As filed with the Securities and Exchange Commission on February 26, 1999
1933 Act Registration No. 33-62872
1940 Act Registration No. 811-7724
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ] [ ]
Post-Effective Amendment No. [ 8 ] [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ 8 ] [ X ]
(Check Appropriate Box or Boxes)
NEUBERGER BERMAN INCOME TRUST
-----------------------------
(Exact Name of the Registrant as Specified in Charter)
605 Third Avenue
New York, New York 10158-0180
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (212) 476-8800
Theodore P. Giuliano, President
Neuberger Berman Income Trust
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur C. Delibert, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
(Names and Addresses of Agents for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
X on MARCH 1, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on__________ pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on _________ pursuant to paragraph (a)(2)
The public offering of Registrant's series is on-going. The title of
securities being registered is shares of beneficial interest.
Neuberger Berman Income Trust is a "master/feeder fund." This
Post-Effective Amendment No.8 includes a signature page for the master fund,
Income Managers Trust, and appropriate officers and trustees thereof.
<PAGE>
NEUBERGER BERMAN INCOME TRUST
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 8 ON FORM N-1A
This Post-Effective Amendment consists of the following papers and
documents:
Cover Sheet
Contents of Post-Effective Amendment No. 8 on Form N-1A
Cross Reference Sheet
Neuberber Berman Limited Maturity Bond Trust
- --------------------------------------------
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Pages
Exhibits
<PAGE>
<PAGE>
[PHOTO] NEUBERGER BERMAN
NEUBERGER BERMAN
INCOME TRUST
- --------------------------------------------------------------------------------
PROSPECTUS MARCH 1, 1999
The Securities and Exchange Commission does not say
whether any mutual fund is a good or bad investment or
whether the information in any prospectus is accurate or
complete. It is unlawful for anyone to indicate
otherwise.
Limited Maturity Bond Trust
<PAGE>
CONTENTS
- -----------------
<TABLE>
<C> <S>
NEUBERGER BERMAN INCOME TRUST
PAGE 2 ...... Limited Maturity Bond Trust
YOUR INVESTMENT
8 ...... Maintaining Your Account
10 ...... Share Prices
11 ...... Distributions and Taxes
13 ...... Fund Structure
</TABLE>
The "Neuberger Berman" name and logo are service
marks of Neuberger Berman, LLC. "Neuberger Berman
Management Inc." and the individual fund name in
this prospectus are either service marks or
registered trademarks of Neuberger Berman
Management Inc. -C-1999 Neuberger Berman Management
Inc.
<PAGE>
- ------------------------------------------------------------
FUND MANAGEMENT
The fund is managed by Neuberger Berman
Management Inc., in conjunction with Neuberger Berman, LLC, as sub-adviser.
Together, the firms manage more than $55.4 billion in total assets (as of
December 31, 1998) and continue an asset management history that began in 1939.
RISK INFORMATION
This prospectus discusses principal risks of investment in fund shares. These
and other risks are discussed in detail in the Statement of Additional
Information (see back cover).
THIS FUND:
- - IS DESIGNED FOR INVESTORS SEEKING CURRENT INCOME
- - USES A MASTER/FEEDER STRUCTURE IN ITS PORTFOLIO; SEE PAGE 13 FOR INFORMATION
ON HOW IT WORKS
- - CARRIES CERTAIN RISKS, INCLUDING THE RISK THAT YOU COULD LOSE MONEY IF FUND
SHARES ARE WORTH LESS THAN WHAT YOU PAID
- - IS A MUTUAL FUND, NOT A BANK DEPOSIT, AND IS NOT GUARANTEED OR INSURED
1
<PAGE>
[PHOTO]
NEUBERGER BERMAN
LIMITED MATURITY BOND TRUST
- --------------------------------------------------------------------------------
Ticker Symbol: NBLTX ABOVE: PORTFOLIO MANAGERS THEODORE P.
GIULIANO AND CATHERINE WATERWORTH
"HISTORICALLY, LIMITED MATURITY PORTFOLIOS HAVE BEEN ABLE TO DELIVER MUCH OF THE
YIELD AVAILABLE IN THE INVESTMENT-GRADE BOND MARKET WHILE OFFERING REDUCED SHARE
PRICE FLUCTUATION. WITH THIS IN MIND, WE STRIVE TO MANAGE THE FUND WITH AN
EMPHASIS ON YIELD AND RISK MANAGEMENT."
2
<PAGE>
GOAL & STRATEGY
- ------------------------------------------------------------
DURATION
Duration is a measurement of a bond investment's sensitivity to changes in
interest rates.
Typically, with a 1% rise in interest rates, an investment's value may be
expected to fall approximately 1% for each year of its duration.
BOND RATINGS
Most large issuers obtain ratings for their bonds from one or more independent
rating agencies, although many bonds of all quality levels remain unrated.
Bonds in the top four categories of credit quality are considered investment
grade. Bonds in the fifth or sixth category (BB/Ba or B) are called lower-rated,
or non-investment grade. Many of these "junk bonds" are actually issued by
reputable companies, and offer attractive yields.
[ICON]
THE FUND SEEKS THE HIGHEST AVAILABLE CURRENT INCOME CONSISTENT WITH
LIQUIDITY AND LOW RISK TO PRINCIPAL; TOTAL RETURN IS A SECONDARY
GOAL.
To pursue these goals, the fund invests mainly in investment-grade bonds and
other debt securities from U.S. government and corporate issuers. These may
include mortgage- and asset-backed securities. To enhance yield and add
diversification, the fund may invest up to 10% of net assets in securities that
are below investment grade, provided that, at the time of purchase, they are
rated at least B by Moody's or Standard and Poor's or, if unrated by either of
these, are believed by the manager to be of comparable quality.
The fund seeks to reduce credit risk by diversifying among many issuers and
different types of securities. Although it may invest in securities of any
maturity, under normal circumstances it maintains an average portfolio duration
of four years or less.
The managers monitor national trends in the corporate and government securities
markets, including a range of economic and financial factors. The managers look
for securities that appear underpriced compared to securities of similar
structure and credit quality, and securities that appear likely to have their
credit ratings raised. In choosing lower-rated securities, the managers look for
bonds from issuers whose financial health appears comparatively strong but that
are smaller or less well known to investors.
The fund is authorized to change its goal without shareholder approval, although
it does not currently intend to do so.
Limited Maturity Bond Trust 3
<PAGE>
MAIN RISKS
- ------------------------------------------------------------
OTHER RISKS
The fund may use certain practices and securities involving additional risks.
The use of certain derivatives to hedge interest rate risk or produce income
could affect fund performance if the derivatives do not perform as expected.
Foreign securities could add to the ups and downs in the fund's share price,
because foreign markets tend to be more volatile and currency exchange rates
fluctuate.
When the fund anticipates unusual market or other conditions, it may temporarily
depart from its goal and invest substantially in high-quality short-term
securities. This could help the fund avoid losses but may mean lost
opportunities.
[ICON] Most of the fund's performance depends
on what happens in the investment grade bond market. The value of your
investment will rise and fall, and you could lose money.
The fund's yield and total return will change with interest rate movements. When
interest rates rise, the fund's share price will typically fall. The fund's
sensitivity to this risk will increase with any increase in the fund's duration.
A downgrade or default affecting any of the fund's securities would affect the
fund's performance. Performance could also be affected if unexpected interest
rate trends cause the fund's mortgage- or asset-backed securities to be paid off
substantially earlier or later than expected.
Over time, the fund may produce lower returns than stock investments and less
conservative bond investments. Although the fund's average return has outpaced
inflation over the long term, it may not always do so. Your results relative to
the rate of inflation will, of course, be affected by any taxes you pay on fund
distributions.
Through active trading, the fund may have a high portfolio turnover rate, which
can mean higher taxable distributions and increased transaction costs.
4 Neuberger Berman
<PAGE>
PERFORMANCE
- ------------------------------------------------------------
PERFORMANCE MEASURES
The information on this page provides different measures of the fund's total
return. Total return includes the effect of distributions as well as changes in
share price. The figures assume that all distributions were reinvested in the
fund.
As a frame of reference, the table includes a broad-based market index. The
fund's performance figures include all of its expenses; the index does not
include costs of investment.
To obtain the fund's current yield call 800-877-9700. The current yield is the
fund's net income over a 30-day period, expressed as an annual rate of return.
[ICON] The bar chart below shows how the
fund's performance has varied from one year to another. The table
below the chart shows what the return would equal if you averaged out
actual performance over various lengths of time. This information is
based on past performance; it's not a prediction of future results.
YEAR-BY-YEAR % RETURNS as of 12/31 each year*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 11.20
1990 8.72
1991 11.85
1992 5.18
1993 6.93
1994 -0.4
1995 10.58
1996 4.42
1997 6.65
1998 4.51
BEST QUARTER: Q2 '89, up 4.92%
WORST QUARTER: Q1 '94, down 1.13%
</TABLE>
AVERAGE ANNUAL TOTAL % RETURNS as of12/31/98*
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
<S> <C> <C> <C>
- -------------------------------------------------------------------
LIMITED MATURITY BOND TRUST 4.51 5.09 6.91
Merrill Lynch 1-3 Year
Treasury Index 7.00 5.99 7.37
</TABLE>
The Merrill Lynch 1-3 Year Treasury Index is an unmanaged index of U.S.
Treasuries with maturities between 1 and 3 years.
* THE FUND BEGAN OPERATING IN AUGUST 1993. PERFORMANCE RESULTS FROM JANUARY 1989
TO AUGUST 1993 ARE ACTUALLY THOSE OF ANOTHER NEUBERGER BERMAN FUND THAT BEGAN
OPERATIONS IN 1989, AND INVESTS IN THE SAME PORTFOLIO OF SECURITIES. BECAUSE
THE OLDER FUND HAD MODERATELY LOWER EXPENSES, ITS PERFORMANCE WAS SLIGHTLY
BETTER THAN LIMITED MATURITY BOND TRUST WOULD HAVE BEEN. THAT OLDER FUND IS
NOT OFFERED IN THIS PROSPECTUS.
Limited Maturity Bond Trust 5
<PAGE>
INVESTOR EXPENSES
- ------------------------------------------------------------
MANAGEMENT
THEODORE P. GIULIANO, a Vice President and Director of Neuberger Berman
Management and a principal of Neuberger Berman, LLC, is the manager of the Fixed
Income Group of Neuberger Berman, which he helped establish in 1984. He has
co-managed the fund's assets since 1996.
CATHERINE WATERWORTH has co-managed the fund's assets since December 1998.
Previously she was a managing director of a major investment firm from 1995-98
and a senior officer at another firm prior to 1995.
NEUBERGER BERMAN MANAGEMENT is the fund's investment manager, administrator, and
distributor. It engages Neuberger Berman, LLC as sub-adviser to provide
management and related services. For the 12 months ended 10/31/98, the
management/administration fees paid to Neuberger Berman Management were 0.75% of
average net
assets.
[ICON] The fund does not charge you any fees for
buying, selling, or exchanging shares, or for maintaining your
account. Your only fund cost is your share of annual operating
expenses. The expense example can help you compare costs among funds.
FEE TABLE
SHAREHOLDER FEES None
- -------------------------------------------------------
ANNUAL OPERATING EXPENSES (% of average net assets)*
These are deducted from fund assets, so you pay them indirectly.
<TABLE>
<S> <C> <C>
Management/administration fees 0.75
PLUS: Distribution (12b-1) fees None
Other expenses 0.38
EQUALS: Total annual operating expenses 1.13
</TABLE>
* NEUBERGER BERMAN MANAGEMENT REIMBURSES CERTAIN EXPENSES OF THE FUND SO THAT
THE TOTAL ANNUAL OPERATING EXPENSES OF THE FUND ARE LIMITED TO .80% OF
AVERAGE NET ASSETS. THIS ARRANGEMENT MAY BE TERMINATED UPON 60 DAYS' NOTICE
TO THE FUND. IN ADDITION, THIS ARRANGEMENT DOES NOT COVER INTEREST, TAXES,
BROKERAGE COMMISSIONS, AND EXTRAORDINARY EXPENSES. THE TABLE INCLUDES COSTS
PAID BY THE FUND AND ITS SHARE OF MASTER PORTFOLIO COSTS. FOR MORE
INFORMATION ON MASTER/FEEDER FUNDS, SEE "FUND STRUCTURE" ON PAGE 13.
EXPENSE EXAMPLE
The example assumes that you invested $10,000 for the periods shown, that you
earned a hypothetical 5% total return each year, and that the fund's expenses
were those in the table above. Your costs would be the same whether you sold
your shares or continued to hold them at the end of each period. Actual
performance and expenses may be higher or lower.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- -----------------------------------------------------------
Expenses** $115 $359 $622 $1375
</TABLE>
** IF THE REIMBURSEMENT ARRANGEMENT DESCRIBED IN THE FOOTNOTE ABOVE WERE IN
EFFECT FOR EACH OF THE PERIODS SHOWN, YOUR COSTS FOR THE ONE-, THREE-, FIVE-,
AND TEN-YEAR PERIODS WOULD BE $82, $255, $444, AND $990, RESPECTIVELY.
6 Neuberger Berman
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended October 31, 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Data apply to a single share throughout each year indicated. You can see what the fund earned (or lost), what
it distributed to investors, and how its share price changed.
Share price (NAV) at beginning of year 9.97 9.43 9.61 9.53 9.57
PLUS: Income from investment operations
Net investment income 0.54 0.58 0.57 0.60 0.57
Net gains/losses -- realized and unrealized (0.54) 0.18 (0.08) 0.04 (0.12)
Subtotal: income from investment operations -- 0.76 0.49 0.64 0.45
MINUS: Distributions to shareholders
Income dividends 0.54 0.58 0.57 0.60 0.57
Subtotal: distributions to shareholders 0.54 0.58 0.57 0.60 0.57
...........................................
EQUALS: Share price (NAV) at end of year 9.43 9.61 9.53 9.57 9.45
- --------------------------------------------------------------------------------------------------------------
RATIOS (% of average net assets)
The ratios show the fund's expenses and net investment income -- as they actually are as well as how they
would have been if certain expense reimbursement and offset arrangements had not been in effect.
Net expenses -- actual 0.70 0.77 0.80 0.80 0.80
Gross expenses(1) 2.50 2.18 1.91 1.24 1.22
Expenses(2) -- 0.77 0.81 0.80 0.80
Net investment income -- actual 5.72 6.16 6.06 6.25 5.94
- --------------------------------------------------------------------------------------------------------------
OTHER DATA
Total return shows how an investment in the fund would have performed over each year, assuming all
distributions were reinvested. The turnover rate reflects how actively the fund bought and sold securities.
Total return (%)(3) (0.01) 8.36 5.29 6.88 4.79
Net assets at end of year (in millions of dollars) 6.7 11.9 21.2 37.4 60.4
Portfolio turnover rate (%) 102 88 169 89 44
</TABLE>
The figures above have been audited by Ernst & Young LLP, the fund's independent
auditors. Their report, along with full financial statements, appears in the
fund's most recent shareholder report (see back cover).
(1) SHOWS WHAT THIS RATIO WOULD HAVE BEEN IF THERE HAD BEEN NO EXPENSE
REIMBURSEMENT.
(2) SHOWS WHAT EXPENSES WOULD HAVE BEEN IF THERE HAD BEEN NO EXPENSE OFFSET
ARRANGEMENTS. THIS CALCULATION IS REQUIRED FOR ALL PERIODS ENDING AFTER
9/1/95.
(3) WOULD HAVE BEEN LOWER IF NEUBERGER BERMAN MANAGEMENT HAD NOT REIMBURSED
CERTAIN EXPENSES.
Limited Maturity Bond Trust 7
<PAGE>
YOUR INVESTMENT
MAINTAINING YOUR
ACCOUNT
- ------------------------------------------------------------
YOUR INVESTMENT PROVIDER
The fund shares described in this prospectus are available through investment
providers such as banks, brokerage firms, workplace retirement programs, and
financial advisers.
The fees and policies outlined in this prospectus are set by the fund and by
Neuberger Berman Management. However, most of the information you'll need for
managing your investment will come from your investment provider. This includes
information on how to buy and sell shares, investor services, and additional
policies.
In exchange for the services it offers, your investment provider may charge
fees, which are generally in addition to those described in this prospectus.
To buy or sell shares of the fund described in this prospectus, contact your
investment provider. All investments must be made in U.S. dollars, and
investment checks must be drawn on a U.S. bank. The fund does not issue
certificates for shares.
Most investment providers allow you to take advantage of the Neuberger Berman
fund exchange program, which is designed for moving money from one Neuberger
Berman fund to another through an exchange of shares. However, this privilege
can be withdrawn from any investor that we believe is trying to "time the
market" or is otherwise making exchanges that we judge to be excessive. Frequent
exchanges can interfere with fund management and affect costs and performance
for other shareholders.
8 Neuberger Berman
<PAGE>
- ------------------------------------------------------------
BUYING SHARES BEFORE
A DISTRIBUTION
The money a fund earns, either as income or as capital gains, is reflected in
its share price until the fund makes a distribution. At that time, the amount of
the distribution is deducted from the share price. The amount of the
distribution is either reinvested in additional fund shares or paid to
shareholders in cash.
Because of this, if you buy shares just before a fund makes a distribution,
you'll end up getting some of your investment back as a taxable distribution.
You can avoid this situation by waiting to invest until after the distribution
has been made.
If you're investing in a tax-advantaged account, you don't need to worry;
generally, there are no tax consequences to you in this case.
Under certain circumstances, the fund reserves the right to:
- - suspend the offering of shares
- - reject any exchange or investment order
- - change, suspend, or revoke the exchange privilege
- - satisfy an order to sell fund shares with securities rather than cash, for
certain very large orders
- - suspend or postpone the redemption of shares on days when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the SEC
The proceeds from the shares you sold are generally sent out the next business
day after your order is executed, and nearly always within three business days.
There are two cases in which proceeds may be delayed beyond this time:
- - in unusual circumstances where the law allows additional time if needed
- - if a check you wrote to buy shares hasn't cleared by the time you sell those
shares
If you think you may need to sell shares soon after buying them, you can avoid
the check clearing time (which may be up to 15 days) by investing by wire or
certified check.
Your Investment 9
<PAGE>
SHARE PRICES
- ------------------------------------------------------------
SHARE PRICE CALCULATIONS
The fund's share price is the total value of its assets minus its liabilities,
divided by the total number of shares. Because the value of the fund's
securities changes every business day, the share price usually changes as well.
When valuing portfolio securities, the fund uses market prices. However, in rare
cases, events that occur after certain markets have closed may render these
prices unreliable.
When the fund believes a market price does not reflect a security's true value,
the fund may substitute for the market price a fair-value estimate derived
through methods approved by its trustees. The fund may also use these methods to
value certain types of illiquid securities.
Because the fund does not have a sales charge, the price you pay for each share
of the fund is the fund's net asset value per share. Similarly, because the fund
does not charge any fee for selling shares, the fund pays you the full share
price when you sell shares. Remember that your investment provider may charge
fees for its services.
The fund is open for business every day the New York Stock Exchange is open. In
general, every buy or sell order you place will go through at the next share
price to be calculated after your order has been accepted; check with your
investment provider to find out by what time your order must be received in
order to be processed the same day. The fund calculates its share price as of
the end of regular trading on the Exchange on business days, usually 4:00 p.m.
eastern time. Depending on when your investment provider accepts orders, it's
possible that the fund's share price could change on days when you are unable to
buy or sell shares.
Also, because foreign markets may be open on days when U.S. markets are closed,
the value of foreign securities owned by the fund could change on days when you
can't buy or sell fund shares. The fund's share price, however, will not change
until the next time it is calculated.
10 Neuberger Berman
<PAGE>
DISTRIBUTIONS
AND TAXES
- ------------------------------------------------------------
TAXES AND YOU
The taxes you actually owe on distributions and transactions can vary with many
factors, such as your tax bracket, how long you held your shares, and whether
you owe alternative minimum tax.
How can you figure out your tax liability on fund distributions and
transactions? One helpful tool is the tax statement that your investment
provider sends you every January. It details the distributions you received
during the past year and shows their tax status. A separate statement covers
your transactions.
Most importantly, consult your tax professional. Everyone's tax situation is
different, and your professional should be able to help you answer any questions
you may have.
DISTRIBUTIONS -- The fund pays out to shareholders any net income and net
capital gains. The fund declares income dividends daily and pays them monthly.
Ordinarily, the funds make any distributions once a year (in December). Gains
from foreign currency transactions, if any, are normally distributed in October.
Consult your investment provider about whether your income and capital gains
distributions from a fund will be reinvested in that fund or paid to you in
cash.
HOW DISTRIBUTIONS ARE TAXED -- Except for tax-advantaged retirement accounts,
all fund distributions you receive are generally taxable to you, regardless of
whether you take them in cash or reinvest them. Fund distributions to Roth IRAs,
other individual retirement accounts and qualified retirement plans generally
are tax-free. Eventual withdrawals from a Roth IRA of these amounts also may be
tax-free, while withdrawals from other retirement accounts and plans generally
are subject to tax.
Distributions are taxable in the year you receive them. In some cases,
distributions you receive in January are taxable as if they had been paid the
previous year. Your tax statement (see sidebar) will help clarify this for you.
Distributions of taxable income and short-term capital gains distributions are
generally taxed as ordinary income. Distributions of other capital gains are
generally taxed as long-term capital gains. The tax treatment of capital gain
distributions depends on how long the fund held the securities it sold, not when
you bought your shares of the fund or whether you reinvested your distributions.
Your Investment 11
<PAGE>
DISTRIBUTIONS
AND TAXES CONTINUED
- -------------------------------------------------------------------
EURO AND YEAR 2000
ISSUES
Like other mutual funds, the fund could be affected by problems relating to the
conversion of European currencies into the Euro beginning 1/1/99, and the
ability of computer systems to recognize the year 2000.
At Neuberger Berman, we are taking steps to ensure that our own computer systems
are compliant with Euro and Year 2000 issues and to determine that the systems
used by our major service providers are also compliant. We are also making
efforts to determine whether companies in the fund's portfolio will be affected
by either issue.
At the same time, it is impossible to know whether these problems, which could
disrupt fund operations and investments if uncorrected, have been adequately
addressed until the dates in question arrive.
HOW TRANSACTIONS ARE TAXED -- When you sell fund shares, you generally realize a
gain or loss. These transactions, which include exchanges between funds, usually
have tax consequences. The exception, once again, is tax-advantaged retirement
accounts.
UNCASHED CHECKS -- When you receive a check, you may want to deposit or cash it
right away, as you will not receive interest on uncashed checks.
