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NEUBERGER & BERMAN INCOME TRUST AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 3, 1997
Neuberger & Berman Neuberger & Berman
Ultra Short Bond Trust Limited Maturity Bond Trust
(and Neuberger & Berman (and Neuberger & Berman
Ultra Short Bond Portfolio) Limited Maturity Bond
Portfolio)
No-Load Mutual Funds
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
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Neuberger & Berman 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 February
3, 1997. The 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 PENSION PLAN ADMINISTRATOR, BROKER-DEALER, 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.
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Table of Contents
Page
INVESTMENT INFORMATION........................................................1
Investment Policies and Limitations..................................1
Rating Agencies......................................................4
Additional Investment Information....................................6
Risks of Fixed Income Securities....................................24
PERFORMANCE INFORMATION......................................................25
Yield Calculations..................................................25
Total Return Computations...........................................26
Comparative Information.............................................27
Other Performance Information.......................................28
CERTAIN RISK CONSIDERATIONS..................................................29
TRUSTEES AND OFFICERS........................................................29
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES............................35
Investment Manager and Administrator................................35
Sub-Adviser.........................................................38
Investment Companies Managed........................................38
Management and Control of N&B Management............................40
DISTRIBUTION ARRANGEMENTS....................................................41
ADDITIONAL EXCHANGE INFORMATION..............................................42
ADDITIONAL REDEMPTION INFORMATION............................................44
Suspension of Redemptions...........................................44
Redemptions in Kind.................................................44
DIVIDENDS AND OTHER DISTRIBUTIONS............................................44
ADDITIONAL TAX INFORMATION...................................................45
Taxation of the Funds...............................................45
Taxation of the Portfolios..........................................46
Taxation of the Funds' Shareholders.................................49
PORTFOLIO TRANSACTIONS.......................................................49
Portfolio Turnover..................................................50
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REPORTS TO SHAREHOLDERS......................................................50
CUSTODIAN AND TRANSFER AGENT.................................................51
INDEPENDENT AUDITORS.........................................................51
LEGAL COUNSEL................................................................51
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................51
REGISTRATION STATEMENT.......................................................53
FINANCIAL STATEMENTS.........................................................53
Appendix A
RATINGS OF SECURITIES..............................................A-1
Appendix B
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER..................................B-1
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INVESTMENT INFORMATION
Each Fund is a separate series of Neuberger & Berman Income 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 securities in accordance with an investment
objective, policies, and limitations identical to those of its corresponding
Fund. (The Trust and Managers Trust, which is an open-end management investment
company managed by N&B Management, are together referred to below as the
"Trusts.")
The following information supplements the discussion in the Prospectus
of the investment objective, policies, and limitations of each Fund and
Portfolio. The investment objective and, unless otherwise specified, the
investment policies and limitations of each Fund and Portfolio are not
fundamental. Any investment policy or limitation that is not fundamental may be
changed by the trustees of the Trust ("Fund Trustees") or of Managers Trust
("Portfolio Trustees") without shareholder approval. The fundamental investment
policies and limitations of a Fund or a Portfolio may not be changed without the
approval of the lesser of (1) 67% of the total units of beneficial interest
("shares") of the Fund or Portfolio represented at a meeting at which more than
50% of the outstanding Fund or Portfolio shares are represented or (2) a
majority of the outstanding shares of the Fund or Portfolio. These percentages
are required by the Investment Company Act of 1940 ("1940 Act") and are referred
to in this SAI as a "1940 Act majority vote." Whenever a Fund is called upon to
vote on a change in a fundamental investment policy or limitation of its
corresponding Portfolio, the Fund casts its votes thereon in proportion to the
votes of its shareholders at a meeting thereof called for that purpose.
INVESTMENT POLICIES AND LIMITATIONS
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Each Fund has the following fundamental investment policy, to enable it
to invest in its corresponding Portfolio:
Notwithstanding any other investment policy of the Fund, the Fund may
invest all of its investable assets (cash, securities, and receivables
relating to securities) in an open-end management investment company
having substantially the same investment objective, policies, and
limitations as the Fund.
All other fundamental investment policies and limitations and the
non-fundamental investment policies and limitations of each Fund are identical
to those of its corresponding Portfolio. Therefore, although the following
discusses the investment policies and limitations of the Portfolios, it applies
equally to their corresponding Funds.
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For purposes of the investment limitation on concentration in a
particular industry, N&B Management determines the "issuer" of a municipal
obligation that is not a general obligation note or bond based on the
obligation's characteristics. The most significant of these characteristics is
the source of funds for the repayment of principal and payment of interest on
the obligation. If an obligation is backed by an irrevocable letter of credit or
other guarantee, without which the obligation would not qualify for purchase
under Neuberger & Berman LIMITED MATURITY Bond Portfolio's quality restrictions,
the issuer of the letter of credit or the guarantee is considered an issuer of
the obligation. If an obligation meets the Portfolio's quality restrictions
without credit support, the Portfolio treats the commercial developer or the
industrial user, rather than the governmental entity or the guarantor, as the
only issuer of the obligation, even if the obligation is backed by a letter of
credit or other guarantee. Also, for purposes of the investment limitation on
concentration in a particular industry, both mortgage-backed and asset-backed
securities are grouped together as a single industry.
Except for the limitation on borrowing and the limitation on ownership
of portfolio securities by officers and trustees, any investment policy or
limitation that involves a maximum percentage of securities or assets will not
be considered to be violated unless the percentage limitation is exceeded
immediately after, and because of, a transaction by a Portfolio.
The 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.
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3. DIVERSIFICATION. Neither Portfolio may, with respect to 75% of the
value of its total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities ("U.S. Government and Agency Securities")) if, as a result,
(i) more than 5% of the value of the Portfolio's total assets would be invested
in the securities of that issuer or (ii) the Portfolio would hold more than 10%
of the outstanding voting securities of that issuer.
4. INDUSTRY CONCENTRATION. Neither Portfolio may 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.
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 U.S.
Government and Agency Securities) if, as a result, more than 5% of the
Portfolio's total assets would be invested in the securities of that issuer.
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2. ILLIQUID SECURITIES. Neither Portfolio may purchase any security if,
as a result, more than 15% of its net assets would be invested in illiquid
securities. Illiquid securities include securities that cannot be sold within
seven days in the ordinary course of business for approximately the amount at
which the Portfolio has valued the securities, such as repurchase agreements
maturing in more than seven days.
3. BORROWING. Neither Portfolio may purchase securities if outstanding
borrowings, including any reverse repurchase agreements, exceed 5% of its total
assets.
4. LENDING. Except for the purchase of debt securities and engaging in
repurchase agreements, neither Portfolio may make any loans other than
securities loans.
5. MARGIN TRANSACTIONS. Neither Portfolio may purchase securities on
margin from brokers or other lenders, except that a Portfolio may obtain such
short-term credits as are necessary for the clearance of securities
transactions. Margin payments in connection with transactions in futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
RATING AGENCIES
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As discussed in the Prospectus, the Portfolios may purchase securities
rated by Standard & Poor's ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
or any other nationally recognized statistical rating organization ("NRSRO").
The ratings of an NRSRO represent its opinion as to the quality of securities it
undertakes to rate. Ratings are not absolute standards of quality; consequently,
securities with the same maturity, duration, coupon, and rating may have
different yields. Although the Portfolios may rely on the ratings of any NRSRO,
the Portfolios mainly refer to ratings assigned by S&P and Moody's, which are
described in Appendix A to this SAI.
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OVERVIEW OF EACH FUND
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N&B Management offers taxable mutual funds designed with varying
degrees of risk and return based on the duration of each Portfolio. Duration
measures a bond's exposure to interest rate risk. Duration incorporates a bond's
yield, coupon interest payments, final maturity and call features into one
measure. In general, the longer you extend a bond's duration, the greater its
potential return and exposure to interest rate fluctuations.
For example, ULTRA SHORT can invest in a portfolio of bonds with a
maximum average duration of two years. LIMITED MATURITY seeks a higher income
but can experience more price fluctuation. Its portfolio of bonds has a maximum
average duration of four years. A more detailed discussion of each Fund follows.
In all cases, these Funds pursue attractive current income with low risk to
principal and vary according to their investment guidelines. These guidelines
include duration, type of bonds, and the credit quality of these bonds.
The Funds are managed on the basis of a strategy of investment in fixed
income sectors we believe are attractively priced, and the selection of the most
attractively priced issues in those sectors based on their perceived risk and
returns. We also manage the duration of the portfolios. Sector investments
include corporate bonds, mortgage-backed securities, asset backed securities,
CMOs (Collateralized Mortgages Obligations), Treasuries and Government agencies.
NEUBERGER & BERMAN ULTRA SHORT BOND TRUST
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ULTRA SHORT is oriented to investors who seek attractive current income
with minimal risk to principal and liquidity.
Through its Portfolio, the Fund invests in a broad array of investment
grade fixed income sectors in order to increase the yield of the Portfolio.
Within each bond sector we seek out securities that offer superior yield to
alternative investments while not compromising our credit quality standards.
This is a total return fund so that the investor's return will include earned
income on the underlying bonds, plus or minus changes in their principal values.
Therefore, the duration of the Fund is also actively managed in response to the
trend of interest rates. The Portfolio is limited to a maximum duration of two
years, which, combined with its moderately conservative portfolio of securities,
is intended to result in only limited fluctuation in principal value.
NEUBERGER & BERMAN LIMITED MATURITY BOND TRUST
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LIMITED MATURITY is appropriate for investors who seek to participate
in the returns of the bond market, but wish to avoid significant fluctuations in
principal value. In order to achieve its investment goal through its Portfolio,
this Fund has the flexibility to invest across the full range of bond sectors
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(corporate, mortgage-backed securities, etc.) and may invest a limited portion
of its assets in foreign securities denominated in foreign currencies as well as
lower-rated "high yield" issues.
The investment strategy of this Fund is based upon the demonstrated
ability of short and intermediate duration portfolios to deliver virtually all
of the income of riskier long-term maturity portfolios. Thus, this Fund limits
its maximum average duration to four years. However, in order to improve total
return, it invests across a broad range of fixed income sectors and within each
sector seeks out securities that have a higher yield than counterpart issues
that we believe have a similar credit risk. It may opportunistically invest in
foreign issues when they offer higher yield than U.S. issues. In addition, it
may invest up to 10% of its net assets in "high yield" issues when these issues
offer the prospect of higher total return to the Portfolio. It is the manager's
belief that the combination of broad sector diversification, active security
selection and flexible maturity and duration management can offer investors the
prospect of total returns that will approximate the bond market as a whole, with
only moderate fluctuation in principal value.
ADDITIONAL INVESTMENT INFORMATION
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One or both of the Portfolios, as indicated below, may make the
following investments, among others, although they may not buy all of the types
of securities or use all of the investment techniques that are described.
U.S. GOVERNMENT AND AGENCY SECURITIES (BOTH PORTFOLIOS). U.S.
Government and Agency Securities are direct obligations of the U.S. Government
or its agencies and instrumentalities, such as the Government National Mortgage
Association ("GNMA"), Fannie Mae, Federal Home Loan Mortgage Corporation
("FHLMC") Student Loan Marketing Association ("SLMA"), and Tennessee Valley
Authority. Many agency securities are not backed by the full faith and credit of
the United States.
INFLATION-INDEXED SECURITIES (BOTH PORTFOLIOS). The Portfolios may
invest in U.S. Treasury securities whose principal value is adjusted daily in
accordance with changes to the Consumer Price Index. Any increase in principal
value is taxable in the year the increase occurs, even though holders do not
receive cash representing the increase until the security matures. Because each
Fund must pay substantially all of its income to investors to avoid payment of
an excise tax, a Portfolio may have to dispose of other investments to obtain
the cash necessary to distribute the gain on inflation-indexed securities.
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REPURCHASE AGREEMENTS (BOTH PORTFOLIOS). In a repurchase agreement, a
Portfolio purchases securities from a bank that is a member of the Federal
Reserve System or from a securities dealer that agrees to repurchase the
securities from the Portfolio at a higher price on a designated future date.
Repurchase agreements generally are for a short period of time, usually less
than a week. Repurchase agreements with a maturity of more than seven days are
considered to be illiquid securities. Neither Portfolio may enter into such a
repurchase agreement if, as a result, more than 15% of the value of its net
assets would then be invested in such repurchase agreements and other illiquid
securities. A Portfolio may enter into a repurchase agreement only if (1) the
underlying securities are of a type (excluding maturity and duration
limitations) that the Portfolio's investment policies and limitations would
allow it to purchase directly, (2) the market value of the underlying
securities, including accrued interest, at all times equals or exceeds the
repurchase price, and (3) payment for the underlying securities is made only
upon satisfactory evidence that the securities are being held for the
Portfolio's account by its custodian or a bank acting as the Portfolio's agent.
SECURITIES LOANS (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 other institutional investors
judged creditworthy by N&B Management. Borrowers are required continuously to
secure their obligations to return securities on loan from a Portfolio by
depositing collateral in a form determined to be satisfactory by the Portfolio
Trustees. The collateral, which must be marked to market daily, must be equal to
at least 100% of the market value of the loaned securities, which will also be
marked to market daily. N&B Management believes the risk of loss on these
transactions is slight because, if a borrower were to default for any reason,
the collateral should satisfy the obligation. However, as with other extensions
of secured credit, loans of portfolio securities involve some risk of loss of
rights in the collateral should the borrower fail financially.
