Investor
Class Shares, Trust Class Shares, Institutional Class Shares, Class A Shares,
Class C
Neuberger Berman
Core
Bond Fund, Neuberger Berman
Emerging
Markets Debt Fund, Neuberger Berman
Floating
Rate Income Fund, Neuberger Berman
High
Income Bond Fund,
Neuberger
Berman Municipal High Income Fund,
Neuberger Berman Municipal Impact Fund,
Neuberger Berman Municipal Intermediate
Bond Fund, Neuberger Berman Short
Duration Bond Fund and Neuberger Berman Strategic Income Fund (each, a “Fund” and
collectively, the “Funds”) are mutual funds that offer shares pursuant to
prospectuses dated February 28, 2021 with respect to all share classes except
Class E shares, and July 5, 2021, with respect to Class E shares.
The
prospectus and summary prospectus (together, the “Prospectus”) for your share
class provide more information about your Fund that you should know before
investing. You can get a free copy of the Prospectus, annual report and/or
semi-annual report for your share class from Neuberger Berman Investment
Advisers LLC (“NBIA” or the “Manager”), 1290 Avenue of the Americas, New York,
NY 10104, or by calling the appropriate number listed above for your share
class. You should read the Prospectus for your share class and consider the
investment objective, risks, and fees and expenses of your Fund carefully before
investing.
This
Statement of Additional Information (“SAI”) is not a prospectus and should be
read in conjunction with the Prospectus for your share class. This SAI is
not an offer to sell any shares of any class of the Funds. A written offer
can be made only by a Prospectus.
Each
Fund’s financial statements, notes thereto and the report of its independent
registered public accounting firm are incorporated by reference from the Fund’s
annual report to shareholders into (and are therefore legally part of) this SAI.
No
person has been authorized to give any information or to make any
representations not contained in the Prospectuses or in this SAI in connection
with the offering made by the Prospectuses, and, if given or made, such
information or representations must not be relied upon as having been authorized
by a Fund or its distributor. The Prospectuses and this SAI do not constitute an
offering by a Fund or its distributor in any jurisdiction in which such offering
may not lawfully be made.
The
“Neuberger Berman” name and logo and “Neuberger Berman Investment Advisers LLC”
are registered service marks of Neuberger Berman Group LLC. The individual Fund
names in this SAI are either service marks or registered service marks of
Neuberger Berman Investment Advisers LLC. ©2021 Neuberger Berman BD
LLC, distributor. All rights reserved. ©2021 Neuberger Berman
Europe Limited. All rights reserved.
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B-1 |
Each
Fund is a separate operating series of Neuberger Berman Income Funds (“Trust”),
a Delaware statutory trust established on December 29, 1992. The Trust is
registered with the Securities and Exchange Commission (“SEC”) as an open-end
management investment company.
At
the close of business on June 10, 2005, Neuberger Berman Core Bond Fund acquired all the assets and
assumed all the liabilities of Ariel Premier Bond Fund, a series of Ariel
Investment Trust. Prior to that date, Neuberger Berman Core Bond Fund had no operations. Financial and
performance information in this SAI prior to June 10, 2005, for each class of
the Fund is that of each respective class of the Ariel Premier Bond Fund, the
predecessor to Neuberger Berman Core Bond
Fund for performance and accounting purposes.
Neuberger
Berman Emerging Markets Debt Fund
commenced operations as a separate series of the Trust on September 27,
2013.
Neuberger
Berman Floating Rate Income Fund
commenced operations as a separate series of the Trust on December 29,
2009.
At
the close of business on September 6, 2002, Neuberger Berman High Income Bond Fund acquired all the assets and assumed
all the liabilities of Lipper High Income Bond Fund, a series of The Lipper
Funds, Inc., and Neuberger Berman High Yield Bond Fund, a prior series of the
Trust. Prior to that date, Neuberger Berman High Income Bond Fund had no operations.
Neuberger
Berman Municipal High Income Fund
commenced operations as a separate series of the Trust on June 22, 2015.
Through
February 9, 2001, Neuberger Berman Municipal Intermediate Bond Fund and Neuberger
Berman Short Duration Bond Fund were
organized as feeder funds in a master-feeder structure rather than as funds in a
multiple-class structure. As feeder funds, they were series of the Trust
and Neuberger Berman Income Trust. As of that date, those feeder funds
reorganized into the Funds’ Investor Class and Trust Class units of beneficial
interest (“shares”), respectively.
At
the close of business on March 8, 2013, Neuberger Berman Municipal Impact Fund acquired all the assets
and assumed all the liabilities of The Empire Builder Tax Free Bond Fund (the
“Predecessor Fund”) (the “Reorganization”), and shareholders of the Predecessor
Fund received Neuberger Berman Municipal
Impact Fund shares in exchange for their Predecessor Fund shares.
Prior to that date, Neuberger Berman Municipal
Impact Fund had no operations. Financial information in this SAI prior to
March 8, 2013, for the Institutional Class of Neuberger Berman Municipal Impact Fund is that of the Builder
Class of the Predecessor Fund, the predecessor to Neuberger Berman Municipal Impact Fund for accounting
purposes.
Neuberger
Berman Strategic Income Fund commenced
operations as a separate series of the Trust on July 11, 2003.
The
following information supplements the discussion of the Funds’ investment
objectives, policies, and limitations in the Prospectuses.
The
investment objective and, unless otherwise specified, the investment policies
and limitations of each Fund are not fundamental. Any investment objective,
policy, or limitation that is not fundamental may be changed by the trustees of
the Trust (“Fund Trustees”) without shareholder approval. The fundamental
investment policies and limitations of a Fund may not be changed without the
approval of the lesser of:
(1) 67% of the shares of the
Fund present at a meeting at which more than 50% of the outstanding shares of
the Fund are present or represented, or
(2) a majority of the
outstanding shares of the Fund.
These
percentages are required by the Investment Company Act of 1940, as amended
(“1940 Act”), and are referred to in this SAI as a “1940 Act majority
vote.”
The
policy of a Fund permitting it to operate as a non-diversified investment
company under the 1940 Act may also change by operation of law.
Specifically, Rule 13a-1 under the 1940 Act provides in effect that, if a fund’s
investment portfolio actually meets the standards of a diversified fund for
three consecutive years, the fund’s status will change to that of a diversified
fund.
Each
Fund (except Neuberger Berman Emerging Markets
Debt Fund) operates as a diversified investment company.
NBIA
is responsible for the day-to-day management of Neuberger Berman Core Bond Fund, Neuberger Berman Floating Rate Income Fund, Neuberger Berman
High Income Bond Fund, Neuberger Berman
Municipal High Income Fund, Neuberger
Berman Municipal Impact Fund, Neuberger
Berman Municipal Intermediate Bond Fund,
Neuberger Berman Short Duration Bond
Fund, and Neuberger Berman Strategic Income
Fund. Throughout this SAI, the term “Manager” refers to NBIA with
respect to each of these Funds. NBIA has delegated to Neuberger Berman Europe
Limited (“NBEL”) day-to-day investment business of Neuberger Berman Emerging Markets Debt Fund. Throughout this
SAI, the term “Manager” refers to NBIA or NBEL, as appropriate, with respect to
each of these Funds.
Except
as set forth in the investment limitation on borrowing and the investment
limitation on illiquid securities, any investment policy or limitation that
involves a maximum percentage of securities or assets will not be considered
exceeded unless the percentage limitation is exceeded immediately after, and
because of, a transaction by a Fund. If events subsequent to a transaction
result in a Fund exceeding the percentage limitation on illiquid securities, the
Manager will take appropriate steps to reduce the percentage held in illiquid
securities, as may be required by law, within a reasonable amount of time.
The
following investment policies and limitations are fundamental and apply to all
Funds unless otherwise indicated:
1. Borrowing (All Funds except Neuberger Berman
Core Bond Fund). No Fund may borrow money,
except that a Fund may (i) borrow money from banks for temporary or
emergency
purposes
and (except for Neuberger Berman High
Income Bond Fund, Neuberger
Berman Emerging Markets Debt Fund, and
Neuberger Berman Municipal High Income
Fund) not for leveraging or investment, and (ii) enter into reverse
repurchase agreements for any purpose; provided that (i) and (ii) in combination
do not exceed 33-1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). If at any time borrowings
exceed 33-1/3% of the value of a Fund’s total assets, that Fund will reduce its
borrowings within three days (excluding Sundays and holidays) to the extent
necessary to comply with the 33-1/3% limitation.
Borrowing (Neuberger Berman Core
Bond Fund). The
Fund may not borrow money, except that it may
borrow money from banks for temporary or
emergency purposes and not for leveraging or investment; provided that borrowings 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 Fund’s total
assets, it will reduce its borrowings within three days (excluding Sundays and
holidays) to the extent necessary to comply with the 33-1/3% limitation.
2. Commodities (Neuberger Berman Core
Bond Fund, Neuberger
Berman High Income Bond Fund, Neuberger Berman Municipal
Intermediate Bond Fund
and Neuberger Berman Short Duration Bond Fund). Neuberger Berman Core Bond Fund, Neuberger Berman High Income Bond Fund, Neuberger Berman Municipal Intermediate Bond Fund and Neuberger
Berman Short Duration Bond Fund may not purchase physical commodities
or contracts thereon, unless acquired as a result of the ownership of securities
or instruments, but this restriction shall not prohibit a Fund 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. For Neuberger Berman High Income Bond Fund this restriction also shall not
prohibit the Fund from purchasing foreign currency, forward contracts, swaps,
caps, collars, floors and other financial instruments.
Commodities (Neuberger Berman Emerging
Markets Debt Fund,
Neuberger Berman Floating Rate Income Fund and Neuberger Berman Strategic
Income Fund). The
Fund 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 Fund from purchasing futures contracts or options
(including options on futures contracts, but excluding options or futures
contracts on physical commodities other than foreign currency), foreign
currency, forward contracts, swaps, caps, collars, floors and other financial
instruments or from investing in securities of any kind.
Commodities (Neuberger Berman Municipal
High Income Fund).
The Fund may not purchase physical commodities, except to the extent permitted
under the 1940 Act, the rules and regulations thereunder and any applicable
exemptive relief or unless acquired as a result of the ownership of securities
or instruments, but this restriction shall not prohibit the Fund from purchasing
futures contracts, options, foreign currencies or forward contracts, swaps,
caps, collars, floors and other financial instruments or from investing in
securities of any kind.
Commodities (Neuberger Berman Municipal
Impact
Fund). The Fund 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 Fund 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 (All Funds except Neuberger
Berman Emerging Markets Debt Fund and Neuberger Berman Municipal
Impact Fund). No
Fund may, with respect to 75% of the value of its total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities (“U.S. Government and
Agency Securities”) or securities issued by other investment companies) if, as a
result, (i) more than 5% of the value of the Fund’s total assets would be
invested in the securities of that issuer or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer.
4. Industry Concentration (Neuberger
Berman Core Bond Fund, Neuberger Berman Floating Rate
Income Fund, Neuberger
Berman High Income Bond Fund, Neuberger Berman Municipal
Impact Fund, Neuberger
Berman Municipal Intermediate
Bond Fund and Neuberger
Berman Short Duration Bond Fund). No Fund may invest 25% or more
of its total assets (taken at current value) in the securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to (i) U.S. Government and Agency Securities or
(ii) investments by Neuberger Berman Municipal Impact Fund or Neuberger Berman Municipal Intermediate Bond Fund in municipal
securities.
Industry Concentration (Neuberger Berman
Emerging Markets Debt Fund and Neuberger Berman Municipal
High Income Fund).
