As filed with the Securities and Exchange Commission on March 2, 1998
Registration No. 33-82568
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. o Post-Effective Amendment No. 1 /X/
(Check appropriate box or boxes)
Neuberger & Berman Income Trust
(Exact name of registrant as specified in charter)
605 Third Avenue
NEW YORK, NEW YORK 10158-0180
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 476-8800
Theodore P. Giuliano, President
Neuberger & Berman Income Trust
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
(Names and Addresses of Agents for Service of Process)
It is proposed that this filing will become effective immediately upon filing
pursuant to Rule 485(b) under the Securities Act of 1933.
For the new shares of Neuberger & Berman Limited Maturity Bond Trust,
the date of the public offering is February 27, 1998. The public offering of
shares of Registrant's series is on-going. The title of securities being
registered is shares of beneficial interest. No filing fee is due because of
Registrant's reliance on Section 24(f).
Neuberger & Berman Income Trust is a "master/feeder fund." This
Registration Statement includes signature pages for the master fund, Income
Managers Trust, and appropriate officers and trustees thereof.
<PAGE>
NEUBERGER & BERMAN INCOME TRUST
CONTENTS OF REGISTRATION STATEMENT ON FORM N-14
This Registration Statement consists of the following papers and
documents:
Cover Sheet
Contents of Registration Statement on Form N-14
Neuberger & Berman Limited Maturity Bond Trust
- ----------------------------------------------
Part C - Other Information
Signature Pages
Exhibits
The sole purpose of this filing is to file as an exhibit the opinion and
consent of counsel supporting the tax matters and consequences to shareholders
of the reorganization, as required by Item 16(12) of Form N-14. Pursuant to SEC
staff instructions, Parts A and B to this Registration Statement are
incorporated by reference to Registrant's Registration Statement on Form N-14,
File No. 33-82568, Edgar Accession No. 0000898432-97-000539.
<PAGE>
NEUBERGER & BERMAN INCOME TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
-------- --------------
A Delaware business trust may provide in its governing instrument for
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article IX, Section 2 of the Trust Instrument provides
that the Registrant shall indemnify any present or former trustee, officer,
employee or agent of the Registrant ("Covered Person") to the fullest extent
permitted by law against liability and all expenses reasonably incurred or paid
by him or her in connection with any claim, action, suit or proceeding
("Action") in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been a Covered Person and against amounts paid or
incurred by him or her in settlement thereof. Indemnification will not be
provided to a person adjudged by a court or other body to be liable to the
Registrant or its shareholders by reason of "willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office" ("Disabling Conduct"), or not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of the
Registrant. In the event of a settlement, no indemnification may be provided
unless there has been a determination that the officer or trustee did not engage
in Disabling Conduct (i) by the court or other body approving the settlement;
(ii) by at least a majority of those trustees who are neither interested
persons, as that term is defined in the Investment Company Act of 1940 ("1940
Act"), of the Registrant ("Independent Trustees"), nor parties to the matter
based upon a review of readily available facts; or (iii) by written opinion of
independent legal counsel based upon a review of readily available facts.
Pursuant to Article IX, Section 3 of the Trust Instrument, if any
present or former shareholder of any series ("Series") of the Registrant shall
be held personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or for some other
reason, the present or former shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of any entity, its
general successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Registrant, on behalf of the affected
Series, shall, upon request by such shareholder, assume the defense of any claim
made against such shareholder for any act or obligation of the Series and
satisfy any judgment thereon from the assets of the Series.
Section 9 of the Management Agreement between Income Managers Trust
("Managers Trust") and Neuberger and Berman Management Incorporated ("N&B
Management") provides that neither N&B Management nor any director, officer or
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<PAGE>
employee of N&B Management performing services for any series of Managers Trust
(each a "Portfolio") at the direction or request of N&B Management in connection
with N&B Management's discharge of its obligations under the Agreement shall be
liable for any error of judgment or mistake of law or for any loss suffered by a
Portfolio in connection with any matter to which the Agreement relates;
provided, that nothing in the Agreement shall be construed (i) to protect N&B
Management against any liability to Managers Trust or a Portfolio or its
interestholders to which N&B Management would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of N&B Management's reckless disregard of its obligations
and duties under the Agreement, or (ii) to protect any director, officer or
employee of N&B Management who is or was a trustee or officer of Managers Trust
against any liability to Managers Trust or a Portfolio or its interestholders to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office with Managers Trust.
Section 1 of the Sub-Advisory Agreement between N&B Management and
Neuberger & Berman, L.P. ("Neuberger & Berman") with respect to Managers Trust
provides that in the absence of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or of reckless disregard of its
duties and obligations under the Agreement, Neuberger & Berman will not be
subject to liability for any act or omission or any loss suffered by any
Portfolio or its interestholders in connection with the matters to which the
Agreement relates.
Section 11 of the Agreement provides that N&B Management shall look
only to the assets of a Series for the Registrant's performance of the Agreement
by the Registrant on behalf of such Series, and neither the trustees nor any of
the Registrant's officers, employees or agents, whether past, present or future,
shall be personally liable therefor.
Section 12 of the Administration Agreement provides that each Series
shall indemnify N&B Management and hold it harmless from and against any and all
losses, damages and expenses, including reasonable attorneys' fees and expenses,
incurred by N&B Management that result from: (i) any claim, action, suit or
proceeding in connection with N&B Management's entry into or performance of the
Agreement with respect to such Series; or (ii) any action taken or omission to
act committed by N&B Management in the performance of its obligations hereunder
with respect to such Series; or (iii) any action of N&B Management upon
instructions believed in good faith by it to have been executed by a duly
authorized officer or representative of the Trust with respect to such Series;
provided, that N&B Management shall not be entitled to such indemnification in
respect of actions or omissions constituting negligence or misconduct on the
part of N&B Management or its employees, agents or contractors.
Section 13 of the Administration Agreement provides that N&B Management
shall indemnify each Series and hold it harmless from and against any and all
losses, damages and expenses, including reasonable attorneys' fees and expenses,
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<PAGE>
incurred by such Series which result from: (i) N&B Management's failure to
comply with the terms of this Agreement with respect to such Series; or (ii) N&B
Management's lack of good faith in performing its obligations hereunder with
respect to such Series; or (iii) N&B Management's negligence or misconduct of
its employees, agents or contractors in connection herewith with respect to such
Series. A Series shall not be entitled to such indemnification in respect of
actions or omissions constituting negligence or misconduct on the part of that
Series or its employees, agents or contractors other than N&B Management unless
such negligence or misconduct results from or is accompanied by negligence or
misconduct on the part of N&B Management, any affiliated person of N&B
Management, or any affiliated person of an affiliated person of N&B Management.
Section 11 of the Distribution Agreement between the Registrant and N&B
Management contains provisions similar to Section 11 of the Administration
Agreement, with respect to N&B Management.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
<TABLE>
<CAPTION>
Item 16. Exhibits.
- -------- ---------
Exhibit
Number Description
------ -----------
<S> <C>
(1) (a) Certificate of Trust. Incorporated by Reference to Post-Effective
Amendment No. 3 to Registrant's Registration Statement, File Nos.
33-62872 and 811-7724, EDGAR Accession No. 0000898432-96-00018.
(b) Trust Instrument of Neuberger & Berman Income Trust. Incorporated
by Reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and 811-7724, EDGAR
Accession No. 0000898432-96-00018.
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<PAGE>
(c) Schedule A - Current Series of Neuberger & Berman Income Trust.
Incorporated by Reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement, File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-98-000251.
(2) By-laws of Neuberger & Berman Income Trust. Incorporated by Reference to
Post-Effective Amendment No. 3 to Registrant's Registration Statement, File Nos.
33-62872 and 811-7724, EDGAR Accession No. 0000898432-96-00018.
(3) Voting Trust Agreement. None.
(4) Plan of Reorganization and Termination. Incorporated by Reference to Registrant's
Registration Statement on Form N-14, File No. 33-62872, EDGAR Accession No.
0000898432-97-000539.
(5) (a) Trust Instrument of Neuberger & Berman Income Trust, Articles IV,
V, and VI. Incorporated by Reference to Post-Effective Amendment
No. 3 to Registrant's Registration Statement, File Nos. 33-62872
and 811-7724, EDGAR Accession No. 0000898432-96-00018.
(b) By-laws of Neuberger & Berman Income Trust Articles V, VI, and
VIII. Incorporated by Reference to Post-Effective Amendment No. 3
to Registrant's Registration Statement File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-96-00018.
(6) (a) (i) Management Agreement Between Income Managers Trust and
Neuberger & Berman Management Incorporated. Incorporated
by Reference to Post-Effective Amendment No. 21 to
Registration Statement of Neuberger & Berman Income
Funds, File Nos. 2-85229 and 811-3802, EDGAR Accession
No. 0000898432-96-000117.
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<PAGE>
(ii) Schedule A - Portfolios of Income Managers Trust
Currently Subject to the Management Agreement.
Incorporated by Reference to Post-Effective Amendment
No. 25 to Registration Statement of Neuberger & Berman
Income Funds, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-98-000246.