RESTRICTED SECURITIES AND RULE 144A SECURITIES (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. Before they are registered, such securities may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional market for
unregistered securities and the importance of institutional investors in the
formation of capital, the SEC has adopted Rule 144A under the 1933 Act. Rule
144A is designed further to facilitate efficient trading among institutional
investors by permitting the sale of certain unregistered securities to qualified
institutional buyers. To the extent privately placed securities held by a
Portfolio qualify under Rule 144A and an institutional market develops for those
securities, the Portfolio likely will be able to dispose of the securities
without registering them under the 1933 Act. To the extent that institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could increase the level of a Portfolio's
illiquidity. N&B Management, acting under guidelines established by the
Portfolio Trustees, may determine that certain securities qualified for trading
under Rule 144A are liquid. Foreign securities that are freely tradable in their
principal markets are not considered to be restricted. Regulation S under the
1933 Act permits the sale abroad of securities that are not registered for sale
in the United States.
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Where registration is required, a Portfolio may be obligated to pay all
or part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. To the extent restricted
securities, including Rule 144A securities, are illiquid, purchases thereof will
be subject to each Portfolio's 15% limit on investments in illiquid securities.
Restricted securities for which no market exists are priced by a method that the
Portfolio Trustees believe accurately reflects fair value.
COMMERCIAL PAPER (BOTH PORTFOLIOS). Commercial paper is a short-term
debt security issued by a corporation, bank, municipality, or other issuer,
usually for purposes such as financing current operations. Each Portfolio may
invest in commercial paper that cannot be resold to the public without an
effective registration statement under the 1933 Act. While restricted commercial
paper normally is deemed illiquid, N&B Management may in certain cases determine
that such paper is liquid, pursuant to guidelines established by the Portfolio
Trustees.
REVERSE REPURCHASE AGREEMENTS (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 each Portfolio's investment policies and limitations concerning
borrowings. While a reverse repurchase agreement is outstanding, a Portfolio
will deposit in a segregated account with its custodian cash or appropriate
liquid securities, marked to market daily, in an amount at least equal to each
Portfolio's obligations under the agreement. There is a risk that the
counter-party to a reverse repurchase agreement will be unable or unwilling to
complete the transaction as scheduled, which may result in losses to the
Portfolio. Neither Portfolio currently expects to enter into reverse repurchase
agreements or to borrow money.
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.
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A Portfolio may invest in securities issued by a commercial bank or
savings institution only if (1) the bank or institution has total assets of at
least $1,000,000,000, (2) the bank or institution is on N&B Management's
approved list, (3) in the case of a U.S. bank or institution, its deposits are
insured by the Federal Deposit Insurance Corporation, and (4) in the case of a
foreign bank or institution, the securities are, in N&B Management's opinion, of
an investment quality comparable with other debt securities that may be
purchased by the Portfolio. These limitations do not prohibit investments in
securities issued by foreign branches of U.S. banks that meet the foregoing
requirements.
VARIABLE OR FLOATING RATE SECURITIES; DEMAND AND PUT FEATURES (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 adjustment of the interest rate
whenever a specified interest rate or index changes. The interest rate on
variable and floating rate securities (collectively, "Adjustable Rate
Securities") ordinarily is determined by reference to a particular bank's prime
rate, the 90-day U.S. Treasury Bill rate, the rate of return on commercial paper
or bank CDs, an index of short-term tax-exempt rates, or some other objective
measure.
The Adjustable Rate Securities in which the Portfolios invest
frequently permit the holder to demand payment of the obligations' principal and
accrued interest at any time or at specified intervals not exceeding one year.
The demand feature usually is backed by a credit instrument (e.g., a bank letter
of credit) from a creditworthy issuer and sometimes by insurance from a
creditworthy insurer. Without these credit enhancements, some Adjustable Rate
Securities might not meet the Portfolios' quality standards. Accordingly, in
purchasing these securities, each Portfolio relies primarily on the
creditworthiness of the credit instrument issuer or the insurer. A Portfolio may
not invest more than 5% of its total assets in securities backed by credit
instruments from any one issuer or by insurance from any one insurer (excluding
securities that do not rely on the credit instrument or insurance for their
rating, i.e., stand on their own credit).
A Portfolio can also buy fixed rate securities accompanied by a demand
feature or by a put option, which permits the Portfolio to sell the security to
the issuer or third party at a specified price. A Portfolio may rely on the
creditworthiness of issuers of the credit enhancements in purchasing these
securities.
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In calculating its dollar-weighted average maturity and duration, each
Portfolio is permitted to treat certain Adjustable Rate Securities as maturing
on a date prior to the date on which the final repayment of principal must
unconditionally be made. In applying such maturity shortening devices, N&B
Management considers whether the interest rate reset is expected to cause the
security to trade at approximately its par value.
MORTGAGE-BACKED SECURITIES (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 (such as GNMA, Fannie Mae, and FHLMC),
though not necessarily backed by the full faith and credit of the United States,
or may be issued by private issuers.
Because many mortgages are repaid early, the actual maturity and
duration of mortgage-backed securities are typically shorter than their stated
final maturity and their duration calculated solely on the basis of the stated
life and payment schedule. In calculating its dollar-weighted average maturity
and duration, a Portfolio may apply certain industry conventions regarding the
maturity and duration of mortgage-backed instruments. Different analysts use
different models and assumptions in making these determinations. The Portfolios
use an approach that N&B Management believes is reasonable in light of all
relevant circumstances.
Mortgage-backed securities may be issued in the form of collateralized
mortgage obligations ("CMOs") or mortgage-backed bonds. CMOs are obligations
that are fully collateralized, directly or indirectly, by a pool of mortgages;
payments of principal and interest on the mortgages are passed through to the
holders of the CMOs, although not necessarily on a pro rata basis, on the same
schedule as they are received. Mortgage-backed bonds are general obligations of
the issuer that are fully collateralized, directly or indirectly, by a pool of
mortgages. The mortgages serve as collateral for the issuer's payment
obligations on the bonds, but interest and principal payments on the mortgages
are not passed through either directly (as with mortgage-backed "pass-through"
securities issued or guaranteed by U.S. Government agencies or
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instrumentalities) or on a modified basis (as with CMOs). Accordingly, a change
in the rate of prepayments on the pool of mortgages could change the effective
maturity or the duration of a CMO but not that of a mortgage-backed bond
(although, like many bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity). To the extent that rising interest rates cause prepayments
to occur at a slower than expected rate, a CMO could be converted into a
longer-term security that is subject to greater risk of price volatility.
Governmental, government-related, and private entities (such as
commercial banks, savings institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers, including securities
broker-dealers and special purpose entities that generally are affiliates of the
foregoing established to issue such securities) may create mortgage loan pools
to back mortgage pass-through and mortgage-collateralized investments. Such
issuers may be the originators and/or servicers of the underlying mortgage
loans, as well as the guarantors of the mortgage-backed securities. Pools
created by non-governmental issuers generally offer a higher rate of interest
than governmental and government-related pools because of the absence of direct
or indirect government or agency guarantees. Various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance and
letters of credit, may support timely payment of interest and principal of
non-governmental pools. Governmental entities, private insurers, and mortgage
poolers issue these forms of insurance and guarantees. N&B Management considers
such insurance and guarantees, as well as the creditworthiness of the issuers
thereof, in determining whether a mortgage-backed security meets a Portfolio's
investment quality standards. There can be no assurance that private insurers or
guarantors can meet their obligations under insurance policies or guarantee
arrangements.
A Portfolio may buy mortgage-backed securities without insurance or
guarantees, if N&B Management determines that the securities meet the
Portfolio's quality standards. A Portfolio may not purchase mortgage-backed
securities that, in N&B Management's opinion, are illiquid if, as a result, more
than 15% of the Portfolio's net assets would be invested in illiquid securities.
N&B Management will, consistent with the Portfolios' investment objective,
policies and limitations, and quality standards, consider making investments in
new types of mortgage-backed securities as such securities are developed and
offered to investors.
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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 of principal and interest on
asset-backed securities. Asset-backed securities are subject to the same risk of
prepayment described with respect to mortgage-backed securities. The risk that
recovery on repossessed collateral might be unavailable or inadequate to support
payments, however, is greater for asset-backed securities than for
mortgage-backed securities.
Certificates for Automobile ReceivablesSM ("CARSSM") represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interests in the
vehicles securing those contracts. Payments of principal and interest on the
underlying contracts are passed-through monthly to certificate holders and are
guaranteed up to specified amounts by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the trust. Underlying
installment sales contracts are subject to prepayment, which may reduce the
overall return to certificate holders. Certificate holders also may experience
delays in payment or losses on CARSSM if the trust does not realize the full
amounts due on underlying installment sales contracts because of unanticipated
legal or administrative costs of enforcing the contracts; depreciation, damage,
or loss of the vehicles securing the contracts; or other factors.
Credit card receivable securities are backed by receivables from
revolving credit card agreements ("Accounts"). Credit balances on Accounts are
generally paid down more rapidly than are automobile contracts. Most of the
credit card receivable securities issued publicly to date have been pass-through
certificates. In order to lengthen their maturity or duration, most such
securities provide for a fixed period during which only interest payments on the
underlying Accounts are passed through to the security holder; principal
payments received on the Accounts are used to fund the transfer of additional
credit card charges made on the Accounts to the pool of assets supporting the
securities. Usually, the initial fixed period may be shortened if specified
events occur which signal a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates. An
issuer's ability to extend the life of an issue of credit card receivable
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securities thus depends on the continued generation of principal amounts in the
underlying Accounts and the non-occurrence of the specified events. The
non-deductibility of consumer interest, as well as competitive and general
economic factors, could adversely affect the rate at which new receivables are
created in an Account and conveyed to an issuer, thereby shortening the expected
weighted average life of the related security and reducing its yield. An
acceleration in cardholders' payment rates or any other event that shortens the
period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related security could have a
similar effect on its weighted average life and yield.
Credit cardholders are entitled to the protection of state and federal
consumer credit laws. Many of those laws give a holder the right to set off
certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike the collateral for most other
asset-backed securities, Accounts are unsecured obligations of the cardholder.
U.S. DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES (BOTH PORTFOLIOS). The
Portfolios may invest in U.S. dollar-denominated debt securities of foreign
issuers (including banks, governments and quasi-governmental organizations) and
foreign branches of U.S. banks, including negotiable CDs, bankers' acceptances,
and commercial paper. These investments are subject to each Portfolio's quality,
maturity, and duration standards. While investments in foreign securities are
intended to reduce risk by providing further diversification, such investments
involve sovereign and other risks, in addition to the credit and market risks
normally associated with domestic securities. These additional risks include the
possibility of adverse political and economic developments (including political
instability) and the potentially adverse effects of unavailability of public
information regarding issuers, less governmental supervision and regulation of
financial markets, reduced liquidity of certain financial markets, and the lack
of uniform accounting, auditing, and financial reporting standards or the
application of standards that are different or less stringent than those applied
in the United States.
FOREIGN CURRENCY DENOMINATED FOREIGN SECURITIES (NEUBERGER & BERMAN
LIMITED MATURITY BOND PORTFOLIO). The Portfolio may invest in debt or other
income-producing securities (of issuers in countries whose governments are
considered stable by N&B Management) that are denominated in or indexed to
foreign currencies, including (1) CDs, commercial paper, fixed time deposits,
and bankers' acceptances issued by foreign banks, (2) obligations of other
corporations, and (3) obligations of foreign governments, of their subdivisions,
agencies, and instrumentalities, international agencies, and supranational
entities. Investing in foreign currency denominated securities involves the
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special risks associated with investing in non-U.S. issuers, as described in the
preceding section, and the additional risks of (1) adverse changes in foreign
exchange rates, (2) nationalization, expropriation, or confiscatory taxation,
and (3) adverse changes in investment or exchange control regulations (which
could prevent cash from being brought back to the United States). Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes, including taxes withheld from those payments.
Foreign securities often trade with less frequency and in less volume
than domestic securities and therefore may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custody arrangements, and
transaction costs of foreign currency conversions.
Foreign markets also have different clearance and settlement
procedures. In certain markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Portfolio are uninvested
and no return is earned thereon. The inability of the Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to the Portfolio
due to subsequent declines in value of the securities or, if the Portfolio has
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
Interest rates prevailing in other countries may affect the prices of
foreign securities and exchange rates for foreign currencies. Local factors,
including the strength of the local economy, the demand for borrowing, the
government's fiscal and monetary policies, and the international balance of
payments, often affect 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.
In order to limit the risks inherent in investing in foreign currency
denominated securities, the Portfolio may not purchase any such security if, as
a result, more than 25% of its net assets (taken at market value) would be
invested in foreign currency denominated securities. Within that limitation,
however, the Portfolio is not restricted in the amount it may invest in
securities denominated in any one foreign currency.
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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 (i.e., same type and coupon) securities on a
specified future date from the same party. A "covered roll" is a specific type
of dollar roll in which the Portfolio holds an offsetting cash position or a
cash-equivalent securities position that matures on or before the forward
settlement date of the dollar roll transaction. Dollar rolls are considered
borrowings for purposes of the Portfolios' investment policies and limitations
concerning borrowings. There is a risk that the contra-party will be unable or
unwilling to complete the transaction as scheduled, which may result in losses
to the Portfolio.