The Fund 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 U.S. Government and Agency Securities, securities
of other investment companies, and tax-exempt securities or such other
securities as may be excluded for this purpose under the 1940 Act, the rules and
regulations thereunder and any applicable exemptive relief.
Industry Concentration (Neuberger Berman
Strategic Income Fund). The Fund may not purchase any
security if, as a result, 25% or more of its total assets (taken at current
value) would be invested in the securities of issuers having their principal
business activities in the same industry. This limitation does not apply to
purchases of U.S. Government and Agency Securities.
5. Lending (All Funds except Neuberger Berman
Municipal High Income Fund). No Fund may lend any security
or make any other loan if, as a result, more than 33-1/3% of its total assets
(taken at current value) would be lent to other parties, except, in accordance
with its investment objective, policies, and limitations, (i) through the
purchase of a portion of an issue of debt securities, and for Neuberger Berman
Emerging Markets Debt Fund, Neuberger
Berman Floating Rate Income Fund,
Neuberger Berman High Income Bond Fund,
Neuberger Berman Municipal Impact Fund,
and Neuberger Berman Strategic Income
Fund loans, loan participations or other forms of direct debt instruments or
(ii) by engaging in repurchase agreements.
Lending (Neuberger Berman Municipal
High Income Fund).
The Fund 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 all or a portion of an issue of debt
securities, loans, loan participations or other forms of direct debt instruments
or (ii) by engaging in repurchase agreements.
6. Real Estate (All Funds except Neuberger
Berman Strategic Income Fund). No Fund may purchase
real estate unless acquired as a result of the ownership of securities or
instruments, but this restriction shall not prohibit a Fund 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.
Real Estate (Neuberger Berman Strategic
Income Fund). The
Fund may not purchase real estate unless acquired as a result of the ownership
of securities or instruments, except that the Fund may (i) invest in
securities of issuers that mortgage, invest or deal in real estate or interests
therein, (ii) invest in securities that are secured by real estate or
interests therein, (iii) purchase and sell mortgage-related securities,
(iv) hold and sell real estate acquired by the Fund as a result of the
ownership of securities, and (v) invest in real estate investment trusts of
any kind.
7. Senior Securities. No Fund may issue
senior securities, except as permitted under the 1940 Act.
8. Underwriting (All Funds except Neuberger
Berman Municipal High Income Fund). No Fund may engage in the
business of underwriting securities of other issuers, except to the extent that
a Fund, in disposing of portfolio securities, may be deemed to be an underwriter
within the meaning of the Securities Act of 1933, as amended (“1933
Act”).
Underwriting (Neuberger Berman Municipal
High Income Fund). The Fund may not
underwrite securities of other issuers, except to the extent that the Fund, in
disposing of portfolio securities, may be deemed to be an underwriter within the
meaning of the 1933 Act.
9. Municipal Securities (Neuberger Berman
Municipal High Income Fund and Neuberger Berman Municipal
Impact Fund). The Fund normally invests
at least 80% of its net assets plus the amount of any borrowings for investment
purposes in securities of municipal issuers that provide interest income that is
exempt from federal income tax and other investments that provide investment
exposure to such securities; however, the Fund may invest without limit in
municipal securities the interest on which may be an item of tax preference for
purposes of the federal alternative minimum tax (“Tax Preference
Item”).
Municipal Securities (Neuberger Berman
Municipal Intermediate Bond
Fund). The Fund
normally invests at least 80% of its total assets in securities of municipal
issuers.
A
Fund’s limitation on investments in any one issuer does not limit the Fund’s
ability to invest up to 100% of its total assets in a master portfolio with the
same investment objective, policies and limitations as the Fund.
Each
Fund (except Neuberger Berman Floating Rate
Income Fund) has the following additional fundamental investment
policy:
Accordingly,
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.
Neuberger
Berman Floating Rate Income Fund has the
following fundamental investment policy:
Accordingly,
notwithstanding any other investment policy of the Fund, the Fund may invest all
of its investable assets in an open-end management investment company having
substantially the same investment objective, policies, and limitations as the
Fund.
With
respect to the investment limitation on borrowings, Neuberger Berman Core Bond Fund, Neuberger Berman Emerging Markets Debt Fund, Neuberger Berman
Floating Rate Income Fund, Neuberger
Berman High Income Bond Fund, Neuberger Berman Municipal Impact Fund, and Neuberger Berman
Strategic Income Fund may pledge assets
in connection with permitted borrowings.
For
purposes of the investment limitation on commodities, a Fund does not consider
foreign currencies or forward contracts to be physical commodities. Also, this
limitation does not prohibit a Fund from purchasing securities backed by
physical commodities, including interests in exchange-traded investment trusts
and other similar entities, or derivative instruments. Also, this limitation
does not prohibit Neuberger Berman Municipal
High Income Fund from purchasing physical commodities.
None
of the foregoing limitations shall be construed to prevent a Fund from
purchasing, holding or selling all or a portion of any issuance of sukuk or
similarly structured investments.
With
respect to the fundamental policy relating to industry concentration set forth
in (4) above, the 1940 Act does not define what constitutes “concentration” in
an industry. The SEC staff has taken the position that investment of 25% or more
of a fund’s total assets in one or more issuers conducting their principal
activities in the same industry or group of industries constitutes
concentration. It is possible that interpretations of concentration could change
in the future. The policy in (4) above will be interpreted to refer to
concentration as that term may be interpreted from time to time by the SEC, SEC
staff or other relevant authority. The policy also will be interpreted to permit
investment without limit in the following: securities of the U.S. government and
its agencies or instrumentalities; securities of state, territory, possession or
municipal governments and their authorities, agencies, instrumentalities or
political subdivisions; securities of foreign governments; and repurchase
agreements collateralized by any such obligations. Accordingly, issuers of the
foregoing securities will not be considered to be members of any industry and
there will be no limit on investment in issuers domiciled in a single
jurisdiction or country. The policy also will be interpreted to give broad
authority to a Fund as to how to classify issuers within or among
industries. Also for purposes of the fundamental policy relating to
concentration, mortgage-backed and asset-backed securities are grouped according
to the nature of their collateral, and certificates of deposit (“CDs”) are
interpreted to include similar types of time deposits.
For
purposes of the investment limitation on concentration in a particular industry,
each of Neuberger Berman Core Bond Fund,
Neuberger Berman Emerging Markets Debt
Fund, Neuberger Berman Floating Rate
Income Fund, Neuberger Berman Short
Duration Bond Fund and
Neuberger Berman Strategic Income Fund
determines the “issuer” of a municipal obligation that is not a general
obligation note or bond based on the obligation’s characteristics. The most
significant of these characteristics is the source of funds for the repayment of
principal and payment of interest on the obligation. If an obligation is backed
by an irrevocable letter of credit or other guarantee, without which the
obligation would not qualify for purchase under a Fund’s quality restrictions,
the issuer of the letter of credit or the guarantee is considered an issuer of
the obligation. If an obligation meets a Fund’s quality restrictions without
credit support, the Fund 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, Neuberger Berman Municipal High Income
Fund, Neuberger Berman Municipal Impact
Fund and Neuberger Berman Municipal
Intermediate Bond Fund will not exclude securities the interest on which
is exempt from federal income tax (“tax-exempt securities”) that are issued by
municipalities to finance non-governmental projects, such as hospitals (i.e.,
private activity bonds (“PABs”)), from the investment limitation.
A
Fund’s fundamental policies will be interpreted broadly. For example, the
policies will be interpreted to refer to the 1940 Act and the related rules as
they are in effect from time to time, and to interpretations and modifications
of or relating to the 1940 Act by the SEC and others as they are given from time
to time. When a policy provides that an investment practice may be conducted as
permitted by the 1940 Act, the policy will be interpreted to mean either that
the 1940 Act expressly permits the practice or that the 1940 Act does not
prohibit the practice.
The
following investment policies and limitations are non-fundamental and apply to
all Funds unless otherwise indicated:
1. Illiquid Securities. No Fund may
purchase any security if, as a result, more than 15% of its net assets would be
invested in illiquid securities. An illiquid investment means any investment
that a Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment.
2. Borrowing (Neuberger Berman Emerging
Markets Debt Fund,
Neuberger Berman Floating Rate Income Fund, Neuberger Berman High Income
Bond Fund, Neuberger
Berman Municipal High Income Fund, Neuberger Berman Short
Duration Bond Fund and Neuberger Berman Strategic
Income Fund). No
Fund may purchase securities if outstanding borrowings of money, including any
reverse repurchase agreements, exceed 5% of its total assets. Neuberger Berman
High Income Bond Fund does not currently intend to borrow
for leveraging or investment.
Borrowing (Neuberger Berman Core
Bond Fund).
The Fund may not purchase securities if outstanding borrowings of money exceed
5% of its total assets.
Borrowing (Neuberger Berman Municipal
Impact Fund and Neuberger
Berman Municipal Intermediate
Bond Fund). The
Fund may not purchase securities if outstanding borrowings, including any
reverse repurchase agreements, exceed 5% of its total assets.
3. Lending (Neuberger Berman Core
Bond Fund, Neuberger
Berman Municipal Intermediate
Bond Fund and Neuberger
Berman Short Duration Bond Fund). Except for the purchase of
debt securities and engaging in repurchase agreements, the Funds may not make
any loans other than securities loans.
Lending (Neuberger Berman Emerging
Markets Debt Fund,
Neuberger Berman Floating Rate Income Fund, Neuberger Berman High Income
Bond Fund, Neuberger
Berman Municipal High Income Fund, Neuberger Berman Municipal
Impact Fund and Neuberger
Berman Strategic Income Fund). Except for the purchase of debt
securities, loans, loan participations or other forms of direct debt instruments
and engaging in repurchase agreements, the Funds may not make any loans other
than securities loans.
4. Margin Transactions. No Fund may
purchase securities on margin from brokers or other lenders, except that a Fund
may obtain such short-term credits as are necessary for the clearance of
securities transactions. Margin posted as collateral in connection with
derivatives transactions and short sales shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
5. Investments in Any One Issuer (Neuberger
Berman Emerging Markets Debt Fund). At the close of each quarter of
each Fund’s taxable year, (i) at least 50% of the value of the Fund's total
assets must be represented by cash and cash items, Government securities (as
defined for purposes of Subchapter M of Chapter 1 of Subtitle A of the Internal
Revenue Code of 1986, as amended (“Code”)), securities of other “regulated
investment companies” (as defined in section 851(a) of the Code) (each, a
“RIC”), and other securities limited, in respect of any one issuer, to an amount
that does not exceed 5% of the value of the Fund’s total assets and that does
not represent more than 10% of the issuer’s outstanding voting securities, and
(ii) not more than 25% of the value of the Fund's total assets may be invested
in (a) securities (other than Government securities or securities of other RICs)
of any one issuer, (b) securities (other than securities of other RICs) of two
or more issuers the Fund controls that are determined to be engaged in the same,
similar, or related trades or businesses, or in the case of Neuberger Berman
Emerging Markets Debt Fund (c) securities
of one or more “qualified publicly traded partnerships” (as defined in the
Code).
6. Geographic Concentration (Neuberger Berman
Municipal High Income Fund, Neuberger Berman Municipal
Impact Fund and Neuberger
Berman Municipal Intermediate
Bond Fund). The
Fund will not invest 25% or more of its total assets in securities issued by
governmental units located in any one state, territory, or possession of the
United States (but this limitation does not apply to project notes backed by the
full faith and credit of the United States).
7. Bonds and Other Debt Securities (Neuberger
Berman Core Bond Fund and Neuberger Berman Short
Duration Bond
Fund). Each Fund normally invests at least 80% of its net assets, plus
the amount of any borrowings for investment purposes, in bonds and other debt
securities and other investment companies that provide investment exposure to
such debt
securities.