(iii) Schedule B - Schedule of Compensation Under the
Management Agreement. Incorporated by Reference to
Post-Effective Amendment No. 25 to Registration
Statement of Neuberger & Berman Income Funds, File Nos.
2-85229 and 811-3802, EDGAR Accession No.
0000898432-98-000246.
(b) (i) Sub-Advisory Agreement Between Neuberger & Berman
Management Incorporated and Neuberger & Berman, L.P.
with Respect to Income Managers Trust. Incorporated by
Reference to Post-Effective Amendment No. 21 to
Registration Statement of Neuberger & Berman Income
Funds, File Nos. 2-85229 and 811-3802, EDGAR Accession
No. 0000898432-96-00017.
(ii) Schedule A - Portfolios of Income Managers Trust
Currently Subject to the Sub-Advisory Agreement.
Incorporated by Reference to Post-Effective Amendment
No. 25 to Registration Statement of Neuberger & Berman
Income Funds, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-98-000246.
(iii) Substitution Agreement Among Neuberger & Berman
Management Incorporated, Income Managers Trust,
Neuberger & Berman, L.P., and Neuberger & Berman, LLC.
Incorporated by Reference to Registrant's Statement,
Post-Effective Amendment No. 5, File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-96-00503.
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<PAGE>
(7) (a) Distribution Agreement Between Neuberger & Berman Income Trust and
Neuberger & Berman Management Incorporated. Incorporated by
Reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and 811-7724, EDGAR
Accession No. 0000898432-96-00018.
(b) Schedule A - Series of Neuberger & Berman Income Trust Currently
Subject to the Distribution Agreement. Incorporated by Reference
to Post-Effective Amendment No. 6 to Registrant's Registration
Statement, File Nos. 33-62872 and 811-7724, EDGAR Accession No.
0000898432-98-000251.
(8) Bonus, Profit Sharing or Pension Plans. None.
(9) (a) Custodian Contract Between Neuberger & Berman Income Trust and
State Street Bank and Trust Company. Incorporated by Reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement, File Nos. 33-62872 and 811-7724, EDGAR Accession No.
0000898432-96-00018.
(b) Schedule of Compensation under the Custodian Contract.
Incorporated by Reference to Registrant's Registration Statement,
Post-Effective Amendment No. 5, File Nos. 33-62872 and 811-7724,
EDGAR Accession No. 0000898432-97-000503.
(10) (a) Plan Pursuant to Rule 12b-1. None.
(b) Plan Pursuant to Rule 18f-3. None.
(11) Opinion and Consent of Kirkpatrick and Lockhart LLP on Securities Matters.
Incorporated by Reference to Registrant's Registration Statement on Form N-14, File
No. 33-62872, EDGAR Accession No. 0000898432-97-000539.
(12) Opinion and Consent of Kirkpatrick & Lockhart LLP Regarding Certain Tax Matters.
Filed Herewith.
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<PAGE>
(13) (a) (i) Transfer Agency Agreement Between Neuberger & Berman
Income Trust and State Street Bank and Trust Company.
Incorporated by Reference to Post-Effective Amendment
No. 3 to Registrant's Registration Statement, File Nos.
33-62872 and 811-7724, EDGAR Accession No.
0000898432-96-00018.
(ii) First Amendment to Transfer Agency and Service Agreement
between Neuberger & Berman Income Trust and State Street
Bank and Trust Company. Incorporated by Reference to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and 811-7724,
EDGAR Accession No. 0000898432-96-00018.
(iii) Schedule of Compensation Under the Transfer Agency
Agreement. Incorporated by Reference to Registrant's
Registration Statement, Post-Effective Amendment No. 5,
File Nos. 33-62872 and 811-7724, EDGAR Accession No.
0000898432-97-000503.
(b) (i) Administration Agreement Between Neuberger & Berman
Income Trust and Neuberger & Berman Management
Incorporated. Incorporated by Reference to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and 811-7724,
EDGAR Accession No. 0000898432-96-00018.
(ii) Schedule A - Series of Neuberger & Berman Income Trust
Currently Subject to the Administration Agreement.
Incorporated by Reference to Post-Effective Amendment
No. 6 to Registrant's Registration Statement, File Nos.
33-62872 and 811-7724, EDGAR Accession No.
0000898432-98-000251.
(iii) Schedule B - Schedule of Compensation Under the
Administration Agreement. Incorporated by Reference to
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<PAGE>
Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and 811-7724,
EDGAR Accession No. 0000898432-96-00018.
(14) Other Opinions, Appraisals, Rulings and Consents:
Consent of Ernst & Young LLP, Independent Auditors. Previously Filed in
Registrant's Registration Statement on Form N-14, File No. 33-62872, EDGAR
Accession No. 0000898432-97-000539.
(15) Financial Statements Omitted from Part B. None.
(16) Powers of Attorney Pursuant to Which the Name of Any Person Has Been Signed to the
Registration Statement. Incorporated by Reference to Registrant's Registration
Statement on Form N-14, File No. 33-62872, EDGAR Accession No.
0000898432-97-000539.
(17) Additional Exhibits. None.
(27) Financial Data Schedules. Filed Herewith.
</TABLE>
Item 17. Undertakings
- -------- ------------
(1) Registrant hereby agrees that prior to any public
reoffering of the securities registered through the
use of a prospectus which is a part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c) of the Securities Act of 1993, the
reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of
an amendment to the registration statement and will
not be used until the amendment is effective, and
that, in determining any liability under the
Securities Act of 1933, each post-effective amendment
shall be deemed to be a new registration statement
for the securities offered therein, and the offering
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of the securities at that time shall be deemed to be
the initial bona fide offering of them.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NEUBERGER &
BERMAN INCOME TRUST has duly caused Post-Effective Amendment No. 1 to the
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City and State of New York on the
2nd day of March, 1998.
NEUBERGER & BERMAN INCOME TRUST
By: /s/ Theodore P. Giuliano*
Theodore P. Giuliano
President
Pursuant to the requirements of the Securities Act of 1933,
Post-Effective Amendment No. 1 to the Registration Statement on Form N-14 has
been signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
- --------- ----- ----
/s/ John Cannon* Trustee March 2, 1998
- -------------------------
John Cannon
/s/ Stanley Egener* Chairman of the Board, March 2, 1998
- ------------------------- Chief Executive Officer
Stanley Egener and Trustee
/s/ Theodore P. Giuliano* President and Trustee March 2, 1998
- -------------------------
Theodore P. Giuliano
/s/ Barry Hirsch* Trustee March 2, 1998
- -------------------------
Barry Hirsch
/s/Robert A. Kavesh* Trustee March 2, 1998
- -------------------------
Robert A. Kavesh
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ William E. Rulon* Trustee March 2, 1998
- ---------------------
William E. Rulon
/s/ Candace L. Straight* Trustee March 2, 1998
- ------------------------
Candace L. Straight
/s/ Richard Russell* Treasurer and March 2, 1998
- -------------------- Principal Accounting Officer
Richard Russell
/s/ Michael J. Weiner* Vice President and March 2, 1998
- ---------------------- Principal Financial Officer
Michael J. Weiner
* (signed pursuant to a Power of Attorney dated September 24, 1997 by
/s/ Arthur C. Delibert)
-----------------------
Arthur C. Delibert
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, INCOME
MANAGERS TRUST has duly caused Post-Effective Amendment No. 1 to the
Registration Statement of Neuberger & Berman Income Trust on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
and State of New York on the 2nd day of March, 1998.
INCOME MANAGERS TRUST
By: /s/ Theodore P. Giuliano*
--------------------------
Theodore P. Giuliano
President
Pursuant to the requirements of the Securities Act of 1933,
Post-Effective Amendment No. 1 to the Registration Statement on Form N-14 has
been signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
- --------- ----- ----
_/s/ John Cannon* Trustee March 2, 1998
- -------------------------
John Cannon
/s/ Stanley Egener* Chairman of the Board, March 2, 1998
- ------------------------ Chief Executive Officer
and Trustee
Stanley Egener
/s/ Theodore P. Giuliano* President and Trustee March 2, 1998
- -------------------------
Theodore P. Giuliano
/s/ Barry Hirsch* Trustee March 2, 1998
- -------------------------
Barry Hirsch
/s/ Robert A. Kavesh* Trustee March 2, 1998
- -------------------------
Robert A. Kavesh
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ William E. Rulon* Trustee March 2, 1998
- ------------------------
William E. Rulon
/s/ Candace L. Straight* Trustee March 2, 1998
- ------------------------
Candace L. Straight
/s/ Richard Russell* Treasurer and March 2, 1998
----------------------- Principal Accounting Officer
Richard Russell
/s/ Michael J. Weiner* Vice President and March 2, 1998
- ------------------------ Principal Financial Officer
Michael J. Weiner
* (signed pursuant to a Power of Attorney dated September 24, 1997 by
/s/Arthur C. Delibert)
------------------------
Arthur C. Delibert
<PAGE>
NEUBERGER & BERMAN INCOME TRUST
FORM N-14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C> <C>
(1) (a) Certificate of Trust. Incorporated by Reference to N.A.
Post-Effective Amendment No. 3 to Registrant's Registration
Statement, File Nos. 33-62872 and 811-7724, EDGAR Accession No.
0000898432-96-00018.