WHEN-ISSUED TRANSACTIONS (BOTH PORTFOLIOS). The Portfolios may purchase
securities (including mortgage-backed securities such as GNMA, Fannie Mae, and
FHLMC certificates) on a when-issued basis. These transactions involve a
commitment by a Portfolio to purchase securities that will be issued at a future
date (ordinarily within two months, although the Portfolio may agree to a longer
settlement period). The price of the underlying securities (usually expressed in
terms of yield) and the date when the securities will be delivered and paid for
(the settlement date) are fixed at the time the transaction is negotiated.
When-issued purchases are negotiated directly with the other party, and such
commitments are not traded on exchanges.
When-issued transactions enable a Portfolio to "lock in" what N&B
Management believes to be an attractive price or yield on a particular security
for a period of time, regardless of future changes in interest rates. In periods
of falling interest rates and rising prices, a Portfolio might purchase a
security on a when-issued basis and sell a similar security to settle such
purchase, thereby obtaining the benefit of currently higher yields. When-issued
purchases are negotiated directly with the other party, and such commitments are
not traded on an exchange.
The value of securities purchased on a when-issued basis and any
subsequent fluctuations in their value are reflected in the computation of a
Portfolio's net asset value ("NAV") starting on the date of the agreement to
purchase the securities. Because the Portfolio has not yet paid for the
securities, this produces an effect similar to leverage. The Portfolio does not
earn interest on securities it has committed to purchase until the securities
are paid for and delivered on the settlement date.
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A Portfolio will purchase securities on a when-issued basis only with
the intention of completing the transaction and actually purchasing the
securities. If deemed advisable as a matter of investment strategy, however, a
Portfolio may dispose of or renegotiate a commitment after it has been entered
into. A Portfolio also may sell securities it has committed to purchase before
those securities are delivered to the Portfolio on the settlement date. The
Portfolio may realize capital gains or losses in connection with these
transactions.
When a Portfolio purchases securities on a when-issued basis, it will
deposit in a segregated account with its custodian, until payment is made,
appropriate liquid securities having an aggregate market value (determined
daily) at least equal to the amount of the Portfolio's purchase commitments.
This procedure is designed to ensure that the Portfolio maintains sufficient
assets at all times to cover its obligations under when-issued purchases.
FUTURES CONTRACTS AND OPTIONS THEREON (BOTH PORTFOLIOS). The Portfolios
may purchase and sell interest rate and bond index futures contracts and options
thereon and Neuberger & Berman LIMITED MATURITY Bond Portfolio may purchase and
sell foreign currency futures contracts (with interest rate and bond index
futures contracts, "Futures" or "Futures Contracts") and options thereon. The
Portfolios engage in interest rate and bond index Futures and options
transactions in an attempt to hedge against changes in securities prices
resulting from changes in prevailing interest rates; Neuberger & Berman LIMITED
MATURITY Bond Portfolio engages in foreign currency Futures and options
transactions in an attempt to hedge against changes in prevailing currency
exchange rates. Because the futures markets may be more liquid than the cash
markets, the use of Futures permits a Portfolio to enhance portfolio liquidity
and maintain a defensive position without having to sell portfolio securities.
The Portfolios do not engage in transactions in Futures or options thereon for
speculation. The Portfolios view investment in (1) interest rate and bond index
Futures and options thereon as a maturity or duration management device and/or a
device to reduce risk and preserve total return in an adverse interest rate
environment for the hedged securities and (2) foreign currency Futures and
options thereon as a means of establishing more definitely the effective return
on, or the purchase price of, securities denominated in foreign currencies held
or intended to be acquired by the Portfolios.
A "sale" of a Futures Contract (or a "short" Futures position) entails
the assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a Futures Contract (or a "long" Futures position) entails the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
Futures, including bond index Futures, are settled on a net cash payment basis
rather than by the sale and delivery of the securities underlying the Futures.
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U.S. Futures (except certain currency Futures) are traded on exchanges
that have been designated as "contract markets" by the Commodity Futures Trading
Commission ("CFTC"); Futures transactions must be executed through a futures
commission merchant that is a member of the relevant contract market. The
exchange's affiliated clearing organization guarantees performance of the
contracts between the clearing members of the exchange.
Although Futures Contracts by their terms may require the actual
delivery or acquisition of the underlying securities or currency, in most cases
the contractual obligation is extinguished by being offset before the expiration
of the contract, without the parties having to make or take delivery of the
assets. A Futures position is offset by buying (to offset an earlier sale) or
selling (to offset an earlier purchase) an identical Futures Contract calling
for delivery in the same month.
"Margin" with respect to Futures is the amount of assets that must be
deposited by a Portfolio with, or for the benefit of, a futures commission
merchant in order to initiate and maintain the Portfolio's Futures positions.
The margin deposit made by a Portfolio when it enters into a Futures Contract
("initial margin") is intended to assure its performance of the contract. If the
price of the Futures Contract changes -- increases in the case of a short (sale)
position or decreases in the case of a long (purchase) position -- so that the
unrealized loss on the contract causes the margin deposit not to satisfy margin
requirements, the Portfolio will be required to make an additional margin
deposit ("variation margin"). However, if favorable price changes in the Futures
Contract cause the margin on deposit to exceed the required margin, the excess
will be paid to the Portfolio. In computing its daily NAV, each Portfolio marks
to market the value of its open Futures positions. A Portfolio also must make
margin deposits with respect to options on Futures that it has written. If the
futures commission merchant holding the deposit goes bankrupt, the Portfolio
could suffer a delay in recovering its funds and could ultimately suffer a loss.
An option on a Futures Contract gives the purchaser the right, in
return for the premium paid, to assume a position in the contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume a short Futures
position (if the option is a call) or a long Futures position (if the option is
a put). Upon exercise of the option, the accumulated cash balance in the
writer's Futures margin account is delivered to the holder of the option. That
balance represents the amount by which the market price of the Futures Contract
at exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option.
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Although each Portfolio believes that the use of Futures Contracts will
benefit it, if N&B Management's judgment about the general direction of the
markets is incorrect, a Portfolio's overall return would be lower than if it had
not entered into any such contracts. The prices of Futures are volatile and are
influenced by, among other things, actual and anticipated changes in interest or
currency exchange rates, which in turn are affected by fiscal and monetary
policies and by national and international political and economic events. At
best, the correlation between changes in prices of Futures and of the securities
and currencies being hedged can be only approximate. Decisions regarding
whether, when, and how to hedge involve skill and judgment. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate or currency exchange rate trends, or lack of
correlation between the futures markets and the securities markets. Because of
the low margin deposits required, Futures trading involves an extremely high
degree of leverage; as a result, a relatively small price movement in a Futures
Contract may result in an immediate and substantial loss, or gain, to the
investor. Losses that may arise from certain Futures transactions are
potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctuation in the
price of a Futures Contract or option thereon during a single trading day; once
the daily limit has been reached, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day, however; it thus does not limit potential losses. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable Futures and options positions and
subjecting investors to substantial losses. If this were to happen with respect
to a position held by a Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
PUT AND CALL OPTIONS (NEUBERGER & BERMAN LIMITED MATURITY BOND
PORTFOLIO). The Portfolio may write and purchase put and call options on
securities. Generally, the purpose of writing and purchasing these options is to
reduce the effect of price fluctuations of securities held by the Portfolio on
the Portfolio's and its corresponding Fund's NAVs. The Portfolio may also write
covered call options to earn premium income. Portfolio securities on which call
and put options may be written and purchased by the Portfolio are purchased
solely on the basis of investment considerations consistent with the Portfolio's
investment objective.
The Portfolio will receive a premium for writing a put option, which
obligates the Portfolio to acquire a security at a certain price at any time
until a certain date if the purchaser of the option decides to exercise the
option. The Portfolio may be obligated to purchase the underlying security at
more than its current value.
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When the Portfolio purchases a put option, it pays a premium to the
writer for the right to sell a security to the writer for a specified amount at
any time until a certain date. The Portfolio would purchase a put option in
order to protect itself against a decline in the market value of a security it
owns.
When the Portfolio writes a call option, it is obligated to sell a
security to a purchaser at a specified price at any time until a certain date if
the purchaser decides to exercise the option. The Portfolio receives a premium
for writing the option. The Portfolio writes only "covered" call options on
securities it owns. So long as the obligation of the call option continues, the
Portfolio may be assigned an exercise notice, requiring it to deliver the
underlying security against payment of the exercise price. The Portfolio may be
obligated to deliver securities underlying a call option at less than the market
price, thereby giving up any additional gain on the security.
When the Portfolio purchases a call option, it pays a premium for the
right to purchase a security from the writer at a specified price until a
specified date. The Portfolio would purchase a call option to protect against an
increase in the price of securities it intends to purchase or to offset a
previously written call option.
The writing of covered call options is a conservative investment
technique that is believed to involve relatively little risk (in contrast to the
writing of "naked" or uncovered call options, which the Portfolio will not do),
but is capable of enhancing the Portfolio's total return. When writing a covered
call option, the Portfolio, in return for the premium, gives up the opportunity
for profit from a price increase in the underlying security above the exercise
price, but conversely retains the risk of loss should the price of the security
decline. When writing a put option, the Portfolio, in return for the premium,
takes the risk that it must purchase the underlying security at a price which
may be higher than the current market price of the security. If a call or put
option that the Portfolio has written expires unexercised, the Portfolio will
realize a gain in the amount of the premium; however, in the case of a call
option, that gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is exercised,
the Portfolio will realize a gain or loss from the sale of the underlying
security.
The exercise price of an option may be below, equal to, or above the
market value of the underlying security at the time the option is written.
Options normally have expiration dates between three and nine months from the
date written. The obligation under any option terminates upon expiration of the
option or, at an earlier time, when the writer offsets the option by entering
into a "closing purchase transaction" to purchase an option of the same series.
If an option is purchased by the Portfolio and is never exercised, the Portfolio
will lose the entire amount of the premium paid.
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Options are traded both on national securities exchanges and in the
over-the-counter ("OTC") market. Exchange-traded options in the U.S. are issued
by a clearing organization affiliated with the exchange on which the option is
listed; the clearing organization in effect guarantees completion of every
exchange-traded option. In contrast, OTC options are contracts between the
Portfolio and a counter-party, with no clearing organization guarantee. Thus,
when the Portfolio sells (or purchases) an OTC option, it generally will be able
to "close out" the option prior to its expiration only by entering into a
"closing transaction" with the dealer to whom (or from whom) the Portfolio
originally sold (or purchased) the option. There can be no assurance that the
Portfolio would be able to liquidate an OTC option at any time prior to
expiration. Unless the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option it has written, it will not be able to
liquidate securities used as cover until the option expires or is exercised or
until different cover is substituted. In the event of the counter-party's
insolvency, the Portfolio may be unable to liquidate its options position and
the associated cover. N&B Management monitors the creditworthiness of dealers
with which the Portfolio may engage in OTC options transactions, and limits the
Portfolio's counter-parties in such transactions to dealers with a net worth of
at least $20 million as reported in their latest financial statements.
The assets used as cover for OTC options written by the Portfolio will
be considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Portfolio may repurchase any OTC option it writes at a maximum
price to be calculated by a formula set forth in the option agreement. The cover
for an OTC call option written subject to this procedure will be considered
illiquid only to the extent that the maximum repurchase price under the formula
exceeds the intrinsic value of the option.
The premium received (or paid) by the Portfolio when it writes (or
purchases) an option is the amount at which the option is currently traded on
the applicable exchange, less (or plus) a commission. The premium may reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security, the length of the option period, the
general supply of and demand for credit, and the interest rate environment. The
premium received by the Portfolio for writing an option is recorded as a
liability on the Portfolio's statement of assets and liabilities. This liability
is adjusted daily to the option's current market value, which is the last
reported sales price before the time the Portfolio's NAV is computed on the day
the option is being valued or, in the absence of any trades thereof on that day,
the mean between the bid and asked prices as of that time.
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Closing transactions are effected in order to realize a profit on an
outstanding option, to prevent an underlying security from being called, or to
permit the sale or the put of the underlying security. Furthermore, effecting a
closing transaction permits the Portfolio to write another call option on the
underlying security with a different exercise price or expiration date or both.
If the Portfolio desires to sell a security on which it has written a call
option, it will seek to effect a closing transaction prior to, or concurrently
with, the sale of the security. There is, of course, no assurance that the
Portfolio will be able to effect closing transactions at favorable prices. If
the Portfolio cannot enter into such a transaction, it may be required to hold a
security that it might otherwise have sold (or purchase a security that it would
not have otherwise bought), in which case it would continue to be at market risk
on the security.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the call or put option. Because increases in the market
price of a call option generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset, in whole or in part, by appreciation of the underlying
security owned by the Portfolio; however, the Portfolio could be in a less
advantageous position than if it had not written the call option.
The Portfolio pays brokerage commissions in connection with purchasing
or writing options, including those used to close out existing positions. These
brokerage commissions normally are higher than those applicable to purchases and
sales of portfolio securities. From time to time, the Portfolio may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering the security from its portfolio.