12 Neuberger Berman
<PAGE>
FUND STRUCTURE
- ------------------------------------------------------------
The fund uses a "master-feeder" structure.
Rather than investing directly in securities, the fund is a "feeder fund,"
meaning that it invests in a corresponding "master portfolio." The master
portfolio in turn invests in securities, using the strategies described in this
prospectus. One potential benefit of this structure is lower costs, since the
expenses of the master portfolio can be shared with any other feeder funds.
In this prospectus we have used the word "fund" to mean a feeder fund and its
master portfolio. Costs for a feeder fund include its own costs and its share of
master portfolio costs.
For reasons relating to costs or a change in investment goal, among others, the
feeder fund could switch to another master portfolio or decide to manage its
assets itself. The fund is not currently contemplating such a move.
Your Investment 13
<PAGE>
- ------------------------------------------------------------
OBTAINING INFORMATION
You can obtain a shareholder report, SAI, and other information from your
investment provider, or from:
NEUBERGER BERMAN
MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
800-877-9700
212-476-8800
Broker/Dealer and
Institutional Services:
800-366-6264
Web site:
www.nbfunds.com
Email:
[email protected]
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549-6009
800-SEC-0330 (Public
Reference Section)
Web site:
www.sec.gov
You can request copies of documents from the SEC for the cost of a duplicating
fee, or view documents at the SEC's Public Reference Room in Washington.
NEUBERGER BERMAN LIMITED MATURITY BOND TRUST
- - No load
- - No sales charges
- - No 12b-1 fees
If you'd like further details on this fund, you can request a free copy of the
following documents:
SHAREHOLDER REPORTS -- Published twice a year, the shareholder reports offer
information about the fund's recent performance, including:
- - a discussion by the portfolio manager(s) about strategies and market
conditions
- - fund performance data and financial statements
- - complete portfolio holdings
STATEMENT OF ADDITIONAL INFORMATION -- The SAI contains more comprehensive
information on this fund, including:
- - various types of securities and practices, and their risks
- - investment limitations and additional policies
- - information about each fund's management and business structure
The SAI is incorporated by reference into this prospectus, making it legally
part of the prospectus.
Investment manager:
NEUBERGER BERMAN MANAGEMENT INC.
Sub-adviser:
NEUBERGER BERMAN, LLC
[LOGO]
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue 2nd Floor
New York, NY 10158-0180
[RECYCLE LOGO] NMLRR1040299 SEC file number: 811-7724
<PAGE>
NEUBERGER BERMAN INCOME TRUST AND PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 1999
Neuberger Berman
Limited Maturity Bond Trust
(and Neuberger Berman
Limited Maturity Bond
Portfolio)
No-Load Mutual Fund
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
Neuberger Berman LIMITED MATURITY Bond Trust ("Fund") is a no-load
mutual fund that offer shares pursuant to a Prospectus dated March 1, 1999. The
Fund invests all of its net investable assets in Neuberger Berman LIMITED
MATURITY Bond Portfolio ("Portfolio").
AN INVESTOR CAN BUY, OWN, AND SELL FUND SHARES ONLY THROUGH AN
ACCOUNT WITH AN ADMINISTRATOR, BROKER-DEALER, OR OTHER INSTITUTION THAT PROVIDES
ACCOUNTING, RECORDKEEPING, AND OTHER SERVICES TO INVESTORS AND THAT HAS AN
ADMINISTRATIVE SERVICES AGREEMENT WITH NEUBERGER BERMAN MANAGEMENT INCORPORATED
(EACH AN "INSTITUTION").
The Fund's Prospectus provides basic information that an investor
should know before investing. A copy of the Prospectus may be obtained, without
charge, from Neuberger Berman Management Incorporated ("NB Management"),
Institutional Services, 605 Third Avenue, 2nd Floor, New York, NY 10158-0180 or
by calling 800-877-9700.
This Statement of Additional Information ("SAI") is not a prospectus
and should be read in conjunction with the Prospectus.
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or in this SAI in connection
with the offering made by the Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus and this SAI do not constitute an
offering by the Fund or its distributor in any jurisdiction in which such
offering may not lawfully be made.
<PAGE>
Table of Contents
Page
INVESTMENT INFORMATION.......................................................1
Investment Policies and Limitations....................................1
Temporary Defensive Position...........................................3
Overview of the Fund...................................................4
Additional Investment Information......................................5
Risks of Fixed Income Securities......................................24
CERTAIN RISK CONSIDERATIONS.................................................26
PERFORMANCE INFORMATION.....................................................26
Yield Calculations....................................................26
Total Return Computations.............................................26
Comparative Information...............................................27
Other Performance Information.........................................28
TRUSTEES AND OFFICERS.......................................................29
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES...........................34
Investment Manager and Administrator..................................34
Management and Administration Fees....................................35
Expense Reimbursements................................................35
Sub-Adviser...........................................................36
Investment Companies Managed..........................................37
Management and Control of NB Management...............................38
DISTRIBUTION ARRANGEMENTS...................................................39
ADDITIONAL PURCHASE INFORMATION.............................................40
Share Prices and Net Asset Value......................................40
ADDITIONAL EXCHANGE INFORMATION.............................................40
ADDITIONAL REDEMPTION INFORMATION...........................................42
Suspension of Redemptions.............................................42
Redemptions in Kind...................................................42
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DIVIDENDS AND OTHER DISTRIBUTIONS...........................................42
ADDITIONAL TAX INFORMATION..................................................43
Taxation of the Fund..................................................43
Taxation of the Portfolio.............................................44
Taxation of the Fund's Shareholders...................................47
PORTFOLIO TRANSACTIONS......................................................47
Portfolio Turnover....................................................48
REPORTS TO SHAREHOLDERS.....................................................48
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS..............................48
The Fund..............................................................48
The Portfolio.........................................................49
CUSTODIAN AND TRANSFER AGENT................................................50
INDEPENDENT AUDITORS........................................................50
LEGAL COUNSEL...............................................................51
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.........................51
REGISTRATION STATEMENT......................................................52
FINANCIAL STATEMENTS........................................................52
Appendix A.................................................................A-1
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INVESTMENT INFORMATION
The Fund is a separate series of Neuberger Berman Income Trust
("Trust"), a Delaware business trust that is registered with the Securities and
Exchange Commission ("SEC") as an open-end management investment company. The
Fund seeks its investment objective by investing all of its net investable
assets in a Portfolio of Income Managers Trust ("Managers Trust") that has an
investment objective identical to, and a name similar to, that of the Fund. The
Portfolio, in turn, invests in securities in accordance with an investment
objective, policies, and limitations identical to those of the Fund. (The Trust
and Managers Trust, which is an open-end management investment company managed
by NB Management, are together referred to below as the "Trusts.")
The following information supplements the discussion in the
Prospectus of the investment objective, policies, and limitations of the Fund
and Portfolio. The investment objective and, unless otherwise specified, the
investment policies and limitations of the Fund and Portfolio are not
fundamental. Any investment objective, policy or limitation that is not
fundamental may be changed by the trustees of the Trust ("Fund Trustees") or of
Managers Trust ("Portfolio Trustees") without shareholder approval. The
fundamental investment policies and limitations of the Fund or the Portfolio may
not be changed without the approval of the lesser of (1) 67% of the total units
of beneficial interest ("shares") of the Fund or Portfolio represented at a
meeting at which more than 50% of the outstanding Fund or Portfolio shares are
represented or (2) a majority of the outstanding shares of the Fund or
Portfolio. These percentages are required by the Investment Company Act of 1940
("1940 Act") and are referred to in this SAI as a "1940 Act majority vote."
Whenever the Fund is called upon to vote on a change in a fundamental investment
policy or limitation of the Portfolio, the Fund casts its votes thereon in
proportion to the votes of its shareholders at a meeting thereof called for that
purpose.
Investment Policies and Limitations
- -----------------------------------
The Fund has the following fundamental investment policy, to enable
it to invest in the Portfolio:
Notwithstanding any other investment policy of the Fund, the Fund may
invest all of its investable assets (cash, securities, and receivables
relating to securities) in an open-end management investment company
having substantially the same investment objective, policies, and
limitations as the Fund.
All other fundamental investment policies and limitations and the
non-fundamental investment policies and limitations of the Fund are identical to
those of the Portfolio. Therefore, although the following discusses the
investment policies and limitations of the Portfolio, it applies equally to the
Fund.
For purposes of the investment limitation on concentration in a
particular industry, the Portfolio determines the "issuer" of a municipal
obligation that is not a general obligation note or bond based on the
obligation's characteristics. The most significant of these characteristics is
the source of funds for the repayment of principal and payment of interest on
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the obligation. If an obligation is backed by an irrevocable letter of credit or
other guarantee, without which the obligation would not qualify for purchase
under the Portfolio's quality restrictions, the issuer of the letter of credit
or the guarantee is considered an issuer of the obligation. If an obligation
meets the Portfolio's quality restrictions without credit support, the Portfolio
treats the commercial developer or the industrial user, rather than the
governmental entity or the guarantor, as the only issuer of the obligation, even
if the obligation is backed by a letter of credit or other guarantee. Also, for
purposes of the investment limitation on concentration in a particular industry,
both mortgage-backed and asset-backed securities are grouped together as a
single industry. For purposes of the limitation on commodities, the Portfolio
does not consider foreign currencies or forward contracts to be physical
commodities.
Except for the limitation on borrowing and the limitation on
illiquid securities, any maximum percentage of securities or assets, contained
in any investment policy or limitation will not be considered to be exceeded
unless the percentage limitation is exceeded immediately after, and because of,
a transaction by the Portfolio. If events subsequent to a transaction result in
the Portfolio exceeding the percentage limitation on borrowing or illiquid
securities, NB Management will take appropriate steps to reduce the percentage
of borrowings or the percentage held in illiquid securities, as may be required
by law, within a reasonable amount of time.
The Portfolio's fundamental investment policies and limitations are
as follows:
1. BORROWING. The Portfolio may not borrow money, except that the
Portfolio may (i) borrow money from banks for temporary or emergency purposes
and not for leveraging or investment and (ii) enter into reverse repurchase
agreements; provided that (i) and (ii) in combination do not exceed 33-1/3% of
the value of its total assets (including the amount borrowed) less liabilities
(other than borrowings). If at any time borrowings exceed 33-1/3% of the value
of the Portfolio's total assets, the Portfolio will reduce its borrowings within
three days (excluding Sundays and holidays) to the extent necessary to comply
with the 33-1/3% limitation.
2. COMMODITIES. The Portfolio may not purchase physical commodities
or contracts thereon, unless acquired as a result of the ownership of securities
or instruments, but this restriction shall not prohibit the Portfolio from
purchasing futures contracts or options (including options on futures contracts,
but excluding options or futures contracts on physical commodities) or from
investing in securities of any kind.
3. DIVERSIFICATION. The Portfolio may not, with respect to 75% of
the value of its total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities ("U.S. Government and Agency Securities")) if, as a result,
(i) more than 5% of the value of the Portfolio's total assets would be invested
in the securities of that issuer or (ii) the Portfolio would hold more than 10%
of the outstanding voting securities of that issuer.
4. INDUSTRY CONCENTRATION. The Portfolio may not purchase any
security if, as a result, 25% or more of its total assets (taken at current
value) would be invested in the securities of issuers having their principal
business activities in the same industry. This limitation does not apply to
purchases of U.S. Government and Agency Securities.
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5. LENDING. The Portfolio may not lend any security or make any
other loan if, as a result, more than 33-1/3% of its total assets (taken at
current value) would be lent to other parties, except, in accordance with its
investment objective, policies, and limitations, (i) through the purchase of a
portion of an issue of debt securities or (ii) by engaging in repurchase
agreements.
6. REAL ESTATE. The Portfolio may not purchase real estate unless
acquired as a result of the ownership of securities or instruments, but this
restriction shall not prohibit the Portfolio from purchasing securities issued
by entities or investment vehicles that own or deal in real estate or interests
therein or instruments secured by real estate or interests therein.
7. SENIOR SECURITIES. The Portfolio may not issue senior securities,
except as permitted under the 1940 Act.
8. UNDERWRITING. The Portfolio may not underwrite securities of
other issuers, except to the extent that the Portfolio, in disposing of
portfolio securities, may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 ("1933 Act").
The Portfolio's non-fundamental investment policies and limitations
are as follows:
1. ILLIQUID SECURITIES. The Portfolio may not purchase any security
if, as a result, more than 15% of its net assets would be invested in illiquid
securities. Illiquid securities include securities that cannot be sold within
seven days in the ordinary course of business for approximately the amount at
which the Portfolio has valued the securities, such as repurchase agreements
maturing in more than seven days.
2. BORROWING. The Portfolio may not purchase securities if
outstanding borrowings, including any reverse repurchase agreements, exceed 5%
of its total assets.
3. LENDING. Except for the purchase of debt securities and
engaging in repurchase agreements, the Portfolio may not make any loans other
than securities loans.
4. MARGIN TRANSACTIONS. The Portfolio may not purchase securities on
margin from brokers or other lenders, except that the Portfolio may obtain such
short-term credits as are necessary for the clearance of securities
transactions. Margin payments in connection with transactions in futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
Temporary Defensive Position
- ----------------------------
For temporary defensive purposes, the Portfolio may invest up to 100% of
its total assets in cash or cash equivalents, U.S. Government and Agency
Securities, commercial paper and certain other money market instruments, as well
as repurchase agreements on U.S. Government and Agency Securities, the interest
on which may be subject to federal and state income taxes, and may adopt shorter
than normal weighted average maturities or durations. Yields on these securities
are generally lower than yields available on the debt securities in which the
Portfolio normally invests.
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Investment Insight
- ------------------
The Fund pursues attractive current income with low risk to
principal. The Fund is managed on the basis of a strategy of investment in fixed
income sectors we believe are attractively priced, and the selection of the most
attractively priced issues in those sectors based on their perceived risk and
returns. Sector investments include corporate bonds, mortgage-backed securities,
asset backed securities, CMOs (Collateralized Mortgages Obligations), Treasuries
and Government agencies.
We also manage the duration of the portfolio. LIMITED MATURITY'S
portfolio of bonds has a maximum average duration of four years. Duration
measures a bond's exposure to interest rate risk. Duration incorporates a bond's
yield, coupon interest payments, final maturity and call features into one
measure. In general, the longer you extend a bond's duration, the greater its
potential return and exposure to interest rate fluctuations.
LIMITED MATURITY is appropriate for investors who seek to
participate in the returns of the bond market, but wish to avoid significant
fluctuations in principal value. In order to achieve its investment goal through
the Portfolio, the Fund has the flexibility to invest across the full range of
bond sectors (corporate, mortgage-backed securities, etc.) and may invest a
limited portion of its assets in foreign securities denominated in foreign
currencies as well as lower-rated "high yield" issues.
ACTIVELY MANAGED PORTFOLIO DURATION. The portfolio co-managers
attempt to increase income and preserve or enhance total return by actively
managing average portfolio duration. As they explain, "Historically, limited
maturity portfolios have been able to deliver much of the yield available in the
investment-grade bond market with reduced volatility." Of course, there is no
assurance that past results will continue in the future. By keeping average
duration at four years or less, the portfolio co-managers attempt to reduce the
higher level of volatility that is generally associated with bonds of longer
duration. Duration is the measure of how bond prices respond to shifts in
interest rates, taking into account maturity, coupon, call protection, and other
factors. In general, the longer a security's duration, the higher the yield and
the greater the volatility.
CREDIT SELECTION WITH A VALUE BIAS. As part of their credit
selection process, the portfolio co-managers monitor national trends in the
corporate and government securities markets, including a range of economic and
financial factors. Specifically, they look for short- to intermediate-term
securities that appear underpriced compared to bonds of similar structure and
credit quality as well as those that seem ripe for a ratings upgrade. In
choosing lower-rated securities, they look for companies in sound financial
condition that may not be well known to the majority of investors.
RISK REDUCTION THROUGH DIVERSIFICATION. In an attempt to reduce
credit risk, the portfolio diversifies among many different issuers and types of
securities. The Fund invests mainly in investment-grade bonds and other debt
securities from U.S. government and corporate issuers. In an effort to enhance
yield and add diversification it may also invest up to 10% of net assets in
securities that are below investment-grade, provided that, at the time of
purchase, they are rated at least B by Moody's or Standard & Poor's, or deemed
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by the managers to be of comparable quality. On occasion, the managers may also
place a portion of assets in foreign securities, which could cause greater
movements in the fund's share price. The managers believe, "The incremental
yield compensates for the additional political and economic risks we take on."
Additional Investment Information
- ---------------------------------
The Portfolio may make the following investments, among others,
although it may not buy all of the types of securities or use all of the
investment techniques that are described.
U.S. GOVERNMENT AND AGENCY SECURITIES. U.S. Government Securities
are obligations of the U.S. Treasury backed by the full faith and credit of the
United States. U.S. Government Agency Securities are issued or guaranteed by
U.S. Government agencies, or by instrumentalities of the U.S. Government, such
as the Government National Mortgage Association ("GNMA"), Fannie Mae (also known
as Federal National Mortgage Association), Freddie Mac (also known as the
Federal Home Loan Mortgage Corporation), Student Loan Marketing Association
(commonly known as "Sallie Mae"), and Tennessee Valley Authority. Some U.S.
Government Agency Securities are supported by the full faith and credit of the
United States, while others may be supported by the issuer's ability to borrow
from the U.S. Treasury, subject to the Treasury's discretion in certain cases,
or only by the credit of the issuer. U.S. Government Agency Securities include
U.S. Government Agency mortgage-backed securities. (See "Mortgage-Backed
Securities," below.) The market prices of U.S. Government Agency Securities are
not guaranteed by the Government and generally fluctuate inversely with changing
interest rates.
INFLATION-INDEXED SECURITIES. The Portfolio may invest in U.S.
Treasury securities whose principal value is adjusted daily in accordance with
changes to the Consumer Price Index. Such securities are backed by the full
faith and credit of the U.S. Government. Interest is calculated on the basis of
the current adjusted principal value. The principal value of inflation-indexed
securities declines in periods of deflation, but holders at maturity receive no
less than par. If inflation is lower than expected during the period the
Portfolio holds the security, the Portfolio may earn less on it than on a
conventional bond.
Because the coupon rate on inflation-indexed securities is lower
than fixed-rate U.S. Treasury securities, the Consumer Price Index would have to
rise at least to the amount of the difference between the coupon rate of the
fixed rate U.S. Treasury issues and the coupon rate of the inflation-indexed
securities, assuming all other factors are equal, in order for such securities
to match the performance of the fixed-rate Treasury securities.
Inflation-indexed securities are expected to react primarily to changes in the
"real" interest rate (i.e., the nominal (or stated) rate less the rate of
inflation), while a typical bond reacts to changes in the nominal interest rate.
Accordingly, inflation-indexed securities have characteristics of fixed-rate
Treasuries having a shorter duration. Changes in market interest rates from
causes other than inflation will likely affect the market prices of
inflation-indexed securities in the same manner as conventional bonds.
Any increase in principal value is taxable in the year the increase
occurs, even though holders do not receive cash representing the increase until
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the security matures. Because the Fund must distribute substantially all of its
income to its shareholders to avoid payment of federal income and excise taxes,
the Portfolio may have to dispose of other investments to obtain the cash
necessary to distribute the accrued taxable income on inflation-indexed
securities.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot
be expected to be sold within seven days at approximately the price at which
they are valued. These may include unregistered or other restricted securities
and repurchase agreements maturing in greater than seven days. Illiquid
securities may also include commercial paper under section 4(2) of the
Securities Act of 1933, as amended, and Rule 144A securities (restricted
securities that may be traded freely among qualified institutional buyers
pursuant to an exemption from the registration requirements of the securities
laws); these securities are considered illiquid unless NB Management, acting
pursuant to guidelines established by the trustees of Managers Trust, determines
they are liquid. Generally, foreign securities freely tradable in their
principal market are not considered restricted or illiquid, even if they are not
registered in the United States. Illiquid securities may be difficult for the
Portfolio to value or dispose of due to the absence of an active trading market.
The sale of some illiquid securities by the Portfolio may be subject to legal
restrictions which could be costly to the Portfolio.
POLICIES AND LIMITATIONS. The Portfolio may invest up to 15% of its
net assets in illiquid securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio
purchases securities from a bank that is a member of the Federal Reserve System
or from a securities dealer that agrees to repurchase the securities from the
Portfolio at a higher price on a designated future date. Repurchase agreements
generally are for a short period of time, usually less than a week. Costs,
delays, or losses could result if the selling party to a repurchase agreement
becomes bankrupt or otherwise defaults. NB Management monitors the
creditworthiness of sellers.
POLICIES AND LIMITATIONS. Repurchase agreements with a maturity of
more than seven days are considered to be illiquid securities. The Portfolio may
not enter into a repurchase agreement with a maturity of more than seven days
if, as a result, more than 15% of the value of its net assets would then be
invested in such repurchase agreements and other illiquid securities. The
Portfolio may enter into a repurchase agreement only if (1) the underlying
securities are of a type (excluding maturity and duration limitations) that the
Portfolio's investment policies and limitations would allow it to purchase
directly, (2) the market value of the underlying securities, including accrued
interest, at all times equals or exceeds the repurchase price, and (3) payment
for the underlying securities is made only upon satisfactory evidence that the
securities are being held for the Portfolio's account by its custodian or a bank
acting as the Portfolio's agent.
SECURITIES LOANS. The Portfolio may lend portfolio securities to
banks, brokerage firms, and other institutional investors judged creditworthy by
NB Management, provided that cash or equivalent collateral, equal to at least
100% of the market value of the loaned securities, is continuously maintained by
the borrower with the Portfolio. The Portfolio may invest the cash collateral
and earn income, or it may receive an agreed upon amount of interest income from
a borrower who has delivered equivalent collateral. During the time securities
are on loan, the borrower will pay the Portfolio an amount equivalent to any
dividends or interest paid on such securities. These loans are subject to
termination at the option of the Portfolio or the borrower. The Portfolio may
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pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Portfolio does not have the
right to vote securities on loan, but would terminate the loan and regain the
right to vote if that were considered important with respect to the investment.
NB Management believes the risk of loss on these transactions is slight because,
if a borrower were to default for any reason, the collateral should satisfy the
obligation. However, as with other extensions of secured credit, loans of
portfolio securities involve some risk of loss of rights in the collateral
should the borrower fail financially.
POLICIES AND LIMITATIONS. In order to realize income, the Portfolio
may lend Portfolio securities with a value not exceeding 33 1/3% of its total
assets to banks, brokerage firms or institutional investors judged creditworthy
by NB Management. Borrowers are required continuously to secure their
obligations to return securities on loan from the Portfolio by depositing
collateral in a form determined to be satisfactory by the Portfolio Trustees.