(b) Trust Instrument of Neuberger & Berman Income Trust. N.A.
Incorporated by Reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement, File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-96-00018.
(c) Schedule A - Current Series of Neuberger & Berman Income Trust. N.A.
Incorporated by Reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement, File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-98-000251.
(2) By-laws of Neuberger & Berman Income Trust. N.A.
Incorporated by Reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement, File Nos. 33-62872 and 811-7724,
EDGAR Accession No. 0000898432-96-00018.
(3) Voting Trust Agreement. None. N.A.
(4) Plan of Reorganization and Termination. Incorporated by Reference to N.A.
Registrant's Registration Statement on Form N-14, File No. 33-62872,
EDGAR Accession No. 0000898432-97-000539.
(5) (a) Trust Instrument of Neuberger & Berman Income Trust, Articles N.A.
IV, V, and VI. Incorporated by Reference to Post-Effective
Amendment No. 3 to Registrant's Registration Statement, File
Nos. 33-62872 and 811-7724, EDGAR Accession No.
0000898432-96-00018.
<PAGE>
(b) By-laws of Neuberger & Berman Income Trust Articles V, VI, and N.A.
VIII. Incorporated by Reference to Post-Effective Amendment No.
3 to Registrant's Registration Statement File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-96-00018.
(6) (a) (i) Management Agreement Between Income Managers Trust and N.A.
Neuberger & Berman Management Incorporated.
Incorporated by Reference to Post-Effective Amendment
No. 21 to Registration Statement of Neuberger & Berman
Income Funds, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-96-00017.
(ii) Schedule A - Portfolios of Income Managers Trust N.A.
Currently Subject to the Management Agreement.
Incorporated by Reference to Post-Effective Amendment
No. 25 to Registration Statement of Neuberger & Berman
Income Funds, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-98-000246.
(iii) Schedule B - Schedule of Compensation Under the N.A.
Management Agreement. Incorporated by Reference to
Post-Effective Amendment No. 25 to Registration
Statement of Neuberger & Berman Income Funds, File Nos.
2-85229 and 811-3802, EDGAR Accession No.
0000898432-98-000246.
(b) (i) Sub-Advisory Agreement Between Neuberger & Berman N.A.
Management Incorporated and Neuberger & Berman, L.P.
with Respect to Income Managers Trust. Incorporated by
Reference to Post-Effective Amendment No. 21 to
Registration Statement of Neuberger & Berman Income
Funds, File Nos. 2-85229 and 811-3802, EDGAR Accession
No. 0000898432-96-000017.
(ii) Schedule A - Portfolios of Income Managers Trust N.A.
2
<PAGE>
Currently Subject to the Sub-Advisory Agreement.
Incorporated by Reference to Post-Effective Amendment
No. 25 to Registration Statement of Neuberger & Berman
Income Funds, File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-98-000246.
(iii) Substitution Agreement Among Neuberger & Berman N.A.
Management Incorporated, Income Managers Trust,
Neuberger & Berman, L.P., and Neuberger & Berman, LLC.
Incorporated by Reference to Registrant's Registration
Statement, Post-Effective Amendment No. 5, File Nos.
33-62872 and 811-7724, EDGAR Accession No.
0000898432-97-000503.
(7) (a) Distribution Agreement Between Neuberger & Berman Income Trust N.A.
and Neuberger & Berman Management Incorporated. Incorporated by
Reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and 811-7724, EDGAR
Accession No. 0000898432-96-00018.
(b) Schedule A - Series of Neuberger & Berman Income Trust Currently N.A.
Subject to the Distribution Agreement. Incorporated by
Reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement, File Nos. 33-62872 and 811-7724, EDGAR
Accession No. 0000898432-98-000251.
(8) Bonus, Profit Sharing or Pension Plans. None. N.A.
(9) (a) Custodian Contract Between Neuberger & Berman Income Trust and N.A.
State Street Bank and Trust Company. Incorporated by Reference
to Post-Effective Amendment No. 3 to Registrant's Registration
Statement, File Nos. 33-62872 and 811-7724, EDGAR Accession No.
0000898432-96-00018.
3
<PAGE>
(b) Schedule of Compensation under the Custodian Contract. N.A.
Incorporated by Reference to Registrant's Registration
Statement, Post-Effective Amendment No. 5, File Nos. 33-62872
and 811-7724, EDGAR Accession No. 0000898432-97-000503.
(10) (a) Plan Pursuant to Rule 12b-1. None. N.A.
(b) Plan Pursuant to Rule 18f-3. None.
(11) Opinion and Consent of Kirkpatrick & Lockhart LLP on Securities Matters. N.A.
Incorporated by Reference to Registrant's Registration Statement on Form
N-14, File No. 33-62872, EDGAR Accession No. 0000898432-97-000539.
(12) Opinion and Consent of Kirkpatrick & Lockhart LLP Regarding Certain Tax ___
Matters. Filed Herewith.
(13) (a) (i) Transfer Agency Agreement Between Neuberger & Berman N.A.
Income Trust and State Street Bank and Trust Company.
Incorporated by Reference to Post-Effective Amendment
No. 3 to Registrant's Registration Statement, File Nos.
33-62872 and 811-7724, EDGAR Accession No.
0000898432-96-00018.
(ii) First Amendment to Transfer Agency and Service N.A.
Agreement between Neuberger & Berman Income Trust and
State Street Bank and Trust Company. Incorporated by
Reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement, File Nos. 33-62872
and 811-7724, EDGAR Accession No. 0000898432-96-00018.
(iii) Schedule of Compensation Under the Transfer Agency N.A.
Agreement. Incorporated by Reference to Registrant's
Registration Statement, Post-Effective Amendment No. 5,
File Nos. 33-62872 and 811-7724, EDGAR Accession No.
0000898432-97-000503.
4
<PAGE>
(b) (i) Administration Agreement Between Neuberger & Berman N.A.
Income Trust and Neuberger & Berman Management
Incorporated. Incorporated by Reference to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-96-00018.
(ii) Schedule A - Series of Neuberger & Berman Income Trust N.A.
Currently Subject to the Administration Agreement.
Incorporated by Reference to Post-Effective Amendment
No. 6 to Registrant's Registration Statement, File Nos.
33-62872 and 811-7724, EDGAR Accession No.
0000898432-98-000251.
(iii) Schedule B - Schedule of Compensation Under the N.A.
Administration Agreement. Incorporated by Reference to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement, File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-96-00018.
(14) Other Opinions, Appraisals, Rulings and Consents: N.A.
Consent of Ernst & Young LLP, Independent Auditors. Previously Filed in
Registrant's Registration Statement on Form N-14, File No. 33-62872,
EDGAR Accession No. 0000898432-97-000539.
(15) Financial Statements Omitted from Prospectus. None. N.A.
(16) Manually Signed Power of Attorney Pursuant to Which the Name of Any N.A.
Person Has Been Signed to the Registration Statement. Incorporated by
Reference to Registrant's Registration Statement on Form N-14, File No.
33-62872, EDGAR Accession No. 0000898432-97-000539.
(17) Additional Exhibits. None. N.A.
(27) Financial Data Schedules. Filed Herewith.
5
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Neuberger&Berman Limited Maturity Bond Portfolio Annual Report and is
qualified in its entirety by reference to such document.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> NEUBERGER&BERMAN LIMITED MATURITY BOND PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 301,455
<INVESTMENTS-AT-VALUE> 303,088
<RECEIVABLES> 4,111
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 307,210
<PAYABLE-FOR-SECURITIES> 14,112
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132
<TOTAL-LIABILITIES> 14,244
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217,469
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 84,068
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,839)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,268
<NET-ASSETS> 292,966
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,575
<OTHER-INCOME> 0
<EXPENSES-NET> (914)
<NET-INVESTMENT-INCOME> 18,661
<REALIZED-GAINS-CURRENT> (990)
<APPREC-INCREASE-CURRENT> 2,266
<NET-CHANGE-FROM-OPS> 19,937
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25,657
<ACCUMULATED-NII-PRIOR> 65,407
<ACCUMULATED-GAINS-PRIOR> (8,849)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 697
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 914
<AVERAGE-NET-ASSETS> 278,661
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Neuberger&Berman Limited Maturity Bond Trust Annual Report and is qualified
in its entirety by reference to such document.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> NEUBERGER&BERMAN LIMITED MATURITY BOND TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 37,469
<RECEIVABLES> 15
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,493
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97
<TOTAL-LIABILITIES> 97
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,295
<SHARES-COMMON-STOCK> 3,907
<SHARES-COMMON-PRIOR> 2,227
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (111)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 212
<NET-ASSETS> 37,396
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,314
<OTHER-INCOME> 0
<EXPENSES-NET> (263)
<NET-INVESTMENT-INCOME> 2,051
<REALIZED-GAINS-CURRENT> (40)
<APPREC-INCREASE-CURRENT> 163
<NET-CHANGE-FROM-OPS> 2,174
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,053)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,052
<NUMBER-OF-SHARES-REDEEMED> (1,587)
<SHARES-REINVESTED> 215
<NET-CHANGE-IN-ASSETS> 16,168
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (47)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 408
<AVERAGE-NET-ASSETS> 32,802
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .04
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.57
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
THEODORE L. PRESS
(202) 778-9025
[email protected]
February 19, 1998
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
605 Third Avenue
New York, New York 10158-0180
Re: REORGANIZATIONS OF ULTRA SHORT BOND FUND INTO LIMITED
MATURITY BOND FUND AND ULTRA SHORT BOND TRUST INTO
LIMITED MATURITY BOND TRUST
Ladies and Gentlemen:
Neuberger & Berman Income Funds ("Income Funds"), a Delaware business
trust, on behalf of Neuberger & Berman Ultra Short Bond Fund ("USB Fund") and
Neuberger & Berman Limited Maturity Bond Fund ("LMB Fund"), each a segregated
portfolio of assets ("series") thereof, and Neuberger & Berman Income Trust
("Income Trust"), also a Delaware business trust, on behalf of Neuberger &
Berman Ultra Short Bond Trust ("USB Trust") and Neuberger & Berman Limited
Maturity Bond Trust ("LMB Trust"), each a series thereof, and Income Managers
Trust ("Managers Trust"), a New York common law trust, on behalf of Neuberger &
Berman Ultra Short Bond Portfolio ("USB Portfolio") and Neuberger & Berman
Limited Maturity Bond Portfolio ("LMB Portfolio"), each a subtrust thereof,1
have requested our opinion with respect to certain federal income tax
consequences of the proposed reorganizations of USB Fund into LMB Fund, and USB
Trust into LMB Trust (individually a "Reorganization" and collectively
"Reorganizations"), and related transactions, as described more fully below.