In those cases, additional brokerage commissions are incurred.
FORWARD FOREIGN CURRENCY CONTRACTS (NEUBERGER & BERMAN LIMITED MATURITY
BOND PORTFOLIO). The Portfolio may enter into contracts for the purchase or sale
of a specific foreign currency at a future date at a fixed price ("forward
contracts"). The Portfolio enters into forward contracts in an attempt to hedge
against changes in prevailing currency exchange rates. The Portfolio does not
engage in transactions in forward contracts for speculation; it views
investments in forward contracts as a means of establishing more definitely the
effective return on, or the purchase price of, securities denominated in foreign
currencies that are held or intended to be acquired by it. Forward contract
transactions include forward sales or purchases of foreign currencies for the
purpose of protecting the U.S. dollar value of securities held or to be acquired
by the Portfolio that are denominated in a foreign currency or protecting the
U.S. dollar equivalent of dividends, interest, or other payments on those
securities.
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N&B Management believes that the use of foreign currency hedging
techniques, including "proxy-hedges," can provide significant protection of NAV
in the event of a general rise in the U.S. dollar against foreign currencies.
For example, the return available from securities denominated in a particular
foreign currency would diminish if the value of the U.S. dollar increased
against that currency. Such a decline could be partially or completely offset by
an increase in value of a hedge involving a forward contract to sell that
foreign currency or a proxy-hedge involving a forward contract to sell a
different foreign currency whose behavior is expected to resemble the currency
in which the securities being hedged are denominated and which is available on
more advantageous terms. However, a hedge or proxy-hedge cannot protect against
exchange rate risks perfectly, and, if N&B Management is incorrect in its
judgment of future exchange rate relationships, the Portfolio could be in a less
advantageous position than if such a hedge or proxy-hedge had not been
established. If the Portfolio uses proxy-hedging, it may experience losses on
both the currency in which it has invested and the currency used for hedging if
the two currencies do not vary with the expected degree of correlation. Because
forward contracts are not traded on an exchange, the assets used to cover such
contracts may be illiquid.
OPTIONS ON FOREIGN CURRENCIES (NEUBERGER & BERMAN LIMITED MATURITY BOND
PORTFOLIO). The Portfolio may write and purchase covered call and put options on
foreign currencies. The Portfolio would engage in such transactions to protect
against declines in the U.S. dollar value of portfolio securities or increases
in the U.S. dollar cost of securities to be acquired, or to protect the dollar
equivalent of dividends, interest, or other payments on those securities. As
with other types of options, however, writing an option on foreign currency
constitutes only a partial hedge, up to the amount of the premium received. The
Portfolio could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The risks of currency
options are similar to the risks of other options, as discussed herein. Certain
options on foreign currencies are traded on the OTC market and involve liquidity
and credit risks that may not be present in the case of exchange-traded currency
options.
REGULATORY LIMITATIONS ON USING FUTURES, OPTIONS ON FUTURES, OPTIONS ON
SECURITIES AND FOREIGN CURRENCIES, AND FORWARD CONTRACTS (COLLECTIVELY, "HEDGING
INSTRUMENTS") (BOTH PORTFOLIOS). 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 Neuberger
& Berman LIMITED MATURITY Bond Portfolio does not currently intend to purchase a
put option if, as a result, more than 5% of its total assets would be invested
in put options.
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COVER FOR HEDGING INSTRUMENTS (BOTH PORTFOLIOS). Each Portfolio will
comply with SEC guidelines regarding "cover" for Hedging Instruments and, if the
guidelines so require, set aside in a segregated account with its custodian the
prescribed amount of cash or appropriate liquid securities. Securities held in a
segregated account cannot be sold while the Futures, option, or forward strategy
covered by those securities is outstanding, unless they are replaced with other
suitable assets. As a result, segregation of a large percentage of a Portfolio's
assets could impede portfolio management or the Portfolio's ability to meet
current obligations. A Portfolio may be unable promptly to dispose of assets
which cover, or are segregated with respect to, an illiquid Futures, options, or
forward position; this inability may result in a loss to the Portfolio.
GENERAL RISKS OF HEDGING INSTRUMENTS (BOTH PORTFOLIOS). The primary
risks in using Hedging Instruments are (1) imperfect correlation or no
correlation between changes in market value of the securities or currencies held
or to be acquired by a Portfolio and changes in the prices of Hedging
Instruments; (2) possible lack of a liquid secondary market for Hedging
Instruments and the resulting inability to close out Hedging Instruments when
desired; (3) the fact that the skills needed to use Hedging Instruments are
different from those needed to select a Portfolio's securities; (4) the fact
that, although use of Hedging Instruments for hedging purposes can reduce the
risk of loss, they also can reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in hedged investments; and (5)
the possible inability of a Portfolio to purchase or sell a portfolio security
at a time that would otherwise be favorable for it to do so, or the possible
need for a Portfolio to sell a portfolio security at a disadvantageous time, due
to its need to maintain cover or to segregate securities in connection with its
use of Hedging Instruments. N&B Management intends to reduce the risk of
imperfect correlation by investing only in Hedging Instruments whose behavior is
expected to resemble or offset that of a Portfolio's underlying securities or
currency. N&B Management intends to reduce the risk that a Portfolio will be
unable to close out Hedging Instruments by entering into such transactions only
if N&B Management believes there will be an active and liquid secondary market.
There can be no assurance that a Portfolio's use of Hedging Instruments will be
successful.
The Portfolios' use of Hedging Instruments may be limited by the
provisions of the Internal Revenue Code of 1986, as amended ("Code"), with which
it must comply if its corresponding Fund is to continue to qualify as a
regulated investment company ("RIC"). See "Additional Tax Information --
Taxation of Portfolios."
- 23 -
<PAGE>
INDEXED SECURITIES (NEUBERGER & BERMAN LIMITED MATURITY BOND
PORTFOLIO). The Portfolio may invest in securities whose value is linked to
interest rates, commodities, foreign currencies, indices, or other financial
indicators ("indexed securities"). Most indexed securities are short- to
intermediate-term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified underlying
instruments. The value of indexed securities may increase or decrease if the
underlying instrument appreciates, and they may have return characteristics
similar to direct investment in the underlying instrument or to one or more
options thereon. An indexed security may be more volatile than the underlying
instrument itself.
ZERO COUPON SECURITIES (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 discount") must
be taken into income ratably by each such Portfolio prior to the receipt of any
actual payments. Because its corresponding Fund must distribute substantially
all of its net income (including its share of the Portfolio's accrued original
issue discount) to its shareholders each year for income and excise tax
purposes, each such Portfolio may have to dispose of portfolio securities under
disadvantageous circumstances to generate cash, or may be required to borrow, to
satisfy its corresponding Fund's distribution requirements. See "Additional Tax
Information."
The market prices of zero coupon securities generally are more volatile
than the prices of securities that pay interest periodically. Zero coupon
securities are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having similar maturities and credit
quality.
MUNICIPAL OBLIGATIONS (BOTH PORTFOLIOS). Neuberger & Berman LIMITED
MATURITY Bond Portfolio may invest up to 5% of its net assets in municipal
obligations, which are securities issued by or on behalf of states (as used
herein, including the District of Columbia), territories, and possessions of the
- 24 -
<PAGE>
United States and their political subdivisions, agencies, and instrumentalities.
Neuberger & Berman ULTRA SHORT Bond Portfolio may also invest in municipal
obligations. Municipal obligations include "general obligation" securities,
which are backed by the full taxing power of a municipality, and "revenue"
securities, which are backed only by the income from a specific project,
facility, or tax. Municipal obligations also include industrial development and
private activity bonds which are issued by or on behalf of public authorities,
but are not backed by the credit of any governmental or public authority.
"Anticipation notes" are issued by municipalities in expectation of future
proceeds from the issuance of bonds or from taxes or other revenues, and are
payable from those bond proceeds, taxes, or revenues. Municipal obligations also
include tax-exempt commercial paper, which is issued by municipalities to help
finance short-term capital or operating requirements.
The value of municipal obligations is dependent on the continuing
payment of interest and principal when due by the issuers of the municipal
obligations (or, in the case of industrial development bonds, the revenues
generated by the facility financed by the bonds or, in certain other instances,
the provider of the credit facility backing the bonds). As with other fixed
income securities, an increase in interest rates generally will reduce the value
of the Portfolio's investments in municipal obligations, whereas a decline in
interest rates generally will increase that value. Efforts are underway that may
result in a restructuring of the federal income tax system. Any of these factors
could affect the value of municipal securities.
RISKS OF FIXED INCOME SECURITIES
- --------------------------------
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and market
liquidity ("market risk"). Lower-rated securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. Changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuer of such securities to make principal and interest payments than is the
case for higher-grade debt securities. An economic downturn affecting the issuer
may result in an increased incidence of default. The market for lower-rated
securities may be thinner and less active than for higher-rated securities.
Pricing of thinly traded securities requires greater judgment than pricing of
securities for which market transactions are regularly reported.
Subsequent to its purchase by a Portfolio, an issue of debt securities
may cease to be rated or its rating may be reduced, so that the securities would
no longer be eligible for purchase by that Portfolio. In such a case, N&B
- 25 -
<PAGE>
Management will engage in an orderly disposition of the downgraded securities to
the extent ecurities that are below investment grade will not exceed 5% of the
net assets of Neuberger & Berman ULTRA SHORT Bond Portfolio or 10% of the net
assets of Neuberger & Berman LIMITED MATURITY Bond Portfolio.
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical results and are
not intended to indicate future performance. The yield and total return of each
Fund will vary. The share price 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, 1996, were 6.16% and 5.36%, 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:
P(1+T)n[SUPERSCRIPT] = ERV
Average annual total return smooths out year-to-year variations in performance
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 those of 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 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.
- 26 -
<PAGE>
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, 1996, and for the period November 7, 1986 (commencement of operations of the
Sister Fund's predecessor) through October 31, 1996, were +5.24%, +4.26%, and
+5.82%, respectively. If an investor had invested $10,000 in that predecessor's
shares on November 7, 1986 and had reinvested all capital gain distributions and
income dividends, the NAV of that investor's holdings would have been $17,602 on
October 31, 1996.
The average annual total returns for LIMITED MATURITY, its Sister Fund
and that Sister Fund's predecessor for the one-, five- and ten-year periods
ended October 31, 1996, were +5.29%, +5.71%, and +6.81%, respectively. If an
investor had invested $10,000 in that predecessor's shares on June 9, 1986 and
had reinvested all capital gain distributions and income dividends, the NAV of
that investor's holdings would have been $20,155 on October 31, 1996.
N&B Management reimbursed the Funds, 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, Kiplinger's Personal
Finance, and Barron's Newspaper, or
(2) recognized bond, stock, and other indices such as the Shearson
Lehman Bond Index, the Standard & Poor's "500" Composite Stock
Price Index ("S&P 500 Index"), Dow Jones Industrial Average
("DJIA"), S&P/BARRA Index, Russell Index, and various other
domestic, international, and global indices and changes in the
U.S. Department of Labor Consumer Price Index. The S&P 500
- 27 -
<PAGE>
Index is a broad index of common stock prices, while the DJIA
represents a narrower segment of industrial companies. Each
assumes reinvestment of distributions and is calculated
without regard to tax consequences or the costs of investing.
Each Portfolio may invest in different types of securities
from those included in some of the above indices.
Each Fund's performance also may be compared from time to time with the
following specific indices and other measures of performance:
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, their yield/total returns and
comparisons may be used in advertisements and in information furnished to
current and prospective shareholders (collectively, "Advertisements"). The Funds
may also be compared to individual asset classes such as common stocks,
small-cap stocks, or Treasury bonds, based on information supplied by Ibbotson
and Sinquefield.
OTHER PERFORMANCE INFORMATION
- -----------------------------
From time to time, information about a Portfolio's portfolio allocation
and holdings as of a particular date may be included in Advertisements for its
corresponding Fund. This information may include the Portfolio's portfolio
diversification by asset type. Information used in Advertisements may include
statements or illustrations relating to the appropriateness of types of
- 28 -
<PAGE>
securities and/or mutual funds that may be employed to meet specific financial
goals, such as (1) funding retirement, (2) paying for children's education, and
(3) financially supporting aging parents.
Information (including charts and illustrations) showing the effects of
compounding interest may be included in Advertisements from time to time.
Compounding is the process of earning interest on principal plus interest that
was earned earlier. Interest can be compounded at different intervals, such as
annually, semi-annually, quarterly, monthly, or daily. For example, $1,000
compounded annually at 9% will grow to $1,090 at the end of the first year (an
increase of $90) and $1,188 at the end of the second year (an increase of $98).
The extra $8 that was earned on the $90 interest from the first year is the
compound interest. One thousand dollars compounded annually at 9% will grow to
$2,367 at the end of ten years and $5,604 at the end of twenty years. Other
examples of compounding are as follows: at 7% and 12% annually, $1,000 will grow
to $1,967 and $3,106, respectively, at the end of ten years and $3,870 and
$9,646, respectively, at the end of twenty years. All these examples are for
illustrative purposes only and are not indicative of any Fund's performance.