The collateral, which must be marked to market daily, must be equal to at least
100% of the market value of the loaned securities, which will also be marked to
market daily.
RESTRICTED SECURITIES AND RULE 144A SECURITIES. The Portfolio may
invest in restricted securities, which are securities that may not be sold to
the public without an effective registration statement under the 1933 Act.
Before they are registered, such securities may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional market for
unregistered securities and the importance of institutional investors in the
formation of capital, the SEC has adopted Rule 144A under the 1933 Act. Rule
144A is designed further to facilitate efficient trading among institutional
investors by permitting the sale of certain unregistered securities to qualified
institutional buyers. To the extent privately placed securities held by the
Portfolio qualify under Rule 144A and an institutional market develops for those
securities, the Portfolio likely will be able to dispose of the securities
without registering them under the 1933 Act. To the extent that institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could increase the level of the Portfolio's
illiquidity. NB Management, acting under guidelines established by the Portfolio
Trustees, may determine that certain securities qualified for trading under Rule
144A are liquid. Regulation S under the 1933 Act permits the sale abroad of
securities that are not registered for sale in the United States.
Where registration is required, the Portfolio may be obligated to
pay all or part of the registration expenses, and a considerable period may
elapse between the decision to sell and the time the Portfolio may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Portfolio might obtain a
less favorable price than prevailed when it decided to sell. Restricted
securities for which no market exists are priced by a method that the Portfolio
Trustees believe accurately reflects fair value.
POLICIES AND LIMITATIONS. To the extent restricted securities,
including Rule 144A securities, are illiquid, purchases thereof will be subject
to the Portfolio's 15% limit on investments in illiquid securities.
COMMERCIAL PAPER. Commercial paper is a short-term debt security
issued by a corporation, bank, municipality, or other issuer, usually for
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purposes such as financing current operations. The Portfolio may invest in
commercial paper that cannot be resold to the public without an effective
registration statement under the 1933 Act. While restricted commercial paper
normally is deemed illiquid, NB Management may in certain cases determine that
such paper is liquid, pursuant to guidelines established by the Portfolio
Trustees.
POLICIES AND LIMITATIONS. To the extent restricted securities,
commercial paper is deemed illiquid, purchases thereof will be subject to the
Portfolio's 15% limit on investments in illiquid securities.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement,
the Portfolio sells portfolio securities subject to its agreement to repurchase
the securities at a later date for a fixed price reflecting a market rate of
interest. Reverse repurchase agreements may increase fluctuations in the
Portfolio's and the Fund's NAVs and may be viewed as a form of leverage. There
is a risk that the counter-party to a reverse repurchase agreement will be
unable or unwilling to complete the transaction as scheduled, which may result
in losses to the Portfolio. NB Management monitors the creditworthiness of
counterparties to reverse repurchase agreements.
POLICIES AND LIMITATIONS. Reverse repurchase agreements are
considered borrowings for purposes of the Portfolio's investment policies and
limitations concerning borrowings. While a reverse repurchase agreement is
outstanding, the Portfolio will deposit in a segregated account with its
custodian cash or appropriate liquid securities, marked to market daily, in an
amount at least equal to the Portfolio's obligations under the agreement.
BANKING AND SAVINGS INSTITUTION SECURITIES. The Portfolio may invest
in banking and savings institution obligations, which include CDs, time
deposits, bankers' acceptances, and other short-term and long-term debt
obligations issued by commercial banks and savings institutions. CDs are
receipts for funds deposited for a specified period of time at a specified rate
of return; time deposits generally are similar to CDs, but are uncertificated.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international commercial transactions. The CDs, time
deposits, and bankers' acceptances in which the Portfolio invests, typically are
not covered by deposit insurance.
VARIABLE OR FLOATING RATE SECURITIES; DEMAND AND PUT FEATURES.
Variable rate securities provide for automatic adjustment of the interest rate
at fixed intervals (e.g., daily, monthly, or semi-annually); floating rate
securities provide for automatic adjustment of the interest rate whenever a
specified interest rate or index changes. The interest rate on variable and
floating rate securities (collectively, "Adjustable Rate Securities") ordinarily
is determined by reference to a particular bank's prime rate, the 90-day U.S.
Treasury Bill rate, the rate of return on commercial paper or bank CDs, an index
of short-term tax-exempt rates, or some other objective measure.
Adjustable Rate Securities in which the Portfolio invests frequently
permit the holder to demand payment of the obligations' principal and accrued
interest at any time or at specified intervals not exceeding one year. The
demand feature usually is backed by a credit instrument (e.g., a bank letter of
credit) from a creditworthy issuer and sometimes by insurance from a
creditworthy insurer. Without these credit enhancements, some Adjustable Rate
8
<PAGE>
Securities might not meet the Portfolio's quality standards. Accordingly, in
purchasing these securities, the Portfolio relies primarily on the
creditworthiness of the credit instrument issuer or the insurer.
The Portfolio can also buy fixed rate securities accompanied by a
demand feature or by a put option, which permits the Portfolio to sell the
security to the issuer or third party at a specified price. The Portfolio may
rely on the creditworthiness of issuers of the credit enhancements in purchasing
these securities.
POLICIES AND LIMITATIONS. The Portfolio may not invest more than 5%
of its total assets in securities backed by credit instruments from any one
issuer or by insurance from any one insurer. For purposes of this limitation,
the Portfolio, excludes securities that do not rely on the credit instrument or
insurance for their ratings, i.e., stand on their own credit.
For purposes of determining its dollar-weighted average maturity,
the Portfolio calculates the remaining maturity of variable and floating rate
instruments as provided in Rule 2a-7 under the 1940 Act. In calculating its
dollar-weighted average maturity and duration, the Portfolio is permitted to
treat certain Adjustable Rate Securities as maturing on a date prior to the date
on which the final repayment of principal must unconditionally be made. In
applying such maturity shortening devices, NB Management considers whether the
interest rate reset is expected to cause the security to trade at approximately
its par value.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent
direct or indirect participations in, or are secured by and payable from, pools
of mortgage loans. They may be issued or guaranteed by a U.S. Government agency
or instrumentality (such as GNMA, Fannie Mae, and Freddie Mac), though not
necessarily backed by the full faith and credit of the United States, or may be
issued by private issuers. Private issuers are generally originators of and
investors in mortgage loans and include savings associations, mortgage bankers,
commercial banks, investment bankers, and special purpose entities. Private
mortgage-backed securities may be supported by U.S. Government Agency
mortgage-backed securities or some form of non-governmental credit enhancement.
Mortgage-backed securities may have either fixed or adjustable
interest rates. Tax or regulatory changes may adversely affect the mortgage
securities market. In addition, changes in the market's perception of the issuer
may affect the value of mortgage-backed securities. The rate of return on
mortgage-backed securities may be affected by prepayments of principal on the
underlying loans, which generally increase as market interest rates decline; as
a result, when interest rates decline, holders of these securities normally do
not benefit from appreciation in market value to the same extent as holders of
other non-callable debt securities.
Because many mortgages are repaid early, the actual maturity and
duration of mortgage-backed securities are typically shorter than their stated
final maturity and their duration calculated solely on the basis of the stated
life and payment schedule. In calculating its dollar-weighted average maturity
and duration, the Portfolio may apply certain industry conventions regarding the
maturity and duration of mortgage-backed instruments. Different analysts use
different models and assumptions in making these determinations. The Portfolio
uses an approach that NB Management believes is reasonable in light of all
relevant circumstances. If this determination is not borne out in practice, it
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could positively or negatively affect the value of the Portfolio when market
interest rates change. Increasing market interest rates generally extend the
effective maturities of mortgage-backed securities, increasing their sensitivity
to interest rate changes.
Mortgage-backed securities may be issued in the form of CMOs or
collateralized mortgage-backed bonds ("CBOs"). CMOs are obligations that are
fully collateralized, directly or indirectly, by a pool of mortgages; payments
of principal and interest on the mortgages are passed through to the holders of
the CMOs, although not necessarily on a pro rata basis, on the same schedule as
they are received. CBOs are general obligations of the issuer that are fully
collateralized, directly or indirectly, by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with mortgage-backed "pass-through" securities issued or guaranteed
by U.S. Government agencies or instrumentalities) or on a modified basis (as
with CMOs). Accordingly, a change in the rate of prepayments on the pool of
mortgages could change the effective maturity or the duration of a CMO but not
that of a CBO (although, like many bonds, CBOs may be callable by the issuer
prior to maturity). To the extent that rising interest rates cause prepayments
to occur at a slower than expected rate, a CMO could be converted into a
longer-term security that is subject to greater risk of price volatility.
Governmental, government-related, and private entities (such as
commercial banks, savings institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers, including securities
broker-dealers and special purpose entities that generally are affiliates of the
foregoing established to issue such securities) may create mortgage loan pools
to back CMOs and CBOs. Such issuers may be the originators and/or servicers of
the underlying mortgage loans, as well as the guarantors of the mortgage-backed
securities. Pools created by non-governmental issuers generally offer a higher
rate of interest than governmental and government-related pools because of the
absence of direct or indirect government or agency guarantees. Various forms of
insurance or guarantees, including individual loan, title, pool, and hazard
insurance and letters of credit, may support timely payment of interest and
principal of non-governmental pools. Governmental entities, private insurers,
and mortgage poolers issue these forms of insurance and guarantees. NB
Management considers such insurance and guarantees, as well as the
creditworthiness of the issuers thereof, in determining whether a
mortgage-backed security meets the Portfolio's investment quality standards.
There can be no assurance that private insurers or guarantors can meet their
obligations under insurance policies or guarantee arrangements.
The Portfolio may buy mortgage-backed securities without insurance
or guarantees, if NB Management determines that the securities meet the
Portfolio's quality standards. NB Management will, consistent with the
Portfolio's investment objective, policies and limitations and quality
standards, consider making investments in new types of mortgage-backed
securities as such securities are developed and offered to investors.
POLICIES AND LIMITATIONS. The Portfolio may not purchase
mortgage-backed securities that, in NB Management's opinion, are illiquid if, as
a result, more than 15% of the Portfolio's net assets would be invested in
illiquid securities.
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ASSET-BACKED SECURITIES. Asset-backed securities represent direct or
indirect participations in, or are secured by and payable from, pools of assets
such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property, and receivables from
revolving credit (credit card) agreements. These assets are securitized through
the use of trusts and special purpose corporations. Credit enhancements, such as
various forms of cash collateral accounts or letters of credit, may support
payments of principal and interest on asset-backed securities. Although these
securities may be supported by letters of credit or other credit enhancements,
payment of interest and principal ultimately depends upon individuals paying the
underlying loans, which may be affected adversely by general downturns in the
economy. Asset-backed securities are subject to the same risk of prepayment
described with respect to mortgage-backed securities. The risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments,
however, is greater for asset-backed securities than for mortgage-backed
securities.
Certificates for Automobile Receivables(SERVICEMARK)
("CARS(SERVICEMARK)") represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing those contracts. Payments of
principal and interest on the underlying contracts are passed-through monthly to
certificate holders and are guaranteed up to specified amounts by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. Underlying installment sales contracts are subject to
prepayment, which may reduce the overall return to certificate holders.
Certificate holders also may experience delays in payment or losses on
CARS(SERVICEMARK) if the trust does not realize the full amounts due on
underlying installment sales contracts because of unanticipated legal or
administrative costs of enforcing the contracts; depreciation, damage, or loss
of the vehicles securing the contracts; or other factors.
Credit card receivable securities are backed by receivables from
revolving credit card agreements ("Accounts"). Credit balances on Accounts are
generally paid down more rapidly than are automobile contracts. Most of the
credit card receivable securities issued publicly to date have been pass-through
certificates. In order to lengthen their maturity or duration, most such
securities provide for a fixed period during which only interest payments on the
underlying Accounts are passed through to the security holder; principal
payments received on the Accounts are used to fund the transfer of additional
credit card charges made on the Accounts to the pool of assets supporting the
securities. Usually, the initial fixed period may be shortened if specified
events occur which signal a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates. An
issuer's ability to extend the life of an issue of credit card receivable
securities thus depends on the continued generation of principal amounts in the
underlying Accounts and the non-occurrence of the specified events. The
non-deductibility of consumer interest, as well as competitive and general
economic factors, could adversely affect the rate at which new receivables are
created in an Account and conveyed to an issuer, thereby shortening the expected
weighted average life of the related security and reducing its yield. An
acceleration in cardholders' payment rates or any other event that shortens the
period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related security could have a
similar effect on its weighted average life and yield.
Credit cardholders are entitled to the protection of state and
federal consumer credit laws. Many of those laws give a holder the right to set
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off certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike the collateral for most other
asset-backed securities, Accounts are unsecured obligations of the cardholder.
The Portfolio may invest in trust preferred securities, which are a
type of asset-backed securities. Trust preferred securities represent interests
in a trust formed by a parent company to finance its operations. The trust sells
preferred shares and invests the proceeds in debt securities of the parent. This
debt may be subordinated and unsecured. Dividend payments on the trust preferred
securities match the interest payments on the debt securities; if no interest is
paid on the debt securities, the trust will not make current payments on its
preferred securities. Unlike typical asset-backed securities, which have many
underlying payors and are usually overcollateralized, trust preferred securities
have only one underlying payor and are not overcollateralized. Issuers of trust
preferred securities and their parents currently enjoy favorable tax treatment.
If the tax characterization of trust preferred securities were to change, they
could be redeemed by the issuers, which could result in a loss to the Portfolio.
U.S. DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES. These are
securities of foreign issuers (including banks, governments and
quasi-governmental organizations) and foreign branches of U.S. banks, including
negotiable CDs, bankers' acceptances, and commercial paper. While investments in
foreign securities are intended to reduce risk by providing further
diversification, such investments involve sovereign and other risks, in addition
to the credit and market risks normally associated with domestic securities.
These additional risks include the possibility of adverse local political,
social, diplomatic and economic developments (including political instability)
and the potentially adverse effects of unavailability of public information
regarding issuers, less governmental supervision and regulation of financial
markets, reduced liquidity of certain financial markets, and the lack of uniform
accounting, auditing, and financial reporting standards or the application of
standards that are different or less stringent than those applied in the United
States. It may be difficult to invoke legal process or to enforce contractual
obligations abroad.
POLICIES AND LIMITATIONS. These investments are subject to the
Portfolio's quality, maturity, and duration standards.
FOREIGN CURRENCY DENOMINATED FOREIGN SECURITIES. Foreign currency
denominated foreign securities are denominated in or indexed to foreign
currencies, including (1) CDs, commercial paper, fixed time deposits, and
bankers' acceptances issued by foreign banks, (2) obligations of other
corporations, and (3) obligations of foreign governments, of their subdivisions,
agencies, and instrumentalities, international agencies, and supranational
entities. Investing in foreign currency denominated securities involves the
special risks associated with investing in non-U.S. issuers, as described in the
preceding section, and the additional risks of (1) adverse changes in foreign
exchange rates, (2) nationalization, expropriation, or confiscatory taxation,
and (3) adverse changes in investment or exchange control regulations (which
could prevent cash from being brought back to the United States). Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes, including taxes withheld from those payments.
Foreign securities often trade with less frequency and in less
volume than domestic securities and therefore may exhibit greater price
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volatility. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custody arrangements,
and transaction costs of foreign currency conversions.
Foreign markets also have different clearance and settlement
procedures. In certain markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Portfolio are uninvested
and no return is earned thereon. The inability of the Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to the Portfolio
due to subsequent declines in value of the securities or, if the Portfolio has
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
Interest rates prevailing in other countries may affect the prices
of foreign securities and exchange rates for foreign currencies. Local factors,
including the strength of the local economy, the demand for borrowing, the
government's fiscal and monetary policies, and the international balance of
payments, often affect the interest rates in other countries. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
POLICIES AND LIMITATIONS. The Portfolio may invest up to 25% of its
net assets in foreign securities denominated in or indexed to foreign
currencies. Within that limitation, however, the Portfolio is not restricted in
the amount it may invest in securities denominated in any one foreign currency.
The Portfolio invests in foreign currency denominated foreign securities of
issuers in countries whose governments are considered stable by NB Management.
DOLLAR ROLLS. In a "dollar roll," the Portfolio sells securities for
delivery in the current month and simultaneously agrees to repurchase
substantially similar (i.e., same type and coupon) securities on a specified
future date from the same party. During the period before the repurchase, the
Portfolio forgoes principal and interest payments on the securities. The
Portfolio is compensated by the difference between the current sales price and
the forward price for the future purchase (often referred to as the "drop"), as
well as by the interest earned on the cash proceeds of the initial sale. Dollar
rolls may increase fluctuations in the Portfolio's and the Fund's NAVs and may
be viewed as a form of leverage. A "covered roll" is a specific type of dollar
roll in which the Portfolio holds an offsetting cash position or a
cash-equivalent securities position that matures on or before the forward
settlement date of the dollar roll transaction. There is a risk that the
contra-party will be unable or unwilling to complete the transaction as
scheduled, which may result in losses to the Portfolio. NB Management monitors
creditworthiness of counterparties to dollar rolls.
POLICIES AND LIMITATIONS. Dollar rolls are considered borrowings for
purposes of the Portfolio's investment policies and limitations concerning
borrowings.
WHEN-ISSUED TRANSACTIONS. These transactions may involve
mortgage-backed securities such as GNMA, Fannie Mae, and Freddie Mac
certificates. These transactions involve a commitment by the Portfolio to
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purchase securities that will be issued at a future date (ordinarily within two
months, although the Portfolio may agree to a longer settlement period). The
price of the underlying securities (usually expressed in terms of yield) and the
date when the securities will be delivered and paid for (the settlement date)
are fixed at the time the transaction is negotiated. When-issued purchases are
negotiated directly with the other party, and such commitments are not traded on
exchanges.
When-issued transactions enable the Portfolio to "lock in" what NB
Management believes to be an attractive price or yield on a particular security
for a period of time, regardless of future changes in interest rates. In periods
of falling interest rates and rising prices, the Portfolio might purchase a
security on a when-issued basis and sell a similar security to settle such
purchase, thereby obtaining the benefit of currently higher yields. If the
seller fails to complete the sale, the Portfolio may lose the opportunity to
obtain a favorable price.
The value of securities purchased on a when-issued basis and any
subsequent fluctuations in their value are reflected in the computation of the
Portfolio's net asset value ("NAV") starting on the date of the agreement to
purchase the securities. Because the Portfolio has not yet paid for the
securities, this produces an effect similar to leverage. The Portfolio does not
earn interest on securities it has committed to purchase until the securities
are paid for and delivered on the settlement date.
POLICIES AND LIMITATIONS. The Portfolio will purchase securities on
a when-issued basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, the Portfolio may dispose of or renegotiate a
commitment after it has been entered into. The Portfolio also may sell
securities it has committed to purchase before those securities are delivered to
the Portfolio on the settlement date. The Portfolio may realize capital gains or
losses in connection with these transactions.
When the Portfolio purchases securities on a when-issued basis, it
will deposit in a segregated account with its custodian, until payment is made,
appropriate liquid securities having an aggregate market value (determined
daily) at least equal to the amount of the Portfolio's purchase commitments.
This procedure is designed to ensure that the Portfolio maintains sufficient
assets at all times to cover its obligations under when-issued purchases.
FUTURES CONTRACTS AND OPTIONS THEREON. The Portfolio may purchase
and sell interest rate and bond index futures contracts and options thereon and
may purchase and sell foreign currency futures contracts (with interest rate and
bond index futures contracts, "Futures" or "Futures Contracts") and options
thereon in an attempt to hedge against changes in the prices of securities or,
in the case of foreign currency futures and options thereon, to hedge against
changes in prevailing currency exchange rates. Because the futures markets may
be more liquid than the cash markets, the use of Futures permits the Portfolio
to enhance portfolio liquidity and maintain a defensive position without having
to sell portfolio securities. The Portfolio views investment in (1) interest
rate and bond index Futures and options thereon as a maturity or duration
management device and/or a device to reduce risk and preserve total return in an
adverse interest rate environment for the hedged securities and (2) foreign
currency Futures and options thereon as a means of establishing more definitely
the effective return on, or the purchase price of, securities denominated in
foreign currencies held or intended to be acquired by the Portfolio.
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A "sale" of a Futures Contract (or a "short" Futures position)
entails the assumption of a contractual obligation to deliver the securities or
currency underlying the contract at a specified price at a specified future
time. A "purchase" of a Futures Contract (or a "long" Futures position) entails
the assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
Futures, including bond index Futures, are settled on a net cash payment basis
rather than by the sale and delivery of the securities underlying the Futures.
U.S. Futures (except certain currency Futures) are traded on
exchanges that have been designated as "contract markets" by the Commodity
Futures Trading Commission ("CFTC"); Futures transactions must be executed
through a futures commission merchant that is a member of the relevant contract
market. The exchange's affiliated clearing organization guarantees performance
of the contracts between the clearing members of the exchange.
Although Futures Contracts by their terms may require the actual
delivery or acquisition of the underlying securities or currency, in most cases
the contractual obligation is extinguished by being offset before the expiration
of the contract, without the parties having to make or take delivery of the
assets. A Futures position is offset by buying (to offset an earlier sale) or
selling (to offset an earlier purchase) an identical Futures Contract calling
for delivery in the same month. This may result in a profit or loss. While
futures contracts entered into by the Portfolio will usually be liquidated in
this manner, the Portfolio may instead make or take delivery of underlying
securities whenever it appears economically advantageous for it to do so.
"Margin" with respect to Futures is the amount of assets that must
be deposited by the Portfolio with, or for the benefit of, a futures commission
merchant in order to initiate and maintain the Portfolio's Futures positions.
The margin deposit made by the Portfolio when it enters into a Futures Contract
("initial margin") is intended to assure its performance of the contract. If the
price of the Futures Contract changes -- increases in the case of a short (sale)
position or decreases in the case of a long (purchase) position -- so that the
unrealized loss on the contract causes the margin deposit not to satisfy margin
requirements, the Portfolio will be required to make an additional margin
deposit ("variation margin"). However, if favorable price changes in the Futures
Contract cause the margin on deposit to exceed the required margin, the excess
will be paid to the Portfolio. In computing its daily NAV, the Portfolio marks
to market the value of its open Futures positions. The Portfolio also must make
margin deposits with respect to options on Futures that it has written (but not
with respect to options on futures that it has purchased). If the futures
commission merchant holding the deposit goes bankrupt, the Portfolio could
suffer a delay in recovering its funds and could ultimately suffer a loss.