In rendering this opinion, we have examined (1) each Fund's currently
effective prospectus and statement of additional information, (2) the Prospectus
and Information Statement included in the registration statement on Form N-14
filed with the Securities and Exchange Commission ("SEC") on December 24, 1997
("Information Statement"), by Income Funds, and the Plan of Reorganization and
Termination dated December 22, 1997, made by Income Funds relating to the
proposed reorganization of USB Fund into LMB Fund appended to that Information
Statement ("Income Funds Plan"), (3) the Information Statement of Income Trust,
and the Plan of Reorganization and Termination dated December 22, 1997, made by
Income Trust relating to the proposed reorganization of USB Trust into LMB Trust
appended to that Information Statement ("Income Trust Plan") (the Income Funds
Plan and the Income Trust Plan, individually a "Plan" and collectively "Plans"),
and (4) such other documents as we have deemed necessary or appropriate for the
- ----------
(1) USB Fund, USB Trust, LMB Fund, and LMB Trust are sometimes referred to
herein individually as a "Fund" and collectively as the "Funds"; USB Portfolio
and LMB Portfolio are sometimes referred to herein individually as a "Portfolio"
and collectively as the "Portfolios"; and Income Funds, Income Trust, and
Managers Trust are sometimes referred to herein individually as a "Trust" and
collectively as the "Trusts."
<PAGE>
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 2
purposes hereof. As to various matters of fact material to this opinion, we have
relied, exclusively and without independent verification and with your
permission, on statements of responsible officers of each Trust and the
representations described below and made in the Plans (as contemplated in
paragraph 6.1.10 of each of them) (collectively "Representations").
FACTS
I. BACKGROUND.
Income Funds and Income Trust are business trusts organized under the laws
of the State of Delaware pursuant to Trust Instruments dated as of December 23,
1992, and May 6, 1993, respectively. Managers Trust is a trust organized under
the common law of the State of New York pursuant to a Trust Instrument dated
December 1, 1993. Each Trust is registered with the SEC under the Investment
Company Act of 1940, as amended ("1940 Act"), as a diversified, open-end
management investment company. Income Funds has created several series,
including USB Fund and LMB Fund. USB Trust and LMB Trust are the only current
series of Income Trust.
Each Fund is a feeder fund, and each Portfolio is a master fund, in a
"master/feeder fund structure." Under that structure, each of USB Fund and USB
Trust invests substantially all of its net investable assets in USB Portfolio,
and each of LMB Fund and LMB Trust invests substantially all of its net
investable assets in LMB Portfolio (the members of each such grouping sometimes
referred to herein as "corresponding Funds" and a "corresponding Portfolio,"
respectively), and each Portfolio invests in accordance with an investment
objective, policies, and limitations identical to those of its corresponding
Funds.
Neuberger & Berman Management Incorporated ("N&B Management") serves as
each Portfolio's investment manager, each Funds' administrator, and the
distributor of each Fund's shares. Its affiliate, Neuberger & Berman, LLC,
serves as each Portfolio's sub-adviser; day-to-day portfolio management of each
Portfolio is handled by Neuberger & Berman, LLC's Fixed Income Group.
II. THE FUNDS AND THE PORTFOLIOS.
Each Fund is a "fund" as defined in section 851(g)(2)2 and qualifies for
treatment as a regulated investment company ("RIC") under Subchapter M of the
Code ("Subchapter M"). Each Portfolio received a private letter ruling ("PLR")
from the Internal Revenue Service ("Service") dated May 7, 1993, to the effect
that it will be classified as a separate partnership for purposes of federal
taxation and will not be classified as a publicly traded partnership under
section 7704. SEE PLRs 9331023 and 9331026. Those PLRs also concluded that, for
purposes of satisfying the requirements under sections 851(b)(2) - (4) and, if
- ----------
(2) Section references are to the Internal Revenue Code of 1986, as amended
("Code"), and "Treas. Reg. ss." references are to the regulations thereunder
("Regulations").
<PAGE>
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 3
applicable, 852(b)(5), USB Fund and LMB Fund each will be deemed to own a
proportionate share of its corresponding Portfolio's assets and to be entitled
to that Portfolio's gross income attributable to that share. (USB Trust and LMB
Trust were not parties to the request for those rulings.)
The Funds' and Portfolios' investment objectives and policies are
substantially similar. The investment objective of USB Portfolio and its
corresponding Funds is to provide current income with minimal risk to principal
and liquidity, while the investment objective of LMB Portfolio and its
corresponding Funds is to provide the highest current income consistent with low
risk to principal and liquidity and, secondarily, total return. Each Portfolio
invests in a diversified portfolio of fixed and variable rate debt securities
and seeks to increase income and preserve or enhance total return by actively
managing portfolio duration in light of market conditions and trends. The
Portfolios' investment policies are further described in the Information
Statements and in the Funds' respective prospectuses and statements of
additional information.
USB Portfolio holds five mortgage-backed securities issued by the Federal
Home Loan Mortgage Corporation ("FHLMC Securities"), each of which, at the time
of its contribution to USB Portfolio by USB Fund on July 2, 1993, had a fair
market value in excess of its basis ("precontribution gain"). The aggregate
precontribution gain of the FHLMC Securities at that time was $17,192.84;
between then and January 5, 1998, USB Portfolio recognized $16,095.68 of the
precontribution gain and allocated the same to USB Fund, resulting in $1,097.16
of unrecognized aggregate precontribution gain as of that date.
III. THE REORGANIZATIONS AND RELATED TRANSACTIONS.
Pursuant to the Reorganizations, each of USB Fund and USB Trust will
transfer substantially all of its assets to LMB Fund and LMB Trust,
respectively, and then will dissolve. Each of these combinations is expected to
reduce certain administrative expenses and thus produce certain economies of
scale that will benefit the shareholders of these Funds. The Trusts' boards of
trustees (each a "board") considered the Reorganizations at a joint meeting
thereof held on September 24, 1997; after making an extensive inquiry into a
number of factors (which are described in the Information Statements, together
with a discussion of the reasons for the Reorganizations), the boards then
unanimously approved the transactions described herein. In doing so, each board,
including a majority of its members who are not "interested persons" (as that
term is defined in the 1940 Act) of the relevant Trusts, determined, in
accordance with Rule 17a-8 under the 1940 Act, that the applicable
Reorganization is in the best interests of its respective Fund or Portfolio and
that its Fund's shareholders' interests will not be diluted as a result thereof.
(For simplicity, the remainder of this opinion describes only the Reorganization
of USB Fund into LMB Fund and related transactions, even though, as noted, USB
Trust simultaneously will be reorganized into LMB Trust using the identical
procedure; accordingly, as used below, "USB Fund" is interchangeable with "USB
Trust" (except when used with respect to the FHLMC Securities), "LMB Fund" is
interchangeable with "LMB Trust," and "Income Funds" is interchangeable with
"Income Trust.")
<PAGE>
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 4
The Reorganization of USB Fund into LMB Fund, together with related acts
necessary to consummate the same ("Closing"), will occur at Income Fund's
principal office on February 27, 1998, or at such other place and/or on such
other date as its officers may determine. All acts taking place at the Closing
will be deemed to take place simultaneously as of the close of regular trading
on the New York Stock Exchange on the date of the Closing or at such other time
as Income Funds' officers may determine ("Effective Time"). At or immediately
before the Effective Time, USB Fund will declare and pay to its shareholders a
dividend and/or other distribution in an amount large enough so that it will
have distributed substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any deduction for
dividends paid) and substantially all of its realized net capital gain, if any,3
for the current taxable year through the Effective Time.
