)
Neuberger & Berman New York Insured
Intermediate Portfolio $ 11,742,945
(investment portfolio for Neuberger & Berman
New York Insured Intermediate Fund)
Neuberger & Berman Genesis Portfolio $ 152,439,092
(investment portfolio for Neuberger & Berman
Genesis Fund and Neuberger & Berman Genesis Trust)
Neuberger & Berman Guardian Portfolio $ 5,321,221,497
(investment portfolio for Neuberger & Berman
Guardian Fund, Neuberger & Berman Guardian
Trust, and Neuberger & Berman Guardian Assets)
Neuberger & Berman Manhattan Portfolio $ 638,295,408
(investment portfolio for Neuberger & Berman
Manhattan Fund, Neuberger & Berman Manhattan
Trust, and Neuberger & Berman Manhattan Assets)
Neuberger & Berman International Portfolio $ 33,320,099
- 38 -
<PAGE>
(investment portfolio for Neuberger & Berman
International Fund)
Neuberger & Berman Partners Portfolio $ 1,741,742,815
(investment portfolio for Neuberger & Berman
Partners Fund, Neuberger & Berman Partners
Trust, and Neuberger & Berman Partners Assets)
Neuberger & Berman Focus Portfolio $ 1,057,224,027
(investment portfolio for Neuberger & Berman
Focus Fund, Neuberger & Berman Focus Trust,
and Neuberger & Berman Focus Assets)
Neuberger & Berman Socially Responsive Portfolio $ 115,240,931
(investment portfolio for Neuberger & Berman
Socially Responsive Fund, Neuberger & Berman
Socially Responsive Trust, and Neuberger & Berman
NYCDC Socially Responsive Trust)
Advisers Managers Trust (six series) $ 1,306,566,805
In addition, Neuberger & Berman serves as investment
adviser to three investment companies, Plan Investment Fund, Inc., AHA
Investment Fund, Inc., and AHA Full Maturity, with assets of $64,302,128,
$99,396,468, and $26,077,793, respectively, at December 31, 1995.
The investment decisions concerning the Portfolios and
the other funds and portfolios managed by N&B Management (collectively,
"Other N&B Funds") have been and will continue to be made independently of
one another. In terms of their investment objectives, most of the Other
N&B Funds differ from the Portfolios. Even where the investment
objectives are similar, however, the methods used by the Other N&B Funds
and the Portfolios to achieve their objectives may differ.
There may be occasions when a Portfolio and one or more
of the Other N&B Funds or other accounts managed by Neuberger & Berman are
contemporaneously engaged in purchasing or selling the same securities
from or to third parties. When this occurs, the transactions are averaged
as to price and allocated as to amounts in accordance with a formula con-
sidered to be equitable to the funds involved. Although in some cases
this arrangement may have a detrimental effect on the price or volume of
the securities as to a Portfolio, in other cases it is believed that a
Portfolio's ability to participate in volume transactions may produce
better executions for it. In any case, it is the judgment of the
Portfolio Trustees that the desirability of the Portfolios' having their
advisory arrangements with N&B Management outweighs any disadvantages that
may result from contemporaneous transactions. The investment results
achieved by all of the funds managed by N&B Management have varied from
one another in the past and are likely to vary in the future.
- 39 -
<PAGE>
Management and Control of N&B Management
----------------------------------------
The directors and officers of N&B Management, all of whom have
offices at the same address as N&B Management, are Richard A. Cantor,
Chairman of the Board and director; Stanley Egener, President and
director; Theresa A. Havell, Vice President and director; Irwin Lainoff,
director; Marvin C. Schwartz, director; Lawrence Zicklin, director;
Daniel J. Sullivan, Senior Vice President; Michael J. Weiner, Senior Vice
President; Claudia A. Brandon, Vice President; Robert Conti, Treasurer;
William Cunningham, Vice President; Peter E. Sundman, Senior Vice
President; Clara Del Villar, Vice President; Mark R. Goldstein, Vice
President; Farha-Joyce Haboucha, Vice President; Michael M. Kassen, Vice
President; Michael Lamberti, Vice President; Josephine P. Mahaney, Vice
President; Lawrence Marx III, Vice President; Ellen Metzger, Vice
President and Secretary; Janet W. Prindle, Vice President; Felix Rovelli,
Vice President; Richard Russell, Vice President; Kent C. Simons, Vice
President; Frederick B. Soule, Vice President; Judith M. Vale, Vice
President; Thomas Wolfe, Vice President; Andrea Trachtenberg, Vice
President of Marketing; Patrick T. Byrne, Assistant Vice President; Stacy
Cooper-Shugrue, Assistant Vice President; Robert Cresci, Assistant Vice
President; Barbara DiGiorgio, Assistant Vice President; Roberta D'Orio,
Assistant Vice President; Robert I. Gendelman, Assistant Vice President;
Joseph G. Galli, Assistant Vice President; Leslie Holliday-Soto, Assistant
Vice President; Jody L. Irwin, Assistant Vice President; Carmen G.