An option on a Futures Contract gives the purchaser the right, in
return for the premium paid, to assume a position in the contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume a short Futures
position (if the option is a call) or a long Futures position (if the option is
a put). Upon exercise of the option, the accumulated cash balance in the
writer's Futures margin account is delivered to the holder of the option. That
balance represents the amount by which the market price of the Futures Contract
at exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option. Options on futures have characteristics
and risks similar to those of securities options, as discussed herein.
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Although the Portfolio believes that the use of Futures Contracts
will benefit it, if NB Management's judgment about the general direction of the
markets or about interest rate or currency exchange rate trends is incorrect,
the Portfolio's overall return would be lower than if it had not entered into
any such contracts. The prices of Futures are volatile and are influenced by,
among other things, actual and anticipated changes in interest or currency
exchange rates, which in turn are affected by fiscal and monetary policies and
by national and international political and economic events. At best, the
correlation between changes in prices of Futures and of the securities and
currencies being hedged can be only approximate due to differences between the
futures and securities markets or differences between the securities or
currencies underlying the Portfolio's futures position and the securities held
by or to be purchased for the Portfolio. The currency futures market may be
dominated by short-term traders seeking to profit from changes in exchange
rates. This would reduce the value of such contracts used for hedging purposes
over a short-term period. Such distortions are generally minor and would
diminish as the contract approaches maturity.
Because of the low margin deposits required, Futures trading
involves an extremely high degree of leverage; as a result, a relatively small
price movement in a Futures Contract may result in an immediate and substantial
loss, or gain, to the investor. Losses that may arise from certain Futures
transactions are potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctuation in the
price of a Futures Contract or option thereon during a single trading day; once
the daily limit has been reached, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day, however; it thus does not limit potential losses. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable Futures and options positions and
subjecting investors to substantial losses. If this were to happen with respect
to a position held by the Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
POLICIES AND LIMITATIONS. The Portfolio may purchase and sell
interest rate and bond index Futures and may purchase and sell options thereon
in an attempt to hedge against changes in securities prices resulting from
changes in prevailing interest rates. The Portfolio engages in foreign currency
Futures and options transactions in an attempt to hedge against changes in
prevailing currency exchange rates. The Portfolio does not engage in
transactions in Futures or options thereon for speculation.
CALL OPTIONS ON SECURITIES. The Portfolio may write covered call
options and may purchase call options. The purpose of writing covered call
options is to hedge (i.e., to reduce, at least in part, the effect of price
fluctuations of securities held by the Portfolio on the Portfolio's and its
corresponding Fund's NAVs or to earn premium income. Portfolio securities on
which call and put options may be written and purchased by the Portfolio are
purchased solely on the basis of investment considerations consistent with the
Portfolio's investment objective.
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When the Portfolio writes a call option, it is obligated to sell a
security to a purchaser at a specified price at any time until a certain date if
the purchaser decides to exercise the option. The Portfolio receives a premium
for writing the option. When writing call options, the Portfolio writes only
"covered" call options on securities it owns. So long as the obligation of the
call option continues, the Portfolio may be assigned an exercise notice,
requiring it to deliver the underlying security against payment of the exercise
price. The Portfolio may be obligated to deliver securities underlying a call
option at less than the market price.
When the Portfolio purchases a call option, it pays a premium for
the right to purchase a security from the writer at a specified price until a
specified date. The Portfolio would purchase a call option to protect against an
increase in the price of securities it intends to purchase or to offset a
previously written call option.
The writing of covered call options is a conservative investment
technique that is believed to involve relatively little risk (in contrast to the
writing of "naked" or uncovered call options, which the Portfolio will not do),
but is capable of enhancing the Portfolio's total return. When writing a covered
call option, the Portfolio, in return for the premium, gives up the opportunity
for profit from a price increase in the underlying security above the exercise
price, but conversely retains the risk of loss should the price of the security
decline. When writing a put option, the Portfolio, in return for the premium,
takes the risk that it must purchase the underlying security at a price which
may be higher than the current market price of the security. If a call option
that the Portfolio has written expires unexercised, the Portfolio will realize a
gain in the amount of the premium; however, that gain may be offset by a decline
in the market value of the underlying security during the option period. If the
call option is exercised, the Portfolio will realize a gain or loss from the
sale of the underlying security.
POLICIES AND LIMITATIONS. The Portfolio may write covered call
options and may purchase call options on debt securities in its portfolio or on
foreign currencies in its portfolio for hedging purposes. The Portfolio may
write covered call options for the purpose of producing income. The Portfolio
will write a call option on a security only if it holds that security or
currency or has the right to obtain the security or currency at no additional
cost.
PUT OPTIONS ON SECURITIES. The Portfolio may write and purchase put
options on securities. The Portfolio will receive a premium for writing a put
option, which obligates the Portfolio to acquire a security at a certain price
at any time until a certain date if the purchaser of the option decides to
exercise the option. The Portfolio may be obligated to purchase the underlying
security at more than its current value.
When the Portfolio purchases a put option, it pays a premium to the
writer for the right to sell a security to the writer for a specified amount at
any time until a certain date. The Portfolio might purchase a put option in
order to protect itself against a decline in the market value of a security it
owns.
Portfolio securities on which put options may be written and
purchased by the Portfolio are purchased solely on the basis of investment
considerations consistent with the Portfolio's investment objective. When
writing a put option, the Portfolio, in return for the premium, takes the risk
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that it must purchase the underlying security at a price that may be higher than
the current market price of the security. If a put option that the Portfolio has
written expires unexercised, the Portfolio will realize a gain in the amount of
the premium.
POLICIES AND LIMITATIONS. The Portfolio generally writes and
purchases put options on securities or on foreign currencies for hedging
purposes (i.e., to reduce, at least in part, the effect of price fluctuations of
securities held by the Portfolio on the Portfolio's and the Fund's NAVs).
GENERAL INFORMATION ABOUT SECURITIES OPTIONS. The exercise price of
an option may be below, equal to, or above the market value of the underlying
security at the time the option is written. Options normally have expiration
dates between three and nine months from the date written. The obligation under
any option written by the Portfolio terminates upon expiration of the option or,
at an earlier time, when the writer offsets the option by entering into a
"closing purchase transaction" to purchase an option of the same series. If an
option is purchased by the Portfolio and is never exercised or closed out, the
Portfolio will lose the entire amount of the premium paid.
Options are traded both on national securities exchanges and in the
over-the-counter ("OTC") market. Exchange-traded options in the U.S. are issued
by a clearing organization affiliated with the exchange on which the option is
listed; the clearing organization in effect guarantees completion of every
exchange-traded option. In contrast, OTC options are contracts between the
Portfolio and a counterparty, with no clearing organization guarantee. Thus,
when the Portfolio sells (or purchases) an OTC option, it generally will be able
to "close out" the option prior to its expiration only by entering into a
"closing transaction" with the dealer to whom (or from whom) the Portfolio
originally sold (or purchased) the option. There can be no assurance that the
Portfolio would be able to liquidate an OTC option at any time prior to
expiration. Unless the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option it has written, it will not be able to
liquidate securities used as cover until the option expires or is exercised or
until different cover is substituted. In the event of the counterparty's
insolvency, the Portfolio may be unable to liquidate its options position and
the associated cover. NB Management monitors the creditworthiness of dealers
with which the Portfolio may engage in OTC options transactions.
The premium received (or paid) by the Portfolio when it writes (or
purchases) an option is the amount at which the option is currently traded on
the applicable market. The premium may reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to the market price, the historical price volatility of the underlying security,
the length of the option period, the general supply of and demand for credit,
and the interest rate environment. The premium received by the Portfolio for
writing an option is recorded as a liability on the Portfolio's statement of
assets and liabilities. This liability is adjusted daily to the option's current
market value, which is the last reported sales price before the time the
Portfolio's NAV is computed on the day the option is being valued or, in the
absence of any trades thereof on that day, the mean between the bid and asked
prices as of that time.
Closing transactions are effected in order to realize a profit (or
minimize a loss) on an outstanding option, to prevent an underlying security
from being called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits the Portfolio to write
another call option on the underlying security with a different exercise price
or expiration date or both. There is, of course, no assurance that the Portfolio
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will be able to effect closing transactions at favorable prices. If the
Portfolio cannot enter into such a transaction, it may be required to hold a
security that it might otherwise have sold (or purchase a security that it would
not have otherwise bought), in which case it would continue to be at market risk
on the security.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the call or put option. Because increases in the market
price of a call option generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset, in whole or in part, by appreciation of the underlying
security owned by the Portfolio; however, the Portfolio could be in a less
advantageous position than if it had not written the call option.
The Portfolio pays brokerage commissions or spreads in connection
with purchasing or writing options, including those used to close out existing
positions. These brokerage commissions normally are higher than those applicable
to purchases and sales of portfolio securities. From time to time, the Portfolio
may purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering the security from
its portfolio. In those cases, additional brokerage commissions are incurred.
POLICIES AND LIMITATIONS. The assets used as cover (or held in a
segregated account) for OTC options written by the Portfolio will be considered
illiquid and thus subject to the Portfolio's 15% limitation on illiquid
securities, unless the OTC options are sold to qualified dealers who agree that
the Portfolio may repurchase any OTC option it writes at a maximum price to be
calculated by a formula set forth in the option agreement. The cover for an OTC
call option written subject to this procedure will be considered illiquid only
to the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
FORWARD FOREIGN CURRENCY CONTRACTS. The Portfolio may enter into
contracts for the purchase or sale of a specific foreign currency at a future
date at a fixed price ("Forward Contracts"). The Portfolio enters into Forward
Contracts in an attempt to hedge against changes in prevailing currency exchange
rates. Forward Contract transactions include forward sales or purchases of
foreign currencies for the purpose of protecting the U.S. dollar value of
securities held or to be acquired by the Portfolio that are denominated in a
foreign currency or protecting the U.S. dollar equivalent of dividends,
interest, or other payments on those securities.
Forward Contracts are traded in the interbank market directly
between dealers (usually large commercial banks) and their customers. A Forward
Contract generally has no deposit requirement, and no commissions are charged at
any stage for trades; foreign exchange dealers realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies.
At the consummation of a Forward Contract to sell currency, a
Portfolio may either make delivery of the foreign currency or terminate its
contractual obligation to deliver by purchasing an offsetting contract. If the
Portfolio chooses to make delivery of the foreign currency, it may be required
to obtain such currency through the sale of portfolio securities denominated in
such currency or through conversion of other assets of the Portfolio into such
currency. If the Portfolio engages in an offsetting transaction, it will incur a
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<PAGE>
gain or a loss to the extent that there has been a change in Forward Contract
prices. Closing purchase transactions with respect to Forward Contracts are
usually made with the currency dealer who is a party to the original Forward
Contract.
NB Management believes that the use of foreign currency hedging
techniques, including "proxy-hedges," can provide significant protection of NAV
in the event of a general rise in the U.S. dollar against foreign currencies.
For example, the return available from securities denominated in a particular
foreign currency would diminish if the value of the U.S. dollar increased
against that currency. Such a decline could be partially or completely offset by
an increase in value of a hedge involving a Forward Contract to sell that
foreign currency or a proxy-hedge involving a Forward Contract to sell a
different foreign currency whose behavior is expected to resemble the currency
in which the securities being hedged are denominated but which is available on
more advantageous terms.
However, a hedge or proxy-hedge cannot protect against exchange rate
risks perfectly, and, if NB Management is incorrect in its judgment of future
exchange rate relationships, the Portfolio could be in a less advantageous
position than if such a hedge or proxy-hedge had not been established. If the
Portfolio uses proxy-hedging, it may experience losses on both the currency in
which it has invested and the currency used for hedging if the two currencies do
not vary with the expected degree of correlation. Using Forward Contracts to
protect the value of the Portfolio's securities against a decline in the value
of a currency does not eliminate fluctuations in the prices of the underlying
securities. Because Forward Contracts are not traded on an exchange, the assets
used to cover such contracts may be illiquid. The Portfolio may experience
delays in the settlement of its foreign currency transactions.
POLICIES AND LIMITATIONS. The Portfolio does not engage in
transactions in Forward Contracts for speculation; it views investments in
Forward Contracts as a means of establishing more definitely the effective
return on, or the purchase price of, securities denominated in foreign
currencies that are held or intended to be acquired by it.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write and purchase
covered call and put options on foreign currencies. Currency options have
characteristics and risks similar to those of securities options, as discussed
herein. Certain options on foreign currencies are traded on the OTC market and
involve liquidity and credit risks that may not be present in the case of
exchange-traded currency options.
POLICIES AND LIMITATIONS. The Portfolio would use options on foreign
currencies to protect against declines in the U.S. dollar value of portfolio
securities or increases in the U.S. dollar cost of securities to be acquired, or
to protect the dollar equivalent of dividends, interest, or other payments on
those securities.
REGULATORY LIMITATIONS ON USING FUTURES, OPTIONS ON FUTURES, OPTIONS
ON SECURITIES AND FOREIGN CURRENCIES, AND FORWARD CONTRACTS. To the extent the
Portfolio sells or purchases Futures Contracts and/or writes options thereon or
options on foreign currencies that are traded on an exchange regulated by the
CFTC other than for BONA FIDE hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums on these positions (excluding the amount
by which options are "in-the-money") may not exceed 5% of the Portfolio's net
assets.
20
<PAGE>
COVER FOR FUTURES, OPTIONS ON FUTURES, OPTIONS ON SECURITIES AND
FOREIGN CURRENCIES, AND FORWARD CONTRACTS (COLLECTIVELY, "HEDGING INSTRUMENTS").
The Portfolio will comply with SEC guidelines regarding "cover" for Hedging
Instruments and, if the guidelines so require, set aside in a segregated account
with its custodian the prescribed amount of cash or appropriate liquid
securities. Securities held in a segregated account cannot be sold while the
Futures, option, or forward strategy covered by those securities is outstanding,
unless they are replaced with other suitable assets. As a result, segregation of
a large percentage of the Portfolio's assets could impede portfolio management
or the Portfolio's ability to meet current obligations. The Portfolio may be
unable to promptly dispose of assets which cover, or are segregated with respect
to, an illiquid Futures, options, or forward position; this inability may result
in a loss to the Portfolio.
POLICIES AND LIMITATIONS. The Portfolio will comply with SEC
guidelines regarding "cover" for Hedging Instruments and, if the guidelines so
require, set aside in a segregated account with its custodian the prescribed
amount of cash or appropriate liquid securities.
GENERAL RISKS OF HEDGING INSTRUMENTS. The primary risks in using
Hedging Instruments are (1) imperfect correlation or no correlation between
changes in the market value of the securities or currencies held or to be
acquired by the Portfolio and changes in the market value of Hedging
Instruments; (2) possible lack of a liquid secondary market for Hedging
Instruments and the resulting inability to close out Hedging Instruments when
desired; (3) the fact that the skills needed to use Hedging Instruments are
different from those needed to select the Portfolio's securities; (4) the fact
that, although use of Hedging Instruments for hedging purposes can reduce the
risk of loss, they also can reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in hedged investments; and (5)
the possible inability of the Portfolio to purchase or sell a portfolio security
at a time that would otherwise be favorable for it to do so, or the possible
need for the Portfolio to sell a portfolio security at a disadvantageous time,
due to its need to maintain cover or to segregate securities in connection with
its use of Hedging Instruments. NB Management intends to reduce the risk of
imperfect correlation by investing only in Hedging Instruments whose behavior is
expected to resemble or offset that of the Portfolio's underlying securities or
currency. There can be no assurance that the Portfolio's use of Hedging
Instruments will be successful.
The Portfolio's use of Hedging Instruments may be limited by certain
provisions of the Internal Revenue Code of 1986, as amended ("Code"), with which
it must comply if the Fund is to continue to qualify as a regulated investment
company ("RIC"). See "Additional Tax Information -- Taxation of the Portfolio."
POLICIES AND LIMITATIONS. NB Management intends to reduce the risk
of imperfect correlation by investing only in Hedging Instruments whose behavior
is expected to resemble or offset that of the Portfolio's underlying securities
or currency. NB Management intends to reduce the risk that the Portfolio will be
unable to close out Hedging Instruments by entering into such transactions only
if NB Management believes there will be an active and liquid secondary market.
21
<PAGE>
INDEXED SECURITIES. The Portfolio may invest in securities whose
value is linked to interest rates, commodities, foreign currencies, indices, or
other financial indicators ("indexed securities"). Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. The value of indexed securities may increase or decrease
if the underlying instrument appreciates, and they may have return
characteristics similar to direct investment in the underlying instrument or to
one or more options thereon. An indexed security may be more volatile than the
underlying instrument itself.
ZERO COUPON AND STEP COUPON SECURITIES. The Portfolio may invest in
zero coupon and step coupon securities, which are debt obligations that do not
entitle the holder to any periodic payment of interest prior to maturity or that
specify a future date when the securities begin to pay current interest. Zero
coupon and step coupon securities are issued and traded at a discount from their
face amount or par value. This discount varies depending on prevailing interest
rates, the time remaining until cash payments begin, the liquidity of the
security, and the perceived credit quality of the issuer. Zero coupon and step
coupon securities are redeemed at face value when they mature. The discount on
zero coupon and step coupon securities ("original issue discount" or "OID") must
be taken into income ratably by the Portfolio prior to the receipt of any actual
payments.
Because the Fund must distribute substantially all of its net income
(including its share of the Portfolio's accrued OID attributable to zero coupon
and step coupon securities) to its shareholders each year for income and excise
tax purposes, the Portfolio may have to dispose of portfolio securities under
disadvantageous circumstances to generate cash, or may be required to borrow, to
satisfy the Fund's distribution requirements.
See "Additional Tax Information."
The market prices of zero coupon and step coupon securities
generally are more volatile than the prices of securities that pay interest
periodically. Zero coupon securities are likely to respond to changes in
interest rates to a greater degree than other types of debt securities having
similar maturities and credit quality.
MUNICIPAL OBLIGATIONS. Municipal obligations are issued by or on
behalf of states, the District of Columbia, and U.S. territories, and
possessions and their political subdivisions, agencies, and instrumentalities.
The interest on municipal obligations is generally exempt from
federal income tax. The tax-exempt status of any issue of municipal obligations
is determined on the basis of an opinion of the issuer's bond counsel at the
time the obligations are issued. Municipal obligations include "general
obligation" securities, which are backed by the full taxing power of a
municipality, and "revenue" securities, which are backed only by the income from
a specific project, facility, or tax. Municipal obligations also include
industrial development and private activity bonds which are issued by or on
behalf of public authorities, but are not backed by the credit of any
governmental or public authority. "Anticipation notes" are issued by
municipalities in expectation of future proceeds from the issuance of bonds or
from taxes or other revenues, and are payable from those bond proceeds, taxes,
or revenues. Municipal obligations also include tax-exempt commercial paper,
which is issued by municipalities to help finance short-term capital or
operating requirements.
22
<PAGE>
The value of municipal obligations is dependent on the continuing
payment of interest and principal when due by the issuers of the municipal
obligations (or, in the case of industrial development bonds, the revenues
generated by the facility financed by the bonds or, in certain other instances,
the provider of the credit facility backing the bonds). As with other fixed
income securities, an increase in interest rates generally will reduce the value
of the Portfolio's investments in municipal obligations, whereas a decline in
interest rates generally will increase that value.
Current efforts to restructure the federal budget and the
relationship between the federal government and state and local governments may
adversely impact the financing of some issuers of municipal securities. Some
states and localities are experiencing substantial deficits and may find it
difficult for political or economic reasons to increase taxes. Efforts are under
way that may result in a restructuring of the federal income tax system. These
developments could reduce the value of all municipal securities, or the
securities of particular issuers.
POLICIES AND LIMITATIONS. The Portfolio may invest up to 5% of
its net assets in municipal obligations.
LOWER-RATED DEBT SECURITIEs. Lower-rated debt securities or "junk
bonds" are those rated below the fourth highest category by all NRSROs that have
rated them (including those securities rated as low as D by S&P) or unrated
securities of comparable quality. Securities rated below investment grade may be
considered speculative. These securities are deemed to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Lower-rated debt securities generally offer a higher current yield
than that available for investment grade issues with similar maturities, but
they may involve significant risk under adverse conditions. In particular,
adverse changes in general economic conditions and in the industries in which
the issuers are engaged and changes in the financial condition of the issuers
are more likely to cause price volatility and weaken the capacity of the issuer
to make principal and interest payments than is the case for higher-grade debt
securities. In addition, if the Portfolio invests in lower-quality securities,
it may incur additional expenses to the extent recovery is sought on defaulted
securities. Because of the many risks involved in investing in high-yield
securities, the success of such investments is dependent on the credit analysis
of NB Management.
During periods of economic downturn or rising interest rates, highly
leveraged issuers may experience financial stress which could adversely affect
their ability to make payments of interest and principal and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
The market for lower-rated debt securities has expanded rapidly in
recent years, and its growth generally paralleled a long economic expansion. In
the past, the prices of many lower-rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower-rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
23
<PAGE>
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or defaults. There can be no
assurance that such declines will not recur.
The market for lower-rated debt issues generally is thinner or less
active than that for higher quality securities, which may limit a Fund's ability
to sell such securities at fair value in response to changes in the economy or
financial markets. Judgment may play a greater role in pricing such securities
than it does for more liquid securities. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower-rated debt securities, especially in a thinly
traded market.
See Appendix A for further information about the ratings of debt
securities assigned by S&P and Moody's.
POLICIES AND LIMITATIONS. The Portfolio may invest up to 10% of its
net assets in lower-rated debt securities; the Portfolio will not invest in such
securities unless, at the time of purchase, they are rated at least B by Moody's
or S&P or, if unrated by either of those entities, deemed by NB Management to be
of comparable quality. The Portfolio may hold up to 5% of its net assets in
securities that are downgraded after purchase to a rating below that permitted
by the Portfolio's investment policies.
Risks of Fixed Income Securities
- --------------------------------
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and market
liquidity ("market risk"). Lower-rated securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates.
RATINGS OF FIXED INCOME SECURITIES
As discussed in the Prospectus, the Portfolio may purchase
securities rated by Standard & Poor's ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or any other nationally recognized statistical rating organization
("NRSRO"). The ratings of an NRSRO represent its opinion as to the quality of
securities it undertakes to rate. Ratings are not absolute standards of quality;
consequently, securities with the same maturity, duration, coupon, and rating
may have different yields. Although the Portfolio may rely on the ratings of any
NRSRO, the Portfolio mainly refers to ratings assigned by S&P and Moody's, which
are described in Appendix A. The Portfolio may also invest in unrated securities
that are deemed comparable in quality by NB Management to the rated securities
in which the Portfolio may permissibly invest.