Although this is a non-fundamental policy, the Fund Trustees will not change
this policy without at least 60 days’ notice to shareholders.
High-Yield Bonds (Neuberger
Berman High Income Bond Fund). The Fund normally invests at
least 80% of its net assets, plus the amount of any borrowings for investment
purposes, in high-yield bonds (generally defined as those debt securities that,
at the time of investment, are rated in the lowest investment grade category
(BBB by Standard & Poor’s (“S&P”), Baa by Moody’s Investors Service
(“Moody’s”), or comparably rated by at least one independent credit rating
agency) or lower or, if unrated, deemed by the portfolio managers to be of
comparable quality) and other investment companies that provide investment
exposure to such bonds. Although this is a non-fundamental policy, the Fund
Trustees will not change this policy without at least 60 days’ notice to
shareholders.
Floating Rate Investments (Neuberger Berman
Floating Rate Income Fund). The Fund normally invests at
least 80% of its net assets, plus the amount of any borrowings for investment
purposes, in floating rate securities (including loans) and other investment
companies that provide investment exposure to such floating rate securities.
Although this is a non-fundamental policy, the Fund Trustees will not change
this policy without at least 60 days’ notice to shareholders.
Emerging Market Debt and Other Instruments
(Neuberger Berman Emerging Markets Debt Fund). The Fund normally invests at
least 80% of its net assets, plus the amount of any borrowings for investment
purposes, in debt and other instruments of issuers that are tied economically to
emerging market countries and other investments that provide investment exposure
to such debt instruments. Although this is a non-fundamental policy, the Fund
Trustees will not change this policy without at least 60 days’ notice to
shareholders.
8. Investment by a Fund of Funds. If
shares of a Fund are purchased by another fund in reliance on Section
12(d)(1)(G) of the 1940 Act, for so long as shares of the Fund are held by such
fund, the Fund will not purchase securities of registered open-end investment
companies or registered unit investment trusts in reliance on Section
12(d)(1)(F) or Section 12(d)(1)(G) of the 1940 Act.
For
purposes of a Fund’s non-fundamental policy to invest at least 80% of its net
assets in debt securities or debt instruments, as applicable, convertible debt
securities are considered to be debt. A Fund currently considers preferred
securities and contingent convertible securities to be either debt or equity
based on the recommendation of an independent third party.
Senior Securities
Section
18(f)(1) of the 1940 Act prohibits an open-end investment company from issuing
any class of senior security, or selling any class of senior security of which
it is the issuer, except that the investment company may borrow from a bank
provided that immediately after any such borrowing there is asset coverage of at
least 300% for all of its borrowings. The SEC has taken the position that
certain instruments that create future obligations may be considered senior
securities subject to provisions of the 1940 Act that limit the ability of
investment companies to issue senior securities. Common examples include reverse
repurchase agreements, short sales, futures and options positions, forward
contracts and when-issued securities. However, the SEC
has
clarified that, if a fund segregates cash or liquid securities sufficient to
cover such obligations or holds off-setting positions (or, in some cases, uses a
combination of such strategies), the SEC will not raise senior securities issues
under the 1940 Act.
For
temporary defensive purposes, or to manage cash pending investment or payout,
each of Neuberger Berman Core Bond Fund,
Neuberger Berman Floating Rate Income
Fund, Neuberger Berman High
Income Bond Fund, Neuberger
Berman Municipal High Income Fund,
Neuberger Berman Municipal Impact Fund,
Neuberger Berman Municipal Intermediate
Bond Fund, Neuberger Berman Short
Duration Bond Fund, and
Neuberger Berman Strategic Income Fund
may invest up to 100% of its total assets in cash or cash equivalents, U.S.
Government and Agency Securities, commercial paper, money market funds and certain other money market
instruments, as well as repurchase agreements collateralized by the foregoing,
the income from which generally will be subject to federal, state, and local
income taxes and may adopt shorter than normal weighted average maturities or
durations. Yields on these securities are generally lower than yields available
on certain other investments and debt securities in which Neuberger Berman Core Bond Fund, Neuberger Berman Floating Rate Income Fund, Neuberger
Berman High Income Bond Fund, Neuberger Berman Short Duration Bond Fund, and Neuberger Berman Strategic Income Fund normally invest. These
investments will produce taxable income for Neuberger Berman Municipal High Income Fund, Neuberger Berman
Municipal Impact Fund, and Neuberger
Berman Municipal Intermediate Bond Fund
and may produce after-tax yields that are lower than the tax-equivalent yields
available on municipal securities at the time.
For
temporary defensive purposes, or to manage cash pending investment or payout,
Neuberger Berman Emerging Markets Debt
Fund may invest up to 100% of its total assets in short-term foreign or
U.S. investments, such as cash or cash equivalents, commercial paper, short-term
bank obligations, U.S. Government and Agency Securities, and repurchase
agreements collateralized by the foregoing, the income from which generally will
be subject to federal, state, and local income taxes and may adopt shorter than
normal weighted average maturities or durations. Yields on these securities are
generally lower than yields available on certain other investments and debt
securities in which each Fund normally invests.
A
Fund may also invest in such instruments to increase liquidity or to provide
collateral to be segregated.
These
investments may prevent a Fund from achieving its investment objective.
In
reliance on an SEC exemptive rule, a Fund may invest an unlimited amount of its
uninvested cash and cash collateral received in connection with securities
lending in shares of money market funds and unregistered funds that operate in
compliance with Rule 2a-7 under the 1940 Act, whether or not advised by NBIA or
an affiliate, under specified conditions. Among other things, the
conditions preclude an investing Fund from paying a sales charge, as defined in
rule 2830(b) of the NASD Conduct Rules of the Financial Industry Regulatory
Authority, Inc. (“FINRA”) (“sales charge”), or a service fee, as defined in that
rule, in connection with its purchase or redemption of the money market fund’s
or unregistered fund’s shares, or the Fund’s investment
adviser
must waive a sufficient amount of its advisory fee to offset any such sales
charge or service fee.
Unless
otherwise indicated, the Funds may buy the types of securities and use the
investment techniques described below, subject to any applicable investment
policies and limitations. However, the Funds may not buy all of the types
of securities or use all of the investment techniques described below. In
addition, certain securities and investment techniques may produce taxable
income for the Funds. Each Fund’s principal investment strategies and the
principal risks of each Fund’s principal investment strategies are discussed in
the Prospectuses.
In
reliance on an SEC exemptive order, each Fund may invest in both affiliated and
unaffiliated investment companies, including exchange-traded funds (“ETFs”)
(“underlying funds”) in excess of the limits in Section 12 of the 1940 Act and
the rules and regulations thereunder. When a Fund invests in underlying
funds, it is indirectly exposed to the investment practices of the underlying
funds and, therefore, is subject to all the risks associated with the practices
of the underlying funds. This SAI is not an offer to sell shares of any
underlying fund. Shares of an underlying fund are sold only through the
currently effective prospectus for that underlying fund. Unless otherwise
noted herein, the investment practices and associated risks detailed below also
include those to which a Fund indirectly may be exposed through its investment
in an underlying fund. Unless otherwise noted herein, any references to
investments made by a Fund include those that may be made both directly by the
Fund and indirectly by the Fund through its investments in underlying
funds.
Asset-Backed
Securities.
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, pools of assets such as, among other things, 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, or a combination of the foregoing. 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 and to extension risk (the risk that an issuer of a
security will make principal payments slower than anticipated by the investor,
thus extending the securities’ duration). The risk that recovery on repossessed
collateral might be unavailable or inadequate to support payments, however, is
greater for asset-backed securities than for mortgage-backed securities.
Certificates
for Automobile ReceivablesSM (“CARSSM”) represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interests in the
vehicles securing those contracts. Payments of principal and interest on the
underlying contracts are passed through monthly to certificate holders and are
guaranteed up to specified amounts by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the trust. Underlying
installment sales contracts are subject to prepayment,
which
may reduce the overall return to certificate holders. Certificate holders also
may experience delays in payment or losses on CARSSM if the trust
does not realize the full amounts due on underlying installment sales contracts
because of unanticipated legal or administrative costs of enforcing the
contracts; depreciation, damage, or loss of the vehicles securing the contracts;
or other factors.
Credit
card receivable securities are backed by receivables from revolving credit card
agreements (“Accounts”). Credit balances on Accounts are generally paid down
more rapidly than are automobile contracts. Most of the credit card receivable
securities issued publicly to date have been pass-through certificates. In order
to lengthen their maturity or duration, most such securities provide for a fixed
period during which only interest payments on the underlying Accounts are passed
through to the security holder; principal payments received on the Accounts are
used to fund the transfer of additional credit card charges made on the Accounts
to the pool of assets supporting the securities. Usually, the initial fixed
period may be shortened if specified events occur which signal a potential
deterioration in the quality of the assets backing the security, such as the
imposition of a cap on interest rates. An issuer’s ability to extend the life of
an issue of credit card receivable securities thus depends on the continued
generation of principal amounts in the underlying Accounts and the
non-occurrence of the specified events. The non-deductibility of consumer
interest, as well as competitive and general economic factors, could adversely
affect the rate at which new receivables are created in an Account and conveyed
to an issuer, thereby shortening the expected weighted average life of the
related security and reducing its yield. An acceleration in cardholders’ payment
rates or any other event that shortens the period during which additional credit
card charges on an Account may be transferred to the pool of assets supporting
the related security could have a similar effect on its weighted average life
and yield.
Credit
cardholders are entitled to the protection of state and federal consumer credit
laws. Many of those laws give a holder the right to set off certain amounts
against balances owed on the credit card, thereby reducing amounts paid on
Accounts. In addition, unlike the collateral for most other asset-backed
securities, Accounts are unsecured obligations of the cardholder.
Neuberger
Berman Core Bond Fund, Neuberger Berman
Emerging Markets Debt Fund, Neuberger
Berman Floating Rate Income Fund,
Neuberger Berman High Income Bond Fund, Neuberger Berman Municipal High Income Fund, Neuberger Berman
Municipal Impact Fund, Neuberger
Berman Short Duration Bond Fund and Neuberger Berman Strategic Income Fund each may invest in trust
preferred securities, which are a type of asset-backed security. 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 a Fund.
Banking and
Savings Institution Securities. These include CDs, time
deposits, bankers’ acceptances, and other short-term and long-term debt
obligations issued by commercial banks and savings institutions. The CDs, time
deposits, and bankers’ acceptances in which the Funds invest typically are not
covered by deposit insurance.
A
certificate of deposit is a short-term negotiable certificate issued by a
commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A bankers’ acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. The borrower is liable for payment
as is the bank, which unconditionally guarantees to pay the draft at its face
amount on the maturity date. Fixed time deposits are obligations of branches of
U.S. banks or foreign banks that are payable at a stated maturity date and bear
a fixed rate of interest. Although fixed time deposits do not have a market,
there are no contractual restrictions on the right to transfer a beneficial
interest in the deposit to a third party. Deposit notes are notes issued by
commercial banks that generally bear fixed rates of interest and typically have
original maturities ranging from eighteen months to five years.
Banks
are subject to extensive governmental regulations that may limit both the
amounts and types of loans and other financial commitments that may be made and
the interest rates and fees that may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital, which
can fluctuate significantly when interest rates change. Also, general economic
conditions, consolidation and competition among banking and savings institutions
play an important part in the operations of this industry and exposure to credit
losses arising from possible financial difficulties of borrowers might affect a
bank’s ability to meet its obligations. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation.