Martinez, Assistant Vice President; Paul Metzger, Assistant Vice
President; Susan Switzer, Assistant Vice President; Susan Walsh, Assistant
Vice President and Celeste Wischerth, Assistant Vice President. Messrs.
Cantor, Egener, Lainoff, Schwartz, Zicklin, Goldstein, Kassen, Marx, and
Simons and Mmes. Havell and Prindle are general partners of Neuberger &
Berman.
Ms. Havell and Mr. Egener are trustees and officers, and
Messrs. Sullivan, Weiner, and Russell and Mmes. Brandon and Cooper-Shugrue
are officers, of each Trust. C. Carl Randolph, a general partner of
Neuberger & Berman, also is an officer of each Trust.
All of the outstanding voting stock in N&B Management is
owned by persons who are also general partners of Neuberger & Berman.
DISTRIBUTION ARRANGEMENTS
N&B Management serves as the distributor ("Distributor")
in connection with the offering of each Fund's shares on a no-load basis
to Institutions. In connection with the sale of its shares, each Fund has
authorized the Distributor to give only the information, and to make only
the statements and representations, contained in the Prospectus and this
SAI or that properly may be included in sales literature and
advertisements in accordance with the 1933 Act, the 1940 Act, and
applicable rules of self-regulatory organizations. Sales may be made only
by the Prospectus, which may be delivered either personally, through the
mails, or by electronic means. The Distributor is the Funds' "principal
- 40 -
<PAGE>
underwriter" within the meaning of the 1940 Act and, as such, acts as
agent in arranging for the sale of each Fund's shares to Institutions
without sales commission or other compensation and bears all advertising
and promotion expenses incurred in the sale of the Funds' shares.
From time to time, N&B Management may enter into
arrangements pursuant to which it compensates a registered broker-dealer
or other third party for services in connection with the distribution of
Fund shares.
The Trust, on behalf of each Fund, and the Distributor
are parties to a Distribution Agreement that continues until July 2, 1996.
The Distribution Agreement may be renewed annually if specifically
approved by (1) the vote of a majority of the Fund Trustees or a 1940 Act
majority vote of the Fund's outstanding shares and (2) the vote of a
majority of the Independent Fund Trustees, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution
Agreement may be terminated by either party and will automatically
terminate on its assignment, in the same manner as the Management
Agreement.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus
entitled "Exchanging Shares," an Institution may exchange shares of either
Fund for shares of one or more of the other Funds, or the equity funds
that are briefly described below ("Equity Funds").
Neuberger & Berman Seeks long-term capital appreciation
Focus Trust through investments principally in common
stocks selected from 13 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
fund's investments are normally focused
in not more than six sectors.
Neuberger & Berman Seeks capital appreciation through
Genesis Trust investments principally in common stocks
of companies with small market capital-
izations, up to $750 million. The
corresponding portfolio uses a value-
oriented approach to the selection of
individual securities.
- 41 -
<PAGE>
Neuberger & Berman Seeks capital appreciation through
Guardian Trust investments primarily in a large number
of common stocks of long-established,
high-quality companies that N&B Manage-
ment believes are well-managed. Its
corresponding portfolio uses a value-
oriented approach to the selection of
individual securities. Current income is
a secondary objective. The Sister Fund
and its predecessor have paid its share-
holders 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 capital appreciation, without
Manhattan Trust regard to income, through investments
generally in securities of medium-to-
large-capitalization companies that N&B
Management believes have a maximum
potential for increasing total NAV. The
corresponding portfolio's "growth at a
reasonable price" investment approach
involves greater risks and share price
volatility than programs that invest in
more conservative securities.