HIGH-QUALITY DEBT SECURITIES. High-quality debt securities are
securities that have received a rating from at least one NRSRO, such as S&P or
Moody's, in one of the two highest rating categories (the highest category in
the case of commercial paper) or, if not rated by any NRSRO, such as U.S.
Government and Agency Securities, have been determined by NB Management to be of
comparable quality.
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<PAGE>
INVESTMENT GRADE DEBT SECURITIES. Investment grade debt securities
are securities that have received a rating from at least one NRSRO in one of the
four highest rating categories or, if not rated by any NRSRO, have been
determined by NB Management to be of comparable quality. Moody's deems
securities rated in its fourth highest category (Baa) to have speculative
characteristics; a change in economic factors could lead to a weakened capacity
of the issuer to repay.
LOWER-RATED DEBT SECURITIES. Lower-rated debt securities or "junk
bonds" are those rated below the fourth highest category by all NRSROs that have
rated them (including those securities rated as low as D by S&P) or unrated
securities of comparable quality. Securities rated below investment grade may be
considered speculative. Securities rated B are judged to be predominantly
speculative with respect to their capacity to pay interest and repay principal
in accordance with the terms of the obligations. Although these securities
generally offer higher yields than investment grade debt securities with similar
maturities, lower-quality securities involve greater risks, including the
possibility of default or bankruptcy by the issuer or the securities may already
be in default. See the additional risks described above for lower-rated debt
securities.
Subsequent to its purchase by a Portfolio, the rating of an issue of
debt securities may be reduced, so that the securities would no longer be
eligible for purchase by that Portfolio. In such a case, NB Management will
engage in an orderly disposition of the downgraded or other securities to the
extent necessary to ensure that the Portfolio's holdings of securities that are
considered by the Portfolio to be below investment grade will not exceed 10% of
its net assets. The Portfolio may hold up to 5% of its net assets in securities
that are downgraded after purchase to a rating below that permissible under the
Portfolio's investment policies.
DURATION AND MATURITY
Duration is a measure of the sensitivity of debt securities to
changes in market interest rates, based on the entire cash flow associated with
the securities, including payments occurring before the final repayment of
principal. NB Management utilizes duration as a tool in portfolio selection
instead of the more traditional measure known as "term to maturity." "Term to
maturity" measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security's payments prior to
maturity. Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into one measure. Duration therefore provides a more
accurate measurement of a bond's likely price change in response to a given
change in market interest rates. The longer the duration, the greater the bond's
price movement will be as interest rates change. For any fixed income security
with interest payments occurring prior to the payment of principal, duration is
always less than maturity.
Futures, options and options on futures have durations which are
generally related to the duration of the securities underlying them. Holding
long futures or call option positions will lengthen the Portfolio's duration by
approximately the same amount as would holding an equivalent amount of the
underlying securities. Short futures or put options have durations roughly equal
to the negative of the duration of the securities that underlie these positions,
and have the effect of reducing portfolio duration by approximately the same
amount as would selling an equivalent amount of the underlying securities.
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<PAGE>
There are some situations where even the standard duration
calculation does not properly reflect the interest rate exposure of a security.
For example, floating and variable rate securities often have final maturities
of ten or more years; however, their interest rate exposure corresponds to the
frequency of the coupon reset. Another example where the interest rate exposure
is not properly captured by duration is the case of mortgage-backed securities.
The stated final maturity of such securities is generally 30 years, but current
and expected prepayment rates are critical in determining the securities'
interest rate exposure. In these and other similar situations, NB Management,
where permitted, will use more sophisticated analytical techniques that
incorporate the economic life of a security into the determination of its
interest rate exposure.
The Portfolio's dollar-weighted average duration will not exceed
four years, although the Portfolio may invest in individual securities of any
duration; the Portfolio's dollar-weighted average maturity may range up to five
years.
CERTAIN RISK CONSIDERATIONS
The Fund's investment in the Portfolio may be affected by the
actions of other large investors in the Portfolio, if any. For example, if a
large investor in the Portfolio (other than the Fund) redeemed its interest in
the Portfolio, the Portfolio's remaining investors (including the Fund) might,
as a result, experience higher pro rata operating expenses, thereby producing
lower returns.
Although the Portfolio seeks to reduce risk by investing in a
diversified portfolio of securities, diversification does not eliminate all
risk. There can, of course, be no assurance the Portfolio will achieve its
investment objective.
PERFORMANCE INFORMATION
The Fund's performance figures are based on historical results and
are not intended to indicate future performance. The yield and total return of
the Fund will vary. The share price of the Fund will vary, and an investment in
the Fund, when redeemed, may be worth more or less than an investor's original
cost.
Yield Calculations
- ------------------
The Fund may advertise its "yield" based on a 30-day (or one month)
period. This yield is computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period. The result then is annualized and shown as an annual percentage
of an investment.
The annualized yield for the Fund for the 30-day period ended
October 31, 1998 was 5.26%.
Total Return Computations
- -------------------------
The Fund may advertise certain total return information. An average
annual compounded rate of return ("T") may be computed by using the redeemable
26
<PAGE>
value at the end of a specified period ("ERV") of a hypothetical initial
investment of $1,000 ("P") over a period of time ("n") according to the formula:
P(1+T)n = ERV
Average annual total return smooths out year-to-year variations in performance
and, in that respect, differs from actual year-to-year results.
Although the Fund did not commence operations until August 30, 1993,
the Fund's investment objective, limitations, and policies are the same as those
of another mutual fund administered by NB Management, which has a name similar
to the Fund's and invests in the same Portfolio ("Sister Fund"). The Sister Fund
had a predecessor. The following total return data is for the Fund since its
inception and, for periods prior to the Fund's inception, its Sister Fund and
which, as used herein, includes data for the Sister Fund's predecessor. The
total returns for periods prior to the Fund's inception would have been lower
had they reflected the higher fees of the Fund, as compared to those of the
Sister Fund and its predecessor.
The average annual total returns for the Fund, its Sister Fund and
that Sister Fund's predecessor for the one-, five- and ten-year periods ended
October 31, 1998, were +4.79%, +5.03%, and +6.83%, respectively. If an investor
had invested $10,000 in that predecessor's shares on June 9, 1986 and had
reinvested all capital gain distributions and income dividends, the value of
that investor's holdings would have been $22,575 on October 31, 1998.
NB Management may from time to time reimburse the Fund or Portfolio
for a portion of its expenses. Such action has the effect of increasing yield
and total return. Actual reimbursements are described in the Prospectus and in
"Investment Management and Administration Services" below.
Comparative Information
- -----------------------
From time to time the Fund's performance may be compared with:
(1) data (that may be expressed as rankings or ratings) published by
independent services or publications (including newspapers,
newsletters, and financial periodicals) that monitor the performance
of mutual funds, such as Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Wiesenberger Investment Companies
Service, IBC/Financial Data Inc.'s Money Market Fund Report,
Investment Company Data Inc., Morningstar, Inc., Micropal
Incorporated, and quarterly mutual fund rankings by Money, Fortune,
Forbes, Business Week, Personal Investor, and U.S. News & World
Report magazines, The Wall Street Journal, The New York Times,
Kiplinger's Personal Finance, and Barron's Newspaper, or
(2) recognized bond, stock, and other indices such as the Shearson
Lehman Bond Index, the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500 Index"), Dow Jones Industrial Average ("DJIA"),
S&P/BARRA Index, Russell Index, and various other domestic,
international, and global indices and changes in the U.S. Department
27
<PAGE>
of Labor Consumer Price Index. The S&P 500 Index is a broad index of
common stock prices, while the DJIA represents a narrower segment of
industrial companies. Each assumes reinvestment of distributions and
is calculated without regard to tax consequences or the costs of
investing. Each Portfolio may invest in different types of
securities from those included in some of the above indices.
The Fund's performance also may be compared from time to time with
the following specific indices and other measures of performance: the Merrill
Lynch 1-3 year Treasury Index and the Lehman Brothers Intermediate
Government/Corporate Bond Index, as well as the performance of Treasury
Securities, corporate bonds, and the Lipper Short Investment Grade Debt Funds
category.
The Fund may invest some of its assets in different types of
securities than those included in the index used as a comparison with the Fund's
historical performance. The Fund may also compare certain indices, which
represent different segments of the securities markets, for the purpose of
comparing the historical returns and the volatility in those particular market
segments. Measures of volatility show the range of historical price
fluctuations. Standard deviation may be used as a measure of volatility. There
are other measures of volatility, which may yield different results.
In addition, the Fund's performance may be compared at times with
that of various bank instruments (including bank money market accounts and CDs
of varying maturities) as reported in publications such as The Bank Rate
Monitor. Any such comparisons may be useful to investors who wish to compare the
Fund's past performance with that of certain of its competitors. Of course, past
performance is not a guarantee of future results. Unlike an investment in the
Fund, bank CDs pay a fixed rate of interest for a stated period of time and are
insured up to $100,000.
The Fund may also be compared to individual asset classes such as
common stocks, small-cap stocks, or Treasury bonds, based on information
supplied by Ibbotson and Sinquefield. Evaluations of the Fund's performance, its
yield/total returns and comparisons may be used in advertisements and in
information furnished to current and prospective shareholders (collectively,
"Advertisements").
Other Performance Information
- -----------------------------
From time to time, information about the Portfolio's portfolio
allocation and holdings as of a particular date may be included in
Advertisements for the Fund. This information may include the Portfolio's
portfolio diversification by asset type. Information used in Advertisements may
include statements or illustrations relating to the appropriateness of types of
securities and/or mutual funds that may be employed to meet specific financial
goals, such as (1) funding retirement, (2) paying for children's education, and
(3) financially supporting aging parents.
Information (including charts and illustrations) showing the effects
of compounding interest may be included in Advertisements from time to time.
Compounding is the process of earning interest on principal plus interest that
was earned earlier. Interest can be compounded at different intervals, such as
annually, semi-annually, quarterly, monthly, or daily. For example, $1,000
compounded annually at 9% will grow to $1,090 at the end of the first year (an
28
<PAGE>
increase of $90) and $1,188 at the end of the second year (an increase of $98).
The extra $8 that was earned on the $90 interest from the first year is the
compound interest. One thousand dollars compounded annually at 9% will grow to
$2,367 at the end of ten years and $5,604 at the end of twenty years. Other
examples of compounding are as follows: at 7% and 12% annually, $1,000 will grow
to $1,967 and $3,106, respectively, at the end of ten years and $3,870 and
$9,646, respectively, at the end of twenty years. All these examples are for
illustrative purposes only and are not indicative of the Fund's performance.
Information relating to inflation and its effects on the dollar also
may be included in Advertisements. For example, after ten years, the purchasing
power of $25,000 would shrink to $16,621, $14,968, $13,465, and $12,100,
respectively, if the annual rates of inflation during that period were 4%, 5%,
6%, and 7%, respectively. (To calculate the purchasing power, the value at the
end of each year is reduced by the inflation rate for the ten-year period.)
Information (including charts and illustrations) showing the total
return performance for government funds, 6-month CDs and money market funds may
be included in Advertisements from time to time.
Information regarding the effects of automatic investing and
systematic withdrawal plans, investing at market highs and/or lows, and
investing early versus late for retirement plans also may be included in
Advertisements, if appropriate.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the trustees
and officers of the Trusts, including their addresses and principal business
experience during the past five years. Some persons named as trustees and
officers also serve in similar capacities for other funds and their
corresponding portfolios, administered or managed by NB Management and Neuberger
Berman.
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
- ---------- --------------- --------------------------
John Cannon (69) Trustee of each Chairman and Chief Investment
CDC Capital Management Trust Officer of CDC Capital
450 Sentry Parkway Management (registered
Suite 105 investment adviser)
P.O. Box 1212 (1993-present).
Blue Bell, PA 19422
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<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
- ---------- --------------- --------------------------
Stanley Egener* (64) Chairman of the Principal of Neuberger Berman;
Board, Chief President and Director of NB
Executive Officer, Management; Chairman of the
and Trustee of Board, Chief Executive Officer,
each Trust and Trustee of nine other
mutual funds for which NB
Management acts as investment
manager or administrator.
Theodore P. Giuliano* (46) President and Principal of Neuberger &
Trustee of each Berman; Vice President and
Trust Director of NB Management;
President and Trustee of one
other mutual fund for which NB
Management serves as
administrator.
Barry Hirsch (65) Trustee of each Senior Vice President,
Loews Corporation Trust Secretary, and General Counsel
667 Madison Avenue of Loews Corporation
7th Floor (diversified financial
New York, NY 10021 corporation).
Robert A. Kavesh (71) Trustee of each Professor of Finance and
110 Bleecker Street Trust Economics at Stern School of
Apt. 24B Business, New York University;
New York, NY 10012 Director of Del Laboratories,
Inc. and Greater New York
Mutual Insurance Co.
William E. Rulon (66) Trustee of each Retired. Senior Vice President
1761 Hotel Circle South Trust of Foodmaker, Inc. (operator
San Diego, CA 92108 and franchiser of restaurants)
until January 1997; Secretary
of Foodmaker, Inc. until July
1996.
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<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
- ---------- --------------- --------------------------
Candace L. Straight (51) Trustee of each Private investor and consultant
518 E. Passaic Avenue Trust specializing in the insurance
Bloomfield, NJ 07003 industry; Advisory Director of
Securities Capital LLC, (a
global private equity
investment firm making
investments in the insurance
sector); Principal of Head &
Company, LLC (limited liability
company providing investment
banking and consulting services
to the insurance industry)
until March 1996; Director of
Drake Holdings (U.K. motor
insurer) until June 1996.
Daniel J. Sullivan (59) Vice President of Senior Vice President of NB
each Trust Management since 1992; prior
thereto, Vice President of NB
Management; Vice President of
nine other mutual funds for
which NB Management acts as
investment manager or
administrator.
Michael J. Weiner (52) Vice President and Principal of Neuberger Berman
Principal Berman; Senior Vice President
Financial Officer and Treasurer of NB Management
of each Trust since 1992; Treasurer of NB
Management from 1992 to 1996;
prior thereto, Vice President
and Treasurer of NB Management
and Treasurer of certain mutual
funds for which NB Management
acted as investment adviser;
Vice President and Principal
Financial Officer of nine other
mutual funds for which NB
Management acts as investment
manager or administrator.
Claudia A. Brandon (42) Secretary of each Vice President of NB
Trust Management; Secretary of nine
other mutual funds for which NB
Management acts as investment
manager or administrator.
31
<PAGE>
Name, Address Positions Held
and Age(1) With the Trusts Principal Occupation(s)(2)
- ---------- --------------- --------------------------
Richard Russell (52) Treasurer and Vice President of NB Management
Principal since 1993; prior thereto,
Accounting Officer Assistant Vice President of NB
of each Trust Management; Treasurer and
Principal Accounting Officer of
nine other mutual funds for
which NB Management acts as
investment manager or
administrator.
Stacy Cooper-Shugrue (36) Assistant Assistant Vice President of NB
Secretary of each Management since 1993; prior
Trust thereto, employee of NB
Management; Assistant Secretary
of nine other mutual funds for
which NB Management acts as
investment manager or
administrator.
C. Carl Randolph (61) Assistant Principal of Neuberger Berman
Secretary of each since 1992; prior thereto,
Trust employee of Neuberger Berman;
Assistant Secretary of nine
other mutual funds for which NB
Management acts as investment
manager or administrator.
Barbara DiGiorgio (40) Assistant Assistant Vice President of NB
Treasurer of each Management since 1993; prior
Trust thereto, employee of NB
Management; Assistant Treasurer
of nine other mutual funds for
which NB Management acts as
investment manager or
administrator.
Celeste Wischerth (38) Assistant Assistant Vice President of NB
Treasurer of each Management since 1994; prior
Trust thereto, employee of NB
Management; Assistant Treasurer
of nine other mutual funds for
which NB Management acts as
investment manager or
administrator.
32
<PAGE>
- --------------------
(1) Unless otherwise indicated, the business address of each listed person is
605 Third Avenue, New York, NY 10158.
(2) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.
* Indicates a trustee who is an "interested person" of each Trust
within the meaning of the 1940 Act. Messrs. Egener and Giuliano are interested
persons by virtue of the fact that they are officers and directors of NB
Management and principals of Neuberger Berman.
The Trust's Trust Instrument and Managers Trust's Declaration of
Trust provide that each such Trust will indemnify its trustees and officers
against liabilities and expenses reasonably incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, unless it is adjudicated that they (a) engaged in bad faith, willful
misfeasance, gross negligence, or reckless disregard of the duties involved in
the conduct of their offices or (b) did not act in good faith in the reasonable
belief that their action was in the best interest of the Trust. In the case of
settlement, such indemnification will not be provided unless it has been
determined (by a court or other body approving the settlement or other
disposition, by a majority of disinterested trustees based upon a review of
readily available facts, or in a written opinion of independent counsel) that
such officers or trustees have not engaged in willful misfeasance, bad faith,
gross negligence, or reckless disregard of their duties.
The following table sets forth information concerning the
compensation of the trustees and officers of the Trust. None of the Neuberger
Berman Funds(R) has any retirement plan for its trustees or officers.
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 10/31/98
------------------------------
Total Compensation from
Aggregate Trusts in the Neuberger
Name and Position Compensation Berman Fund Complex
with the Trust from the Trust Paid to Trustees
- -------------- -------------- ----------------
John Cannon $678 $45,500
Trustee (2 other investment
companies)
Stanley Egener $0 $0
Chairman of the Board, Chief (10 other investment
Executive Officer, and Trustee companies)
Theodore P. Giuliano $0 $0
President and Trustee (2 other investment
companies)
33
<PAGE>
Barry Hirsch $616 $40,250
Trustee (2 other investment
companies)
Robert A. Kavesh $670 $45,000
Trustee (2 other investment
companies)
William E. Rulon $616 $40,250
Trustee (2 other investment
companies)
Candace L. Straight $608 $41,000
Trustee (2 other investment
companies)
At February 5, 1999, the trustees and officers of the Trust and
Managers Trust, as a group, owned beneficially or of record less than 1% of the
outstanding shares of the Fund.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
Investment Manager and Administrator
- ------------------------------------
Because all of the Fund's net investable assets are invested in the
Portfolio, the Fund does not need an investment manager. NB Management serves as
the Portfolio's investment manager pursuant to a management agreement with
Managers Trust, on behalf of the Portfolio, dated as of July 2, 1993
("Management Agreement"). The Management Agreement was approved by the holders
of the interests in the Portfolio on July 2, 1993.
The Management Agreement provides, in substance, that NB Management
will make and implement investment decisions for the Portfolio in its discretion
and will continuously develop an investment program for the Portfolio's assets.
The Management Agreement permits NB Management to effect securities transactions
on behalf of the Portfolio through associated persons of NB Management. The
Management Agreement also specifically permits NB Management to compensate,
through higher commissions, brokers and dealers who provide investment research
and analysis to the Portfolio, although NB Management has no current plans to
pay a material amount of such compensation.
NB Management provides to the Portfolio, without separate cost,
office space, equipment, and facilities and the personnel necessary to perform
executive, administrative, and clerical functions. NB Management pays all
salaries, expenses, and fees of the officers, trustees, and employees of
Managers Trust who are officers, directors, or employees of NB Management. Three
officers and directors of NB Management (who also are principals of Neuberger
Berman), presently serve as trustees and officers of the Trusts. See "Trustees
and Officers." The Portfolio pays NB Management a management fee based on the
Portfolio's average daily net assets, as described in the Prospectus.
34
<PAGE>
NB Management provides similar facilities, services, and personnel
to the Fund pursuant to an administration agreement with the Trust dated July 2,
1993 ("Administration Agreement"). For such administrative services, the Fund
pays NB Management a fee based on the Fund's average daily net assets, as
described in the Prospectus. NB Management enters into administrative services
agreements with Institutions, pursuant to which it compensates such Institutions
for accounting, recordkeeping and other services that they provide in connection
with investments in the Funds.
Management and Administration Fees
- ----------------------------------
For investment management services, the Portfolio pays NB Management
a fee at the annual rate of 0.25% of the first $500 million of that Portfolio's
average daily net assets, 0.225% of the next $500 million, 0.20% of the next
$500 million, 0.175% of the next $500 million, and 0.15% of average daily net
assets in excess of $2 billion.
For administrative services, the Fund pays NB Management at the
annual rate of 0.50% of the Fund's average daily net assets. With the Fund's
consent, NB Management may subcontract to third parties some of its
responsibilities to the Fund under the administration agreement. In addition,
the Fund may compensate such third parties for accounting and other services.
The Fund accrued management and administration fees of the following
amounts (before any reimbursement of the Fund, described below) for the fiscal
years ended October 31, 1998, 1997, and 1996:
Fund 1998 1997 1996
- ---- ---- ---- ----
LIMITED MATURITY $372,713 $246,420 $114,471
Expense Reimbursements
- ----------------------
NB Management has voluntarily undertaken to reimburse the Fund for
its Operating Expenses (including fees under the Administration Agreement) and
the Fund's pro rata share of the Portfolio's Operating Expenses (including fees
under the Management Agreement) that exceed, in the aggregate, 0.80% per annum
of the average daily net assets of the Fund. Operating Expenses exclude
interest, taxes, brokerage commissions, and extraordinary expenses. NB
Management can terminate each undertaking by giving the Fund at least 60 days'
prior written notice.
For the fiscal years ended October 31, 1998, 1997 and 1996, NB
Management reimbursed the Fund the following amounts of expenses under the above
arrangements:
Fund 1998 1997 1996
- ---- ---- ---- ----
LIMITED MATURITY $206,630 $144,510 $168,733
35
<PAGE>
The Management Agreement continues with respect to the Portfolio for
a period of two years after the date the Portfolio became subject thereto. The
Management Agreement is renewable thereafter from year to year with respect to
the Portfolio, so long as its continuance is approved at least annually (1) by
the vote of a majority of the Portfolio Trustees who are not "interested
persons" of NB Management or Managers Trust ("Independent Portfolio Trustees"),
cast in person at a meeting called for the purpose of voting on such approval,
and (2) by the vote of a majority of the Portfolio Trustees or by a 1940 Act
majority vote of the outstanding interests in the Portfolio. The Administration
Agreement continues with respect to the Fund for a period of two years after the
date the Fund became subject thereto. The Administration Agreement is renewable
from year to year with respect to the Fund, so long as its continuance is
approved at least annually (1) by the vote of a majority of the Fund Trustees
who are not "interested persons" of NB Management or the Trust ("Independent
Fund Trustees"), cast in person at a meeting called for the purpose of voting on
such approval, and (2) by the vote of a majority of the Fund Trustees or by a
1940 Act majority vote of the outstanding shares in the Fund.
The Management Agreement is terminable, without penalty, with
respect to the Portfolio on 60 days' written notice either by Managers Trust or
by NB Management. The Administration Agreement is terminable, without penalty,
with respect to the Fund on 60 days' written notice either by NB Management or
by the Trust. Each Agreement terminates automatically if it is assigned.