In
response to the 2008 financial turmoil, the U.S. Government is taking a variety
of measures to increase the regulation of depository institutions and their
holding companies. On July 21, 2010, the President signed into law the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”), which significantly impacts the financial services industry, including
more stringent regulation of depository institutions and their holding
companies. Federal regulatory agencies are in the process of developing
regulations to implement many of the Dodd-Frank Act’s provisions, so the full
impact and compliance burden on the operations and profitability of depository
institutions and their holding companies is not yet clear and will not likely be
clear for years to come. Based on the provisions of the Dodd-Frank Act and
anticipated implementing regulations, depository institutions and their holding
companies are likely to be subject to significantly increased regulatory and
compliance obligations. Accordingly, investments in bank paper may not
yield expected returns because the increased regulation may significantly
curtail the operations and profitability of depository institutions and their
holding companies.
In
addition, for Neuberger Berman Core Bond
Fund, Neuberger Berman Emerging Markets Debt
Fund, Neuberger Berman Floating Rate
Income Fund, Neuberger Berman High
Income Bond Fund, Neuberger
Berman Municipal High Income Fund,
Neuberger Berman Municipal Impact Fund,
Neuberger Berman Short
Duration Bond Fund and
Neuberger Berman Strategic Income Fund,
securities of foreign banks and foreign branches of U.S. banks may
involve
investment risks in addition to those relating to domestic bank obligations.
Such risks include future political and economic developments, the possible
seizure or nationalization of foreign deposits, and the possible adoption of
foreign governmental restrictions that might adversely affect the payment of
principal and interest on such obligations. In addition, foreign banks and
foreign branches of U.S. banks may be subject to less stringent reserve
requirements and non-U.S. issuers generally are subject to different accounting,
auditing, reporting and recordkeeping standards than those applicable to U.S.
issuers.
Collateralized Loan
Obligations. A Fund also may invest in collateralized loan
obligations (“CLOs”), which are another type of asset-backed security. A
CLO is a trust or other special purpose entity that is comprised of or
collateralized by a pool of loans, including domestic and non-U.S. senior
secured loans, senior unsecured loans and subordinate corporate loans, including
loans that may be rated below investment grade or equivalent unrated
loans. The loans generate cash flow that is allocated among one or more
classes of securities (“tranches”) that vary in risk and yield. The most
senior tranche has the best credit quality and the lowest yield compared to the
other tranches. The equity tranche has the highest potential yield but
also has the greatest risk, as it bears the bulk of defaults from the underlying
loans and helps to protect the more senior tranches from risk of these
defaults. However, despite the protection from the equity and other more
junior tranches, more senior tranches can experience substantial losses due to
actual defaults and decreased market value due to collateral default and
disappearance of protecting tranches, market anticipation of defaults, as well
as aversion to CLO securities as a class.
Normally,
CLOs are privately offered and sold and are not registered under state or
federal securities laws. Therefore, investments in CLOs may be
characterized by a Fund as illiquid securities; however, an active dealer market
may exist for CLOs allowing a CLO to qualify for transactions pursuant to Rule
144A under the 1933 Act. CLOs normally charge management fees and
administrative expenses, which are in addition to those of a Fund.
The
riskiness of investing in CLOs depends largely on the quality and type of the
collateral loans and the tranche of the CLO in which a Fund invests. In
addition to the normal risks associated with fixed-income securities discussed
elsewhere in this SAI and a Fund’s Prospectus (such as interest rate risk and
credit risk), CLOs carry risks including, but not limited to: (i) the
possibility that distributions from the collateral will not be adequate to make
interest or other payments; (ii) the quality of the collateral may decline in
value or default; (iii) the Fund may invest in CLO tranches that are subordinate
to other tranches; and (iv) the complex structure of the CLO may not be fully
understood at the time of investment or may result in the quality of the
underlying collateral not being fully understood and may produce disputes with
the issuer or unexpected investment results. In addition, interest on
certain tranches of a CLO may be paid in-kind (meaning that unpaid interest is
effectively added to principal), which involves continued exposure to default
risk with respect to such payments. Certain CLOs may receive credit
enhancement in the form of a senior-subordinate structure,
over-collateralization or bond insurance, but such enhancement may not always be
present and may fail to protect a Fund against the risk of loss due to defaults
on the collateral. Certain CLOs may not hold loans directly, but rather,
use derivatives such as swaps to create “synthetic” exposure to the collateral
pool of loans. Such CLOs entail the risks of derivative instruments
described elsewhere in this SAI.
Commercial
Paper.
Commercial paper is a short-term debt security issued by a corporation, bank,
municipality, or other issuer, usually for purposes such as financing current
operations. A Fund may invest in commercial paper that cannot be resold to the
public without an effective registration statement under the 1933 Act. While
some restricted commercial paper normally is deemed illiquid, the Manager may in certain cases determine that such
paper is liquid.
Commodities
Related Investments. A Fund may purchase securities
backed by physical commodities, including interests in exchange-traded
investment trusts and other similar entities, the value of the shares of which
relates directly to the value of physical commodities held by such an
entity. As an investor in such an entity, a Fund would indirectly bear its
pro rata share of the entity’s expenses,
which may include storage and other costs relating to the entity’s investments
in physical commodities.
In
addition, a Fund will not qualify as a RIC for any taxable year in which more
than 10% of its gross income consists of “non-qualifying” income, which includes
gains from selling physical commodities (or options or futures contracts thereon
unless the gain is realized from certain hedging transactions) and certain other
non-passive income. A Fund’s investment in securities backed by, or in
such entities that invest in, physical commodities would produce non-qualifying
income, although investments in stock of a “controlled foreign corporation” that
invests in physical commodities and annually distributes its net income and
gains generally should not produce such income. To remain within the 10%
limitation, a Fund may need to hold such an investment or sell it at a loss, or
sell other investments, when for investment reasons it would not otherwise do
so. The availability of such measures does not guarantee that a Fund would
be able to satisfy that limitation.
Exposure
to physical commodities may subject a Fund to greater volatility than
investments in traditional securities. The value of such investments may
be affected by overall market movements, commodity index volatility, changes in
interest rates, or factors affecting a particular industry or commodity, such as
supply and demand, drought, floods, weather, embargoes, tariffs and
international economic, political and regulatory developments. Their value
may also respond to investor perception of instability in the national or
international economy, whether or not justified by the facts. However,
these investments may help to moderate fluctuations in the value of a Fund’s
other holdings, because these investments may not correlate with investments in
traditional securities. Economic and other events (whether real or perceived)
can reduce the demand for commodities, which may reduce market prices and cause
the value of a Fund’s shares to fall. No active trading market may exist
for certain commodities investments, which may impair the ability of a Fund to
sell or realize the full value of such investments in the event of the need to
liquidate such investments. Certain commodities are subject to limited
pricing flexibility because of supply and demand factors. Others are subject to
broad price fluctuations as a result of the volatility of the prices for certain
raw materials and the instability of the supplies of other materials. These
additional variables may create additional investment risks and result in
greater volatility than investments in traditional securities. Because
physical commodities do not generate investment income, the return on such
investments will be derived solely from the appreciation or depreciation on such
investments. Certain types of commodities instruments (such as commodity-linked
swaps and commodity-linked structured notes) are subject to the risk that the
counterparty to the instrument will not perform or will be unable to perform in
accordance with the terms of the instrument.
Policies and
Limitations. For the
Funds’ policies and limitations on commodities, see “Investment Policies and
Limitations -- Commodities” above. In addition, a Fund does not intend to sell
commodities related investments when doing so would cause it to fail to qualify
as a RIC.
Contingent
Convertible Securities.
Contingent convertible securities (“CoCos”) are a form of hybrid security that
are intended to either convert into equity or have their principal written down
upon the occurrence of certain triggers. The triggers are generally linked to
regulatory capital thresholds or regulatory actions calling into question the
issuer’s continued viability as a going concern. The unique equity conversion or
principal write-down features of CoCos are tailored to the issuer and its
regulatory requirements. CoCos typically will be issued in the form of
subordinated debt instruments in order to provide the appropriate regulatory
capital treatment prior to a conversion. One type of CoCo provides for mandatory
conversion of the security into common stock of the issuer under certain
circumstances. The mandatory conversion might relate, for example, to the
issuer’s failure to maintain a capital minimum required by regulations.
Because the common stock of the issuer may not pay a dividend, investors in such
securities could experience reduced yields (or no yields at all) and conversion
would worsen the investor’s standing in the case of an issuer’s insolvency.
Another type of CoCo has characteristics designed to absorb losses, where the
liquidation value of the security may be adjusted downward to below the original
par value or written off entirely under certain circumstances. For instance, in
the event that losses have eroded the issuer’s capital levels to below a
specified threshold, the liquidation value of the security may be reduced in
whole or in part. The write-down of the security’s par value may occur
automatically and would not entitle holders to institute bankruptcy proceedings
against the issuer. In addition, an automatic write-down could result in a
reduced income rate if the dividend or interest payment associated with the
security is based on the security’s par value. Such securities may, but are not
required to, provide for circumstances under which the liquidation value of the
security may be adjusted back up to par, such as an improvement in
capitalization or earnings. In addition, CoCos may have no stated maturity and
may have fully discretionary coupons that can potentially be cancelled at the
issuer’s discretion or may be prohibited by the relevant regulatory authority
from being paid in order to help the issuer absorb losses.
Convertible
Securities. A convertible
security is a bond, debenture, note, preferred stock, or other security or debt
obligation that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities generally have
features of, and risks associated with, both equity and fixed income
instruments. As such, the value of most convertible securities will vary with
changes in the price of, and will be subject to the risks associated with, the
underlying common stock. Additionally, convertible securities are also
subject to the risk that the issuer may not be able to pay principal or interest
when due and the value of the convertible security may change based on the
issuer’s credit rating.
A
convertible security entitles the holder to receive the interest paid or accrued
on debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, such
securities ordinarily provide a stream of income with generally higher yields
than common stocks of the same or similar issuers, but lower than the yield on
non-convertible debt. Convertible securities are usually subordinated to
comparable-tier non-convertible securities and other senior debt obligations of
the issuer, but rank senior to common stock in a company’s capital structure.
The value of a convertible security is a function
of (1)
its yield in comparison to the yields of other securities of comparable maturity
and quality that do not have a conversion privilege and (2) its worth if
converted into the underlying common stock.
The
price of a convertible security often reflects variations in the price of the
underlying common stock in a way that non-convertible debt may not. Convertible
securities may be issued by smaller capitalization companies whose stock prices
may be more volatile than larger capitalization companies. A convertible
security may have a mandatory conversion feature or a call feature that subjects
it to redemption at the option of the issuer at a price established in the
security’s governing instrument. If a convertible security held by a Fund is
called for redemption, the Fund will be required to convert it into the
underlying common stock, sell it to a third party or permit the issuer to redeem
the security. Any of these actions could have an adverse effect on a Fund’s
ability to achieve its investment objectives.
Direct Debt
Instruments including Loans, Loan Assignments, and Loan
Participations. Direct debt
includes interests in loans, notes and other interests in amounts owed to
financial institutions by borrowers, such as companies and governments,
including emerging market countries. Direct debt instruments are interests in
amounts owed by corporate, governmental, or other borrowers (including emerging
market countries) to lenders or lending syndicates. Purchasers of loans and
other forms of direct indebtedness depend primarily upon the creditworthiness of
the borrower for payment of principal and interest. The borrower may be in
financial distress or may default. If a Fund does not receive scheduled interest
or principal payments on such indebtedness, the Fund’s share price and yield
could be adversely affected. Participations in debt instruments may involve a
risk of insolvency of the selling bank. In addition, there may be fewer legal
protections for owners of participation interests than for direct lenders.