Information relating to inflation and its effects on the dollar also
may be included in Advertisements. For example, after ten years, the purchasing
power of $25,000 would shrink to $16,621, $14,968, $13,465, and $12,100,
respectively, if the annual rates of inflation during that period were 4%, 5%,
6%, and 7%, respectively. (To calculate the purchasing power, the value at the
end of each year is reduced by the inflation rate for the ten-year period.)
Information (including charts and illustrations) showing the total
return performance for government funds, 6-month CDs and money market funds may
be included in Advertisements from time to time.
Information regarding the effects of automatic investing and systematic
withdrawal plans, investing at market highs and/or lows, and investing early
versus late for retirement plans also may be included in Advertisements, if
appropriate.
From time to time the investment philosophy of N&B Management's
founder, Roy R. Neuberger, may be included in the Funds' Advertisements. This
philosophy is described in further detail in "The Art of Investment: A
Conversation with Roy Neuberger," attached as Appendix B to this SAI.
- 29 -
<PAGE>
CERTAIN RISK CONSIDERATIONS
A Fund's investment in its corresponding Portfolio may be affected by
the actions of other large investors in the Portfolio, if any. For example, if a
large investor in a Portfolio (other than a Fund) redeemed its interest in the
Portfolio, the Portfolio's remaining investors (including the Fund) might, as a
result, experience higher pro rata operating expenses, thereby producing lower
returns.
Although each Portfolio seeks to reduce risk by investing in a
diversified portfolio of securities, diversification does not eliminate all
risk. There can, of course, be no assurance any Portfolio will achieve its
investment objective.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the trustees and
officers of the Trusts, including their addresses and principal business
experience during the past five years. Some persons named as trustees and
officers also serve in similar capacities for other funds and their
corresponding portfolios, administered or managed by N&B Management and
Neuberger & Berman.
<TABLE>
<CAPTION>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
---------- --------------- --------------------------
<S> <C> <C>
John Cannon (67) Trustee of each Trust President, AMA Investment Advisers,
CDC Associates, Inc. Inc. (registered investment adviser)
620 Sentry Parkway (1976 - 1991); Senior Vice President
Suite 220 AMA Investment Advisers, Inc. (1991 -
Blue Bell, PA 19422 1993); President of AMA Family of
Funds (investment companies) (1976 -
1991); Chairman and Chief Investment
Officer of CDC Associates, Inc.
(registered investment adviser) (1993
present).
- 30 -
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
---------- --------------- --------------------------
Stanley Egener* (62) Chairman of the Board, Principal of Neuberger & Berman;
Chief Executive Officer, President and Director of N&B
and Trustee of each Management; Chairman of the Board,
Trust Chief Executive Officer, and Trustee
of eight other mutual funds for which
N&B Management acts as investment
manager or administrator.
Theodore P. Giuliano* (44) President and Trustee Principal of Neuberger & Berman; Vice
of each Trust 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 (63) Trustee of each Trust Senior Vice President, Secretary, and
Loews Corporation General Counsel of Loews Corporation
667 Madison Avenue (diversified financial corporation).
8th Floor
New York, NY 10021
Robert A. Kavesh (69) Trustee of each Trust Professor of Finance and Economics at
110 Bleecker Street Stern School of Business, New York
Apt. 24B University; Director of Del
New York, NY 10012 Laboratories, Inc. and Greater New
York Mutual Insurance Co.
William E. Rulon (64) Trustee of each Trust Retired. Senior Vice President of
Foodmaker, Inc. Foodmaker, Inc. (operator and fran-
1761 Hotel Circle South chiser of restaurants) until January
San Diego, CA 92108 1997; Secretary of Foodmaker, Inc.
until July 1996.
Candace L. Straight (49) Trustee of each Trust Private investor and consultant
518 E. Passaic Avenue specializing in the insurance
Bloomfield, NJ 07003 industry; Principal of Head &
Company, LLC (limited liability
company providing investment banking
and consulting services to the
insurance industry) until March 1996;
Pres-ident of Integon Corporation
(marketer of life insurance,
annuities, and property and casualty
insurance), 1990-1992; Director of
and Drake Holdings (U.K. motor
insurer) until June 1996.
Daniel J. Sullivan (57) Vice President of each Senior Vice President of N&B
Trust Management since 1992; prior thereto,
Vice President of N&B Management;
Vice President of eight other mutual
funds for which N&B Management acts
as investment manager or
administrator.
Michael J. Weiner (49) Vice President and Senior Vice President and Treasurer
Principal Financial of N&B Management since 1992;
Officer of each Trust 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.
- 31 -
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
---------- --------------- --------------------------
Claudia A. Brandon (40) Secretary of each Trust Vice President of N&B Management;
Secretary of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
Richard Russell (50) Treasurer and Principal Vice President of N&B Management
Accounting Officer of since 1993; prior thereto, Assistant
each Trust Vice President of N&B Management;
Treasurer and Principal Accounting
Off-icer of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
Stacy Cooper-Shugrue (33) Assistant Secretary of Assistant Vice President of N&B
each Trust Management since 1993; prior thereto,
employee of N&B Man-agement;
Assistant Secretary of eight other
mutual funds for which N&B Management
acts as investment manager or
administrator.
C. Carl Randolph (59) Assistant Secretary of Principal of Neuberger & Berman since
each Trust 1992; prior thereto, employee of
Neuberger & Berman; Assistant
Secretary of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
Barbara DiGiorgio (38) Assistant Treasurer of Assistant Vice President of N&B
each Trust Management since 1993; prior thereto,
employee of N&B Management; Assistant
Treasurer of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
Celeste Wischerth (36) Assistant Treasurer of Assistant Vice President of N&B
each Trust Management since 1994; prior thereto,
employee of N&B Management; Assistant
Treasurer of eight other mutual funds
for which N&B Management acts as
investment manager or administrator.
</TABLE>
- --------------------
(1) Unless otherwise indicated, the business address of each listed person
is 605 Third Avenue, New York, NY 10158.
(2) Except as otherwise indicated, each individual has held the positions
shown for at least the last five years.
* Indicates a trustee who is an "interested person" of each Trust within
the meaning of the 1940 Act. Messrs. Egener and Giuliano are interested persons
by virtue of the fact that they are officers and directors of N&B Management and
principals of Neuberger & Berman.
- 32 -
<PAGE>
The Trust's Trust Instrument and Managers Trust's Declaration of Trust
provide that each such Trust will indemnify its trustees and officers against
liabilities and expenses reasonably incurred in connection with litigation in
which they may be involved because of their offices with the Trust, unless it is
adjudicated that they (a) engaged in bad faith, willful misfeasance, gross
negligence, or reckless disregard of the duties involved in the conduct of their
offices or (b) did not act in good faith in the reasonable belief that their
action was in the best interest of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined (by a court
or other body approving the settlement or other disposition, by a majority of
disinterested trustees based upon a review of readily available facts, or in a
written opinion of independent counsel) that such officers or trustees have not
engaged in willful misfeasance, bad faith, gross negligence, or reckless
disregard of their duties.
For the fiscal year ended October 31, 1996, each Fund and Portfolio
paid and accrued the following fees and expenses to Fund and Portfolio Trustees
who were not affiliated with N&B Management or Neuberger & Berman: Neuberger &
Berman ULTRA SHORT Bond Trust and Portfolio - $1,543, and Neuberger & Berman
LIMITED MATURITY Bond Trust and Portfolio - $2,727.
The following table sets forth information concerning the compensation
of the trustees and officers of the Trust. None of the Neuberger & Berman
Funds(R) has any retirement plan for its trustees or officers.
- 33 -
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/96
Total Compensation
from Trusts in the
Aggregate Neuberger & Berman
Name and Position Compensation from Fund Complex Paid
with the Trust the Trust to Trustees
- ----------------- ------------------ ------------------
John Cannon $242 $31,000
Trustee (2 other investment companies)
Charles DeCarlo $278 $35,000
Trustee (retired 12/96)
Stanley Egener $ 0 $0
Chairman of the Board, (9 other investment companies)
Chief Executive Officer,
and Trustee
Theodore P. Giuliano $ 0 $ 0
President and Trustee (2 other investment companies)
Barry Hirsch $282 $35,500
Trustee (2 other investment companies)
Robert A. Kavesh $242 $31,000
Trustee (2 other investment companies)
Harold R. Logan $245 $30,500
Trustee (retired 12/96) (2 other investment companies)
William E. Rulon $245 $30,500
Trustee (2 other investment companies)
Candace L. Straight $242 $30,500
Trustee (2 other investment companies)
At January 14, the trustees and officers of the Trust and Managers
Trust, as a group, owned beneficially or of record less than 1% of the
outstanding shares of each Fund.
- 34 -
<PAGE>
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
INVESTMENT MANAGER AND ADMINISTRATOR
- ------------------------------------
Because all of the Funds' net investable assets are invested in their
corresponding Portfolios, the Funds do not need an investment manager. N&B
Management serves as the Portfolios' investment manager pursuant to a management
agreement with Managers Trust, on behalf of the Portfolios, dated as of July 2,
1993 ("Management Agreement"). The Management Agreement was approved by the
holders of the interests in all the Portfolios on July 2, 1993.
The Management Agreement provides, in substance, that N&B Management
will make and implement investment decisions for the Portfolios in its
discretion and will continuously develop an investment program for the
Portfolios' assets. The Management Agreement permits N&B Management to effect
securities transactions on behalf of each Portfolio through associated persons
of N&B Management. The Management Agreement also specifically permits N&B
Management to compensate, through higher commissions, brokers and dealers who
provide investment research and analysis to the Portfolios, although N&B
Management has no current plans to pay a material amount of such compensation.
N&B Management provides to each Portfolio, without separate cost,
office space, equipment, and facilities and the personnel necessary to perform
executive, administrative, and clerical functions. N&B Management pays all
salaries, expenses, and fees of the officers, trustees, and employees of
Managers Trust who are officers, directors, or employees of N&B Management. Two
officers and directors of N&B Management (who also are principals of Neuberger &
Berman), presently serve as trustees and officers of the Trusts. See "Trustees
and Officers." Each Portfolio pays N&B Management a management fee based on the
Portfolio's average daily net assets, as described in the Prospectus.
N&B Management provides similar facilities, services, and personnel to
each Fund pursuant to an administration agreement with the Trust dated 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 in connection
with investments in the Funds.
During the fiscal years ended October 31, 1996, 1995, and 1994, each
Fund accrued management and administration fees as follows: LIMITED MATURITY -
$114,471, $65,572, and $18,788, respectively; and ULTRA SHORT - $46,490,
$11,176, and $5,804, respectively.
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<PAGE>
As noted in the Prospectus under "Management and Administration --
Expenses," N&B Management has voluntarily undertaken to reimburse each Fund for
its Operating Expenses (including fees under the Administration Agreement) and
the Fund's pro rata share of the corresponding Portfolio's Operating Expenses
(including fees under the Management Agreement) that exceed, in the aggregate,
0.75% and 0.80% per annum of the average daily net assets of ULTRA SHORT and
LIMITED MATURITY, respectively. N&B Management can terminate each undertaking by
giving the Fund at least 60 days' prior written notice. 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 expense limitations were 0.65% and 0.65%,
respectively. "Operating Expenses" exclude interest, taxes, brokerage costs and
extraordinary expenses.
For the fiscal years ended October 31, 1996, 1995, and 1994, N&B
Management reimbursed each Fund the following amounts of expenses under the
above arrangements: LIMITED MATURITY - $168,733, $123,568, and $90,718,
respectively; and ULTRA SHORT - $143,959, $104,135, and $91,185, respectively.
The Management Agreement continues with respect to each Portfolio for a
period of two years after the date the Portfolio became subject thereto. The
Management Agreement is renewable thereafter from year to year with respect to
each Portfolio, so long as its continuance is approved at least annually (1) by
the vote of a majority of the Portfolio Trustees who are not "interested
persons" of N&B Management or Managers Trust ("Independent Portfolio Trustees"),
cast in person at a meeting called for the purpose of voting on such approval,
and (2) by the vote of a majority of the Portfolio Trustees or by a 1940 Act
majority vote of the outstanding interests in 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 year to year with respect to a Fund, so long as its continuance
is approved at least annually (1) by the vote of a majority of the Fund Trustees
who are not "interested persons" of N&B Management or the Trust ("Independent
Fund Trustees"), cast in person at a meeting called for the purpose of voting on
such approval, and (2) by the vote of a majority of the Fund Trustees or by a
1940 Act majority vote of the outstanding shares in that Fund.
- 36 -
<PAGE>
The Management Agreement is terminable, without penalty, with respect
to a Portfolio on 60 days' written notice either by Managers Trust or by N&B
Management. The Administration Agreement is terminable, without penalty, with
respect to a Fund on 60 days' written notice either by N&B Management or by the
Trust. Each Agreement terminates automatically if it is assigned.
SUB-ADVISER
- -----------
N&B Management retains Neuberger & Berman, 605 Third Avenue, New York,
NY 10158-3698, as sub-adviser with respect to each Portfolio pursuant to a
sub-advisory agreement dated July 2, 1993 ("Sub-Advisory Agreement"). The
Sub-Advisory Agreement was approved by the holders of the interests in the
Portfolios on July 2, 1993.