As of the Effective Time, (1) USB Fund will redeem (I.E., completely
withdraw) its interest in USB Portfolio and will receive in payment therefor a
distribution in kind of its share of USB Portfolio's net assets ("Redemption
Property") and (2) USB Fund will contribute the Redemption Property to LMB
Portfolio in exchange for an interest therein. Simultaneously, and pursuant to
the Income Funds Plan -- which specifies that it is intended to be, and is
adopted as, a plan of a reorganization described in section 368(a)(1)(C) --
(1) LMB Fund will acquire USB Fund's assets, including without
limitation all cash, cash equivalents, securities (including the interest
in LMB Portfolio received by USB Fund pursuant to (2) above), receivables
(including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books
and records, deferred and prepaid expenses shown as assets on USB Fund's
books, and other property owned by USB Fund at the Effective Time
(collectively "Assets"), in exchange solely for
(a) the number of full and fractional voting shares of
beneficial interest in LMB Fund ("LMB Fund Shares") determined by
dividing the aggregate net asset value of USB Fund by the net asset
value of one LMB Fund Share, and
(b) LMB Fund's assumption of all of USB Fund's liabilities,
debts, obligations, and duties of whatever kind or nature, whether
absolute, accrued, contingent, or otherwise, whether or not arising
in the ordinary course of business, whether or not determinable at
the Effective Time, and whether or not specifically referred to in
the Plan, including USB Fund's share of Reorganization expenses
(collectively "Liabilities"),
- ----------
(3) In calculating such net capital gain, any capital loss carryovers available
pursuant to section 1212(a)(1)(C)(i) shall be included as a short-term capital
loss in the current taxable year.
<PAGE>
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 5
(2) Those LMB Fund Shares will be distributed PRO RATA to USB Fund's
shareholders of record determined as of the close of business on the
Closing Date ("Shareholders") constructively in exchange for their shares
of beneficial interest in USB Fund ("USB Fund Shares") , and
(3) USB Fund subsequently will be terminated.
The distribution described in (2) will be accomplished by transferring the
LMB Fund Shares then credited to USB Fund's account on LMB Fund's share transfer
records to accounts on those records established in the Shareholders' names,
with each Shareholder's account being credited with the respective PRO RATA
number of full and fractional LMB Fund Shares due such Shareholder.
REPRESENTATIONS
Managers Trust has represented and warranted to us on behalf of USB
Portfolio as follows:
1. USB Portfolio has never been engaged in a trade or business within the
meaning of section 731(c)(3)(C)(i);
2. Substantially all of USB Portfolio's assets have always consisted of
cash, corporate stock, certain debt securities, and certain other
financial instruments described in section 731(c)(3)(C)(i)
(collectively "Financial Instruments");
3. USB Portfolio will not own any unrealized receivables or inventory
items that have substantially appreciated in value, as defined in
section 751(c) and (d), at the time of the Closing; and
4. USB Portfolio either will sell all the FHLMC Securities before making
the redemption distributions to USB Fund and USB Trust or will
distribute all those securities to USB Fund. The FHLMC Securities are
the only property other than cash contributed to USB Portfolio within
the last five years that are still held by it as of the date hereof,
and it will not hereafter accept any contributions of property other
than cash.
Income Funds has represented and warranted to us on behalf of USB Fund and
LMB Fund as follows:
1. The fair market value of the LMB Fund Shares, when received by the
Shareholders, will be equal to the fair market value of their USB Fund
Shares constructively surrendered in exchange therefor;
2. Its management (a) is unaware of any plan or intention of the
Shareholders to redeem or otherwise dispose of any portion of the LMB
Fund Shares to be received by them in the Reorganization and (b) does
not anticipate dispositions of those LMB Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
<PAGE>
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 6
dispositions of USB Fund Shares as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of
or at the time of the Reorganization will be DE MINIMIS. Nor does its
management anticipate that there will be extraordinary redemptions of
LMB Fund Shares immediately following the Reorganization;
3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4. Immediately following consummation of the Reorganization, LMB Fund
(directly or through LMB Portfolio) will hold substantially the same
assets and be subject to substantially the same liabilities that USB
Fund (directly or through USB Portfolio) held or was subject to
immediately prior thereto, in addition to the assets and liabilities
LMB Fund (directly or through LMB Portfolio) held or was subject to
immediately before the Reorganization, plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
5. The fair market value on a going concern basis of the Assets will equal
or exceed the Liabilities to be assumed by LMB Fund and those to which
the Assets are subject;
6. There is no inter-series indebtedness between the Funds that was issued
or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, USB Fund will transfer to LMB Fund, and
LMB Fund will acquire, at least 90% of the fair market value of the net
assets, and at least 70% of the fair market value of the gross assets,
held by USB Fund immediately before the Reorganization. For the
purposes of this representation, any amounts used by USB Fund to pay
its Reorganization expenses and redemptions and distributions made by
it immediately before the Reorganization (except for (a) distributions
made to conform to its policy of distributing all or substantially all
of its income and gains to avoid the obligation to pay federal income
tax and/or the excise tax under section 4982 and (b) redemptions not
made as part of the Reorganization) will be included as assets thereof
held immediately before the Reorganization; and
8. Immediately after the Reorganization, the Shareholders will not own
shares constituting "control" of LMB Fund within the meaning of section
304(c).
Income Funds also has represented and warranted to us on behalf of USB
Fund as follows:
1. USB Fund did not contribute to USB Portfolio any property other than
Financial Instruments;
<PAGE>
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 7
2. USB Fund will not own any unrealized receivables or inventory items
that have substantially appreciated in value, as defined in section
751(c) and (d), at the time of the Closing;
3. USB Fund is a "fund" as defined in section 851(g)(2); for each taxable
year of its operation ended at or prior to the Effective Time, it met
all the requirements of Subchapter M for qualification and treatment as
a RIC; it will continue to meet all such requirements for its taxable
year that includes the Effective Time; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
4. The Liabilities were incurred by USB Fund in the ordinary course of its
business;
5. USB Fund is not under the jurisdiction of a court in a proceeding under
Title 11 of the United States Code or similar case within the meaning
of section 368(a)(3)(A);
6. Not more than 25% of the value of USB Fund's total assets, including
its share of USB Portfolio's total assets (in each case, excluding
cash, cash items, and U.S. government securities), is invested in the
stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or
fewer issuers; and
7. USB Fund will be terminated as soon as reasonably practicable after the
Reorganization, but in all events within twelve months after the
Effective Time.
Income Funds also has represented and warranted to us on behalf of LMB
Fund as follows:
1. LMB Fund is a "fund" as defined in section 851(g)(2); for each taxable
year of its operation ended at or prior to the Effective Time, it met
all the requirements of Subchapter M for qualification and treatment as
a RIC; it will continue to meet all such requirements for its taxable
year that includes the Effective Time; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
2. No consideration other than LMB Fund Shares (and LMB Fund's assumption
of the Liabilities) will be issued in exchange for the Assets in the
Reorganization;
3. LMB Fund has no plan or intention to issue additional LMB Fund Shares
following the Reorganization except for shares issued in the ordinary
course of its business as a series of an open-end investment company;
nor does it have any plan or intention to redeem or otherwise reacquire
any LMB Fund Shares issued to the Shareholders pursuant to the
Reorganization, other than through redemptions arising in the ordinary
course of that business;
<PAGE>
Neuberger & Berman Income Funds
Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 8
4. LMB Fund (directly or through LMB Portfolio) (a) will actively continue
USB Fund's historic business in substantially the same manner that USB
Fund conducted that business (directly or through USB Portfolio)
immediately before the Reorganization, (b) has no plan or intention to
sell or otherwise dispose of any of the Assets, except for dispositions
made in the ordinary course of that business and dispositions necessary
to maintain its status as a RIC, and (c) expects to retain
substantially all the Assets in the same form as it receives them in
the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
5. There is no plan or intention for LMB Fund to be dissolved or merged
into another corporation or business trust or any "fund" thereof
(within the meaning of section 851(g)(2)) following the Reorganization;
6. Immediately after the Reorganization, (a) not more than 25% of the
value of LMB Fund's total assets, including its share of LMB
Portfolio's total assets (in each case, excluding cash, cash items, and
U.S. government securities), will be invested in the stock and
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock and securities of five or
fewer issuers; and
7.LMB Fund does not own, directly or indirectly, nor at the Effective
Time will it own, directly or indirectly, nor has it owned, directly or
indirectly, at any time during the past five years, any shares of USB
Fund.