Direct indebtedness of developing countries involves a risk that the
governmental entities responsible for the repayment of the debt may be unable or
unwilling to pay interest and repay principal when due. See the additional risks
described under “Foreign Securities” in this SAI.
Direct
debt instruments may have floating interest rates. These interest rates
will vary depending on the terms of the underlying loan and market
conditions.
Loans, Loan
Assignments, and Loan Participations. Floating rate securities, including loans, provide for automatic adjustment of the interest rate at
fixed intervals (e.g., daily, weekly, monthly, or semi-annually) or automatic
adjustment of the interest rate whenever a specified interest rate or index
changes. The interest rate on floating rate securities ordinarily is determined
by reference to LIBOR (London Interbank Offered Rate), a particular bank’s prime
rate, the 90-day Treasury Department 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. A Fund may invest in
secured and unsecured loans.
A Fund may invest in direct debt instruments by direct investment as a lender, by taking an assignment of all or a portion of an interest
in a loan previously held by another institution or by acquiring a participation
interest in a loan that continues to be held by another institution.
It also may be difficult for a Fund to
obtain an accurate picture of a selling bank’s financial condition. Loans are
subject to the same risks as other direct debt instruments discussed above and
carry additional risks described in this section.
Direct Investments. When a Fund invests
as an initial investor in a new loan, the investment is typically made at par
value. Secondary purchases of loans may be made at a premium to par, at
par, or at a discount to par. Therefore, a Fund’s return on a secondary
investment may be lower, equal, or higher than if the Fund had made a direct
investment. As an initial investor in a new loan, the Fund may be paid a
commitment fee.
Assignments. When a Fund purchases a loan by
assignment, the Fund typically succeeds to the rights of the assigning lender
under the loan agreement and becomes a lender under the loan agreement. Subject
to the terms of the loan agreement, a Fund typically succeeds to all the rights
and obligations under the loan agreement of the assigning lender. However,
assignments may be arranged through private negotiations between potential
assignees and potential assignors, and the rights and obligations acquired by
the purchaser of an assignment may differ from, and be more limited than, those
held by the assigning lender.
Participation Interests. A Fund’s rights
under a participation interest with respect to a particular loan may be more
limited than the rights of original lenders or of investors who acquire an
assignment of that loan. In purchasing participation interests, a Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender selling the participation interest
(the “participating lender”) and only when the participating lender receives the
payments from the borrower.
In
a participation interest, a Fund will usually have a contractual relationship
only with the selling institution and not the underlying borrower. A Fund
normally will have to rely on the participating lender to demand and receive
payments in respect of the loans, and to pay those amounts on to the Fund; thus,
a Fund will be subject to the risk that the lender may be unwilling or unable to
do so. In such a case, a Fund would not likely have any rights against the
borrower directly. In addition, a Fund generally will have no right to
object to certain changes to the loan agreement agreed to by the participating
lender.
In
buying a participation interest, a Fund might not directly benefit from the
collateral supporting the related loan and may be subject to any rights of set
off the borrower has against the selling institution. In the event of
bankruptcy or insolvency of the borrower, the obligation of the borrower to
repay the loan may be subject to certain defenses that can be asserted by the
borrower as a result of any improper conduct of the participating lender.
As a result, a Fund may be subject to delays, expenses and risks that are
greater than those that exist when the Fund is an original lender or
assignee.
Creditworthiness. A
Fund’s ability to receive payments in connection
with loans depends on the financial condition of the borrower. The Manager
will not rely solely on another lending institution’s credit analysis of the
borrower, but will perform its own investment analysis of the borrower.
The Manager’s analysis may include consideration of the borrower’s financial
strength, managerial experience, debt coverage, additional borrowing
requirements or debt maturity schedules, changing financial conditions, and
responsiveness to changes in business conditions and interest rates.
Indebtedness of borrowers whose creditworthiness is poor involves substantially
greater risks and may be highly speculative. Borrowers that are in
bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. In connection with the
restructuring of a loan or other direct debt instrument outside of
bankruptcy
court
in a negotiated work-out or in the context of bankruptcy proceedings, equity
securities or junior debt securities may be received in exchange for all or a
portion of an interest in the security.
In buying a participation
interest, a Fund assumes the credit risk of both the borrower and the
participating lender. If the participating lender fails to perform its
obligations under the participation agreement, a Fund might incur costs and
delays in realizing payment and suffer a loss of principal and/or interest. If a
participating lender becomes insolvent, a Fund may be treated as a general
creditor of that lender. As a general creditor, a Fund may not benefit from a
right of set off that the lender has against the borrower. A Fund will acquire a
participation interest only if the Manager determines that the participating
lender or other intermediary participant selling the participation interest is
creditworthy.
Ratings. Loan interests may not be rated
by independent rating agencies and therefore, investments in a particular loan
participation may depend almost exclusively on the credit analysis of the
borrower performed by the Manager.
Agents. Loans are typically administered
by a bank, insurance company, finance company or other financial institution
(the “agent”) for a lending syndicate of financial institutions. In a
typical loan, the agent administers the terms of the loan agreement and is
responsible for the collection of principal and interest and fee payments from
the borrower and the apportionment of these payments to all lenders that are
parties to the loan agreement. In addition, an institution (which may be
the agent) may hold collateral on behalf of the lenders. Typically, under
loan agreements, the agent is given broad authority in monitoring the borrower’s
performance and is obligated to use the same care it would use in the management
of its own property. In asserting rights against a borrower, a Fund
normally will be dependent on the willingness of the lead bank to assert these
rights, or upon a vote of all the lenders to authorize the action.
If an agent becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate
regulatory authority, or becomes a debtor in
a bankruptcy proceeding, the agent’s appointment may be terminated and a
successor agent would be appointed. If an appropriate regulator or court
determines that assets held by the agent for the benefit of the purchasers of
loans are subject to the claims of the agent’s general or secured creditors, a
Fund might incur certain costs and delays in realizing payment on a loan or
suffer a loss of principal and/or interest. A Fund may be subject
to similar risks when it buys a participation interest or an assignment from an
intermediary.
Collateral. Although most of the
loans in which a Fund invests are secured,
there is no assurance that the collateral can be promptly liquidated, or that its liquidation value will be equal
to the value of the debt. In most loan agreements there is no formal requirement
to pledge additional collateral if the value of the initial collateral
declines. As a result, a loan may not
always be fully collateralized and can
decline significantly in value.
If a borrower becomes insolvent, access to collateral may
be limited by bankruptcy and other laws. Borrowers that are in bankruptcy
may pay only a small portion of the amount owed, if they are able to pay at all.
In addition, if a secured loan is foreclosed, a Fund may bear the costs and liabilities associated with owning and disposing of the
collateral. The collateral may be difficult to sell and a Fund
would bear the risk that the collateral may decline in value while the
Fund
is holding it. There is also a possibility that a Fund will become the
owner of its pro rata share of the collateral which may carry additional risks
and liabilities. In addition, under legal
theories of lender liability, a Fund potentially might be held liable as a
co-lender. In the event of a borrower’s bankruptcy or insolvency,
the borrower’s obligation to repay the loan may be subject to certain defenses
that the borrower can assert as a result of improper conduct by the Agent.
Some
loans are unsecured. If the borrower defaults on an unsecured loan, a Fund
will be a general creditor and will not have rights to any specific assets of
the borrower.
Liquidity. Loans are generally subject to
legal or contractual restrictions on resale. Loans are not currently
listed on any securities exchange or automatic quotation system. As a
result, there may not be a recognized, liquid public market for loan
interests.
Prepayment Risk and Maturity. Because many loans are repaid early, the actual
maturity of loans is typically shorter than their stated final maturity
calculated solely on the basis of the stated life and payment schedule. The
degree to which borrowers prepay loans, whether as a contractual requirement or
at their election, may be affected by general business conditions, market
interest rates, the borrower’s financial condition and competitive conditions
among lenders. Such prepayments may require a Fund to replace an
investment with a lower yielding security which may have an adverse effect on a
Fund’s share price. Prepayments cannot be predicted with accuracy.
Floating rate loans can be less sensitive to prepayment risk, but a Fund’s net
asset value (“NAV”) may still fluctuate in response to interest rate changes
because variable interest rates may reset only periodically and may not rise or
decline as much as interest rates in general.
Restrictive Covenants. A borrower must comply with various
restrictive covenants in a loan agreement such as restrictions on dividend
payments and limits on total debt. The loan agreement may also contain a
covenant requiring the borrower to prepay the loan with any free cash
flow. A breach of a covenant is normally an event of default, which
provides the agent or the lenders the right to call the outstanding loan.
Fees and
Expenses. A Fund may be
required to pay and receive various fees and commissions in the process of
purchasing, selling, and holding loans. The fee component may include any, or a
combination of, the following elements: assignment fees, arrangement fees,
non-use fees, facility fees, letter of credit fees, and ticking fees.
Arrangement fees are paid at the commencement of a loan as compensation for the
initiation of the transaction. A non-use fee is paid based upon the amount
committed but not used under the loan. Facility fees are on-going annual fees
paid in connection with a loan. Letter of credit fees are paid if a loan
involves a letter of credit. Ticking fees are paid from the initial commitment
indication until loan closing if for an extended period. The amount of fees is
negotiated at the time of closing. In addition, a Fund incurs expenses
associated with researching and analyzing potential loan investments, including
legal fees.
Available Information. Loans normally are not
registered with the SEC or any state securities commission or listed on any
securities exchange. As a result, the amount of public information available
about a specific loan historically has been less extensive than if the loan were
registered or exchange traded. They may also not be considered “securities,” and
purchasers,
such
as the Funds, therefore may not be entitled to rely on the strong anti-fraud
protections of the federal securities laws.
Leveraged Buy-Out Transactions. Loans
purchased by a Fund may represent interests in loans made to finance highly
leveraged corporate acquisitions, known as “leveraged buy-out” transactions,
leveraged recapitalization loans and other types of acquisition financing.
The highly leveraged capital structure of the borrowers in such transactions may
make such loans especially vulnerable to adverse changes in economic or market
conditions.
Junior Loans. A Fund may
invest in second lien secured loans and secured and unsecured subordinated
loans, including bridge loans (“Junior Loans”). In the event of a bankruptcy or
liquidation, second lien secured loans are generally paid only if the value of
the borrower’s collateral is sufficient to satisfy the borrower’s obligations to
the first lien secured lenders and even then, the remaining collateral may not
be sufficient to cover the amount owed to a Fund. Second lien secured
loans give investors priority over general unsecured creditors in the event of
an asset sale.
Junior
Loans are subject to the same general risks inherent to any loan investment,
including credit risk, market and liquidity risk, and interest rate risk. Due to
their lower place in the borrower’s capital structure, Junior Loans involve a
higher degree of overall risk than senior loans of the same borrower.
Bridge Loans. Bridge loans or bridge facilities are short-term loan
arrangements (e.g., 12 to 18 months) typically made by a borrower in
anticipation of intermediate-term or long-term permanent financing. Most bridge
loans are structured as floating-rate debt with step-up provisions under which
the interest rate on the bridge loan rises over time. Thus, the longer the loan remains outstanding, the more
the interest rate increases. In addition, bridge
loans commonly contain a conversion feature that allows the bridge loan investor
to convert its loan interest into senior exchange notes if the loan has not been
prepaid in full on or prior to its maturity date. Bridge loans may be
subordinate to other debt and may be secured or unsecured. Like any loan, bridge
loans involve credit risk. Bridge loans are generally made with the expectation
that the borrower will be able to obtain permanent financing in the near future.