The Sub-Advisory Agreement provides in substance that Neuberger &
Berman will furnish to N&B Management, upon reasonable request, the same type of
investment recommendations and research that Neuberger & Berman, from time to
time, provides to its principals and employees for use in managing client
accounts. In this manner, N&B Management expects to have available to it, in
addition to research from other professional sources, the capability of the
research staff of Neuberger & Berman. This staff consists of approximately
fourteen investment analysts, each of whom specializes in studying one or more
industries, under the supervision of the Director of Research, who is also
available for consultation with N&B Management. The Sub-Advisory Agreement
provides that N&B Management will pay for the services rendered by Neuberger &
Berman based on the direct and indirect costs to Neuberger & Berman in
connection with those services. Neuberger & Berman also serves as a sub-adviser
for all of the other mutual funds managed by N&B Management.
The Sub-Advisory Agreement continues with respect to each Portfolio for
a period of two years after the date the Portfolio became subject thereto, and
is renewable thereafter from year to year, subject to approval of its
continuance in the same manner as the Management Agreement. The Sub-Advisory
Agreement is subject to termination, without penalty, with respect to each
Portfolio by the Portfolio Trustees or a 1940 Act majority vote of the
outstanding interests in that Portfolio, by N&B Management, or by Neuberger &
Berman on not less than 30 nor more than 60 days' written notice. The
Sub-Advisory Agreement also terminates automatically with respect to each
Portfolio if it is assigned or if the Management Agreement terminates with
respect to that Portfolio.
Most money managers that come to the Neuberger & Berman organization
have at least fifteen years experience. Neuberger & Berman and N&B Management
employ experienced professionals that work in a competitive environment.
- 37 -
<PAGE>
INVESTMENT COMPANIES MANAGED
- ----------------------------
N&B Management currently serves as investment manager of the following
investment companies. As of December 31, 1996, these companies, along with one
other investment company advised by Neuberger & Berman, had aggregate net assets
of approximately $15.2 billion, as shown in the following list:
Approximate
Net Assets at
Name December 31, 1996
- ---- -----------------
Neuberger & Berman Cash Reserves Portfolio.......................$ 499,989,187
(investment portfolio for Neuberger & Berman Cash Reserves)
Neuberger & Berman Government Money Portfolio....................$ 402,843,399
(investment portfolio for Neuberger & Berman Government Money Fund)
Neuberger & Berman Limited Maturity Bond Portfolio...............$ 272,342,178
(investment portfolio for Neuberger & Berman Limited Maturity
Bond Fund and Neuberger & Berman Limited Maturity Bond Trust)
Neuberger & Berman Ultra Short Bond Portfolio...................$ 89,819,435
(investment portfolio for Neuberger & Berman Ultra Short Bond Fund
and Neuberger & Berman Ultra Short Bond Trust)
Neuberger & Berman Municipal Money Portfolio.....................$ 135,494,410
(investment portfolio for Neuberger & Berman Municipal Money Fund)
Neuberger & Berman Municipal Securities Portfolio................$ 38,634,808
(investment portfolio for Neuberger & Berman Municipal Securities Trust)
Neuberger & Berman New York Insured Intermediate Portfolio.......$ 9,877,137
(investment portfolio for Neuberger & Berman New York Insured
Intermediate Fund)
Neuberger & Berman Focus Portfolio...............................$1,260,252,029
(investment portfolio for Neuberger & Berman Focus Fund, Neuberger
& Berman Focus Trust, and Neuberger & Berman Focus Assets)
Neuberger & Berman Genesis Portfolio.............................$ 398,343,946
(investment portfolio for Neuberger & Berman Genesis Fund,
Neuberger & Berman Genesis Trust, and Neuberger & Berman Genesis Assets)
- 38 -
<PAGE>
Neuberger & Berman Guardian Portfolio............................$7,071,702,448
(investment portfolio for Neuberger & Berman Guardian Fund,
Neuberger & Berman Guardian Trust, and Neuberger & Berman
Guardian Assets)
Neuberger & Berman International Portfolio.......................$ 73,377,704
(investment portfolio for Neuberger & Berman International Fund)
Neuberger & Berman Manhattan Portfolio...........................$ 574,606,109
(investment portfolio for Neuberger & Berman Manhattan Fund,
Neuberger & Berman Manhattan Trust, and Neuberger & Berman
Manhattan Assets)
Neuberger & Berman Partners Portfolio............................$2,405,865,742
(investment portfolio for Neuberger & Berman Partners Fund,
Neuberger & Berman Partners Trust, and Neuberger & Berman
Partners Assets)
Neuberger & Berman Socially Responsive Portfolio.................$ 188,366,394
(investment portfolio for Neuberger & Berman Socially Responsive
Fund and Neuberger & Berman NYCDC Socially Responsive Trust)
Advisers Managers Trust (six series).............................$1,695,378,078
In addition, Neuberger & Berman serves as investment adviser to one
investment company, Plan Investment Company, with assets of $70,276,858 December
31, 1996.
The investment decisions concerning the Portfolios and the other mutual
funds managed by N&B Management (collectively, "Other N&B Funds") have been and
will continue to be made independently of one another. In terms of their
investment objectives, most of the Other N&B Funds differ from the Portfolios.
Even where the investment objectives are similar, however, the methods used by
the Other N&B Funds and the Portfolios to achieve their objectives may differ.
The investment results achieved by all of the funds managed by N&B Management
have varied from one another in the past and are likely to vary in the future.
- 39 -
<PAGE>
There may be occasions when a Portfolio and one or more of the Other
N&B Funds or other accounts managed by Neuberger & Berman are contemporaneously
engaged in purchasing or selling the same securities from or to third parties.
When this occurs, the transactions are averaged as to price and allocated, in
terms of amount, in accordance with a formula considered to be equitable to the
funds involved. Although in some cases this arrangement may have a detrimental
effect on the price or volume of the securities as to a Portfolio, in other
cases it is believed that a Portfolio's ability to participate in volume
transactions may produce better executions for it. In any case, it is the
judgment of the Portfolio Trustees that the desirability of the Portfolios'
having their advisory arrangements with N&B Management outweighs any
disadvantages that may result from contemporaneous transactions.
MANAGEMENT AND CONTROL OF N&B MANAGEMENT
- ----------------------------------------
The directors and officers of N&B Management, all of whom have offices
at the same address as N&B Management, are Richard A. Cantor, Chairman of the
Board and director; Stanley Egener, President and director; Theodore P.
Giuliano, Vice President and director; Michael M. Kassen, Vice President and
director; Irwin Lainoff, director; Lawrence Zicklin, director; Daniel J.
Sullivan, Senior Vice President; Peter E. Sundman, Senior Vice President;
Michael J. Weiner, Senior Vice President; Claudia A. Brandon, Vice President;
Patrick T. Byrne, Vice President; William Cunningham, Vice President; Clara Del
Villar, Vice President; Mark R. Goldstein, Vice President; Michael Lamberti,
Vice President; Josephine P. Mahaney, Vice President; Ellen Metzger, Vice
President and Secretary; Paul Metzger, Vice President; Janet W. Prindle, Vice
President; Felix Rovelli, Vice President; Richard Russell, Vice President; Kent
C. Simons, Vice President; Frederick B. Soule, Vice President; Judith M. Vale,
Vice President; Susan Walsh, Vice President; Thomas Wolfe, Vice President;
Andrea Trachtenberg, Vice President of Marketing; Robert Conti, Treasurer; Stacy
Cooper-Shugrue, Assistant Vice President; Barbara DiGiorgio, Assistant Vice
President; Roberta D'Orio, Assistant Vice President; Joseph G. Galli, Assistant
Vice President; Robert I. Gendelman, Assistant Vice President; Leslie
Holliday-Soto, Assistant Vice President; Jody L. Irwin, Assistant Vice
President; Carmen G. Martinez, Assistant Vice President; Joseph S. Quirk,
Assistant Vice President; Kevin L. Risen, Assistant Vice President; Susan
Switzer, Assistant Vice President; Celeste Wischerth, Assistant Vice President;
KimMarie Zamot, Assistant Vice President; and Loraine Olavarria, Assistant
Secretary. Messrs. Cantor, Egener, Gendelman, Giuliano, Lainoff, Zicklin,
Goldstein, Kassen, Risen, Simons and Sundman and Mmes. Prindle and Vale are
principals of Neuberger & Berman.
Mr. Guiliano and Mr. Egener are trustees and officers, and Messrs.
Sullivan, Weiner, and Russell and Mmes. Brandon, Cooper-Shugrue, DiGiorgio, and
Wischerth are officers, of each Trust. C. Carl Randolph, a principal of
Neuberger & Berman, also is an officer of each Trust.
- 40 -
<PAGE>
All of the outstanding voting stock in N&B Management is owned by
persons who are also principals of Neuberger & Berman.
DISTRIBUTION ARRANGEMENTS
N&B Management serves as the distributor ("Distributor") in connection
with the offering of each Fund's shares on a no-load basis 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 personally, through
the mails, or by electronic means. The Distributor is the Funds' "principal
underwriter" within the meaning of the 1940 Act and, as such, acts as agent in
arranging for the sale of each Fund's shares 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, 1997. The Distribution
Agreement may be renewed annually if specifically approved by (1) the vote of a
majority of the Fund Trustees or a 1940 Act majority vote of the Fund's
outstanding shares and (2) the vote of a majority of the Independent Fund
Trustees, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated by either party and will
terminate automatically on its assignment, in the same manner as the Management
Agreement.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus entitled
"Shareholder Services -- Exchanging Shares," an Institution may exchange shares
of either Fund for shares of the other Fund or the equity funds that are briefly
described below ("Equity Trusts").
Neuberger & Berman Seeks long-term capital appreciation through
Focus Trust investments principally in common stocks
selected from 13 multi-industry economic
sectors. The corresponding portfolio uses a
value-oriented approach to select individual
securities and then focuses its investments
in the sectors in which the undervalued
stocks are clustered. Through this approach,
90% or more of the portfolio's investments
are normally made in not more than six
sectors.
Neuberger & Berman Seeks capital appreciation through
Genesis Trust investments primarily in common stocks of
companies with small market capitalizations
(i.e., up to $1.5 billion) at the time of the
Portfolio's investment. The corresponding
portfolio uses a value-oriented approach to
the selection of individual securities.
- 41 -
<PAGE>
Neuberger & Berman Seeks capital appreciation through
Guardian Trust investments primarily in common stocks of
long-established, high-quality companies that
N&B Management believes are well-managed. The
corresponding portfolio uses a value-oriented
approach to the selection of individual
securities. Current income is a secondary
objective. The sister fund (and its
predecessor) have paid its shareholders an
income dividend every quarter, and a capital
gain distribution every year, since its
inception in 1950, although there can be no
assurance that it will be able to continue to
do so.
Neuberger & Berman Seeks capital appreciation, without regard to
Manhattan Trust income, through investments generally in
securities of small-, medium- and
large-capitalization companies that N&B
Management believes have the maximum
potential for increasing total NAV. The
corresponding portfolio's "growth at a
reasonable price" investment approach
involves greater risks and share price
volatility than programs that invest in
securities thought to be undervalued.
Neuberger & Berman Seeks capital growth through an investment
Partners Trust approach that is designed to increase capital
with reasonable risk. Its investment program
seeks securities believed to be undervalued
based on strong fundamentals such as a low
price-to-earnings ratio, consistent cash
flow, and the company's track record through
all parts of the market cycle. The
corresponding portfolio uses the
value-oriented investment approach to the
selection of individual securities.
Either Fund described herein, and any of the Equity Trusts, may
terminate or modify its exchange privilege in the future.
Fund shareholders who are considering exchanging shares into any of the
Equity Trusts should note that each such fund (1) is a series of a Delaware
business trust (named "Neuberger & Berman Equity Trust") that is registered with
the SEC as an open-end management investment company; and (2) invests all of its
net investable assets in a corresponding portfolio that has an investment
objective, policies, and limitations identical to those of the fund.
- 42 -
<PAGE>
Before effecting an exchange, Fund shareholders must obtain and should
review a currently effective prospectus of the fund into which the exchange is
to be made. The Equity Trusts share a prospectus. An exchange is treated as a
sale for federal income tax purposes and, depending on the circumstances, a
short- or long-term capital gain or loss may be realized.
ADDITIONAL REDEMPTION INFORMATION
SUSPENSION OF REDEMPTIONS
- -------------------------
The right to redeem a Fund's shares may be suspended or payment of the
redemption price postponed (1) when the New York Stock Exchange ("NYSE") is
closed (other than weekend and holiday closings), (2) when trading on the NYSE
is restricted, (3) when an emergency exists as a result of which it is not
reasonably practicable for its corresponding Portfolio to dispose of securities
it owns or fairly to determine the value of its net assets, or (4) for such
other period as the SEC may by order permit for the protection of the Fund's
shareholders. Applicable SEC rules and regulations shall govern whether the
conditions prescribed in (2) or (3) exist. If the right of redemption is
suspended, shareholders may withdraw their offers of redemption, or they will
receive payment at the NAV per share in effect at the close of business on the
first day the NYSE is open ("Business Day") after termination of the suspension.