Neuberger & Berman Seeks capital growth through an invest-
Partners Trust ment approach that is designed to
increase capital with reasonable risk.
Its investment program seeks securities
believed to be undervalued based on
strong fundamentals such as low price-to-
earnings ratios, consistent cash flow,
and the company's track record through
all parts of the market cycle. The
corresponding portfolio uses the value-
oriented investment approach to the
selection of individual securities.
Neuberger & Berman Seeks long-term capital appreciation
Socially Responsive through investments primarily in
Trust securities of companies that meet both
financial and social criteria.
Any Fund described herein, and any of the Other N&B
Funds, may terminate or modify its exchange privilege in the future.
Fund shareholders who are considering exchanging shares
into any of the funds listed below should note that (1) the Equity Funds
- 42 -
<PAGE>
are series of a Delaware business trust (named "Neuberger & Berman Equity
Trust") that is registered with the SEC as an open-end management
investment company, except Neuberger & Berman Socially Responsive Trust,
which is a series of Neuberger & Berman Equity Assets; and (2) each such
series invests all of its net investable assets in a portfolio of Equity
Managers Trust, an open-end management investment company that is managed
by N&B Management. Each such portfolio has an investment objective
identical to that of its corresponding fund and invests in accordance with
investment policies and limitations identical to those of that fund.
Before effecting an exchange, Fund shareholders must
obtain and should review a currently effective prospectus of the fund into
which the exchange is to be made. In this regard, it should be noted that
the Equity Funds share a prospectus, except for Neuberger & Berman
Socially Responsive Trust. 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.
ADDITIONAL REDEMPTION INFORMATION
Suspension of Redemptions
-------------------------
The right to redeem a Fund's shares may be suspended or
payment of the redemption price postponed (1) when the New York Stock
Exchange ("NYSE") is closed (other than weekend and holiday closings), (2)
when trading on the NYSE is restricted, (3) when an emergency exists as a
result of which it is not reasonably practicable for the corresponding
Portfolio to dispose of securities it owns or fairly to determine the
value of its net assets, or (4) for such other period as the SEC may by
order permit for the protection of a Fund's shareholders; provided that
applicable SEC rules and regulations shall govern whether the conditions
prescribed in (2) or (3) exist. If the right of redemption is suspended,
shareholders may withdraw their offers of redemption, or they will receive
payment at the NAV per share in effect at the close of business on the
first day the NYSE is open ("Business Day") after termination of the
suspension.
Redemptions in Kind
-------------------
Each Fund reserves the right, under certain conditions,
to honor any request for redemption by making payment in whole or in part
in securities valued as described under "Share Information -- Share Prices
and Net Asset Value" in the Prospectus. If payment is made in securities,
a shareholder generally will incur brokerage expenses in converting those
securities into cash and will be subject to fluctuations in the market
price of those securities until they are sold. The Funds do not redeem in
kind under normal circumstances, but would do so when the Fund Trustees
determine that it is in the best interests of a Fund's shareholders as a
- 43 -
<PAGE>
whole. Redemptions in kind will be made with readily marketable
securities to the extent possible.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders amounts equal
to substantially all of its proportionate share of any net investment
income (after deducting expenses incurred directly by the Fund), net
capital gains (both long-term and short-term), and net gains from foreign
currency transactions earned or realized by its corresponding Portfolio.
Each Fund calculates its net investment income and share price as of the
close of regular trading on the NYSE on each Business Day (usually 4:00
p.m. Eastern time). Shares of the Funds begin earning income dividends on
the Business Day after the proceeds of the purchase order have been
converted to "federal funds" and continue to earn dividends through the
Business Day they are redeemed. Dividends declared for each month are
paid on the last Business Day of the month.
A Portfolio's net investment income consists of all
income accrued on portfolio assets less accrued expenses but does not
include realized gains and losses Net investment income and realized gains
and losses are reflected in a Portfolio's NAV (and, hence, its
corresponding Fund's NAV) until they are distributed. Dividends from net
investment income and distributions of net realized capital and foreign
currency gains, if any, normally are paid once annually, in December.