Any delay in obtaining permanent financing subjects the bridge loan investor to
increased risk. A borrower’s use of bridge loans also involves the risk that the
borrower may be unable to locate permanent financing to replace the bridge loan,
which may impair the borrower’s perceived creditworthiness. With the onset of
the financial crisis in 2008, many borrowers found it more difficult to obtain
loans, a situation that has been gradually improving.
Delayed draw term loans. A Fund may be
obligated under the terms of the relevant loan documents to advance additional
funds after the initial disbursement that it makes at the time of its
investment. For example, the loan may not have been fully funded” at that
time or the lenders may have ongoing commitments to make further advances up to
a stated maximum. When a loan has been fully funded, however, repaid principal
amounts normally may not be reborrowed. Interest accrues on the
outstanding principal amount of the loan. The borrower normally may pay a fee
during any commitment period.
Policies and
Limitations. The Funds do
not intend to invest in loan instruments that could require additional
investments upon the borrower’s demand, but may invest in loans that require
funding at a later date following the initial investment in the loan.
Each
Fund’s policies limit the percentage of its assets that can be invested in the
securities of one issuer or in issuers primarily involved in one industry. Legal
interpretations by the SEC staff may require a Fund to treat both the lending
bank and the borrower as “issuers” of a loan participation by the Fund. In
combination, a Fund’s policies and the SEC staff’s interpretations may limit the
amount the Fund can invest in loan participations.
For
purposes of determining its dollar-weighted average maturity or duration, each
Fund calculates the remaining maturity or duration of loans on the basis of the
stated life and payment schedule.
Distressed
Securities. A Fund
may invest in distressed securities, including loans, bonds and notes may
involve a substantial degree of risk. Distressed securities include
securities of companies that are in financial distress and that may be in or
about to enter bankruptcy.
A
Fund may invest in issuers of distressed securities that the Manager expects
will make an exchange offer or will be the subject of a plan of reorganization
that a Fund will receive new securities in return for the distressed
securities. A significant period of time may pass between the time at
which a Fund makes its investment in these distressed securities and the time
that any exchange offer or plan of reorganization is completed and there can be
no assurance that such an exchange offer will be made or that such a plan of
reorganization will be adopted. During this period, it is unlikely that a Fund
will receive any interest payments on the distressed securities, the Fund will
be subject to significant uncertainty as to whether or not the exchange offer or
plan of reorganization will be completed and the Fund may be required to bear
certain extraordinary expenses to protect and recover its investment. Therefore,
to the extent a Fund seeks capital appreciation through investment in distressed
securities, the Fund’s ability to achieve current income for its shareholders
may be diminished.
A
Fund also will be subject to significant uncertainty as to when and in what
manner and for what value the obligations evidenced by the distressed securities
will eventually be satisfied (e.g., through a liquidation of the obligor’s
assets, an exchange offer or plan of reorganization involving the distressed
securities or a payment of some amount in satisfaction of the obligation). Even
if an exchange offer is made or plan of reorganization is adopted with respect
to distressed securities held by a Fund, there can be no assurance that the
securities or other assets received by the Fund in connection with such exchange
offer or plan of reorganization will not have a lower value or income potential
than may have been anticipated when the investment was made or no value.
Moreover, any securities received by a Fund upon completion of an exchange offer
or plan of reorganization may be restricted as to resale. Similarly, if a Fund
participates in negotiations with respect to any exchange offer or plan of
reorganization with respect to an issuer of distressed securities, the Fund may
be restricted from disposing of such securities. To the extent that a Fund
becomes involved in such proceedings, the Fund may have a more active
participation in the affairs of the issuer than that assumed generally by an
investor. The Funds, however, will not make investments for the purpose of
exercising day-to-day management of any issuer’s affairs.
In
certain periods, there may be little or no liquidity in the markets for
distressed securities or other instruments. In addition, the prices of such
securities may be subject to periods of abrupt and erratic market movements and
above-average price volatility. It may be difficult to obtain financial
information regarding the financial condition of a borrower or issuer, and its
financial condition may be changing rapidly. It may be more difficult to value
such securities and the spread between the bid and asked prices of such
securities may be greater than normally expected.
Dollar
Rolls. In a “dollar roll,” a Fund 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, a Fund forgoes principal and interest payments on the securities. A
Fund 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 a Fund’s NAV and may be viewed as a form of
leverage. A “covered roll” is a specific type of dollar roll in which a Fund
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 counterparty will be unable or unwilling to complete
the transaction as scheduled, which may result in losses to a Fund. The Manager
monitors the creditworthiness of counterparties to dollar rolls.
Policies and
Limitations. Dollar rolls are considered borrowings for purposes
of a Fund’s investment policies and limitations concerning borrowings.
Equity
Securities.
A Fund may invest, to a limited extent, in equity securities, which may include
common stocks, preferred stocks, convertible securities and warrants. Common
stocks and preferred stocks represent shares of ownership in a corporation.
Preferred stocks usually have specific dividends and rank after bonds and before
common stock in claims on assets of the corporation should it be dissolved.
Increases and decreases in earnings are usually reflected in a corporation’s
stock price. Convertible securities are debt or preferred equity securities
convertible into common stock. Usually, convertible securities pay dividends or
interest at rates higher than common stock, but lower than other securities.
Convertible securities usually participate to some extent in the appreciation or
depreciation of the underlying stock into which they are convertible. Warrants
are options to buy a stated number of shares of common stock at a specified
price anytime during the life of the warrants.
To
the extent a Fund invests in such securities, the value of securities held by
the Fund will be affected by changes in the stock markets, which may be the
result of domestic or international political or economic news, changes in
interest rates or changing investor sentiment. At times, the stock markets can
be volatile and stock prices can change substantially. Because some investors
purchase equity securities with borrowed money, an increase in interest rates
can cause a decline in equity prices. The equity securities of smaller companies
are more sensitive to these changes than those of larger companies. This market
risk will affect a Fund’s NAV per share, which will fluctuate as the value of
the securities held by the Fund changes. Not all stock prices change uniformly
or at the same time and not all stock markets move in the same direction at the
same time. Other factors affect a particular stock’s prices, such as poor
earnings reports by an issuer, loss of major customers, major litigation against
an issuer, or changes in governmental regulations
affecting
an industry. Adverse news affecting one company can sometimes depress the stock
prices of all companies in the same industry. Not all factors can be
predicted.
Policies and Limitations.
Neuberger
Berman Strategic Income Fund normally
will not invest more than 10% of its total assets in rights, warrants or common
stock.
ESG Policies
and Limitations Risk. The Funds’ application of any ESG
policies and limitations described below is designed and utilized to help
identify companies that demonstrate the potential to create economic value or
reduce risk; however as with the use of any investment criteria in selecting a
portfolio, there is no guarantee that the criteria used by a Fund will result in
the selection of issuers that will outperform other issuers, or help reduce risk
in the portfolio. The use of the Funds’ ESG policies and limitations could also
affect the Funds’ exposure to certain sectors or industries, and could impact a
Fund’s investment performance depending on whether the ESG policies and
limitations used are ultimately reflected in the market.
Policies and Limitations. The Funds (except
for Neuberger Berman Emerging Markets Debt
Fund) prohibit the initiation of new investments in securities issued by
companies that have more than 25% of revenue derived from thermal coal mining or
are expanding new thermal coal power generation, as determined by internal
screens. Neuberger Berman Emerging Markets
Debt Fund has adopted a policy to prohibit the initiation of new
investments in securities issued by companies that, based on NBIA’s judgment,
fall into the following categories: (i) controversial weapons (e.g., manufacture
of anti-personnel mines, cluster weapons, depleted uranium, nuclear weapons,
white phosphorus, biological and chemical weapons), (ii) documented use of child
labor and (iii) tobacco companies, which are those that derive 10% or more
of revenues from the manufacture of tobacco products. This policy by Neuberger
Berman Emerging Markets Debt Fund
requires interpretation in its application and is at the discretion of the
Fund’s portfolio management team. Additionally, Neuberger Berman Emerging Markets Debt Fund has adopted a phase
out policy that currently prohibits the initiation of new investments in
securities issued by companies that have more than 25% of revenue derived from
thermal coal mining or are expanding new thermal coal power generation, as
determined by internal screens, with this revenue threshold declining to 10% by
2022. The Neuberger Berman Emerging Markets
Debt Fund also prohibits the initiation of new investments in securities
issued by companies in the power generation industry that use thermal coal as an
energy source for more than 95% of their installed power generation capacity,
are expanding into new thermal coal power generation, or whose expansionary
capital expenditure budgets do not include a minimum threshold for non-coal
investments, each as determined by internal screens. The policies outlined
above do not apply to securities issued by foreign governments. For
securities issued by quasi-sovereign entities, the foreign government is not
considered the issuer of the security.
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
(“interest rate risk”), market perception of the creditworthiness of the issuer,
and market liquidity (“market risk”). The value of a Fund’s fixed income
investments is likely to decline in times of rising market interest rates.
Conversely, the value of a Fund’s fixed income investments is likely to rise in
times of declining
market
interest rates. Typically, the longer the time to maturity of a given security,
the greater is the change in its value in response to a change in interest
rates. Foreign debt securities are subject to risks similar to those of other
foreign securities.
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. Debt securities in the lowest
rating categories may involve a substantial risk of default or may be in
default. Changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuer of such securities to make principal and interest payments than is the
case for higher-grade debt securities. An economic downturn affecting the issuer
may result in an increased incidence of default. The market for lower-rated
securities may be thinner and less active than for higher-rated securities.
Pricing of thinly traded securities requires greater judgment than pricing of
securities for which market transactions are regularly reported. Odd lots may
trade at lower prices than institutional round lots.
Call Risk. Some debt securities in which a
Fund may invest are also subject to the risk that the issuer might repay them
early (“call risk”). When market interest rates are low, issuers generally call
securities paying higher interest rates. For this reason, a Fund holding a
callable security may not enjoy the increase in the security’s market price that
usually accompanies a decline in rates. Furthermore, a Fund would have to
reinvest the proceeds from the called security at the current, lower
rates.
Ratings of Fixed Income Securities. A
Fund may purchase securities rated by S&P, Moody’s, Fitch, Inc. or any other
nationally recognized statistical rating organization (“NRSRO”) (please see the
Prospectuses for further information). 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. In addition, NRSROs are
subject to an inherent conflict of interest because they are often compensated
by the same issuers whose securities they rate. Although the Funds may
rely on the ratings of any NRSRO, the Funds refer primarily to ratings assigned
by S&P, Moody’s, and Fitch, Inc., which are described in Appendix A. A
Fund may also invest in unrated securities that have been determined by the
Manager to be comparable in quality to the rated securities in which the Fund
may permissibly invest.
High-quality debt securities. High-quality
debt securities are securities that have received from at least one NRSRO, such
as S&P, Moody’s or Fitch, Inc., a rating 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 the Manager to be of comparable quality.
Investment Grade Debt Securities. Investment
grade debt securities are securities that have received, from at least one NRSRO
that has rated it, a rating in one of the four highest rating categories or, if
not rated by any NRSRO, have been determined by the Manager to be of comparable
quality. Moody’s deems securities rated in its fourth highest rating category
(Baa) to have speculative characteristics; a change in economic factors could
lead to a weakened capacity of the issuer to repay. If a security receives one
rating in one of the four highest rating categories
and
another rating below the fourth highest rating category, it will be considered
investment grade (except for Neuberger Berman High Income Bond Fund, which considers bonds
rated below the fourth highest rating category by at least one NRSRO to be
lower-rated debt securities).