REDEMPTIONS IN KIND
- -------------------
Each Fund reserves the right, under certain conditions, to honor any
request for redemption (or a combination of requests from the same shareholder
in any 90-day period) exceeding $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued as
described under "Share Prices and Net Asset Value" in the Prospectus. If payment
is made in securities, a shareholder generally will incur brokerage expenses or
other transactions costs in converting those securities into cash and will be
subject to fluctuation in the market prices of those securities until they are
sold. The Funds do not redeem in kind under normal circumstances, but would do
so when the Fund Trustees determined that it was in the best interests of a
Fund's shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders amounts equal to
substantially all of its share of any net investment income (after deducting
expenses incurred directly by the Fund), any net realized capital gains (both
long-term and short-term), and any net realized gains from foreign currency
transactions earned or realized by its corresponding Portfolio. A Portfolio's
net investment income consists of all income accrued on portfolio assets less
accrued expenses but does not include net realized or unrealized capital and
foreign currency gains and losses. Net investment income and net gains and
losses are reflected in a Portfolio's NAV (and, hence, its corresponding Fund's
NAV) until they are distributed. 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).
- 43 -
<PAGE>
Income dividends are declared daily; dividends declared for each month
are paid on the last Business Day of the month. 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 Distributions of net realized capital and foreign currency gains, if
any, normally are paid once annually, in December.
Dividends and other distributions are automatically reinvested in
additional shares of the distributing Fund, unless the 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 its investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and for LIMITED MATURITY, net gains from
certain foreign currency transactions) ("Distribution Requirement") and must
meet several additional requirements. With respect to each Fund, these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, and gains from the sale or other disposition of securities
or foreign currencies, or other income (including gains from Hedging
Instruments) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) the Fund must derive less than 30%
of its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three months
(i) Hedging Instruments (other than those on foreign currencies), or (ii)
foreign currencies or Hedging Instruments thereon that are not directly related
to the Fund's principal business of investing in securities (or options and
Futures with respect thereto) ("Short-Short Limitation"); and (3) at the close
of each quarter of the Fund's taxable year, (i) at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs, and other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and does not represent more than 10% of the issuer's
outstanding voting securities, and (ii) not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
securities or securities of other RICs) of any one issuer.
- 44 -
<PAGE>
Certain funds that invest in portfolios 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
portfolio 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 consequences to the
Funds of hedging and certain other transactions engaged in by their
corresponding Portfolios.
TAXATION OF THE PORTFOLIOS
- --------------------------
The Portfolios have received rulings from the Service to the effect
that, among other things, each Portfolio will be treated as a separate
partnership for federal income tax purposes and will not be a "publicly traded
partnership." As a result, 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, credits, and tax preference
items, without regard to whether it has received any cash distributions from the
Portfolio. Each Portfolio also is not subject to Delaware or New York income or
franchise tax.
- 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 qualifies as a RIC, each Portfolio intends to continue to conduct its
operations so that its corresponding Fund will be able to continue to satisfy
all those requirements.
Distributions to a Fund from its corresponding Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, (3)
loss will be recognized if a liquidation distribution consists solely of cash
and/or unrealized receivables, and (4) gain (and, in certain situations, loss)
may be recognized on an in-kind distribution by the 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 capital gains and decreased by (a) the amount of cash
and the basis of any property the Portfolio distributes to the Fund and (b) the
Fund's share of the Portfolio's losses.
Dividends and interest received by a Portfolio may be subject to
income, withholding, or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors.
The Portfolios' use of hedging strategies, such as writing (selling)
and purchasing Futures Contracts and options and entering into forward
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses the Portfolios
realize in connection therewith. Gains from the disposition of foreign
- 46 -
<PAGE>
currencies (except certain gains 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.
If a Portfolio satisfies certain requirements, any increase in value of
a position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether its corresponding Fund
satisfies the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Portfolio will consider whether it should seek to satisfy those
requirements to enable its corresponding Fund to qualify for this treatment for
hedging transactions. To the extent a Portfolio does not so qualify, it may be
forced to defer the closing out of certain Hedging Instruments or foreign
currency positions beyond the time when it otherwise would be advantageous to do
so, in order for its corresponding Fund to continue to qualify as a RIC.
Exchange-traded Futures Contracts and listed options thereon constitute
"Section 1256 contracts." Section 1256 contracts are required to be marked to
market (that is, treated as having been sold at market value) at the end of a
Portfolio's taxable year. Sixty percent of any gain or loss recognized as a
result of these "deemed sales," and 60% of any net realized gain or loss from
any actual sales, of Section 1256 contracts are treated as long-term capital
gain or loss, and the remainder is treated as short-term capital gain or loss.
Each Portfolio may invest in municipal bonds that are purchased with
market discount (that is, at a price less than the bond's principal amount or,
in the case of a bond that was issued with original issue discount ("OID"), a
price less than the amount of the issue price plus accrued OID) ("municipal
- 47 -
<PAGE>
market discount bonds"). If a bond's market discount is less than the product of
(1) 0.25% of the redemption price at maturity times (2) the number of complete
years to maturity after the taxpayer acquired the bond, then no market discount
is considered to exist. Gain on the disposition of a municipal market discount
bond purchased by the Portfolio (other than a bond with a fixed maturity date
within one year from its issuance), generally is treated as ordinary (taxable)
income, rather than capital gain, to the extent of the bond's accrued market
discount at the time of disposition. Market discount on such a bond generally is
accrued ratably, on a daily basis, over the period from the acquisition date to
the date of maturity. In lieu of treating the disposition gain as above, the
Portfolio may elect to include market discount in its gross income currently,
for each taxable year to which it is attributable.
Each Portfolio may acquire zero coupon or other securities issued with
OID. As a holder of those securities, each Portfolio (and, through it, its
corresponding Fund) must take into income the OID that accrues on the securities
during the taxable year, even if it receives no corresponding payment on the
securities during the year. Because each Fund annually must distribute
substantially all of its investment company taxable income (including its share
of its corresponding Portfolio's accrued OID) to satisfy the Distribution
Requirement and to avoid imposition of the Excise Tax, the Fund may be required
in a particular year to distribute as a dividend an amount that is greater than
its proportionate share of the total amount of cash its corresponding Portfolio
actually receives. Those distributions will be made from a Fund's (or its share
of its corresponding Portfolio's) cash assets or, if necessary, from the
proceeds of sales of that Portfolio's securities. A Portfolio may realize
capital gains or losses from those sales, which would increase or decrease its
corresponding Fund's investment company taxable income and/or net capital gain
(the excess of net long-term capital gain over net short-term capital loss). In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce a Portfolio's ability to sell other securities, or certain
Hedging Instruments or foreign currency positions held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.
- 48 -
<PAGE>
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.
PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities generally are transacted
with issuers, underwriters, or dealers that serve as primary market-makers, who
act as principals for the securities on a net basis. The Portfolios typically do
not pay brokerage commissions for such purchases and sales. Instead, the price
paid for newly issued securities usually includes a concession or discount paid
by the issuer to the underwriter, and the prices quoted by market-makers reflect
a spread between the bid and the asked prices from which the dealer derives a
profit.
In purchasing and selling portfolio securities other than as described
above (for example, in the secondary market), each Portfolio seeks to obtain
best execution at the most favorable prices through responsible broker-dealers
and, in the case of agency transactions, at competitive commission rates. In
selecting broker-dealers to execute transactions, N&B Management considers such
factors as the price of the security, the rate of commission, the size and
difficulty of the order, and the reliability, integrity, financial condition,
and general execution and operational capabilities of competing broker-dealers.
N&B Management also may consider the brokerage and research services that
broker-dealers provide to the Portfolio or N&B Management. Under certain
conditions, a Portfolio may pay higher brokerage commissions in return for
brokerage and research services, although neither Portfolio has a current
arrangement to do so. In any case, each Portfolio may effect principal
transactions with a dealer who furnishes research services, may designate any
dealer to receive selling concessions, discounts, or other allowances, or
otherwise may deal with any dealer in connection with the acquisition of
securities in underwritings.
- 49 -
<PAGE>
During the fiscal year ended October 31, 1996, Neuberger & Berman ULTRA
SHORT Bond Portfolio acquired securities of the following of its "regular
brokers or dealers" (as defined in the 1940 Act): Goldman, Sachs & Co.; Merrill
Lynch, Pierce, Fenner & Smith Inc.; and Morgan (J.P.) Securities Inc. At October
31, 1996, that Portfolio held the securities of its "regular brokers or dealers"
with an aggregate value as follows: Morgan (J.P.) Securities Inc., $3,003,150.
During the fiscal year ended October 31, 1996, Neuberger & Berman
LIMITED MATURITY Bond Goldman, Sachs & Co. At October 31, 1996, that Portfolio
held the securities of its "regular brokers or dealers" with an aggregate value
as follows: Goldman, Sachs & Co., $5,045,352.
No affiliate of any Portfolio receives give-ups or reciprocal business
in connection with its portfolio transactions. No Portfolio effects transactions
with or through broker-dealers in accordance with any formula or for selling
shares of any Fund. However, broker-dealers who execute portfolio transactions
may from time to time effect purchases of Fund shares for their customers. The
1940 Act generally prohibits Neuberger & Berman from acting as principal in the
purchase of portfolio securities from, or the sale of portfolio securities to, a
Portfolio unless an appropriate exemption is available.
PORTFOLIO TURNOVER
- ------------------
A Portfolio's portfolio turnover rate is calculated by
dividing (1) the lesser of the cost of the securities purchased or the proceeds
from the securities sold by the Portfolio during the fiscal year (other than
securities, including options, whose maturity or expiration date at the time of
acquisition was one year or less) by (2) the month-end average of the value of
such securities owned by the Portfolio during the fiscal year.
REPORTS TO SHAREHOLDERS
Shareholders of each Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors for the Fund and for its corresponding Portfolio. Each Fund's
statements show the investments owned by its corresponding Portfolio and the
market values thereof and provide other information about the Fund and its
operations, including the Fund's beneficial interest in its corresponding
Portfolio.
- 50 -
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street Bank and Trust
Company ("State Street"), 225 Franklin Street, Boston, MA 02110 as custodian for
its securities and cash. State Street also serves as each Fund's transfer agent,
administering 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 mailed to Neuberger & Berman Funds,
Institutional Services, 605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
INDEPENDENT AUDITORS
Each Fund and Portfolio has selected Ernst & Young LLP, 200 Clarendon
Street, Boston, MA 02116, as the independent auditors who will audit its
financial statements.
LEGAL COUNSEL
Each Fund and Portfolio has selected Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as its legal
counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and percentage of
ownership of each person who was known by each Fund to own beneficially or of
record 5% or more of that Fund's outstanding shares at January 14, 1997:
Percentage of
Ownership at
Name and Address January 14, 1997
---------------- ----------------
LIMITED MATURITY: Chase Manhattan Bank TTEE 34.05%
- ---------------- Met Life Defined
Contribution Group
Attn Judity Trepanowski
770 Broadway 10th Floor
New York, NY 10003
D. Leon Leonhardt PSP 18.51%
For Partners & Principals
of Price Waterhouse Ltd.
DTD 6/28/85
3109 W DR Martin Luther King Blvd
Tampa, FL 33607
- 51 -
<PAGE>
Percentage of
Ownership at
Name and Address January 14, 1997
---------------- ----------------
Nationwide Life Insurance 14.68%
QPVA
C/O IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218
D Leon Leonhardt Retirement 5.10%
Benefit Accumulation Plan for
Employees of Price Waterhouse LLP
3109 W DR Martin Luther King Blvd
Tampa, FL 33607
Chase Manhattan Bank TTEE 5.00%
Various Retirement Plans
Under PPI Retirement Programs
Professional Pensions Inc
444 Foxon RD
East Haven, CT 06513
ULTRA SHORT: Gary N. Skoloff, Saul A. Wolfe 49.92%
- ------------ Skoloff & Wolfe Target
Benefit Trust dtd 11/1/95
293 Eisenhower Pkwy.
Livingston, NJ 07039
Aetna Life Insurance & Annuity Co. 20.67%
ACES - separate account F
Attn: Michael Weiner - RTAL
15 Farmington Avenue
Hartford, CT 06156
National Financial Serv. Corp. 9.37%
For the Exclusive Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Chase Manhattan Bank TTEE 6.91%
Various Retirement Plans
under PPI Retirement Program
Professional Pensions Inc.
444 Foxon Road
East Haven, CT 06513
- 52 -
<PAGE>
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included
in the Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered by the Prospectus. The registration statement,
including the exhibits filed therewith, may be examined at the SEC's offices in
Washington, D.C.
Statements contained in this SAI and in the Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of any contract or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The following financial statements and related documents are
incorporated herein by reference from the Funds' Annual Report to shareholders
for the fiscal year ended October 31, 1996:
The Statements of Assets and Liabilities of the Funds and
Portfolios, as of October 31, 1996, and the related Statements
of Operations for the year then ended, the Statements of
Changes in Net Assets for each of the two years in the period
then ended, the Financial Highlights for each of the periods
indicated therein, the notes to each of the foregoing for the
fiscal year ended October 31, 1996, and the reports of Ernst &
Young LLP, independent auditors, with respect to such audited
financial statements of Neuberger & Berman Municipal Money
Fund and Portfolio, Neuberger & Berman Municipal Securities
Trust and Portfolio, and Neuberger & Berman New York Insured
Intermediate Fund and Portfolio.
- 53 -
<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.
A-1
<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 quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or an exceptionally stable
margin, and principal is secure. Although the various protective elements are
likely to change, such changes 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.