OPINION
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Income Funds Plan, our opinion (as
explained more fully in the next section of this letter) is as follows:
1. No gain or loss will be recognized to USB Fund or USB Portfolio on the
distribution of the Redemption Property by USB Portfolio to USB Fund
(sections 731(a) and (b));
2. USB Fund's basis for the Redemption Property will be equal to the
adjusted basis of its interest in USB Portfolio (section 732(b));
3. No gain or loss will be recognized to USB Fund or LMB Portfolio on the
contribution of the Redemption Property by USB Fund to LMB Portfolio in
exchange for an interest in LMB Portfolio (section 721(a));
4. USB Fund's basis for the interest it receives in LMB Portfolio will be
the same as the basis it had in the Redemption Property at the time of
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the contribution of the Redemption Property to LMB Portfolio; and LMB
Portfolio's basis for the Redemption Property will be the same as the
basis thereof in USB Fund's hands at the time of the contribution
(sections 722 and 723);
5. LMB Fund's acquisition of the Assets in exchange solely for LMB Fund
Shares and LMB Fund's assumption of the Liabilities, followed by USB
Fund's distribution of those shares PRO RATA to the Shareholders
constructively in exchange for their USB Fund Shares, will constitute a
reorganization within the meaning of section 368(a)(1)(C), and each
Fund will be "a party to a reorganization" within the meaning of
section 368(b);
6. No gain or loss will be recognized to USB Fund on the transfer of the
Assets to LMB Fund in exchange solely for LMB Fund Shares and LMB
Fund's assumption of the Liabilities or on the subsequent distribution
of those shares to the Shareholders in constructive exchange for their
USB Fund Shares (sections 361(a) and (c)(1) and 357(a));
7. No gain or loss will be recognized to LMB Fund on its receipt of the
Assets in exchange solely for LMB Fund Shares and its assumption of the
Liabilities (section 1032(a));
8. LMB Fund's basis for the Assets will be the same as the basis thereof
in USB Fund's hands immediately before the Reorganization (section
362(b)), and LMB Fund's holding period for the Assets will include USB
Fund's holding period therefor (section 1223(2));
9. No gain or loss will be recognized to a Shareholder on the constructive
exchange of all its USB Fund Shares solely for LMB Fund Shares pursuant
to the Reorganization (section 354(a)); and
10. A Shareholder's basis for the LMB Fund Shares it receives in the
Reorganization will be the same as the basis for its USB Fund Shares it
constructively surrenders in exchange for those LMB Fund Shares
(section 358(a)), and its holding period for those LMB Fund Shares will
include its holding period for those USB Fund Shares, provided they are
held as capital assets by the Shareholder at the Effective Time
(section 1223(1)).
As indicated above, the foregoing opinion also applies to the identical
transactions between USB Portfolio and USB Trust, USB Trust and LMB Portfolio,
and USB Trust and LMB Trust (substituting "USB Trust" for "USB Fund" and "LMB
Trust" for "LMB Fund"). Both opinions (1) are based on, and are conditioned on
the continued applicability of, the provisions of the Code and the Regulations,
judicial decisions, and rulings and other pronouncements of the Service in
existence on the date hereof and (2) are applicable only to the extent each
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participating Fund is solvent. We express no opinion about the tax treatment of
any transaction described herein if any Fund participating therein is insolvent.
ANALYSIS
I. DISTRIBUTION TO USB FUND.
A. NO GAIN OR LOSS WILL BE RECOGNIZED TO USB FUND OR USB PORTFOLIO.
USB Portfolio, which is classified for federal income tax purposes as a
partnership, will distribute the Redemption Property to USB Fund in liquidation
of the latter's interest in USB Portfolio. Section 736(b)(1) provides in general
that payments made in liquidation of a retiring partner's interest shall, to the
extent such payments are determined to be made in exchange for the partner's
interest in partnership property, be considered a distribution by the
partnership.4 Gain or loss with respect to distributions under section 736(b)
will be recognized to the distributee to the extent provided in section 731 and,
where applicable, section 751. Treas. Reg.
ss. 1.736-1(b)(1).
Section 731(a)(1) provides that in the case of a distribution by a
partnership to a partner, gain shall not be recognized to the partner except to
the extent that any money distributed exceeds the adjusted basis of the
partner's interest in the partnership immediately before the distribution.
Section 731(b) provides that no gain or loss shall be recognized to a
partnership on a distribution to a partner of property, including money.
Section 731(c)(1)(A) provides that for purposes of section 731(a)(1), the
term "money" includes marketable securities. That term does not include
marketable securities, however, if the distributing partnership is an
"investment partnership" and the distributee partner is an "eligible partner."
Section 731(c)(3)(A)(iii). An investment partnership is any partnership that has
never been engaged in a trade or business and substantially all of the assets of
which have always consisted of Financial Instruments. Section 731(c)(3)(C)(i).
Because USB Portfolio has never been engaged in a trade or business within the
meaning of that section, and substantially all of its assets have always
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(4) Section 736(b)(2) provides that, for purposes of section 736(b), payments in
exchange for an interest in the partnership generally shall not include amounts
paid for the partnership's unrealized receivables or good will. These exclusions
shall apply only if (1) capital is not a material income-producing factor for
the partnership (E.G., the partnership is a services partnership) AND (2) the
retiring partner was a general partner in the partnership. Section 736(b)(3).
Because the Redemption Property does not include any amounts paid for unrealized
receivables and good will, and because capital is a material income-producing
factor for USB Portfolio, section 736(b)(2) will not prevent its payment of the
Redemption Property to USB Fund from being treated as made in exchange for USB
Fund's interest in USB Portfolio.
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consisted of Financial Instruments, it is an investment partnership. An eligible
partner generally is any partner who, before the date of the distribution, did
not contribute to the partnership any property other than Financial Instruments.
Section 731(c)(3)(C)(iii)(I). Because USB Fund did not contribute to USB
Portfolio any property other than Financial Instruments, it is an eligible
partner. Accordingly, because USB Portfolio is an investment partnership and USB
Fund is an eligible partner, the marketable securities included in the
Redemption Property will not be considered "money" and, therefore, neither USB
Fund nor USB Portfolio will recognize gain or loss under sections 731(a) and
(b), respectively, unless otherwise provided by section 751(b).
Section 731(d) provides that the nonrecognition rules in section 731 shall
not apply to the extent otherwise provided by, INTER ALIA, section 751, which
provides special treatment for unrealized receivables and inventory items that
have substantially appreciated in value (collectively, "Section 751 Property").5
Section 751(b) provides, in part, that to the extent a partner receives in a
distribution either (1) Section 751 Property in exchange for other partnership
property (including money), or (2) partnership property (including money) other
than Section 751 Property in exchange for all or a part of the partner's
interest in Section 751 Property, such transaction shall be treated as a sale or
exchange of such property between the partner and the partnership (as
constituted after the distribution). Because USB Portfolio will not own any
Section 751 Property at the time of the Closing -- and even if it does, it will
distribute to USB Fund (as well as to USB Trust) on liquidation of that Fund's
interest therein a PRO RATA portion of each asset (except as noted in the
following paragraph), thus avoiding any exchange of Section 751 Property for
other property -- the distribution from USB Portfolio to USB Fund will not
result in a taxable sale or exchange of any property under section 751(b).
Section 704(c)(1)(B)(i) provides that if property contributed by a partner
to a partnership is distributed to another partner within five years of being
contributed, the contributing partner must recognize the precontribution gain or
loss inherent in the property.6 Because USB Fund contributed the FHLMC
Securities to USB Portfolio within the last five years, if USB Portfolio
distributed those securities to USB Trust instead of to USB Fund, USB Fund would
have to recognize the remaining unrecognized precontribution gain. However, USB
Portfolio either will sell all the FHLMC Securities before making the redemption
distributions to USB Fund and USB Trust or will distribute all those securities
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(5) "Unrealized receivables" generally include rights (contractual or otherwise)
to payment for goods or services that have not previously been included in
income, provided, in the case of goods, that the sales proceeds would be treated
as received from the sale or exchange of non-capital assets. Section 751(c).
"Inventory items" include non-capital assets described in section 1221(1)
(generally, property properly includible in inventory and property held
primarily for sale to customers) and any other property that, on sale or
exchange by the partnership, would not be considered a capital asset or section
1231 property. Section 751(d). These items are treated as "substantially
appreciated," and thus as Section 751 Property, if their aggregate fair market
value exceeds 120% of the partnership's adjusted basis therefor. Section
751(b)(3)(A).
(6) An amendment to section 704(c)(1)(B) extends the five-year period to seven
years for property contributed to a partnership after June 8, 1997.
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to USB Fund. Therefore, USB Fund will not have to recognize any remaining
unrecognized precontribution gain pursuant to section 704(c)(1)(B).
In general, if a partner contributes property to a partnership and the
partnership distributes other property to the partner within the next five
years, the partner must recognize gain under section 737.7 The amount of gain
recognized (under section 737(a)) is the lesser of (1) the fair market value of
the distributed property (other than money) less the adjusted basis of the
partner's partnership interest immediately before the distribution (reduced, but
not below zero, by any money received in the distribution) or (2) the partner's
"net precontribution gain." For these purposes, net precontribution gain is the
net gain, if any, that the distributee partner would have recognized under
section 704(c)(1)(B) if all the property contributed by it to the partnership
within the preceding five (seven) years and held by the partnership immediately
before the distribution had been distributed to another partner (section
737(b)); section 737(d)(1) provides, however, that any distributed property that
had been contributed by the partner to the partnership shall not be taken into
account in determining the amount of the net precontribution gain. As discussed
above, USB Fund contributed the FHLMC Securities to USB Portfolio, and USB
Portfolio either will sell all those securities before making the redemption
distributions to USB Fund and USB Trust or will distribute all those securities
to USB Fund. Therefore, under section 737(d)(1), these securities will not be
taken into account in determining the amount of any net precontribution gain of
USB Fund. Moreover, because USB Portfolio does not now hold, and will not
hereafter acquire, any other contributed property (other than cash), the net
precontribution gain under section 737(a)(2) will be zero, and no gain thus will
be recognized under section 737(a).