Sub-Adviser
- -----------
NB Management retains Neuberger Berman, 605 Third Avenue, New York,
NY 10158-3698, as sub-adviser with respect to the Portfolio pursuant to a
sub-advisory agreement dated July 2, 1993 ("Sub-Advisory Agreement"). The
Sub-Advisory Agreement was approved by the holders of the interests in the
Portfolio on July 2, 1993.
The Sub-Advisory Agreement provides in substance that Neuberger
Berman will furnish to NB Management, upon reasonable request, the same type of
investment recommendations and research that Neuberger Berman, from time to
time, provides to its principals and employees for use in managing client
accounts. In this manner, NB Management expects to have available to it, in
addition to research from other professional sources, the capability of the
research staff of Neuberger Berman. This staff consists of numerous investment
analysts, each of whom specializes in studying one or more industries, under the
supervision of the Director of Research, who is also available for consultation
with NB Management. The Sub-Advisory Agreement provides that NB Management will
pay for the services rendered by Neuberger Berman based on the direct and
indirect costs to Neuberger Berman in connection with those services. Neuberger
Berman also serves as a sub-adviser for all of the other mutual funds managed by
NB Management.
The Sub-Advisory Agreement continues with respect to the Portfolio
for a period of two years after the date the Portfolio became subject thereto,
and is renewable thereafter from year to year, subject to approval of its
continuance in the same manner as the Management Agreement. The Sub-Advisory
Agreement is subject to termination, without penalty, with respect to the
Portfolio by the Portfolio Trustees or a 1940 Act majority vote of the
outstanding interests in the Portfolio, by NB Management, or by Neuberger Berman
36
<PAGE>
on not less than 30 nor more than 60 days' written notice to the Fund. The
Sub-Advisory Agreement also terminates automatically with respect to the
Portfolio if it is assigned or if the Management Agreement terminates with
respect to the Portfolio.
Most money managers that come to the Neuberger Berman organization
have at least fifteen years experience. Neuberger Berman and NB Management
employ experienced professionals that work in a competitive environment.
Investment Companies Managed
- ----------------------------
As of December 31, 1998, the investment companies managed by NB
Management had aggregate net assets of approximately $20.8 billion. NB
Management currently serves as investment manager of the following investment
companies:
Approximate Net Assets at
Name December 31, 1998
---- -----------------
Neuberger Berman Cash Reserves Portfolio.........................$ 981,140,568
(investment portfolio for Neuberger Berman Cash Reserves)
Neuberger Berman Government Money Portfolio......................$ 440,406,207
(investment portfolio for Neuberger Berman Government Money Fund)
Neuberger Berman High Yield Bond Portfolio........................$ 26,558,174
(investment portfolio for Neuberger Berman High Yield Bond Fund)
Neuberger Berman Limited Maturity Bond Portfolio.................$ 348,406,527
(investment portfolio for Neuberger Berman Limited Maturity Bond Fund and
Neuberger Berman Limited Maturity Bond Trust)
Neuberger Berman Municipal Money Portfolio.......................$ 199,204,243
(investment portfolio for Neuberger Berman Municipal Money Fund)
Neuberger Berman Municipal Securities Portfolio...................$ 39,108,246
(investment portfolio for Neuberger Berman Municipal Securities Trust)
Neuberger Berman Focus Portfolio...............................$ 1,660,583,608
(investment portfolio for Neuberger Berman Focus Fund, Neuberger Berman
Focus Trust, and Neuberger Berman Focus Assets)
Neuberger Berman Genesis Portfolio.............................$ 2,108,218,180
(investment portfolio for Neuberger Berman Genesis Fund, Neuberger Berman
Genesis Trust, and Neuberger Berman Genesis Assets)
Neuberger Berman Guardian Portfolio.......................... $ 6,129,925,896
(investment portfolio for Neuberger Berman Guardian Fund, Neuberger Berman
Guardian Trust, and Neuberger Berman Guardian Assets)
37
<PAGE>
Neuberger Berman International Portfolio.........................$ 129,228,022
(investment portfolio for Neuberger Berman International Fund and
Neuberger Berman International Trust)
Neuberger Berman Manhattan Portfolio.............................$ 687,293,400
(investment portfolio for Neuberger Berman Manhattan Fund, Neuberger
Berman Manhattan Trust, and Neuberger Berman Manhattan Assets)
Neuberger Berman Millennium Portfolio............................ $ 19,345,561
(investment portfolio for Neuberger Berman Millennium Fund and Neuberger
Berman Millennium Trust)
Neuberger Berman Partners Portfolio............................$ 4,210,143,373
(investment portfolio for Neuberger Berman Partners Fund, Neuberger Berman
Partners Trust, and Neuberger Berman Partners Assets)
Neuberger Berman Socially Responsive Portfolio...................$ 363,240,337
(investment portfolio for Neuberger Berman Socially Responsive Fund,
Neuberger Berman Socially Responsive Trust, Neuberger Berman NYCDC
Socially Responsive Trust and Neuberger Berman Socially Responsive Assets)
Advisers Managers Trust (seven series).........................$ 2,823,523,160
The investment decisions concerning the Portfolio and the other
mutual funds managed by NB Management (collectively, "Other NB Funds") have been
and will continue to be made independently of one another. In terms of their
investment objectives, most of the Other NB Funds differ from the Portfolio.
Even where the investment objectives are similar, however, the methods used by
the Other NB Funds and the Portfolio to achieve their objectives may differ. The
investment results achieved by all of the funds managed by NB Management have
varied from one another in the past and are likely to vary in the future.
There may be occasions when the Portfolio and one or more of the
Other NB Funds or other accounts managed by Neuberger Berman are
contemporaneously engaged in purchasing or selling the same securities from or
to third parties. When this occurs, the transactions are averaged as to price
and allocated, in terms of amount, in accordance with a formula considered to be
equitable to the funds involved. Although in some cases this arrangement may
have a detrimental effect on the price or volume of the securities as to the
Portfolio, in other cases it is believed that the Portfolio's ability to
participate in volume transactions may produce better executions for it. In any
case, it is the judgment of the Portfolio Trustees that the desirability of the
Portfolio's having their advisory arrangements with NB Management outweighs any
disadvantages that may result from contemporaneous transactions.
Management and Control of NB Management
- ---------------------------------------
The directors and officers of NB Management, all of whom have
offices at the same address as NB Management, are Richard A. Cantor, Chairman of
the Board and director; Stanley Egener, President and director; Theodore P.
Giuliano, Vice President and director; Michael M. Kassen, Vice President and
director; Irwin Lainoff, director; Lawrence Zicklin, director; Daniel J.
Sullivan, Senior Vice President; Peter E. Sundman, Senior Vice President; Andrea
Trachtenberg, Senior Vice President; Michael J. Weiner, Senior Vice President;
38
<PAGE>
Andrea TracPatrick T. Byrne, Vice President; Valerie Chang, Vice President;
Brooke A. Cobb, Vice President; Robert W. D'Alelio, Vice President; Clara Del
Villar, Vice President; Brian J. Gaffney, Vice President; Joseph Galli, Vice
President; Robert I. Gendelman, Vice President; Josephine P. Mahaney, Vice
President; Michael F. Malouf, Vice President; S. Basu Mullick, Vice President;
Janet W. Prindle, Vice President; Kevin L. Risen, Vice President; Richard
Russell, Vice President; Jennifer K. Silver, Vice President; Kent C. Simons,
Vice President; Frederic B. Soule, Vice President; Judith M. Vale, Vice
President; Susan Walsh, Vice President; Catherine Waterworth, Vice President;
Allan R. White, III, Vice President; Miriam Zussman, Vice President; Robert
Conti, Treasurer; Ramesh Babu, Assistant Vice President; Barbara DiGiorgio,
Assistant Vice President; Robert L. Ladd, Assistant Vice President; Carmen G.
Martinez, Assistant Vice President; Joseph S. Quirk, Assistant Vice President;
Ingrid Saukaitis, Assistant Vice President; Benjamin E. Segal, Assistant Vice
President; Josephine Velez, Assistant Vice President; Celeste Wischerth,
Assistant Vice President; and Ellen Metzer, Secretary. Messrs. Cantor, Egener,
Gendelman, Giuliano, Kassen, Lainoff, Zicklin, Risen, Simons, Sundman and White
and Mmes. Prindle, Silver and Vale are principals of Neuberger Berman.
Mr. Giuliano and Mr. Egener are trustees and officers, and Messrs.
Sullivan, Weiner, and Russell and Mmes. DiGiorgio and Wischerth are officers, of
each Trust.
All of the outstanding voting stock in NB Management is owned by
persons who are also principals of Neuberger Berman.
DISTRIBUTION ARRANGEMENTS
NB Management serves as the distributor ("Distributor") in
connection with the offering of the Fund's shares on a no-load basis to
Institutions. In connection with the sale of its shares, the Fund has authorized
the Distributor to give only the information, and to make only the statements
and representations, contained in the Prospectus and this SAI or that properly
may be included in sales literature and advertisements in accordance with the
1933 Act, the 1940 Act, and applicable rules of self-regulatory organizations.
Sales may be made only by the Prospectus, which may be delivered personally,
through the mails, or by electronic means. The Distributor is the Fund's
"principal underwriter" within the meaning of the 1940 Act and, as such, acts as
agent in arranging for the sale of the Fund's shares to Institutions without
sales commission or other compensation and bears all advertising and promotion
expenses incurred in the sale of the Fund's shares.
From time to time, NB Management may enter into arrangements
pursuant to which it compensates a registered broker-dealer or other third party
for services in connection with the distribution of Fund shares.
The Trust, on behalf of the Fund, and the Distributor are parties to
a Distribution Agreement that continues until July 2, 1999. The Distribution
Agreement may be renewed annually if specifically approved by (1) the vote of a
majority of the Fund Trustees or a 1940 Act majority vote of the Fund's
outstanding shares and (2) the vote of a majority of the Independent Fund
Trustees, cast in person at a meeting called for the purpose of voting on such
39
<PAGE>
approval. The Distribution Agreement may be terminated by either party and will
terminate automatically on its assignment, in the same manner as the Management
Agreement.
ADDITIONAL PURCHASE INFORMATION
Share Prices and Net Asset Value
- --------------------------------
The Fund's shares are bought or sold at a price that is the Fund's
NAV per share. The NAVs for the Fund and the Portfolio are calculated by
subtracting liabilities from total assets (in the case of the Portfolio, the
market value of the securities the Portfolio holds plus cash and other assets;
in the case of the Fund, its percentage interest in the Portfolio, multiplied by
the Portfolio's NAV, plus any other assets). The Fund's per share NAV is
calculated by dividing its NAV by the number of Fund shares outstanding and
rounding the result to the nearest full cent.
The Portfolio values its securities on the basis of bid quotations
from independent pricing services or principal market makers, or, if quotations
are not available, by a method that the trustees of Managers Trust believe
accurately reflects fair value. The Portfolio periodically verifies valuations
provided by the pricing services. Short-term securities with remaining
maturities of less than 60 days may be valued at cost which, when combined with
interest earned, approximates market value. The Portfolio and the Fund calculate
their NAVs as of the close of regular trading on the NYSE, usually 4 p.m.
Eastern time, on each day the NYSE is open.
If NB Management believes that the price of a security obtained
under the Portfolio's valuation procedures (as described above) does not
represent the amount that the Portfolio reasonably expects to receive on a
current sale of the security, the Portfolio will value the security based on a
method that the trustees of Managers Trust believe accurately reflects fair
value.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus entitled
"Shareholder Services -- Exchanging Shares," an Institution may exchange shares
of the Fund for shares of the equity funds that are briefly described
below, if made available through that Institution.
Fund shareholders who are considering exchanging shares into any of
the funds described below should note that each such fund (1) is a series of a
Delaware business trust (named "Neuberger Berman Equity Trust") that is
registered with the SEC as an open-end management investment company; and (2)
invests all of its net investable assets in a corresponding portfolio that has
an investment objective, policies, and limitations identical to those of the
fund.
Neuberger Berman Seeks long-term growth of capital through
Focus Trust investments principally in common stocks selected from
13 multi-industry economic sectors. The corresponding
portfolio uses a value-oriented approach to select
individual securities and then focuses its investments
in the sectors in which the undervalued stocks are
clustered. Through this approach, 90% or more of the
portfolio's investments are normally made in not more
than six sectors.
40
<PAGE>
Neuberger Berman Seeks growth of capital through investments primarily
Genesis Trust in common stocks of companies with small market
capitalizations (i.e., up to $1.5 billion) at the time
of the Portfolio's investment. The corresponding
portfolio uses a value-oriented approach to the
selection of individual securities.
Neuberger Berman Seeks long-term growth of capital through investments
Guardian Trust primarily in common stocks of long-established,
high-quality companies that NB Management believes are
well-managed. The corresponding portfolio uses a
value-oriented approach to the selection of individual
securities. Current income is a secondary objective.
The sister fund (and its predecessor) have paid its
shareholders an income dividend every quarter, and a
capital gain distribution every year, since its
inception in 1950, although there can be no assurance
that it will be able to continue to do so.
Neuberger Berman Seeks long-term growth of capital by investing
International Trust primarily in common stocks of foreign companies.
Assets will be allocated among economically mature
countries and emerging industrialized countries.
Neuberger Berman Seeks growth of capital without regard to income,
Manhattan Trust through investments in securities of small-, medium-
and large-capitalization companies (with a current
focus on medium-capitalization companies) believed to
have the maximum potential for long-term capital
appreciation. The corresponding portfolio's investment
program involves greater risks and share price
volatility than programs that invest in more
undervalued securities.
Neuberger Berman Seeks growth of capital by investing primarily in
Millennium Trust common stocks of small-capitalization companies (those
with a market value of no more than $1.5 billion at
the time the fund first invests in them). The
corresponding portfolio uses a growth-oriented
investment approach to the selection of individual
securities.
Neuberger Berman Seeks capital growth through an investment approach
Partners Trust that is designed to increase capital with reasonable
risk. Its investment program seeks securities believed
to be undervalued based on strong fundamentals such as
a low price-to-earnings ratio, consistent cash flow,
and the company's track record through all parts of
the market cycle. The corresponding portfolio uses the
value-oriented investment approach to the selection of
individual securities.
41
<PAGE>
Neuberger Berman Seeks long-term growth of capital through
Socially Responsive investments primarily in securities of companies that
Trust meet both financial and social criteria.
The Fund described herein, and any of the funds described above, may
terminate or modify their exchange privileges in the future.
Before effecting an exchange, Fund shareholders must obtain and
should review a currently effective prospectus of the fund into which the
exchange is to be made. The Equity Trusts share a prospectus. An exchange is
treated as a sale for federal income tax purposes and, depending on the
circumstances, a short- or long-term capital gain or loss may be realized.
ADDITIONAL REDEMPTION INFORMATION
Suspension of Redemptions
- -------------------------
The right to redeem the Fund's shares may be suspended or payment of
the redemption price postponed (1) when the New York Stock Exchange ("NYSE") is
closed, (2) when trading on the NYSE is restricted, (3) when an emergency exists
as a result of which it is not reasonably practicable for the Portfolio to
dispose of securities it owns or fairly to determine the value of its net
assets, or (4) for such other period as the SEC may by order permit for the
protection of the Fund's shareholders. Applicable SEC rules and regulations
shall govern whether the conditions prescribed in (2) or (3) exist. If the right
of redemption is suspended, shareholders may withdraw their offers of
redemption, or they will receive payment at the NAV per share in effect at the
close of business on the first day the NYSE is open ("Business Day") after
termination of the suspension.
Redemptions in Kind
- -------------------
The Fund reserves the right, under certain conditions, to honor any
request for redemption (or a combination of requests from the same shareholder
in any 90-day period) exceeding $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued as
described under "Share Prices and Net Asset Value" above. If payment is made in
securities, an Institution generally will incur brokerage expenses or other
transactions costs in converting those securities into cash and will be subject
to fluctuation in the market prices of those securities until they are sold. The
Fund does not redeem in kind under normal circumstances, but would do so when
the Fund Trustees determined that it was in the best interests of the Fund's
shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund distributes to its shareholders substantially all of its
share of any net investment income (after deducting expenses incurred directly
by the Fund), any net realized capital gains (both long-term and short-term),
and any net realized gains from foreign currency transactions earned or realized
by the Portfolio. The Portfolio's net investment income consists of all income
accrued on portfolio assets less accrued expenses but does not include capital
and foreign currency gains and losses. Net investment income and net gains and
losses are reflected in the Portfolio's NAV (and, hence, the Fund's NAV) until
they are distributed. The Fund calculates its net investment income and share
42
<PAGE>
price as of the close of regular trading on the NYSE on each Business Day
(usually 4:00 p.m. Eastern time).
Income dividends are declared daily; dividends declared for each
month are paid on the last Business Day of the month. Shares of the Fund begin
earning income dividends on the Business Day after the proceeds of the purchase
order have been converted to "federal funds" and continue to earn dividends
through the Business Day they are redeemed. Distributions of net realized
capital and foreign currency gains, if any, normally are paid once annually, in
December.
Dividends and other distributions are automatically reinvested in
additional shares of the Fund, unless the Institution elects to receive them in
cash ("cash election"). To the extent dividends and other distributions are
subject to federal, state, or local income taxation, they are taxable to the
shareholders whether received in cash or reinvested in Fund shares. A cash
election remains in effect until the Institution notifies the Fund in writing to
discontinue the election.
ADDITIONAL TAX INFORMATION
Taxation of the Fund
- --------------------
To continue to qualify for treatment as a RIC under the Code, the
Fund must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions) ("Distribution Requirement") and must meet
several additional requirements. These requirements include the following: (1)
the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from Hedging Instruments) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
and (2) at the close of each quarter of the Fund's taxable year, (i) at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs, and other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and does not represent more than 10% of the
issuer's outstanding voting securities, and (ii) not more than 25% of the value
of its total assets may be invested in securities (other than U.S. Government
securities or securities of other RICs) of any one issuer.
If the Fund failed to qualify for treatment as a RIC for any taxable
year, (1) it would be taxed on the full amount of its taxable income for that
year without being able to deduct the distributions it makes to its shareholders
and (2) the shareholders would treat all those distributions, including
distributions of net capital gain (the excess of net long-term capital gain over
net short-term capital loss) and distributions that otherwise would qualify as
"exempt-interest dividends" described in the following paragraph, as dividends
(that is, ordinary income) to the extent of the Fund's earnings and profits.
Certain funds that invest in portfolios managed by NB Management,
including the Sister Fund, have received a ruling from the Internal Revenue
Service ("Service") that each such fund, as an investor in a corresponding
portfolio of Managers Trust, will be deemed to own a proportionate share of the
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<PAGE>
portfolio's assets and income for purposes of determining whether the fund
satisfies all the requirements described above to qualify as a RIC. Although
that ruling may not be relied on as precedent by the Fund, NB Management
believes that the reasoning thereof and, hence, its conclusion apply to the Fund
as well.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
See the next section for a discussion of the tax consequences to the
Fund of distributions to it from the Portfolio, investments by the Portfolio in
certain securities, and hedging and certain other transactions engaged in by the
Portfolio.
Taxation of the Portfolio
- -------------------------
The Portfolio has received a ruling from the Service to the effect
that, among other things, the Portfolio will be treated as a separate
partnership for federal income tax purposes and will not be a "publicly traded
partnership." As a result, the Portfolio is not subject to federal income tax;
instead, each investor in the Portfolio, such as the Fund, is required to take
into account in determining its federal income tax liability its share of the
Portfolio's income, gains, losses, deductions, credits, and tax preference
items, without regard to whether it has received any cash distributions from the
Portfolio. The Portfolio also is not subject to Delaware or New York income or
franchise tax.
Because the Fund is deemed to own a proportionate share of the
Portfolio's assets and income for purposes of determining whether the Fund
satisfies the requirements to qualify as a RIC, the Portfolio intends to
continue to conduct its operations so that the Fund will be able to continue to
satisfy all those requirements.
Distributions to the Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) will not result in the Fund's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds the
Fund's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, (3) loss may be recognized if
a liquidation distribution consists solely of cash and/or unrealized
receivables, and (4) gain (and, in certain situations, loss) may be recognized
on an in-kind distribution by the Portfolio. The Fund's basis for its interest
in the Portfolio generally equals the amount of cash and the basis of any
property the Fund invests in the Portfolio, increased by the Fund's share of the
Portfolio's net income and capital gains and decreased by (a) the amount of cash
and the basis of any property the Portfolio distributes to the Fund and (b) the
Fund's share of the Portfolio's losses.
Dividends and interest received by the Portfolio and gains realized
by the Portfolio may be subject to income, withholding, or other taxes imposed
by foreign countries and U.S. possessions ("foreign taxes") that would reduce
the yield and/or total returns on its securities. Tax treaties between certain
44
<PAGE>
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
The Portfolio's use of hedging strategies, such as writing (selling)
and purchasing Futures Contracts and options and entering into Forward
Contracts, involves complex rules that will determine for income tax purposes
the amount, character, and timing of recognition of the gains and losses the
Portfolio realizes in connection therewith. Gains from the disposition of
foreign currencies (except certain gains that may be excluded by future
regulations), and gains from transactions in Hedging Instruments derived by the
Portfolio with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income for the Fund under the Income
Requirement.
Exchange-traded Futures Contracts and listed options thereon and
certain Forward Contracts subject to Section 1256 of the Code ("Section 1256
contracts") are required to be marked to market (that is, treated as having been
sold at market value) for federal income tax purposes at the end of the
Portfolio's taxable year. Sixty percent of any net gain or loss recognized as a
result of these "deemed sales," and 60% of any net realized gain or loss from
any actual sales, of Section 1256 contracts are treated as long-term capital
gain or loss, and the remainder is treated as short-term capital gain or loss.
Section 1256 contracts also may be marked-to-market for purposes of
the Excise Tax. These rules may operate to increase the amount that the Fund
must distribute to satisfy the Distribution Requirement, which will be taxable
to the shareholders as ordinary income, and to increase the net capital gain
recognized by the Fund, without in either case increasing the cash available to
the Fund. The Fund may elect to exclude certain transactions from the operation
of these rules, although doing so may have the effect of increasing the relative
proportion of net short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed to meet the
Distribution Requirement and avoid imposition of the Excise Tax.
Section 988 of the Code also may apply to Forward Contracts and
options on foreign currencies. Under section 988 each foreign currency gain or
loss generally is computed separately and treated as ordinary income or loss. In
the case of overlap between sections 1256 and 988, special provisions determine
the character and timing of any income, gain or loss.