A-2
<PAGE>
MODIFIERS - Moody's may apply numerical modifiers 1, 2, and 3 in each
generic rating classification described above. The modifier 1 indicates that the
company ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the lower end of its generic rating category.
S&P COMMERCIAL PAPER RATINGS:
-----------------------------
A-1 - This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+).
A-2 - This designation denotes satisfactory capacity for timely
payment. However, the relative degree of safety is not as high as for issues
designated A-1.
MOODY'S COMMERCIAL PAPER RATINGS:
---------------------------------
Issuers rated PRIME-1 (or related supporting institutions), also known
as P-1, have a superior capacity for repayment of short-term promissory
obligations. PRIME-1 repayment capacity will normally be evidenced by the
following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions), also known
as P-2, have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
<PAGE>
A-3
Appendix B
The Art of Investing:
A Conversation with Roy Neuberger
"I firmly believe that if you want to manage your own
money, you must be a student of the market. If you
are unwilling or unable to do that, find someone else
to manage your money for you."
NEUBERGER & BERMAN
B-1
<PAGE>
[THIS PAGE IS BLANK - IT IS AN INSIDE PAGE OF THIS BROCHURE]
B-2
<PAGE>
[PICTURE OF ROY NEUBERGER]
During my more than sixty-five years of buying and selling
securities, I've been asked many questions about my approach to
investing. On the pages that follow are a variety of my thoughts,
ideas and investment principles which have served me well over the
years. If you gain useful knowledge in the pursuit of profit as well
as enjoyment from these comments, I shall be more than content.
\s\ Roy R. Neuberger
<PAGE>
YOU'VE BEEN ABLE TO CONDENSE SOME OF THE
CHARACTERISTICS OF SUCCESSFUL INVESTING INTO
FIVE "RULES." WHAT ARE THEY?
Rule #1: Be flexible. My philosophy has
necessarily changed from time to time because
of events and because of mistakes. My views
change as economic, political, and
technological changes occur both on and
sometimes off our planet. It is imperative
that you be willing to change your thoughts
to meet new conditions.
Rule #2: Take your temperament into account.
Recognize whether you are by nature very
speculative or just the opposite -- fearful,
timid of taking risks. But in any event --
Diversify your investments, Rule #3: Be broad-gauged. Diversify your
make sure that some of your investments, make sure that some of your
principal is kept safe, and principal is kept safe, and try to increase
try to increase your income your income as well as your capital.
as well as your capital.
[PICTURE OF ROY NEUBERGER]
Rule #4: Always remember there are many ways
to skin a cat! Ben Graham and David Dodd did
it by understanding basic values. Warren
Buffet invested his portfolio in a handful of
long-term holdings, while staying involved
with the companies' managements. Peter Lynch
chose to understand, first-hand, the products
of many hundreds of the companies he invested
in. George Soros showed his genius as a hedge
fund investor who could decipher world
currency trends. Each has been successful in
his own way. But to be successful, remember
to-
B-3
<PAGE>
Rule #5: Be skeptical. To repeat a few well-
worn useful phrases:
A. Dig for yourself.
B. Be from Missouri.
C. If it sounds too good to be true, it
probably is.
IN YOUR 65 YEARS OF INVESTING ARE THERE ANY
GENERAL PATTERNS YOU'VE OBSERVED AS TO HOW
THE MARKET BEHAVES?
Every decade that I've been involved with
Wall Street has a nuance of its own, an
economic and social climate that influences
investors. But generally, bull markets tend
to be longer than bear markets, and stock
prices tend to go up more slowly and
erratically than they go down. Bear markets
tend to be shorter and of greater intensity.
The market rarely rises or declines
concurrently with business cycles longer than
six months.
AS A LEGENDARY "VALUE INVESTOR," HOW DO YOU
DEFINE VALUE INVESTING?
Value investing means finding the best values
- - either absolute or relative. Absolute
means a stock has a low market price relative
to its own fundamentals. Relative value means
the price is attractive relative to the
market as a whole.
COULD YOU DESCRIBE A STOCK WITH "GOOD VALUE"?
A classic example is a company that has a low
price to earnings ratio, a low price to book
ratio, free cash flow, a strong balance
sheet, undervalued corporate assets,
unrecognized earnings turnaround and is
selling at a discount to private market
value.
These characteristics usually lead to
companies that are under-researched and have
a high degree of inside ownership and
entrepreneurial management.
B-4
<PAGE>
One of my colleagues at Neuberger & Berman
says he finds his value stocks either "under
a cloud" or "under a rock." "Under a cloud"
stocks are those Wall Street in general
doesn't like, because an entire industry is
out of favor and even the good stocks are
being dropped. "Under a rock" stocks are
those Wall Street is ignoring, so you have to
uncover them on your own.
ARE THERE OTHER KEY CRITERIA YOU USE TO JUDGE
STOCKS?
I'm more interested in longer-term trends in
earnings than short-term trends. Earnings
gains should be the product of long-term
strategies, superior management, taking
advantage of business opportunities and so
on. If these factors are in their proper
place, short-term earnings should not be of
major concern. Dividends are an important
extra because, if they're stable, they help
support the price of the stock.
WHAT ABOUT SELLING STOCKS?
Most individual investors should invest for
the long term but not mindlessly. A sell
discipline, often neglected by investors, is
vitally important.
"One should fall in love One should fall in love with ideas, with
with ideas, with people or people, or with idealism. But in my book, the
with idealism. But in my last thing to fall in love with is a
book, the last thing to particular security. It is after all just a
fall in love with is a sheet of paper indicating a part ownership in
particular security." a corporation and its use is purely
mercenary. If you must love a security, stay
in love with it until it gets overvalued;
then let somebody else fall in love.
[PICTURE OF ROY NEUBERGER]
B-5
<PAGE>
ANY OTHER ADVICE FOR INVESTORS?
I firmly believe that if you want to manage
your own money, you must be a student of the
market. If you're unwilling or unable to do
that, find someone else to manage your money
for you. Two options are a well-managed
no-load mutual fund or, if you have enough
assets for separate account management, a
money manager you trust with a good record.
HOW WOULD YOU DESCRIBE YOUR PERSONAL
INVESTING STYLE?
Every stock I buy is bought to be sold. The
market is a daily event, and I continually
review my holdings looking for selling
opportunities. I take a profit occasionally
on something that has gone up in price over
what was expected and simultaneously take
losses whenever misjudgment seems evident.
This creates a reservoir of buying power that
can be used to make fresh judgments on what
are the best values in the market at that
time. My active investing style has worked
well for me over the years, but for most
investors I recommend a longer-term approach.
I tend not to worry very must about the day
to day swings of the market, which are very
hard to comprehend. Instead, I try to be
rather clever in diagnosing values and trying
to win 70 to 80 percent of the time.
YOU BEGAN INVESTING IN 1929. WHAT WAS YOUR
EXPERIENCE WITH THE "GREAT CRASH"?
B-6
<PAGE>
The only money I managed in the Panic of 1929
was my own. My portfolio was down about 12
percent, and I had an uneasy feeling about
the market and conditions in general. Those
were the days of 10 percent margin. I studied
the lists carefully for a stock that was
overvalued in my opinion and which I could
sell short as a hedge. I came across RCA at
about $100 per share. It had recently split 5
for 1 and appeared overvalued. There were no
dividends, little income, a low net worth and
a weak financial position. I sold RCA short
in the amount equal to the dollar value of my
long portfolio. It proved to be a timely and
profitable move.
HOW DID THE CRASH OF 1929 AFFECT YOUR
INVESTING STYLE?
I am prematurely bearish when the market goes
up for a long time and everybody is happy
because they are richer. I am very bullish
when the market has gone down perceptibly and
I feel it has discounted any troubles we are
going to have.
HOW IMPORTANT ARE PSYCHOLOGICAL FACTORS TO
MARKET BEHAVIOR?
There are many factors in addition to
economic statistics or security analysis in a
buy or sell decision. I believe psychology
plays an important role in the Market. Some
people follow the crowd in hopes they'll be
swept along in the right direction, but if
the crowd is late in acting, this can be a
bad move.
I like to be contrary. When things look bad,
I become optimistic. When everything looks
rosy, and the crowd is optimistic, I like to
be a seller. Sometimes I'm too early, but I
generally profit.
AS A RENOWNED ART COLLECTOR, DO YOU FIND
SIMILARITIES BETWEEN SELECTING STOCKS AND
SELECTING WORKS OF ART?
B-7
<PAGE>
Both are an art, although picking stocks is a
minor art compared with painting, sculpture
"When things look bad, I or literature. I started buying art in the
become optimistic. When 30s, and in the 40s it was a daily, almost
everything looks rosy, and hourly occurrence. My inclination to buy the
the crowd is optimistic, I works of living artists comes from Van Gogh,
like to be a seller." who sold only one painting during his
lifetime. He died in poverty, only then to
become a legend and have his work sold for
millions of dollars.
[PICTURE OF ROY NEUBERGER]
There are more variables to consider now in
both buying art and picking stocks. In the
modern stock markets, the heavy use of
futures and options has changed the nature of
the investment world. In past times, the
stock market was much less complicated, as
was the art world.
Artists rose and fell on their own merits
without a lot of publicity and attention. As
more and more dealers are involved with
artists, the price of their work becomes
inflated. So I almost always buy works of
unknown, relatively undiscovered artists,
which, I suppose is similar to value
investing.
But the big difference in my view of art and
stocks is that I buy a stock to sell it and
make money. I never bought paintings or
sculptures for investment in my life. The
objective is to enjoy their beauty.
B-8
<PAGE>
WHAT DO YOU CONSIDER THE BUSINESS MILESTONES
IN YOUR LIFE?
Being a founder of Neuberger & Berman and
creating one of the first no-load mutual
funds. I started on Wall Street in 1929, and
during the depression I managed my own money
and that of my clientele. We all prospered,
but I wanted to have my own firm. In 1939 I
became a founder of Neuberger & Berman, and
for about 10 years we managed money for
individuals with substantial financial
assets. But I also wanted to offer the
smaller investor the benefits of professional
money management, so in 1950 I created the
Guardian Mutual Fund (now known as the
Neuberger & Berman Guardian Fund). The Fund
was kind of an innovation in its time because
it didn't charge a sales commission. I
thought the public was being overcharged for
mutual funds, so I wanted to create a fund
that would be offered directly to the public
without a sales charge. Now of course the
"no-load" fund business is a huge industry. I
managed the Fund myself for over 28 years.
[PICTURE OF ROY NEUBERGER]
YOU'RE IN YOUR NINETIES AND STILL YOU GO INTO
THE OFFICE EVERY DAY TO MANAGE YOUR
INVESTMENTS. WHY?
I like the fun of being nimble in the stock
market, and I'm addicted to the market's
fascinations.
WHAT CLOSING WORDS OF ADVICE DO YOU HAVE
ABOUT INVESTING?
Realize that there are opportunities at all
times for the adventuresome investor. And
stay in good physical condition. It's a
strange thing. You do not dissipate your
energies by using them. Exercise your body
and your brain every day, and you'll do
better in investments and in life.
B-9
<PAGE>
ROY NEUBERGER: A BRIEF BIOGRAPHY
Roy Neuberger is a founder of the investment
management firm Neuberger & Berman, and a
renowned value investor. He is also a
recognized collector of contemporary American
art, much of which he has given away to
museums and colleges across the country.
During the 1920s, Roy studied art in
Paris. When he realized he didn't possess the
talent to become an artist, he decided to
collect art, and to support this passion, Roy
turned to investing -- a pursuit for which
his talents have proven more than adequate.
A TALENT FOR INVESTING
Roy began his investment career by
joining a brokerage firm in 1929, seven
months before the "Great Crash." Just weeks
before "Black Monday," he shorted the stock
of RCA, thinking it was overvalued. He
profited from the falling market and gained a
reputation for market prescience and stock
selection that has lasted his entire career.
NEUBERGER & BERMAN'S FOUNDING
Roy's investing acumen attracted many
people who wished to have him manage their
money. In 1939, at the age of 36, after
purchasing a seat on the New York Stock
Exchange, Roy founded Neuberger & Berman to
provide money management services to people
who lacked the time, interest or expertise to
manage their own assets.
B-10
<PAGE>
NEUBERGER & BERMAN -- OVER FIVE DECADES OF
GROWTH
Neuberger & Berman has grown through
the years and now manages approximately $30
billion of equity and fixed income assets,
both domestic and international, for
individuals, institutions, and its family of
no-load mutual funds. Today, as when the firm
was founded, Neuberger & Berman follows a
value approach to investing, designed to
enable clients to advance in good markets and
minimize losses when conditions are less
favorable.
For more complete information about the
Neuberger & Berman Guardian Fund,
including fees and expenses, call
Neuberger & Berman Management at
800-877- 9700 for a free prospectus.
Please read it carefully, before you
invest or send money.
B-11
<PAGE>
Neuberger & Berman Management
Inc.[SERVICE MARK]
605 Third Avenue, 2nd Floor
New York, NY 10158-0006
Shareholder Services
(800) 877-9700
[COPYRIGHT SYMBOL]1995
Neuberger & Berman
PRINTED ON RECYCLED PAPER
WITH SOY BASED INKS
B-12