Income dividends are declared daily and paid monthly.
Dividends and other distributions, if any, are
automatically reinvested in additional shares of the distributing Fund,
unless and until the Institution elects to receive them in cash ("cash
election"). 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
Institution notifies the Fund in writing to discontinue the election.
ADDITIONAL TAX INFORMATION
Taxation of the Funds
---------------------
In order to continue to qualify for treatment as a RIC
under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable
income (consisting generally of net investment income, net short-term
capital gain, and for Limited Maturity, net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. With respect to each Fund, these requirements
include the following: (1) the Fund must derive at least 90% of its gross
income each taxable year from dividends, interest, payments with respect
to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
- 44 -
<PAGE>
Hedging Instruments) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale
or other disposition of securities, or any of the following, that were
held for less than three months (i) Hedging Instruments (other than those
on foreign currencies), or (ii) foreign currencies or Hedging Instruments
thereon that are not directly related to the Fund's principal business of
investing in securities (or options and Futures with respect thereto)
("Short-Short Limitation"); and (3) at the close of each quarter of the
Fund's taxable year, (i) at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. Government securities,
and other securities limited, in respect of any one issuer, to an amount
that does not exceed 5% of the value of the Fund's total assets and 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) of any one
issuer.
Certain funds managed by N&B Management, including the
Sister Funds, have received a ruling from the Internal Revenue Service
("Service") that each such fund, as an investor in a corresponding portfo-
lio of Managers Trust or Equity Managers Trust, will be deemed to own a
proportionate share of the portfolio's assets and income for purposes of
determining whether the fund satisfies all the requirements described
above to qualify as a RIC. Although that ruling may not be relied on as
precedent by the Funds, N&B Management believes that the reasoning thereof
and, hence, its conclusion apply to the Funds 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.
See the next section for a discussion of the tax conse-
quences to Ultra Short and Limited Maturity of hedging and certain other
transactions engaged in by their corresponding Portfolios.
Taxation of the Portfolios
--------------------------
The Portfolios have received a ruling from the Service to
the effect that, among other things, each Portfolio will be treated as a
separate partnership for federal income tax purposes and will not be a
"publicly traded partnership." As a result, neither 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, and credits, 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.
- 45 -
<PAGE>
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 continue to conduct its operations so that
its corresponding Fund will be able to continue to satisfy all those
requirements.
Distributions to a Fund from its corresponding Portfolio
(whether pursuant to a partial or complete withdrawal or otherwise) will
not result in the Fund's recognition of any gain or loss for federal
income tax purposes, except that (1) gain will be recognized to the extent
any cash that is distributed exceeds the Fund's basis for its interest in
the Portfolio before the distribution, (2) income or gain will be
recognized if the distribution is in liquidation of the Fund's entire
interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio, (3) loss will be recognized
if a liquidation distribution consists solely of cash and/or unrealized
receivables, and (4) gain (and, in certain situations, loss) may be
recognized on an in-kind distribution by the Portfolios. A Fund's basis
for its interest in its corresponding Portfolio generally equals the
amount of cash the Fund invests in the Portfolio, increased by the Fund's
share of the Portfolio's net income and gains and decreased by (1) the
amount of cash and the basis of any property the Portfolio distributes to
the Fund and (2) the Fund's share of the Portfolio's losses.
Dividends and interest received by a Portfolio may be
subject to income, withholding, or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on its
securities. Tax conventions between certain countries and the United
States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors.
The Portfolios' use of hedging strategies, such as writ-
ing (selling) and purchasing Futures Contracts and options and entering
into forward contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains
and losses the Portfolios realize in connection therewith. Gains from the
disposition of foreign currencies (except certain gains therefrom that may
be excluded by future regulations), and gains from transactions in Hedging
Instruments derived by a Portfolio with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income for its corresponding Fund under the Income Requirement. However,
income from the disposition by a Portfolio of Hedging Instruments (other
than those on foreign currencies) will be subject to the Short-Short
Limitation for its corresponding Fund if they are held for less than three
months. Income from the disposition of foreign currencies, and Hedging
Instruments on foreign currencies, that are not directly related to a
Portfolio's principal business of investing in securities (or options and
Futures with respect thereto) also will be subject to the Short-Short
Limitation for its corresponding Fund if they are held for less than three
months.