When a covered call option written (sold) by the Portfolio expires,
it realizes a short-term capital gain equal to the amount of the premium it
received for writing the option. When the Portfolio terminates its obligations
under such an option by entering into a closing transaction, it realizes a
short-term capital gain (or loss), depending on whether the cost of the closing
transaction is less (or more) than the premium it received when it wrote the
option. When a covered call option written by the Portfolio is exercised, the
Portfolio is treated as having sold the underlying security, producing long-term
or short-term capital gain or loss, depending on the holding period of the
underlying security and whether the sum of the option price received on the
exercise plus the premium received when it wrote the option is more or less than
the basis of the underlying security.
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<PAGE>
If the Portfolio has an "appreciated financial position" --
generally, an interest (including an interest through an option, Futures or
Forward Contract, or short sale) with respect to any stock, debt instrument
(other than "straight debt"), or partnership interest the fair market value of
which exceeds its adjusted basis -- and enters into a "constructive sale" of the
same or substantially similar property, the Portfolio will be treated as having
made an actual sale thereof, with the result that it will recognize a gain at
that time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract, or a Futures or Forward Contract entered into by
the Portfolio or a related person with respect to the same or substantially
similar property. In addition, if the appreciated financial position is itself a
short sale or such a contract, acquisition of the underlying property or
substantially similar property will be deemed a constructive sale. The foregoing
will not apply, however, to any transaction during any taxable year that
otherwise would be treated as a constructive sale if the transaction is closed
within 30 days after the end of that year and the Portfolio holds the
appreciated financial position unhedged for 60 days after that closing (I.E., at
no time during that 60-day period is the Portfolio's risk of loss regarding that
position reduced by reason of certain specified transactions with respect to
substantially similar or related property, such as having an option to sell,
being contractually obligated to sell, making a short sale, or granting an
option to buy substantially identical stock or securities).
The Portfolio may invest in municipal bonds that are purchased with
market discount (that is, at a price less than the bond's principal amount or,
in the case of a bond that was issued with OID, a price less than the amount of
the issue price plus accrued OID) ("municipal market discount bonds"). If a
bond's market discount is less than the product of (1) 0.25% of the redemption
price at maturity times (2) the number of complete years to maturity after the
taxpayer acquired the bond, then no market discount is considered to exist. Gain
on the disposition of a municipal market discount bond purchased by the
Portfolio (other than a bond with a fixed maturity date within one year from its
issuance), generally is treated as ordinary (taxable) income, rather than
capital gain, to the extent of the bond's accrued market discount at the time of
disposition. Market discount on such a bond generally is accrued ratably, on a
daily basis, over the period from the acquisition date to the date of maturity.
In lieu of treating the disposition gain as described above, the Portfolio may
elect to include market discount in its gross income currently, for each taxable
year to which it is attributable.
The Portfolio may acquire zero coupon or other securities issued
with OID. As a holder of those securities, the Portfolio (and, through it, the
Fund) must take into income the OID that accrues on the securities during the
taxable year, even if it receives no corresponding payment on the securities
during the year. Because the Fund annually must distribute substantially all of
its investment company taxable income (including its share of the Portfolio's
accrued OID) to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax, the Fund may be required in a particular year to distribute as a
dividend an amount that is greater than its proportionate share of the total
amount of cash the Portfolio actually receives. Those distributions will be made
from the Fund's (or its share of the Portfolio's) cash assets or, if necessary,
from the proceeds of sales of the Portfolio's securities. The Portfolio may
realize capital gains or losses from those sales, which would increase or
decrease the Fund's investment company taxable income and/or net capital gain.
46
<PAGE>
Taxation of the Fund's Shareholders
- -----------------------------------
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities generally are transacted
with issuers, underwriters, or dealers that serve as primary market-makers, who
act as principals for the securities on a net basis. The Portfolio typically
does not pay brokerage commissions for such purchases and sales. Instead, the
price paid for newly issued securities usually includes a concession or discount
paid by the issuer to the underwriter, and the prices quoted by market-makers
reflect a spread between the bid and the asked prices from which the dealer
derives a profit.
In purchasing and selling portfolio securities other than as
described above (for example, in the secondary market), the Portfolio seeks to
obtain best execution at the most favorable prices through responsible
broker-dealers and, in the case of agency transactions, at competitive
commission rates. In selecting broker-dealers to execute transactions, NB
Management considers such factors as the price of the security, the rate of
commission, the size and difficulty of the order, and the reliability,
integrity, financial condition, and general execution and operational
capabilities of competing broker-dealers. NB Management also may consider the
brokerage and research services that broker-dealers provide to the Portfolio or
NB Management. Under certain conditions, the Portfolio may pay higher brokerage
commissions in return for brokerage and research services, although the
Portfolio does not have a current arrangement to do so. In any case, the
Portfolio may effect principal transactions with a dealer who furnishes research
services, may designate any dealer to receive selling concessions, discounts, or
other allowances, or otherwise may deal with any dealer in connection with the
acquisition of securities in underwritings.
During the fiscal year ended October 31, 1998, the Portfolio
acquired securities of the following of its "regular brokers or dealers":
Goldman, Sachs & Co., Lehman Brothers Inc., and Merrill Lynch, Pierce, Fenner &
Smith Inc. and Morgan Stanley, Dean Witter, Discover & Co. At October 31, 1998,
that Portfolio held the securities of its "regular brokers or dealers" with an
aggregate value as follows: Lehman Brothers Inc., $8,025,840; Merrill Lynch,
Pierce, Fenner & Smith Inc., $7,765,906; and Morgan Stanley, Dean Witter,
Discover & Co., $4,501,057.
No affiliate of the Portfolio receives give-ups or reciprocal
business in connection with its portfolio transactions. The Portfolio does not
effect transactions with or through broker-dealers in accordance with any
formula or for selling shares of the Fund. However, broker-dealers who execute
portfolio transactions may from time to time effect purchases of Fund shares for
their customers. The 1940 Act generally prohibits Neuberger Berman from acting
as principal in the purchase of portfolio securities from, or the sale of
portfolio securities to, the Portfolio unless an appropriate exemption is
available.
47
<PAGE>
Portfolio Turnover
- ------------------
The Portfolio's portfolio turnover rate is calculated by dividing
(1) the lesser of the cost of the securities purchased or the proceeds from the
securities sold by the Portfolio during the fiscal year (other than securities,
including options, whose maturity or expiration date at the time of acquisition
was one year or less) by (2) the month-end average of the value of such
securities owned by the Portfolio during the fiscal year.
REPORTS TO SHAREHOLDERS
Shareholders of the Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors for the Fund and for the Portfolio. The Fund's statements show the
investments owned by the Portfolio and the market values thereof and provide
other information about the Fund and its operations, including the Fund's
beneficial interest in the Portfolio.
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS
The Fund
- --------
The Fund is a separate series of the Trust, a Delaware business
trust organized pursuant to a Trust Instrument dated as of May 6, 1993. The
Trust is registered under the 1940 Act as a diversified, open-end management
investment company, commonly known as a mutual fund. The Trust has one operating
series. The Fund invests all of its net investable assets in the Portfolio,
receiving a beneficial interest in the Portfolio. The trustees of the Trust may
establish additional series or classes of shares without the approval of
shareholders. The assets of the series belong only to that series, and the
liabilities of the series are borne solely by the series and no other.
Prior to November 9, 1998, the name of the Trust was "Neuberger &
Berman Income Trust," and the term "Neuberger Berman" in the Fund's name was
"Neuberger & Berman."
DESCRIPTION OF SHARES. The Fund is authorized to issue an unlimited
number of shares of beneficial interest (par value $0.001 per share). Shares of
the Fund represent equal proportionate interests in the assets of the Fund only
and have identical voting, dividend, redemption, liquidation, and other rights.
All shares issued are fully paid and non-assessable, and shareholders have no
preemptive or other rights to subscribe to any additional shares.
SHAREHOLDER MEETINGS. The trustees of the Trust do not intend to
hold annual meetings of shareholders of the Fund. The trustees will call special
meetings of shareholders of a Fund only if required under the 1940 Act or in
their discretion or upon the written request of holders of 10% or more of the
outstanding shares of the Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the
shareholders of the Fund will not be personally liable for the obligations of
the Fund; a shareholder is entitled to the same limitation of personal liability
extended to shareholders of a corporation. To guard against the risk that
Delaware law might not be applied in other states, the Trust Instrument requires
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<PAGE>
that every written obligation of the Trust or the Fund contain a statement that
such obligation may be enforced only against the assets of the Trust or Fund and
provides for indemnification out of Trust or Fund property of any shareholder
nevertheless held personally liable for Trust or Fund obligations, respectively.
The Portfolio
- -------------
The Portfolio is a separate operating series of Managers Trust, a
New York common law trust organized as of December 1, 1992. Managers Trust is
registered under the 1940 Act as a diversified, open-end management investment
company. Managers Trust has six separate Portfolios. The assets of the Portfolio
belong only to the Portfolio, and the liabilities of the Portfolio are borne
solely by the Portfolio and no other.
FUND'S INVESTMENTS IN THE PORTFOLIO. The Fund is a "feeder fund"
that seeks to achieve its investment objective by investing all of its net
investable assets in the Portfolio, which is a "master fund." The Portfolio,
which has the same investment objective, policies, and limitations as the Fund,
in turn invests in securities; the Fund thus acquires an indirect interest in
those securities.
The Fund's investment in the Portfolio is in the form of a
non-transferable beneficial interest. Members of the general public may not
purchase a direct interest in the Portfolio. Neuberger Berman LIMITED MATURITY
Bond Fund, a series of Neuberger Berman Income Funds ("Income Funds"), invests
all of its net assets in the Portfolio. The shares of each series of Income
Funds are available for purchase by members of the general public. The Trust
does not sell its shares directly to members of the general public.
The Portfolio may also permit other investment companies and/or
other institutional investors to invest in the Portfolio. All investors will
invest in the Portfolio on the same terms and conditions as the Fund and will
pay a proportionate share of the Portfolio's expenses. Other investors in the
Portfolio (including the other series of Income Funds) are not required to sell
their shares at the same public offering price as the Fund, could have a
different administration fee and expenses than the Fund, and (except Income
Funds) might charge a sales commission. Therefore, Fund shareholders may have
different returns than shareholders in another investment company that invests
exclusively in the Portfolio. Information regarding any Fund that invests in the
Portfolio is available from NB Management by calling 800-877-9700.
The trustees of the Trust believe that investment in the Portfolio
by a series of Income Funds or by other potential investors in addition to the
Fund may enable the Portfolio to realize economies of scale that could reduce
its operating expenses, thereby producing higher returns and benefitting all
shareholders. However, the Fund's investment in the Portfolio may be affected by
the actions of other large investors in the Portfolio, if any. For example, if a
large investor in the Portfolio (other than the Fund) redeemed its interest in
the Portfolio, the Portfolio's remaining investors (including the Fund) might,
as a result, experience higher pro rata operating expenses, thereby producing
lower returns.
The Fund may withdraw its entire investment from the Portfolio at
any time, if the trustees of the Trust determine that it is in the best
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<PAGE>
interests of the Fund and its shareholders to do so. The Fund might withdraw,
for example, if there were other investors in the Portfolio with power to, and
who did by a vote of all investors (including the Fund), change the investment
objective, policies, or limitations of the Portfolio in a manner not acceptable
to the trustees of the Trust. A withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio to the Fund. That distribution could result in a less diversified
portfolio of investments for the Fund and could affect adversely the liquidity
of the Fund's investment portfolio. If the Fund decided to convert those
securities to cash, it usually would incur brokerage fees or other transaction
costs. If the Fund withdrew its investment from the Portfolio, the trustees of
the Trust would consider what actions might be taken, including the investment
of all of the Fund's net investable assets in another pooled investment entity
having substantially the same investment objective as the Fund or the retention
by the Fund of its own investment manager to manage its assets in accordance
with its investment objective, policies, and limitations. The inability of the
Fund to find a suitable replacement could have a significant impact on
shareholders.
INVESTOR MEETINGS AND VOTING. The Portfolio normally will not hold
meetings of investors except as required by the 1940 Act. Each investor in the
Portfolio will be entitled to vote in proportion to its relative beneficial
interest in the Portfolio. On most issues subjected to a vote of investors, the
Fund will solicit proxies from its shareholders and will vote its interest in
the Portfolio in proportion to the votes cast by the Fund's shareholders. If
there are other investors in the Portfolio, there can be no assurance that any
issue that receives a majority of the votes cast by Fund shareholders will
receive a majority of votes cast by all Portfolio investors; indeed, if other
investors hold a majority interest in the Portfolio, they could have voting
control of the Portfolio.
CERTAIN PROVISIONS. Each investor in the Portfolio, including the
Fund, will be liable for all obligations of the Portfolio. However, the risk of
an investor in the Portfolio incurring financial loss beyond the amount of its
investment on account of such liability would be limited to circumstances in
which the Portfolio had inadequate insurance and was unable to meet its
obligations out of its assets. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors.
CUSTODIAN AND TRANSFER AGENT
The Fund and Portfolio have selected State Street Bank and Trust
Company ("State Street"), 225 Franklin Street, Boston, MA 02110 as custodian for
its securities and cash. State Street also serves as the Fund's transfer agent,
administering purchases, redemptions, and transfers of Fund shares with respect
to Institutions and the payment of dividends and other distributions to
Institutions. All correspondence should be mailed to Neuberger Berman Funds,
Institutional Services, 605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
INDEPENDENT AUDITORS
The Fund and Portfolio have selected Ernst & Young LLP, 200
Clarendon Street, Boston, MA 02116, as the independent auditors who will audit
their financial statements.
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LEGAL COUNSEL
The Fund and Portfolio have selected Kirkpatrick & Lockhart LLP,
1800 Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as
their legal counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and percentage of
ownership of each person who was known by the Fund to own beneficially or of
record 5% or more of the Fund's outstanding shares at February 5, 1999:
Percentage of
Ownership at
Name and Address February 5, 1999
---------------- ----------------
Limited Maturity: Chase Manhattan Bank 18.46%
- ----------------- TTEE Met Life Defined
Contribution Group, Attn David
Ottingnon
770 Broadway 10th Floor
New York, NY 10003
Nationwide Life Insurance 17.62%
QPVA
C/O IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218
D Leon Leonhardt PSP 10.38%
For Partners & Principals of
Price Waterhouse DTD 6/28/85
3109 W DR Martin Luther King Blvd.
Tampa, FL 33607
D Leon Leonhardt Retirement 9.70%
Benefit Accumulation Plan for Employees
of Price Waterhouse LLP
3109 W DR Martin Luther King Blvd.
Tampa, FL 33607
Gary N. Skoloff Saul A. Wolfe 6.44%
Skoloff & Wolfe Target Benefit
Trust Dtd 11-1-95
293 Eisenhower Pky
Livingston, NJ 07039-1711
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Savings Plan for Employees & 6.26%
Partners of
Price Waterhouse LLP
(PN004)
3109 W Dr. Martin Luther King
Blvd.
Tampa, FL 33607
Chase Manhattan Bank TTEE 6.16%
Various Retirement Plans
Under PPI Retirement Programs
Professional Pensions Inc.
444 Foxon Rd
East Haven, CT 06513-2019
National Financial Serv Corp. 5.43%
For the Exclusive Benefit of
our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information
included in the Trust's registration statement filed with the SEC under the 1933
Act with respect to the securities offered by the Prospectus. The registration
statement, including the exhibits filed therewith, may be examined at the SEC's
offices in Washington, D.C.
Statements contained in this SAI and in the Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of any contract or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The following financial statements and related documents are incorporated
herein by reference from the Funds' Annual Report to shareholders for the fiscal
year ended October 31, 1998:
The audited financial statements of Funds and Portfolios and notes
thereto for the fiscal year ended October 31, 1998, and the reports
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of Ernst & Young LLP, independent auditors, with respect to such
audited financial statements of Neuberger Berman Limited Maturity
Bond Fund and
Portfolio.
53
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Appendix A
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
S&P CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
PLUS (+) OR MINUS (-) - The ratings above may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S CORPORATE BOND RATINGS:
-------------------------------
AAA - Bonds rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or an exceptionally
stable margin, and principal is secure. Although the various protective elements
are likely to change, the changes that can be visualized are most unlikely to
impair the fundamentally strong position of the issuer.
Aa - Bonds rated Aa are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally known
as "high grade bonds." They are rated lower than the best bonds because margins
A-1
<PAGE>
of protection may not be as large as in Aaa-rated securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa-rated
securities.
A - Bonds rated A possess many favorable investment attributes and
are considered to be upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
- Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
MODIFIERS - Moody's may apply numerical modifiers 1, 2, and 3 in
each generic rating classification described above. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issuer ranks in the lower end of its generic rating category.
S&P COMMERCIAL PAPER RATINGS:
A-1 - This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+).
A-2
<PAGE>
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated PRIME-1 (or related supporting institutions), also
known as P-1, have a superior capacity for repayment of short-term promissory
obligations. PRIME-1 repayment capacity will normally be evidenced by the
following characteristics:
Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to arrange of financial markets and
assured sources of alternate liquidity.
A-3
<PAGE>
NEUBERGER BERMAN INCOME TRUST
POST-EFFECTIVE AMENDMENT NO. 8 ON FORM N-1A
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements:
The audited financial statements contained in the Annual Report
to Shareholders of the Registrant for the fiscal year ended October
31, 1998 for Neuberger Berman Income Trust (with respect to Neuberger
Berman Limited Maturity Bond Trust) and Income Managers Trust
(with respect to Neuberger Berman Limited Maturity Bond Portfolio) and
the reports of the independent auditors are incorporated into the
Statement of Additional Information for such series by reference.
Included in Part A of this Post-Effective Amendment: Financial
Highlights for Neuberger Berman Limited Maturity Bond Trust.
(b) Exhibits:
Exhibit
Number Description
------- -----------
(a) (1) 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.
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<PAGE>
(2) Restated Certificate of Trust. Incorporated by
Reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement, File Nos.
33-62872 and 811-07724, EDGAR Accession No.
0000898432-98-000861.
(3) 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.
(4) 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.
(b) 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.
(c) (1) 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.
(2) 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.
(d) (1) (i) Management Agreement Between Income
Managers Trust and Neuberger Berman
Management Incorporated by Reference to
Post-Effective Amendment No. 21 to
Registrant's Registration Statement, File
Nos. 2-85229 and 811-3802, EDGAR Accession
No. 0000898432-96-000117.
(ii) Schedule A - Portfolios of Income Managers
Trust Currently Subject to the Management
Agreement. Incorporated by Reference to
Post-Effective Amendment No. 25 to
Registrant's Registration Statement, 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 Registrant's Registration Statement,
File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-98-000246.
(2) (i) Sub-Advisory Agreement Between Neuberger
Berman Management Incorporated and
Neuberger Berman, L.P. with Respect to
Income Managers Trust. Incorporated
by Reference to Post-Effective Amendment
No. 21 to Registrant's Registration
Statement, File Nos. 2-85229 and 811-3802,
EDGAR Accession No. 0000898432-96-00017.
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<PAGE>
(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
Registrant's Registration Statement, 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 Post-Effective Amendment No. 5
to Registrant's Registration Statement,
File Nos. 33-62872 and 811-7724, EDGAR
Accession No. 0000898432-97-000040.
(e) (1) 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.
(2) 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.
(f) Bonus, Profit Sharing or Pension Plans. None.
(g) (1) 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.
(2) Schedule of Compensation under the Custodian
Contract. Incorporated by Reference to Post-
Effective Amendment No. 5 to Registrant's
Registration Statement, File Nos. 33-62872
and 811-7724, EDGAR Accession No.
0000898432-97-000040.
(3) Agreement between Neuberger Berman Income
Trust and State Street Bank and Trust
Company relating to the merger of Neuberger
Berman Ultra Short Bond Trust and Neuberger
Berman Limited Maturity Bond 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.
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<PAGE>
(h) (1) (i) 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.
(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 and Service Agreement. Incorporated
by Reference to Post-Effective Amendment
No. 5 to Registrant's Registration
Statement, File Nos. 33-62872 and 811-7724,
EDGAR Accession No. 0000898432-97-000040.
(2) (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 Post-Effective Amendment
No. 5 to Registrant's Registration
Statement, File Nos. 33-62872 and 811-7724,
EDGAR Accession No. 0000898432-97-000040..
(i) (1) Opinion and Consent of Kirkpatrick &
Lockhart on Securities Matters. 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) Consent to use Previously Filed Opinion and
Consent of Kirkpatrick & Lockhart on
Securities Matters. Filed Herewith.
(j) Consent of Independent Auditors. Filed Herewith.
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<PAGE>
(k) Financial Statements Omitted from Prospectus. None.
(l) Letter of Investment Intent. None.
(m) Plan Pursuant to Rule 12b-1. None.
(n) Financial Data Schedules. Filed Herewith.
(o) Plan Pursuant to Rule 18f-3. None.
Item 24. Persons Controlled By or Under Common Control with Registrant.
- ------- -------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
Item 25. 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 ("NB
Management") provides that neither NB Management nor any director, officer or
employee of NB Management performing services for any series of Managers Trust
(each a "Portfolio") at the direction or request of NB Management in connection
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<PAGE>
with NB 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 NB
Management against any liability to Managers Trust or a Portfolio or its
interestholders to which NB 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 NB Management's reckless disregard of its obligations
and duties under the Agreement, or (ii) to protect any director, officer or
employee of NB 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 NB 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 NB 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 NB Management and hold it harmless from and against any and all
losses, damages and expenses, including reasonable attorneys' fees and expenses,
incurred by NB Management that result from: (i) any claim, action, suit or
proceeding in connection with NB 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 NB Management in the performance of its obligations hereunder
with respect to such Series; or (iii) any action of NB 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 NB Management shall not be entitled to such indemnification in
respect of actions or omissions constituting negligence or misconduct on the
part of NB Management or its employees, agents or contractors.
Section 13 of the Administration Agreement provides that NB 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,
incurred by such Series which result from: (i) NB Management's failure to comply
with the terms of this Agreement with respect to such Series; or (ii) NB
Management's lack of good faith in performing its obligations hereunder with
respect to such Series; or (iii) NB 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 NB Management unless
such negligence or misconduct results from or is accompanied by negligence or
misconduct on the part of NB Management, any affiliated person of NB Management,
or any affiliated person of an affiliated person of NB Management.
Section 11 of the Distribution Agreement between the Registrant and NB
Management contains provisions similar to Section 11 of the Administration
Agreement, with respect to NB 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
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<PAGE>
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Adviser and Sub-Adviser.