Lower-Rated Debt Securities. Lower-rated debt
securities or “junk bonds” are those rated below the fourth highest category
(including those securities rated as low as D by S&P) or unrated securities
of comparable quality. Securities rated below investment grade are often
considered to be speculative. See the risks described under “Lower-Rated Debt
Securities” in this SAI.
Ratings Downgrades. Subsequent to its purchase
by a Fund, an issue of debt securities may cease to be rated or its rating may
be reduced, so that the securities would no longer be eligible for purchase by
that Fund.
In
such a case, with respect to each of Neuberger Berman Municipal Intermediate Bond Fund and Neuberger
Berman Short Duration Bond Fund, the Manager will engage in an
orderly disposition of the downgraded securities or other securities to the
extent necessary to ensure that the Fund’s holdings of securities rated below
investment grade will not exceed 15% or 20% of its net assets,
respectively. With respect to Neuberger Berman Core Bond Fund, the Manager will consider
whether to continue holding the security. However, under normal
conditions, the Manager will engage in an orderly disposition of the downgraded
securities or other securities to the extent necessary to ensure the Fund’s
holdings of securities that are considered by the Fund to be below investment
grade will not exceed 5% of its net assets for Neuberger Berman Core Bond Fund.
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.
The
Manager may utilize duration as a tool in portfolio selection instead of the
more traditional measure known as “term to maturity.” “Term to maturity”
measures only the time until a debt security provides its final payment, taking
no account of the pattern of the security’s payments prior to maturity. Duration
incorporates a bond’s yield, coupon interest payments, final maturity and call
features into one measure. Duration therefore provides a more accurate
measurement of a bond’s likely price change in response to a given change in
market interest rates. The longer the duration, the greater the bond’s price
movement will be as interest rates change. For any fixed income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity.
Futures,
options and options on futures have durations which are generally related to the
duration of the securities underlying them. Holding long futures or call option
positions will lengthen a Fund’s duration by approximately the same amount as
would holding an equivalent amount of the underlying securities. Short futures
or put options have durations roughly equal to the negative 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.
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, the Manager, where permitted, will use more
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure.
Foreign
Securities (Neuberger
Berman Core Bond Fund, Neuberger Berman Emerging
Markets Debt Fund,
Neuberger Berman Floating Rate Income Fund, Neuberger Berman High
Income Bond Fund, Neuberger Berman Short
Duration Bond Fund and
Neuberger Berman Strategic Income Fund). A Fund may invest in equity, debt, or
other securities of foreign issuers and foreign branches of U.S. banks.
These securities may be U.S. dollar denominated or denominated in or
indexed to foreign currencies and may include (1) common and preferred stocks,
(2) negotiable certificates of deposit (“CDs”), commercial paper, fixed
time deposits, and bankers’ acceptances, (3) obligations of other
corporations, and (4) obligations of foreign governments and their
subdivisions, agencies, and instrumentalities, international agencies, and
supranational entities. Foreign issuers are issuers organized and doing business
principally outside the United States and include banks, non-U.S. governments,
and quasi-governmental organizations. Investments in foreign securities involve
sovereign and other risks, in addition to the credit and market risks normally
associated with domestic securities. These risks include the possibility of
adverse political and economic developments (including political or social
instability, nationalization, expropriation, or confiscatory taxation); the
potentially adverse effects of the 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; different laws and customs governing securities tracking; and possibly
limited access to the courts to enforce a Fund’s rights as an investor. It
may be difficult to invoke legal process or to enforce contractual obligations
abroad, and it may be especially difficult to sue a foreign government in the
courts of that country.
Additionally,
investing in foreign currency denominated securities involves the additional
risks of (a) adverse changes in foreign exchange rates, (b)
nationalization, expropriation, or confiscatory taxation, and (c) 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 (and gains realized on disposition
thereof) may be subject to foreign taxes, including taxes withheld from those
payments. Commissions on foreign securities exchanges are often at fixed rates
and are generally higher than negotiated commissions on U.S. exchanges, although
a Fund endeavors to achieve the most favorable net results on portfolio
transactions.
Foreign
securities often trade with less frequency and in less volume than domestic
securities and therefore may exhibit greater price volatility. Additional costs
associated with an investment in foreign securities may include higher custodial
fees than apply to domestic custody arrangements and transaction costs of
foreign currency conversions.
Foreign
markets also have different clearance and settlement procedures. In certain
markets, there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to a Fund due to subsequent declines in value of the securities
or, if the Fund has entered into a contract to sell the securities, could result
in possible liability to the purchaser. The inability of a Fund to settle
security purchases or sales due to settlement problems could cause the Fund to
pay additional expenses, such as interest charges.
Securities
of issuers traded on exchanges may be suspended, either by the issuers
themselves, by an exchange or by government authorities. The likelihood of such
suspensions may be higher for securities of issuers in emerging or
less-developed market countries than in countries with more developed markets.
Trading suspensions may be applied from time to time to the securities of
individual issuers for reasons specific to that issuer, or may be applied
broadly by exchanges or governmental authorities in response to market events.
Suspensions may last for significant periods of time, during which trading in
the securities and instruments that reference the securities, such as
participatory notes (or “P-notes”) or other derivative instruments, may be
halted. In the event that a Fund holds material positions in such suspended
securities or instruments, the Fund’s ability to liquidate its positions or
provide liquidity to investors may be compromised and the Fund could incur
significant losses.
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
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.
A
Fund may invest in American Depositary Receipts (“ADRs”), European Depositary
Receipts (“EDRs”), Global Depositary Receipts (“GDRs”) and International
Depositary Receipts (“IDRs”). ADRs (sponsored or unsponsored) are receipts
typically issued by a U.S. bank or trust company evidencing its ownership of the
underlying foreign securities. Most ADRs are denominated in U.S. dollars and are
traded on a U.S. stock exchange. However, they are subject to the risk of
fluctuation in the currency exchange rate if, as is often the case, the
underlying securities are denominated in foreign currency. EDRs are receipts
issued by a European bank evidencing its ownership of the underlying foreign
securities and are often denominated in a foreign currency. GDRs are receipts
issued by either a U.S. or non-U.S. banking institution evidencing its ownership
of the underlying foreign securities and are often denominated in U.S. dollars.
IDRs are receipts typically issued by a foreign bank or trust company evidencing
its ownership of the underlying foreign securities. Depositary receipts
involve many of the same risks of investing directly in foreign securities,
including currency risks and risks of foreign investing.
Issuers
of the securities underlying sponsored depositary receipts, but not unsponsored
depositary receipts, are contractually obligated to disclose material
information in the United States. Therefore, the market value of unsponsored
depositary receipts is less likely to reflect the effect of such
information.
Securities
of Issuers in Emerging Market Countries. The risks described above for foreign
securities may be heightened in connection with investments in emerging market
countries. Historically, the markets of emerging market countries have been more
volatile than the markets of developed countries, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, emerging market countries may have less stable governments; may
present the risks of nationalization of businesses, restrictions on foreign
ownership and prohibitions on the repatriation of assets; and may have less
protection of property rights than more developed countries. The economies of
emerging market countries may be reliant on only a few industries, may be highly
vulnerable to changes in local or global trade conditions and may suffer from
high and volatile debt burdens or inflation rates. Local securities markets may
trade a small number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of holdings
difficult or impossible at times.
In
determining where an issuer of a security is based, the Manager may consider
such factors as where the company is legally organized, maintains its principal
corporate offices and/or conducts its principal operations.
Additional
costs could be incurred in connection with a Fund’s investment activities
outside the United States. Brokerage commissions may be higher outside the
United States, and a Fund will bear certain expenses in connection with its
currency transactions. Furthermore, increased custodian costs may be associated
with maintaining assets in certain jurisdictions.
Certain
risk factors related to emerging market countries include:
Currency fluctuations. A Fund’s
investments may be valued in currencies other than the U.S. dollar. Certain
emerging market countries’ currencies have experienced and may in the future
experience significant declines against the U.S. dollar. For example, if the
U.S. dollar appreciates against foreign currencies, the value of a Fund’s
securities holdings would generally depreciate and vice versa. Consistent with
its investment objective, a Fund can engage in certain currency transactions to
hedge against currency fluctuations. See “Forward Foreign Currency
Transactions.” After a Fund has distributed income, subsequent foreign currency
losses may result in the Fund’s having distributed more income in a particular
fiscal period than was available from investment income, which could result in a
return of capital to shareholders.
Government regulation. The political,
economic and social structures of certain developing countries may be more
volatile and less developed than those in the United States. Certain emerging
market countries lack uniform accounting, auditing, financial reporting and
corporate governance standards, have less governmental supervision of financial
markets than in the United States, and do not honor legal rights enjoyed in the
United States. Certain governments may be more unstable and present greater
risks of nationalization or restrictions on foreign ownership of local
companies.
Repatriation
of investment income, capital and the proceeds of sales by foreign investors may
require governmental registration and/or approval in some emerging market
countries. While a Fund will only invest in markets where these restrictions are
considered acceptable by the Manager, a country could impose new or additional
repatriation restrictions after the Fund’s investment. If this happened, a
Fund’s response might include, among other things, applying to the appropriate
authorities for a waiver of the restrictions or engaging in transactions in
other markets designed to offset the risks of decline in that country. Such
restrictions will be considered in relation to a Fund’s liquidity needs and all
other positive and negative factors. Further, some attractive equity securities
may not be available to a Fund, or a Fund may have to pay a premium to purchase
those equity securities, due to foreign shareholders already holding the maximum
amount legally permissible.
While
government involvement in the private sector varies in degree among emerging
market countries, such involvement may in some cases include government
ownership of companies in certain sectors, wage and price controls or imposition
of trade barriers, market manipulation and other protectionist measures. With
respect to any emerging market country, there is no guarantee that some future
economic or political crisis will not lead to price controls, forced mergers of
companies, expropriation, or creation of government monopolies to the possible
detriment of a Fund’s investments.
Less developed securities markets.
Emerging market countries may have less well developed securities markets and
exchanges. These markets have lower trading volumes than the securities markets
of more developed countries. These markets may be unable to respond effectively
to increases in trading volume. Consequently, these markets may be substantially
less liquid than those of more developed countries, and the securities of
issuers located in these markets may have limited marketability. These factors
may make prompt liquidation of substantial portfolio holdings difficult or
impossible at times.
Settlement risks. Settlement systems in
emerging market countries are generally less well organized than developed
markets. Supervisory authorities may also be unable to apply standards
comparable to those in developed markets. Thus, there may be risks that
settlement may be delayed and that cash or securities belonging to a Fund may be
in jeopardy because of failures of or defects in the systems. In particular,
market practice may require that payment be made before receipt of the security
being purchased or that delivery of a security be made before payment is
received. In such cases, default by a broker or bank (the “counterparty”)
through whom the transaction is effected might cause a Fund to suffer a loss. A
Fund will seek, where possible, to use counterparties whose financial status is
such that this risk is reduced. However, there can be no certainty that a Fund
will be successful in eliminating this risk, particularly as counterparties
operating in emerging market countries frequently lack the substance or
financial resources of those in developed countries. There may also be a danger
that, because of uncertainties in the operation of settlement systems in
individual markets, competing claims may arise with respect to securities held
by or to be transferred to a Fund.
Investor information. A Fund may
encounter problems assessing investment opportunities in certain emerging market
securities markets in light of limitations on available information, including
the quality and reliability on such information, and different regulatory,
accounting,
auditing,
financial reporting and recordkeeping standards. In such circumstances, the
Manager will seek alternative sources of information, and to the extent it may
not be satisfied with the sufficiency of the information obtained with respect
to a particular market or security, a Fund will not invest in such market or
security.