- 46 -
<PAGE>
If a Portfolio satisfies certain requirements, any in-
crease in value of a position that is part of a "designated hedge" will be
offset by any decrease in value (whether realized or not) of the
offsetting hedging position during the period of the hedge for purposes of
determining whether its corresponding Fund satisfies the Short-Short
Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. Each
Portfolio will consider whether it should seek to qualify for this
treatment for its hedging transactions. To the extent a Portfolio does
not so qualify, it may be forced to defer the closing out of certain
Hedging Instruments beyond the time when it otherwise would be advan-
tageous to do so, in order for its corresponding Fund to continue to
qualify as a RIC.
Exchange-traded Futures Contracts and listed options
thereon constitute "Section 1256 contracts." Section 1256 contracts are
required to be marked to market (that is, treated as having been sold at
market value) at the end of a Portfolio's taxable year. Sixty percent of
any gain or loss recognized as a result of these "deemed sales," and 60%
of any net realized gain or loss from any actual sales, of Section 1256
contracts are treated as long-term capital gain or loss, and the remainder
is treated as short-term capital gain or loss.
Neuberger & Berman Limited Maturity Bond Portfolio may
invest in municipal bonds that are purchased with market discount (that
is, at a price less than the bond's principal amount or, in the case of a
bond that was issued with original issue discount ("OID"), a price less
than the amount of the issue price plus accrued OID) ("municipal market
discount bonds"). If a bond's market discount is less than the product
of (1) 0.25% of the redemption price at maturity times (2) the number of
complete years to maturity after the taxpayer acquired the bond, then no
market discount is considered to exist. Gain on the disposition of a
municipal market discount bond purchased by the Portfolio (other than a
bond with a fixed maturity date within one year from its issuance), gener-
ally is treated as ordinary (taxable) income, rather than capital gain, to
the extent of the bond's accrued market discount at the time of
disposition. Market discount on such a bond generally is accrued ratably,
on a daily basis, over the period from the acquisition date to the date of
maturity. In lieu of treating the disposition gain as above, the
Portfolio may elect to include market discount in its gross income cur-
rently, for each taxable year to which it is attributable.
Each Portfolio may acquire zero coupon or other securi-
ties issued with OID. As a holder of those securities, each Portfolio
(and, through it, its corresponding Fund) must take into account the OID
that accrues on the securities during the taxable year, even if it
receives no corresponding payment on the securities during the year.
Because each Fund annually must distribute substantially all of its
investment company taxable income (plus its share of its corresponding
Portfolio's accrued OID) to satisfy the Distribution Requirement and to
avoid imposition of the Excise Tax, the Fund may be required in a
particular year to distribute as a dividend an amount that is greater than
- 47 -
<PAGE>
its proportionate share of the total amount of cash its corresponding
Portfolio actually receives. Those distributions will be made from a
Fund's (or its proportionate share of its corresponding Portfolio's) cash
assets or, if necessary, from the proceeds of sales of that Portfolio's
securities. A Portfolio may realize capital gains or losses from those
sales, which would increase or decrease its corresponding Fund's
investment company taxable income and/or net capital gain (the excess of
net long-term capital gain over net short-term capital loss). In
addition, any such gains may be realized on the disposition of securities
held for less than three months. Because of the Short-Short Limitation,
any such gains would reduce a Portfolio's ability to sell other
securities, or certain Hedging Instruments, held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.
Taxation of the Funds' Shareholders
-----------------------------------
If Fund shares are sold at a loss after being held for
six months or less, the loss will be treated as long-term, instead of
short-term, capital loss to the extent of any capital gain distributions
received on those shares. Investors also should be aware that if shares
of Fund are purchased shortly before the record date for a dividend or
other distribution, the purchaser will receive some portion of the
purchase price back as a taxable distribution.
PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities generally are
transacted with issuers, underwriters, or dealers that serve as primary
market-makers acting as principals for the securities on a net basis. The
Portfolios typically do not pay brokerage commissions for such purchases
and sales. Instead, the price paid for newly issued securities usually
includes a concession or discount paid by the issuer to the underwriter,
and the prices quoted by market-makers reflect a spread between the bid
and the asked prices from which the dealer derives a profit.
In purchasing and selling portfolio securities other than
as described above (for example, in the secondary market), each Portfolio
seeks to obtain best execution at the most favorable prices through
responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates. In selecting broker-dealers to execute
transactions, N&B Management considers such factors as the price of the
security, the rate of commission, the size and difficulty of the order,
and the reliability, integrity, financial condition, and general execution
and operational capabilities of competing broker-dealers. N&B Management
also may consider the brokerage and research services that broker-dealers
provide to the Portfolio or N&B Management. Under certain conditions, a
Portfolio may pay higher brokerage commissions in return for brokerage and
research services, although no Portfolio has a current arrangement to do
so. In any case, each Portfolio may effect principal transactions with a
- 48 -
<PAGE>
dealer who furnishes research services, designate any dealer to receive
selling concessions, discounts, or other allowances, or otherwise deal
with any dealer in connection with the acquisition of securities in
underwritings.
During the fiscal year ended October 31, 1995, Neuberger
& Berman Ultra Short Bond Portfolio acquired securities of the following
"regular brokers or dealers" (as defined in the 1940 Act): Canadian
Imperial Bank of Commerce, Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Inc., and Morgan Stanley & Co. Inc. At October 31, 1995,
that Portfolio held none of the securities of its "regular brokers or
dealers."
During the fiscal year ended October 31, 1995, Neuberger
& Berman Limited Maturity Bond Portfolio acquired securities of the
following "regular brokers or dealers": Canadian Imperial Bank of
Commerce. At October 31, 1995, that Portfolio held none of the securities
of its "regular brokers or dealers."
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 effect or execute portfolio transactions may from time
to time effect purchases of Fund shares for their customers. The 1940 Act
generally prohibits Neuberger & Berman from acting as principal in the
purchase of portfolio securities from, or the sale of portfolio securities
to, a Portfolio account unless an appropriate exemption is available.
Portfolio Turnover
------------------
The portfolio turnover rate is the lesser of the cost of
the securities purchased or the value of the securities sold, excluding
all securities, including options, whose maturity or expiration date at
the time of acquisition was one year or less, divided by the average
monthly value of such securities owned during the year.
REPORTS TO SHAREHOLDERS
Shareholders of each Fund receive unaudited semi-annual
financial statements, as well as year-end financial statements audited by
the independent auditors for the Fund and for its corresponding Portfolio.
Each Fund's statements show the investments owned by its corresponding
Portfolio and the market values thereof and provide other information
about the Fund and its operations, including the Fund's beneficial
interest in its corresponding Portfolio.
- 49 -
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street Bank
and Trust Company, 225 Franklin Street, Boston, MA 02110 as custodian for
its securities and cash. All correspondence should be mailed to
Neuberger & Berman Funds, Institutional Services, 605 Third Avenue, 2nd
Floor, New York, NY 10158-0180. State Street also serves as each Fund's
transfer agent, administering purchases, redemptions, and transfers of
Fund shares with respect to Institutions and the payment of dividends and
other distributions to Institutions.
INDEPENDENT AUDITORS
Each Fund and Portfolio has selected Ernst & Young LLP,
200 Clarendon Street, Boston, MA 02116, as the independent auditors who
will audit its financial statements.
LEGAL COUNSEL
Each Fund and Portfolio has selected Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C.
20036, as its legal counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and
percentage of ownership of each person was known by each Fund to own
- 50 -
<PAGE>
beneficially or of record, 5% or more of that Fund's outstanding shares at
January 31, 1996:
<TABLE>
<CAPTION>
Percentage of
Ownership at
Name and Address January 31, 1996
---------------- ----------------
<S> <C> <C>
Limited Maturity: D. Leon Leonhardt PSP 42.55%
---------------- for Partners & Principals
of Price Waterhouse dtd 6/28/85
1410 N. Westshore Blvd.
Tampa, FL 33607-4519
North American Trust Co. 13.97%
Omnibus Acct.