Accordingly, we believe that no gain or loss will be recognized to USB
Portfolio or USB Fund on the distribution of the Redemption Property by USB
Portfolio to USB Fund.
B. BASIS.
Section 732(b) provides that the basis of property (other than money)
distributed by a partnership to a partner in liquidation of the partner's
interest shall be an amount equal to the adjusted basis of that interest reduced
by any money distributed in the same transaction. Accordingly, we believe that
USB Fund's basis for the Redemption Property will be equal to the adjusted basis
of its interest in USB Portfolio.
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(7) An amendment to section 737 extends the five-year period to seven years for
property contributed to a partnership after June 8, 1997.
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II. CONTRIBUTION TO LMB PORTFOLIO.
A. NO GAIN OR LOSS WILL BE RECOGNIZED TO USB FUND OR LMB PORTFOLIO.
Section 721(a) provides that no gain or loss shall be recognized to a
partnership or to any of its partners in the case of a contribution of property
to the partnership in exchange for an interest therein. Although section 721(b)
provides that section 721(a) shall not apply to gain realized on a transfer of
property to a partnership that would be treated as an investment company (within
the meaning of section 351) if the partnership were incorporated, the transfer
from USB Fund to LMB Portfolio will not be treated as a transfer to an
investment company under those sections because USB Fund will meet the
diversification requirements of section 368(a)(2)(F)(ii) (SEE Representation 6
made on USB Fund's behalf) at the time of the transfer. SEE Treas. Reg. ss.
1.351-1(c)(5) and (6)(i). Accordingly, we believe that no gain or loss will be
recognized to USB Fund or LMB Portfolio on the contribution of the Redemption
Property by USB Fund to LMB Portfolio in exchange for an interest in LMB
Portfolio.
B. BASIS.
Section 722 provides that the basis of an interest in a partnership
acquired by a contribution of property, including money, to the partnership
shall be the amount of the money and the contributing partner's adjusted basis
of the property at the time of the contribution increased by the amount (if any)
of gain recognized under section 721(b) to the contributing partner at that
time. As noted above, we believe that no such gain will be recognized.
Accordingly, we believe that USB Fund's basis for the interest it receives in
LMB Portfolio will be the same as the basis it had in the Redemption Property at
the time of the contribution of the Redemption Property to LMB Portfolio.
Section 723 provides that the basis of property contributed to a
partnership by a partner shall be the contributing partner's adjusted basis of
the property at the time of the contribution increased by the amount (if any) of
gain recognized under section 721(b) to the contributing partner at that time.
As noted above, we believe that no such gain will be recognized. Accordingly, we
believe that LMB Portfolio's basis for the Redemption Property will be the same
as the basis thereof in USB Fund's hands at the time of the contribution of the
Redemption Property to LMB Portfolio.
III. REORGANIZATION OF USB FUND INTO LMB FUND.
A. THE REORGANIZATION WILL BE A REORGANIZATION UNDER SECTION
368(A)(1)(C), AND EACH OF USB FUND AND LMB FUND WILL BE A PARTY
TO A REORGANIZATION.
1. EACH SUCH FUND IS A SEPARATE CORPORATION.
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
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part of its voting stock, of substantially all of the properties of another
corporation. For the transaction to qualify under that section, therefore, both
entities involved therein must be corporations (or associations taxable as
corporations). Income Funds, however, is a Delaware business trust, not a
corporation, and USB Fund and LMB Fund are separate series thereof.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." SEE COMMISSIONER V. NORTH
AMERICAN BOND TRUST, 122 F.2d 545 (2d Cir. 1941), CERT. DENIED, 314 U.S. 701
(1942).
Based on these criteria, Income Funds does not qualify as a trust for
federal income tax purposes. While Income Funds is an "investment trust," it
does not have a fixed pool of assets -- each of USB Fund and LMB Fund (as well
as each other series of Income Funds), indirectly through its corresponding
Portfolio, has been a managed portfolio of securities, and N&B Management and
Neuberger & Berman, LLC, have had the authority to buy and sell securities for
it. Income Funds is not simply an arrangement to protect or conserve property
for the beneficiaries, but it is designed to carry on a profit-making business.
In addition, the word "association" has long been held to include a
Massachusetts business trust (SEE HECHT V. MALLEY, 265 U.S. 144 (1924)), which
for these purposes has similar characteristics to a Delaware business trust,
such as Income Funds. Accordingly, we believe that Income Funds will be treated
as a corporation for federal income tax purposes.
Income Funds as such, however, is not participating in the Reorganization,
but rather two series thereof are the participants. Ordinarily, a transaction
involving segregated pools of assets (such as USB Fund and LMB Fund) could not
qualify as a reorganization, because the pools would not be corporations. Under
section 851(g), however, USB Fund and LMB Fund are treated as separate
corporations (except with respect to the definitional requirement of section
851(a), which is satisfied by Income Funds). Thus, we believe that each of USB
Fund and LMB Fund will be treated as a separate corporation, and its shares will
be treated as shares of corporate stock, for purposes of section 368(a)(1).
2. SATISFACTION OF SECTION 368(A)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorganization
with respect to any such investment company or its shareholders unless, among
other things, the investment company is a RIC or --
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(1) not more than 25% of the value of its total assets is invested in
the stock and securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested in
the stock and securities of five or fewer issuers.
Each of USB Fund and LMB Fund will meet the requirements for qualification and
treatment as a RIC for its respective current taxable year and will satisfy the
foregoing percentage tests. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a C reorganization with
respect to either USB Fund or LMB Fund.
3. TRANSFER OF "SUBSTANTIALLY ALL" OF THE PROPERTIES.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation in exchange solely for all or part of the acquiring corporation's
stock. For purposes of issuing PLRs, the Service considers the transfer of at
least 70% of the transferor's gross assets, and at least 90% of its net assets,
held immediately before the reorganization to satisfy the "substantially all"
requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will involve
such a transfer. Accordingly, we believe that the Reorganization will involve
the transfer to LMB Fund of substantially all of USB Fund's properties.
4. QUALIFYING CONSIDERATION.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely for voting stock. Section 368(a)(2)(B)(iii). The assumption of
liabilities by the acquiring corporation or its acquisition of property subject
to liabilities normally are disregarded (section 368(a)(1)(C)), but the amount
of any such liabilities will be treated as money paid for the transferor's
property if the acquiring corporation exchanges any money or property (other
than its voting stock) therefor. Section 368(a)(2)(B). Because LMB Fund will
exchange only LMB Fund Shares, and no money or other property, for the Assets,
we believe that the Reorganization will satisfy the solely-for-voting-stock
requirement to qualify as a C reorganization.
5. REQUIREMENTS OF CONTINUITY.
Treasury Regulation section 1.368-1(b), as in effect on the date of the
Income Funds Plan, sets forth two prerequisites to a valid reorganization: (1) a
continuity of the business enterprise under the modified corporate form
("continuity of business") and (2) a continuity of interest therein on the part
of those persons who, directly or indirectly, were the owners of the enterprise
prior to the reorganization ("continuity of interest"). On January 23, 1998, the
Service released final regulations dealing with both continuity requirements
("Final Regulations") and temporary regulations dealing with the continuity of
interest requirement ("Temporary Regulations"), but those Regulations do not
apply to any transaction occurring pursuant to a written agreement that is
binding (subject to customary conditions) on January 28, 1998, and at all times
thereafter. Because the Income Funds Plan was such an agreement on that date,
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and assuming that it remains binding at all times thereafter, the Final and
Temporary Regulations should not apply to the Reorganization.8 Accordingly,
references below to Treas. Reg. ss.ss. 1.368-1(b) and -1(d)(2) are to those
sections as in effect before that effective date.
a. CONTINUITY OF BUSINESS.
The continuity of business enterprise test as set forth in Treas. Reg. ss.
1.368-1(d)(2) requires that the acquiring corporation must either (i) continue
the acquired corporation's historic business ("business continuity") or (ii) use
a significant portion of the acquired corporation's historic business assets in
a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal securities. The Service held that this transaction did
not qualify as a reorganization for the following reasons: (1) because T had
sold its historic assets prior to the exchange, there was no asset continuity;
and (2) the failure of P to engage in the business of investing in corporate
securities after the exchange caused the transaction to lack business continuity
as well.
USB Fund's and LMB Fund's investment objectives and policies are
substantially similar, and the Portfolios have the same investment manager and
sub-adviser (and are handled by its Fixed Income Group). Moreover, after the
Reorganization LMB Fund will actively continue USB Fund's historic business in
substantially the same manner that USB Fund conducted that business before the
Reorganization. Accordingly, there will be business continuity.
LMB Fund not only will continue USB Fund's historic business, but LMB Fund
also (1) has no plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business and
dispositions necessary to maintain its status as a RIC, and (2) expects to
retain substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make dispositions thereof to
maintain such status. Accordingly, there will be asset continuity as well.