- ------- ---------------------------------------------------------
There is set forth below information as to any other business,
profession, vocation or employment of a substantial nature in which each
director or officer of NB Management and each principal of Neuberger Berman is,
or at any time during the past two years has been, engaged for his or her own
account or in the capacity of director, officer, employee, partner or trustee.
NAME BUSINESS AND OTHER CONNECTIONS
- ---- ------------------------------
Claudia A. Brandon Secretary, Neuberger Berman Advisers Management Trust;
Vice President, NB Secretary, Advisers Managers Trust; Secretary,
Management1 Neuberger Berman Income Funds; Secretary, Neuberger
Berman Income Trust; Secretary, Neuberger Berman Equity
Funds; Secretary, Neuberger Berman Equity Trust;
Secretary, Income Managers Trust; Secretary, Equity
Managers Trust; Secretary, Global Managers Trust;
Secretary, Neuberger Berman Equity Assets; Secretary,
Neuberger Berman Equity Series.
Brooke A. Cobb Chief Investment Officer, Bainco International
Vice President, Investors. Senior Vice President and Senior
NB Management Portfolio Manager, Putnam Investments.2
Stacy Cooper-Shugrue Assistant Secretary, Neuberger Berman Advisers
Assistant Vice Management Trust; Assistant Secretary, Advisers
President, Managers Trust; Assistant Secretary, Neuberger Berman
NB Management Income Funds; Assistant Secretary, Neuberger Berman
Income Trust; Assistant Secretary, Neuberger Berman
Equity Funds; Assistant Secretary, Neuberger Berman
Equity Trust; Assistant Secretary, Income Managers
Trust; Assistant Secretary, Equity Managers Trust;
Assistant Secretary, Global Managers Trust; Assistant
Secretary, Neuberger Berman Equity Assets; Assistant
Secretary, Neuberger Berman Equity Series.
Barbara DiGiorgio, Assistant Treasurer, Neuberger Berman Advisers
Assistant Vice Management Trust; Assistant Treasurer, Advisers
President,
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<PAGE>
NAME BUSINESS AND OTHER CONNECTIONS
- ---- ------------------------------
NB Management Managers Trust; Assistant
Treasurer, Neuberger Berman Income Funds; Assistant
Treasurer, Neuberger Berman Income Trust; Assistant
Treasurer, Neuberger Berman Equity Funds; Assistant
Treasurer, Neuberger Berman Equity Trust; Assistant
Treasurer, Income Managers Trust; Assistant Treasurer,
Equity Managers Trust; Assistant Treasurer, Global
Managers Trust; Assistant Treasurer, Neuberger Berman
Equity Assets; Assistant Treasurer, Neuberger Berman
Equity Series.
Stanley Egener Chairman of the Board and Trustee, Neuberger Berman
President and Director, Advisers Management Trust; Chairman of the Board and
NB Management; Trustee, Advisers Managers Trust; Chairman of the Board
Principal, Neuberger and Trustee, Neuberger Berman Income Funds; Chairman
Berman of the Board and Trustee, Neuberger Berman Income
Trust; Chairman of the Board and Trustee, Neuberger
Berman Equity Funds; Chairman of the Board and Trustee,
Neuberger Berman Equity Trust; Chairman of the Board
and Trustee, Income Managers Trust; Chairman of the
Board and Trustee, Equity Managers Trust; Chairman of
the Board and Trustee, Global Managers Trust; Chairman
of the Board and Trustee, Neuberger Berman Equity
Assets; Chairman of the Board and Trustee, Neuberger
Berman Equity Series.
Theodore P. Giuliano President and Trustee, Neuberger Berman Income Funds;
Vice President and President and Trustee, Neuberger Berman Income Trust;
Director, NB Management; President and Trustee, Income Managers Trust.
Principal, Neuberger
Berman
Michael F. Malouf Portfolio Manager, Dresdner RCM Global Investors.3
Vice President, NB
Management
S. Basu Mullick Portfolio Manager, Ark Asset Management.3
Vice President NB
Management
C. Carl Randolph Assistant Secretary, Neuberger Berman Advisers
Principal, Neuberger Management Trust; Assistant Secretary, Advisers
Berman Managers Trust; Assistant Secretary, Neuberger Berman
Income Funds; Assistant Secretary, Neuberger Berman
Income Trust; Assistant Secretary, Neuberger Berman
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<PAGE>
NAME BUSINESS AND OTHER CONNECTIONS
- ---- ------------------------------
Equity Funds; Assistant Secretary, Neuberger Berman
Equity Trust; Assistant Secretary, Income Managers
Trust; Assistant Secretary, Equity Managers Trust;
Assistant Secretary, Global Managers Trust; Assistant
Secretary, Neuberger Berman Equity Assets; Assistant
Secretary, Neuberger Berman Equity Series.
Ingrid Saukaitis Project Director, Council on Economic Priorities.2
Assistant Vice
President,
NB Management
Benjamin E. Segal, Assistant Portfolio Manager, GT Global Investment
Assistant Vice Management;3 Consultant, Bain & Company, Inc.2
President,
NB Management
Richard Russell Treasurer, Neuberger Berman Advisers Management Trust;
Vice President, Treasurer, Advisers Managers Trust; Treasurer,
NB Management Neuberger Berman Income Funds; Treasurer, Neuberger
Berman Income Trust; Treasurer, Neuberger Berman
Equity Funds; Treasurer, Neuberger Berman Equity Trust;
Treasurer, Income Managers Trust; Treasurer, Equity
Managers Trust; Treasurer, Global Managers Trust;
Treasurer, Neuberger Berman Equity Assets; Treasurer,
Neuberger Berman Equity Series.
Jennifer K. Silver Portfolio Manager and Director, Putnam Investments.2
Vice President, NB
Management; Principal,
Neuberger Berman
Daniel J. Sullivan Vice President, Neuberger Berman Advisers Management
Senior Vice President, Trust; Vice President, Advisers Managers Trust; Vice
NB Management President, Neuberger Berman Income Funds; Vice
President, Neuberger Berman Income Trust; Vice
President, Neuberger Berman Equity Funds; Vice
President, Neuberger Berman Equity Trust; Vice
President, Income Managers Trust; Vice President,
Equity Managers Trust; Vice President, Global Managers
Trust; Vice President, Neuberger Berman Equity Assets;
Vice President, Neuberger Berman Equity Series.
Catherine Waterworth Managing Director, TCW Group Inc.3
Vice President,
NB Management
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<PAGE>
NAME BUSINESS AND OTHER CONNECTIONS
- ---- ------------------------------
Michael J. Weiner Vice President, Neuberger Berman Advisers Management
Senior Vice President, Trust; Vice President, Advisers Managers Trust; Vice
NB Management; President, Neuberger Berman Income Funds; Vice
Principal, Neuberger President, Neuberger Berman Income Trust; Vice
Berman President, Neuberger Berman Equity Funds; Vice
President, Neuberger Berman Equity Trust; Vice
President, Income Managers Trust; Vice President,
Equity Managers Trust; Vice President, Global Managers
Trust; Vice President, Neuberger Berman Equity Assets;
Vice President, Neuberger Berman Equity Series.
Allan R. White, III Portfolio Manager, Salomon Asset Management.3
Vice President, NB
Management; Principal
Neuberger Berman
Celeste Wischerth, Assistant Treasurer, Neuberger Berman Advisers
Assistant Vice Management Trust; Assistant Treasurer, Advisers
President, Managers Trust; Assistant Treasurer, Neuberger Berman
NB Management Income Funds; Assistant Treasurer, Neuberger Berman
Income Trust; Assistant Treasurer, Neuberger Berman
Equity Funds; Assistant Treasurer, Neuberger Berman
Equity Trust; Assistant Treasurer, Income Managers
Trust; Assistant Treasurer, Equity Managers Trust;
Assistant Treasurer, Global Managers Trust; Assistant
Treasurer, Neuberger Berman Equity Assets; Assistant
Treasurer, Neuberger Berman Equity Series.
Lawrence Zicklin President and Trustee, Neuberger Berman Advisers
Director, NB Management; Management Trust; President and Trustee, Advisers
Principal, Neuberger Managers Trust; President and Trustee, Neuberger
Berman Berman Equity Funds; President and Trustee, Neuberger
Berman Equity Trust; President and Trustee, Equity
Managers Trust; President, Global Managers Trust;
President and Trustee, Neuberger Berman Equity Assets;
President and Trustee, Neuberger Berman Equity Series.
The principal address of NB Management, Neuberger Berman, and of each
of the investment companies named above, is 605 Third Avenue, New York, New York
10158.
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<PAGE>
Item 27. Principal Underwriters.
- ------- ----------------------
(a) NB Management, the principal underwriter distributing securities
of the Registrant, is also the principal underwriter and distributor for each of
the following investment companies and any series thereof:
Neuberger Berman Advisers Management Trust
Neuberger Berman Equity Assets
Neuberger Berman Equity Funds
Neuberger Berman Equity Series
Neuberger Berman Equity Trust
Neuberger Berman Income Funds
NB Management is also the investment manager to the master funds in
which the above-named investment companies invest.
(b) Set forth below is information concerning the directors and
officers of the Registrant's principal underwriter. The princiapl business
address of each of the persons listed is 605 Third Avenue, New York, New York
10158-0180, which is also the address of the Registrant's principal underwriter.
The principal address of NB Management, Neuberger Berman, and of
each of the investment companies named above, is 605 Third Avenue, New York,
New York 10158.
NAME POSITIONS AND OFFICES POSITIONS AND OFFICES
- ---- WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------
Ramesh Babu Assistant Vice President None
Patrick T. Byrne Vice President None
Richard A. Cantor Chairman of the Board and None
Director
Valerie Chang Vice President None
Brooke A. Cobb Vice President None
Robert Conti Treasurer None
Robert W. D'Alelio Vice President None
Clara Del Villar Vice President None
Barbara DiGiorgio Assistant Vice President Assistant Treasurer
Stanley Egener President and Director Chairman of the
Board, Chief
Executive Officer,
and Trustee
Brian J. Gaffney Vice President None
Joseph G. Galli Assistant Vice President None
Robert I. Gendelman Vice President None
Theodore P. Giuliano Vice President and Director None
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<PAGE>
NAME POSITIONS AND OFFICES POSITIONS AND OFFICES
- ---- WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------
Michael M. Kassen Vice President and Director None
Robert L. Ladd Assistant Vice President None
Irwin Lainoff Director None
Josephine Mahaney Vice President None
Michael F. Malouf Vice President None
Carmen G. Martinez Assistant Vice President None
Ellen Metzger Secretary None
S. Basu Mullick Vice President None
Janet W. Prindle Vice President None
Joseph S. Quirk Assistant Vice President None
Kevin L. Risen Vice President None
Richard Russell Vice President Treasurer and
Principal Accounting
Officer
Ingrid Saukaitis Assistant Vice President None
Benjamin E. Segal Assistant Vice President None
Jennifer K. Silver Vice President None
Kent C. Simons Vice President None
Frederick B. Soule Vice President None
Susan Stang Vice President None
Daniel J. Sullivan Senior Vice President Vice President
Peter E. Sundman Senior Vice President None
Andrea Trachtenberg Senior Vice President of None
Marketing
Judith M. Vale Vice President None
Josephine Velez Assistant Vice President None
Susan Walsh Vice President None
Catherine Waterworth Vice President None
Michael J. Weiner Senior Vice President Vice President and
Principal Financial
Officer
Allan R. White, III Vice President None
Celeste Wischerth Assistant Vice President Assistant Treasurer
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<PAGE>
NAME POSITIONS AND OFFICES POSITIONS AND OFFICES
- ---- WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------
Lawrence Zicklin Director Trustee and President
Miriam Zussman Vice President None
(c) No commissions or other compensation were received directly or
indirectly from the Registrant by any principal underwriter who was not an
affiliated person of the Registrant.
Item 28. Location of Accounts and Records.
- ------- ----------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, as amended, and the rules promulgated thereunder
with respect to the Registrant are maintained at the offices of State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, except
for the Registrant's Trust Instrument and By-Laws, minutes of meetings of the
Registrant's Trustees and shareholders and the Registrant's policies and
contracts, which are maintained at the offices of the Registrant, 605 Third
Avenue, New York, New York 10158.
Item 29. Management Services
- ------- -------------------
Other than as set forth in Parts A and B of this Registration Statement,
the Registrant is not a party to any management-related service contract.
Item 30. Undertakings
- ------- ------------
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, NEUBERGER BERMAN INCOME FUNDS certifies that it
meets all of the requirements for effectiveness of Post-Effective Amendment No.
8 to the Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City and State of New York on the 25th day of February, 1999.
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. 8 has been signed below by the following persons in the capacities
and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ John Cannon Trustee February 25, 1999
- ------------------------
John Cannon
/s/ Stanley Egener Chairman of the Board, February 25, 1999
- ------------------------ Chief Executive Officer
Stanley Egener and Trustee
/s/ Theodore P. Giuliano President and Trustee February 25, 1999
- ------------------------
Theodore P. Giuliano
/s/ Barry Hirsch Trustee February 25, 1999
- ------------------------
Barry Hirsch
/s/ Robert A. Kavesh Trustee February 25, 1999
- ------------------------
Robert A. Kavesh
(signatures continued on next page)
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ William E. Rulon Trustee February 25, 1999
- -----------------------
William E. Rulon
/s/ Richard Russell Treasurer and February 25, 1999
- ----------------------- Principal Accounting
Richard Russell Officer
/s/ Candace L. Straight Trustee February 25, 1999
- -----------------------
Candace L. Straight
/s/ Michael J. Weiner Vice President and February 25, 1999
- ----------------------- Principal Financial
Michael J. Weiner Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, INCOME MANAGERS TRUST certifies that it meets
all of the requirements for effectiveness of Post-Effective Amendment No. 8 to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City and State of New York on the 25th day of February, 1999.
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. 8 has been signed below by the following persons in the capacities
and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ John Cannon Trustee February 25, 1999
- -------------------
John Cannon
/s/ Stanley Egener Chairman of the Board, February 25, 1999
- ------------------- Chief Executive Officer
Stanley Egener and Trustee
/s/ Theodore P. Giuliano President and Trustee February 25, 1999
- -----------------------
Theodore P. Giuliano
/s/ Barry Hirsch Trustee February 25, 1999
- --------------------
Barry Hirsch
/s/ Robert A. Kavesh Trustee February 25, 1999
- --------------------
Robert A. Kavesh
(signatures continued on next page)
<PAGE>
Signature Title Date
- --------- ----- -----
/s/ William E. Rulon Trustee February 25, 1999
- ----------------------
William E. Rulon
/s/ Richard Russell Treasurer and February 25, 1999
- ---------------------- Principal Accounting
Richard Russell Officer
/s/ Candace L. Straight Trustee February 25, 1999
- ----------------------
Candace L. Straight
/s/ Michael J. Weiner Vice President and February 25, 1999
- ---------------------- Principal Financial Officer
Michael J. Weiner
<PAGE>
NEUBERGER BERMAN INCOME TRUST
POST-EFFECTIVE AMENDMENT NO. 8 ON FORM N-1A
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
(a) (1) Certificate of Trust. Incorporated by N.A.
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.
(2) Restated Certificate of Trust. Incorporated N.A.
by Reference to Post-Effective Amendment No.
7 to Registrant's Registration Statement,
File Nos. 33-62872 and 811-07724, EDGAR
Accession No. 0000898432-98-000861.
(3) Trust Instrument of Neuberger Berman Income N.A.
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.
(4) Schedule A - Current Series of N.A.
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.
(b) 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.
(c) (1) Trust Instrument of Neuberger Berman Income N.A.
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.
(2) By-laws of Neuberger Berman Income Trust N.A.
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.
(d) (1) (i) Management Agreement Between Income N.A.
Managers Trust and Neuberger Berman
Management Incorporated.
Incorporated by Reference to
Post-Effective Amendment No. 21 to
Registrant's Registration Statement,
File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-96-000117.
<PAGE>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
(ii) Schedule A - Portfolios of Income N.A.
Managers Trust Currently Subject to
the Management Agreement.
Incorporated by Reference to
Post-Effective Amendment No. 25 to
Registrant's Registration Statement,
File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-98-000246
(iii) Schedule B - Schedule of Compensation N.A.
Under the Management Agreement.
Incorporated by Reference to
Post-Effective Amendment No. 25 to
Registrant's Registration Statement,
File Nos. 2-85229 and 811-3802, EDGAR
Accession No. 0000898432-98-000246.
(2) (i) Sub-Advisory Agreement Between N.A.
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 N.A.
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 N.A.
Neuberger Berman Management
Incorporated, Income Managers Trust,
Neuberger Berman, L.P., and Neuberger
Berman, LLC. Incorporated by
reference to Post-Effective Amendment
No. 5 to Registrant's Registration
Statement, File Nos. 33-62872 and
811-7724, EDGAR Accession No.
0000898432-97-00040.
(e) (1) Distribution Agreement Between Neuberger N.A.
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.
(2) Schedule A - Series of Neuberger N.A.
Berman Income Trust Currently Subject to the
Distribution Agreement. Incorporated by
Reference to Post-Effective Amendment No.6
<PAGE>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
to Registrant's Registration Statement, File
Nos. 33-62872 and 811-7724, EDGAR Accession
No. 0000898432-98-000251. N.A.
(f) Bonus, Profit Sharing or Pension Plans. None. N.A.
(g) (1) Custodian Contract 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.
(2) Schedule of Compensation under the Custodian N.A.
Contract. Incorporated by Reference to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement, File
Nos. 33-62872 and 811-7724, EDGAR Accession
No. 0000898432-97-000040.
(3) Agreement between Neuberger Berman N.A.
Income Trust and State Street Bank and Trust
Company relating to the merger of Neuberger
Berman Ultra Short Bond Trust and Neuberger
Berman Limited Maturity Bond 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.
(h) (1) (i) Transfer Agency and Service Agreement N.A.
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 N.A.
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 N.A.
Transfer Agency and Service
Agreement. Incorporated by Reference
to Post-Effective Amendment No. 5 to
Registrant's Registration Statement,
File Nos. 33-62872 and 811-7724,
EDGAR Accession No.
0000898432-97-000040.
(2) (i) Administration Agreement Between N.A.
Neuberger Berman Income Trust and
Neuberger Berman Management
Incorporated. Incorporated by
Reference to Post-Effective Amendment
<PAGE>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
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 N.A.
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 N.A.
Under the Administration Agreement.
Incorporated by Reference to
Post-Effective Amendment No. 5 to
Registrant's Registration statement,
File Nos. 33-62872 and 811-7724,
EDGAR Accession No.
0000898432-97-000040.
(i) (1) Opinion and Consent of Kirkpatrick & N.A.
Lockhart on Securities Matters.
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) Consent to use Previously Filed
Opinion and Consent of Kirkpatrick &
Lockhart on Securities Matters. Filed
Herewith.
(j) Consent of Independent Auditors. Filed Herewith. ____
(k) Financial Statements Omitted from Prospectus. N.A.
None.
(l) Letter of Investment Intent. None. N.A.
(m) Plan Pursuant to Rule 12b-1. None. N.A.
(n) Financial Data Schedules. Filed Herewith. _____
(o) Plan Pursuant to Rule 18-3f. None. N.A.
- ---------------
1 Until January 4, 1999.
2 Until 1997.
3 Until 1998.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
<CIK> 0000908473
<NAME> INCOME MANAGERS TRUST
<SERIES>
<NUMBER> 06
<NAME> NEUBERGER BERMAN LIMITED MATURITY BOND PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 350,314
<INVESTMENTS-AT-VALUE> 351,737
<RECEIVABLES> 5,003
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 32
<TOTAL-ASSETS> 356,778
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122
<TOTAL-LIABILITIES> 122
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 354,869
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,787
<NET-ASSETS> 356,656
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,319
<OTHER-INCOME> 0
<EXPENSES-NET> (1,106)
<NET-INVESTMENT-INCOME> 21,213
<REALIZED-GAINS-CURRENT> (4,564)
<APPREC-INCREASE-CURRENT> 180
<NET-CHANGE-FROM-OPS> 16,829
<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> 63,690
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,106
<AVERAGE-NET-ASSETS> 333,331
<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>
<CIK> 0000905235
<NAME> NEUBERGER BERMAN INCOME TRUST
<SERIES>
<NUMBER> 02
<NAME> NEUBERGER BERMAN LIMITED MATURITY BOND TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 60,759
<RECEIVABLES> 96
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,855
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 434
<TOTAL-LIABILITIES> 434
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,994
<SHARES-COMMON-STOCK> 6,395
<SHARES-COMMON-PRIOR> 3,907
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (828)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 255
<NET-ASSETS> 60,421
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,335
<OTHER-INCOME> 0
<EXPENSES-NET> (397)
<NET-INVESTMENT-INCOME> 2,938
<REALIZED-GAINS-CURRENT> (679)
<APPREC-INCREASE-CURRENT> (6)
<NET-CHANGE-FROM-OPS> 2,253
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,948)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,277
<NUMBER-OF-SHARES-REDEEMED> (2,098)
<SHARES-REINVESTED> 309
<NET-CHANGE-IN-ASSETS> 23,025
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (111)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 604
<AVERAGE-NET-ASSETS> 49,604
<PER-SHARE-NAV-BEGIN> 9.57
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> (.12)
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.45
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
CONSENT AUTHORIZING USE OF PREVIOUSLY-FILED LEGAL OPINION
FOR NEUBERGER BERMAN INCOME TRUST ("REGISTRANT")
In connection with Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-62872 and 811-7724) to be
filed with the Securities and Exchange Commission on or about February 26,
1999, we hereby consent to the continued use of the Opinion and Consent of
Kirkpatrick & Lockhart LLP on Securities Matters with respect to Neuberger
Berman Income Trust, previously filed in Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-62872 and
811-7724, EDGAR Accession No. 0000898432-98-000251). We further consent to
the filing of this consent in connection with Post-Effective Amendment No. 8
to Registrant's Registration Statement. We also consent to the reference to
our firm in the Statement of Additional Information filed as part of the
Registration Statement.
Sincerely,
/s/ KIRKPATRICK & LOCKHART LLP
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Reports to Shareholders", "Independent
Auditors" and "Financial Statements" in the Statement of Additional Information
in Post-Effective Amendment No. 8 to the Registration Statement (Form N-1A No.
33-62872) of Neuberger Berman Income Trust, and to the incorporation by
reference of our reports dated December 4, 1998 on Neuberger Berman Limited
Maturity Bond Trust, one of the series comprising Neuberger Berman Income Trust,
and on Neuberger Berman Limited Maturity Bond Portfolio, one of the series
comprising Income Managers Trust, included in the 1998 Annual Report to
Shareholders of Neuberger Berman Income Trust.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 23, 1999