P.O. Box 84419
San Diego, CA 92138-4419
National Financial Serv. Corp. 10.51%
For the Exclusive Benefit of Our
Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Chase Manhattan Bank TTEE 5.57%
Various Retirement Plans under PPI
Retirement Program
Professional Pensions Inc.
444 Foxon Road
East Haven, CT 06513-2019
Ultra Short: Gary N. Skoloff, etc. 64.06%
----------- Skoloff & Wolfe Target Benefit Trust
dtd 11/1/95
293 Eisenhower Pkwy.
Livingston, NJ 07039-1711
Aetna Life Insurance & Annuity Co. 13.21%
ACES - separate account F
Attn: Michael Weiner - RTAL
15 Farmington Avenue
Hartford, CT 06156-0001
- 51 -
<PAGE>
Percentage of
Ownership at
Name and Address January 31, 1996
---------------- ----------------
National Financial Serv. 12.83%
Corp.
For the Exclusive Benefit of
Our Customers
P.O. Box 3906
Church Street Station
New York, NY 10008-3908
</TABLE>
At January 31, 1996, the trustees and officers of the
Trusts, as a group, owned beneficially or of record less than 1% of the
outstanding shares of each Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the infor-
mation included in the Trust's registration statement filed with the SEC
under the 1933 Act with respect to the securities offered by the
Prospectus. Certain portions of the registration statement have been
omitted pursuant to SEC rules and regulations. The registration
statement, including the exhibits filed therewith, may be examined at the
SEC's offices in Washington, D.C.
Statements contained in this SAI and in the Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy
of the contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The following financial statements and related documents
are incorporated herein by reference to the Funds' Annual Report to
shareholders for the fiscal year ended October 31, 1995:
The audited financial statements of the
Funds and Portfolios and notes thereto
for the fiscal year ended October 31,
1995, and the reports of Ernst & Young
LLP, independent auditors, with respect
to such audited financial statements.
- 52 -
<PAGE>
Appendix A
RATINGS OF SECURITIES
S&P corporate bond ratings:
--------------------------
AAA - Bonds rated AAA have the highest rating assigned by
S&P. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the higher rated issues only
in small degree.
A - Bonds rated A have a strong capacity to pay interest
and repay principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this category than for bonds in higher
rated categories.
BB,B - Debt rated 'BB' is regarded, unbalanced, as
predominately speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB - Debt rated 'BB' has less near-term vulnerability to
default then other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, or economic conditions
which could leave to an inadequate capacity to meet timely interest and
principal payments. The 'BB' rating category is also used for debt
subordinated to senior debt that is assigned an actual implied 'BBB-'
rating.
B - Debt rated 'B' has a greater vulnerability to default
but current has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The 'B' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BB' or 'BB-' rating.
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<PAGE>
Plus (+) or Minus (-) - The ratings above may be modified by the
addition of a plus or minus sign to show relative standing within major
categories.
Moody's corporate bond ratings:
------------------------------
Aaa - Bonds rated Aaa are judged to be of the best qual-
ity. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or an exceptionally stable margin, and principal is secure. Although the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as "high-grade bonds." They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa-rated
securities, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa-rated securities.
A - Bonds rated A possess many favorable investment
attributes and are considered to be upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-
grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. These bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very
moderate, and thereby not well characterizes bonds in this class.
B - Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over
any long period of time may be small.
Modifiers - Moody's may apply numerical modifiers 1, 2,
and 3 in each generic rating classification described above. The modifier
1 indicates that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
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<PAGE>
indicates that the company ranks in the lower end of its generic rating
category.
S&P commercial paper ratings:
----------------------------
A-1 - This highest category indicates that the degree of
safety regarding timely payment is strong. Those issuers determined to
possess extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 - This designation denotes satisfactory capacity for
timely payment. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's commercial paper ratings:
--------------------------------
Issuers rated Prime-1 (or related supporting institu-
tions), also known as P-1, have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on funds employed.
- Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
- Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or related supporting institu-
tions), also known as P-2, have a strong capacity for repayment of short-
term promissory obligations. This will normally be evidenced by many of
the characteristics cited above, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
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Appendix B
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER
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