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(8) The Final Regulations retain both continuity requirements, and although they
change those requirements in certain respects, we believe that if the Final
Regulations were applicable to the Reorganization, they would not change our
opinion herein. Moreover, because the Temporary Regulations address matters that
are not involved in the Reorganization, we believe that if the Temporary
Regulations were applicable to the Reorganization, they also would not change
our opinion herein.
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For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
b. CONTINUITY OF INTEREST.
For purposes of issuing PLRs, the Service considers the continuity of
interest requirement of Treas. Reg. ss. 1.368-1(b) satisfied if ownership in an
acquiring corporation on the part of a transferor corporation's former
shareholders is equal in value to at least 50% of the value of all the
formerly outstanding shares of the transferor corporation. Rev. Proc. 77-37,
SUPRA; BUT SEE Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of interest was
held to exist in a reorganization of two RICs where immediately after the
reorganization 26% of the shares were redeemed in order to allow investment
in a third RIC); SEE ALSO REEF CORP. V. COMMISSIONER, 368 F.2d 125 (5th Cir.
1966), CERT. DENIED, 386 U.S. 1018 (1967) (a redemption of 48% of a
transferor corporation's stock was not a sufficient shift in proprietary
interest to disqualify a transaction as a reorganization under section
368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's
shareholders would hold all the transferee's stock); AETNA CASUALTY AND
SURETY CO. V. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a
38.39% minority interest did not prevent a transaction from qualifying as an
F Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified
as an F Reorganization even though the transferor's shareholders acquired
only 45% of the transferee's stock, while the remaining 55% of that stock was
issued to new shareholders in a public underwriting immediately after the
transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes. A preconceived plan or arrangement by or among
an acquired corporation's shareholders to dispose of more than 50% of an
acquiring corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any part
of the shares received by them in the reorganization without fear of breaking
continuity of interest, because the subsequent sale will be treated as an
independent transaction from the reorganization.
Neither USB Fund nor LMB Fund (1) is aware of any plan or intention of the
Shareholders to dispose of any portion of the LMB Fund Shares to be received by
them in the Reorganization or (2) anticipates dispositions thereof at the time
of or soon after the Reorganization to exceed the usual rate and frequency of
dispositions of USB Fund Shares as a series of an open-end investment company.
Consequently, each such Fund expects that the percentage of Shareholder
interests, if any, that will be disposed of as a result of or at the time of the
Reorganization will be DE MINIMIS. Accordingly, we believe that the
Reorganization will meet the continuity of interest requirement of Treas. Reg.
ss. 1.368-1(b).
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6. DISTRIBUTION BY USB FUND.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a
C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Income Funds Plan -- which we believe
constitutes a "plan of reorganization" within the meaning of Treas. Reg. ss.
1.368-2(g) -- USB Fund will distribute all the LMB Fund Shares it receives to
its shareholders in constructive exchange for their USB Fund Shares; as soon as
is reasonably practicable thereafter, USB Fund will be terminated. Accordingly,
we believe that the requirements of section 368(a)(2)(G)(i) will be satisfied.
7. BUSINESS PURPOSE.
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in GREGORY V. Helvering, 293
U.S. 465 (1935), and is now set forth in Treas. Reg. ss.ss. 1.368-1(b), -1(c),
and -2(g) (the last of which provides that, to qualify as a reorganization, a
transaction must be "undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization"). Under that doctrine,
a transaction must have a BONA FIDE business purpose (and not a purpose to avoid
federal income tax) to constitute a valid reorganization. The substantial
business purposes of the Reorganization are described in Income Funds'
Information Statement. Accordingly, we believe that the Reorganization is being
undertaken for BONA FIDE business purposes (and not a purpose to avoid federal
income tax) and therefore meets the requirements of the business purpose
doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
8. USB FUND AND LMB FUND ARE PARTIES TO THE REORGANIZATION.
Section 368(b)(2) and Treas. Reg. ss. 1.368-2(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. USB Fund is
transferring all its properties to LMB Fund in exchange for LMB Fund Shares.
Accordingly, we believe that each of USB Fund and LMB Fund will be "a party to a
reorganization."
B. NO GAIN OR LOSS WILL BE RECOGNIZED TO USB FUND.
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
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Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 19
shareholders, pursuant to that plan, of stock in such other corporation that was
received by the distributing corporation in the exchange. (Such a distribution
is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C
reorganization.) Section 361(c)(4) provides that specified provisions requiring
recognition of gain on certain distributions shall not apply to a distribution
described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a BONA FIDE
business purpose.
As noted above, we believe that the Reorganization will constitute a C
reorganization, each Fund will be a party to a reorganization, and the Plan
constitutes a plan of reorganization. USB Fund will exchange the Assets solely
for LMB Fund Shares and LMB Fund's assumption of the Liabilities and then will
be terminated pursuant to the Plan, distributing the LMB Fund Shares to its
Shareholders in constructive exchange for their USB Fund Shares. As also noted
above, we believe that the Reorganization is being undertaken for BONA FIDE
business purposes (and not a purpose to avoid federal income tax); we also do
not believe that the principal purpose of LMB Fund's assumption of the
Liabilities is avoidance of federal income tax on the proposed transaction.
Accordingly, we believe that no gain or loss will be recognized to USB Fund on
the Reorganization.9
C. NO GAIN OR LOSS WILL BE RECOGNIZED TO LMB FUND.
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. LMB Fund will issue LMB Fund Shares to USB Fund in exchange for the
Assets, which consist of money and securities. Accordingly, we believe that no
gain or loss will be recognized to LMB Fund on the Reorganization.
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(9) Notwithstanding anything herein to the contrary, we express no opinion as to
the effect of the Reorganization on either USB Fund or LMB Fund or any
Shareholder with respect to any asset (including certain options, futures, and
forward contracts) as to which any unrealized gain or loss is required to be
recognized for federal income tax purposes at the end of a taxable year (or on
the termination or transfer thereof) under a mark-to-market system of
accounting.
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Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 20
D. LMB FUND'S BASIS FOR THE ASSETS WILL BE A CARRYOVER BASIS, AND ITS
HOLDING PERIOD WILL INCLUDE USB FUND'S HOLDING PERIOD.
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer (a "carryover basis"). As noted above, we believe
that the Reorganization will constitute a C reorganization and USB Fund will
recognize no gain on the Reorganization. Accordingly, we believe that LMB Fund's
basis for the Assets will be the same as the basis thereof in USB Fund's hands
immediately before the Reorganization.
Section 1223(2) provides that where acquired property has a carryover
basis, it will have a holding period in the acquiror's hands that includes the
property's holding period in the transferor's hands. As noted above, we believe
that LMB Fund's basis for the Assets will be a carryover basis. Accordingly, we
believe that LMB Fund's holding period for the Assets will include USB Fund's
holding period therefor.
E. NO GAIN OR LOSS WILL BE RECOGNIZED TO A SHAREHOLDER.
Under section 354(a), no gain or loss is recognized to a shareholder who
exchanges shares for other shares pursuant to a plan of reorganization, where
the shares exchanged, as well as the shares received, are those of a corporation
that is a party to the reorganization. As noted above, we believe that the
Reorganization will constitute a C reorganization, the Plan constitutes a plan
of reorganization, and each of USB Fund and LMB Fund will be a party to a
reorganization. Accordingly, we believe that under section 354, a Shareholder
will recognize no gain or loss on the constructive exchange of all its USB Fund
Shares solely for LMB Fund Shares pursuant to the Reorganization.
F. A SHAREHOLDER'S BASIS FOR LMB FUND SHARES WILL BE A SUBSTITUTED
BASIS, AND ITS HOLDING PERIOD THEREFOR WILL INCLUDE ITS HOLDING
PERIOD FOR ITS USB FUND SHARES.
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder (a "substituted basis").
As noted above, we believe that the Reorganization will constitute a C
reorganization and under section 354 no gain or loss will be recognized to a
Shareholder on the constructive exchange of its USB Fund Shares for LMB Fund
Shares in the Reorganization. No property will be distributed to the
Shareholders other than LMB Fund Shares, and no money will be distributed to
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Neuberger & Berman Income Trust
Income Managers Trust
February 19, 1998
Page 21
them pursuant to the Reorganization. Accordingly, we believe that a
Shareholder's basis for the LMB Fund Shares it receives in the Reorganization
will be the same as the basis for its USB Fund Shares it constructively
surrenders in exchange for those LMB Fund Shares.
Under section 1223(1), a taxpayer's holding period for property received
in an exchange includes the taxpayer's holding period for the property that was
exchanged therefor if the acquired property has a substituted basis and, at the
time of the exchange, was a capital asset. As noted above, we believe that a
Shareholder will have a substituted basis for the LMB Fund Shares it receives in
the Reorganization; accordingly, provided that a Shareholder holds its USB Fund
Shares as capital assets at the Effective Time, we believe that its holding
period for those LMB Fund Shares will include its holding period for those USB
Fund Shares.
* * * * *
We hereby consent to this opinion accompanying a post-effective amendment
to each of Income Funds' and Income Trust's registration statements that include
the Information Statements and to the references to our firm under the captions
"Synopsis -- Federal Income Tax Consequences" and "The Reorganization -- Federal
Income Tax Considerations" in the Information Statements.
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
Theodore L. Press