Taxation. Taxation of dividends
received, and net capital gains realized, by non-residents on securities issued
in emerging market countries varies among those countries, and, in some cases,
the applicable tax rate is comparatively high. In addition, emerging market
countries typically have less well-defined tax laws and procedures than
developed countries, and such laws and procedures may permit retroactive
taxation so that a Fund could in the future become subject to local tax
liability that it had not reasonably anticipated in conducting its investment
activities or valuing its assets.
Litigation and Enforcement. A Fund and
its shareholders may encounter substantial difficulties in obtaining and
enforcing judgments against non-U.S. resident individuals and companies.
Fraudulent securities. Securities
purchased by a Fund may subsequently be found to be fraudulent or counterfeit,
resulting in a loss to the Fund.
Risks of Investing in Frontier Emerging Market
Countries. Frontier emerging market countries are countries that have
smaller economies or less developed capital markets than traditional emerging
markets. Frontier emerging market countries tend to have relatively low
gross national product per capita compared to the larger
traditionally-recognized emerging markets. The frontier emerging market
countries include the least developed countries even by emerging markets
standards. The risks of investments in frontier emerging market countries
include all the risks described above for investment in foreign securities and
emerging markets, although these risks are magnified in the case of frontier
emerging market countries.
Sovereign
Government and Supranational Debt. Investments in debt securities
issued by foreign governments and their political subdivisions or agencies
(“Sovereign Debt”) involve special risks. Sovereign Debt is subject to risks in
addition to those relating to non-U.S. investments generally. The issuer of the
debt or the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal and/or interest when due in accordance
with the terms of such debt, and a fund may have limited legal recourse in the
event of a default. As a sovereign entity, the issuing government may be
immune from lawsuits in the event of its failure or refusal to pay the
obligations when due.
Sovereign
Debt differs from debt obligations issued by private entities in that,
generally, remedies for defaults must be pursued in the courts of the defaulting
party. Legal recourse is therefore somewhat diminished. Political conditions,
especially a sovereign entity’s willingness to meet the terms of its debt
obligations, are of considerable significance. Also, holders of commercial bank
debt issued by the same sovereign entity may contest payments to the holders of
Sovereign Debt in the event of default under commercial bank loan
agreements.
A
sovereign debtor’s willingness or ability to repay principal and interest due in
a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its non-U.S. reserves, the availability of sufficient
non-U.S. exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor’s policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country’s trading partners or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country’s trade
account surplus, if any, or the credit standing of a particular local government
or agency.
Sovereign
debtors may also be dependent on disbursements or assistance from foreign
governments or multinational agencies, the country’s access to trade and other
international credits, and the country’s balance of trade. Assistance may be
dependent on a country’s implementation of austerity measures and reforms, which
measures may limit or be perceived to limit economic growth and recovery. Some
sovereign debtors have rescheduled their debt payments, declared moratoria on
payments or restructured their debt to effectively eliminate portions of it, and
similar occurrences may happen in the future. There is no bankruptcy proceeding
by which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
The
ability of some sovereign debtors to repay their obligations may depend on the
timely receipt of assistance from international agencies or other governments,
the flow of which is not assured. The willingness of such agencies to make these
payments may depend on the sovereign debtor’s willingness to institute certain
economic changes, the implementation of which may be politically
difficult.
The
occurrence of political, social or diplomatic changes in one or more of the
countries issuing Sovereign Debt could adversely affect a Fund’s investments.
Political changes or a deterioration of a country’s domestic economy or balance
of trade may affect the willingness of countries to service their Sovereign
Debt. While NBIA endeavors to manage investments in a manner that will minimize
the exposure to such risks, there can be no assurance that adverse political
changes will not cause the Fund to suffer a loss of interest or principal on any
of its holdings.
Sovereign
Debt may include: debt securities issued or guaranteed by governments,
governmental agencies or instrumentalities and political subdivisions located in
emerging market countries; debt securities issued by government owned,
controlled or sponsored entities located in emerging market countries; interests
in entities organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by any of the above issuers;
participations in loans between emerging market governments and financial
institutions; and Brady Bonds, which are debt securities issued under the
framework of the Brady Plan as a means for debtor nations to restructure their
outstanding external indebtedness.
Brady
Bonds may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the
over-the-counter (“OTC”) secondary market. Certain Brady Bonds are
collateralized in full as to principal due at maturity by zero coupon
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities
having the same maturity (“Collateralized Brady Bonds”). Brady Bonds are not,
however, considered to be U.S. Government Securities.
Dollar-denominated,
Collateralized Brady Bonds may be fixed rate bonds or floating rate bonds.
Interest payments on Brady Bonds are often collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments or, in the case of floating rate bonds,
initially is equal to at least one year’s rolling interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to “value recovery payments” in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) collateralized repayment of principal at
final maturity; (ii) collateralized interest payments; (iii) uncollateralized
interest payments; and (iv) any uncollateralized repayment of principal at
maturity (these uncollateralized amounts constitute the “residual risk”). In the
event of a default with respect to Collateralized Brady Bonds as a result of
which the payment obligations of the issuer are accelerated, the Treasury
Department zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the collateral
agent to the scheduled maturity of the defaulted Brady Bonds, which will
continue to be outstanding, at which time the face amount of the collateral will
equal the principal payments which would have been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds should be viewed as speculative.
Supranational
entities may also issue debt securities. A supranational entity is a bank,
commission or company established or financially supported by the national
governments of one or more countries to promote reconstruction or
development. Included among these organizations are the Asian Development
Bank, the European Investment Bank, the Inter-American Development Bank, the
International Monetary Fund, the United Nations, the World Bank and the European
Bank for Reconstruction and Development. Supranational organizations have no
taxing authority and are dependent on their members for payments of interest and
principal. Further, the lending activities of such entities are limited to a
percentage of their total capital, reserves and net income.
Fund of Funds
Structure. Section 12(d)(1)(A) of the 1940 Act, in relevant
part, prohibits a registered investment company from acquiring shares of an
investment company if after such acquisition the securities represent more than
3% of the total outstanding voting stock of the acquired company, more than 5%
of the total assets of the acquiring company, or, together with the securities
of any other investment companies, more than 10% of the total assets of the
acquiring company except in reliance on certain exceptions contained in the 1940
Act and the rules and regulations thereunder. Pursuant to an exemptive order
from the SEC, each Fund is permitted to invest in both affiliated and
unaffiliated investment companies, including ETFs (“underlying funds”) in excess
of the limits in Section 12 of the 1940 Act subject to the terms and conditions
of such order.
The
SEC recently voted to adopt new Rule 12d1-4, which permits a Fund to exceed
these limits in the absence of an exemptive order, if the Fund complies with the
adopted framework for fund of funds arrangements. Rule 12d1-4 contains elements
from the SEC’s current exemptive orders permitting fund of funds arrangements,
and includes (i) limits on control and voting; (ii) required evaluations and
findings; (iii) required fund of funds investment agreements; and (iv) limits on
complex structures. In connection with the new rule, on or about January
19, 2022, the SEC is expected to rescind the Funds’ current exemptive order and
Rule 12d1-2 under the 1940 Act, and if so, a Fund seeking to exceed these limits
will need to rely on Rule 12d1-4.
The
Manager may be deemed to have a conflict of interest when determining whether to
invest or maintain a Fund’s assets in affiliated underlying funds. The
Manager would seek to mitigate this conflict of interest, however, by
undertaking to waive a portion of a Fund’s advisory fee equal to the advisory
fee it receives from affiliated underlying funds on the Fund’s assets invested
in those affiliated underlying funds. The Manager and its affiliates may
derive indirect benefits such as increased assets under management from
investing Fund assets in an affiliated underlying fund, which benefits would not
be present if investments were made in unaffiliated underlying funds. In
addition, although the Manager will waive a portion of a Fund’s advisory fee (as
previously described), the Fund will indirectly bear its pro rata share of an
affiliated underlying fund’s other fees and expenses, and such fees and expenses
may be paid to the Manager or its affiliates or a third party.
Futures
Contracts, Options on Futures Contracts, Options on
Securities and Indices, Forward Currency Contracts, Options on Foreign
Currencies, and Swap Agreements (collectively, “Financial
Instruments”). Financial
Instruments are instruments whose value is dependent upon the value of an
underlying asset or assets, which may include stocks, bonds, commodities,
interest rates, currency exchange rates, or related indices. As described
below, Financial Instruments may be used for "hedging" purposes, meaning that
they may be used in an effort to offset a decline in value in a Fund’s other
investments, which could result from changes in interest rates, market prices,
currency fluctuations, or other market factors. Financial Instruments may
also be used for non-hedging purposes in an effort to implement a cash
management strategy, to enhance income or gain, to manage or adjust the risk
profile of a Fund or the risk of individual positions, to gain exposure more
efficiently than through a direct purchase of the underlying security, or to
gain exposure to securities, markets, sectors or geographical areas.
The
Dodd-Frank Act requires the SEC and the Commodity Futures Trading Commission
(“CFTC”) to establish new regulations with respect to derivatives defined as
security-based swaps (e.g., derivatives
based on an equity or a narrowly based equity index) and swaps (e.g., derivatives based on a broad-based index
or commodity), respectively, and the markets in which these instruments trade.
In addition, it subjected all security-based swaps and swaps to SEC and CFTC
jurisdiction, respectively.
The SEC recently voted to
adopt Rule 18f-4 under the 1940 Act which will regulate the use of derivatives
for certain funds registered under the Investment Company Act (“Rule 18f-4”).
Unless a Fund qualifies as a “limited derivatives user” as defined in Rule
18f-4, Rule 18f-4 would, among other things, require the Fund to establish a
comprehensive derivatives risk management program, to comply with certain
value-at-risk based leverage limits, to appoint a derivatives risk manager and
to provide additional disclosure both publicly and to the SEC
regarding its derivatives positions. For funds
that qualify as limited derivatives users, Rule 18f-4 requires a fund to have
policies and procedures to manage its aggregate derivatives risk. These
requirements could have an impact on a Fund, including a potential increase in
cost to enter into derivatives transactions. The full impact of Rule 18f-4 on a
Fund remains uncertain, however, due to the compliance timeline within Rule
18f-4, it is unlikely that a Fund will be required to fully comply with the
requirements until 2022.
Futures
Contracts and Options on Futures Contracts. A Fund may purchase and sell futures
contracts (sometimes referred to as “futures”) and options thereon for hedging
purposes (i.e., to attempt to offset
against changes in the prices of securities or, in the case of foreign currency
futures and options thereon, to attempt to offset against changes in prevailing
currency exchange rates) or non-hedging purposes.
A
“purchase” of a futures contract (or entering into a “long” futures position)
entails the buyer’s assumption of a contractual obligation to take delivery of
the instrument underlying the contract at a specified price at a specified
future time. A “sale” of a futures contract (or entering into a “short” futures
position) entails the seller’s assumption of a contractual obligation to make
delivery of the instrument underlying the contract at a specified price at a
specified future time.
The
value of a futures contract tends to increase or decrease in tandem with the
value of its underlying instrument. Therefore, purchasing futures contracts will
tend to increase a Fund’s exposure to positive and negative price fluctuations
in the underlying instrument, much as if the Fund had purchased the underlying
instrument directly. A Fund may purchase futures contracts to fix what the
Manager believes to be a favorable price for securities the Fund intends to
purchase. When a Fund sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the market for the
underlying instrument. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if a Fund had sold the
underlying instrument. A Fund may sell futures contracts to offset a possible
decline in the value of its portfolio securities. In addition, a Fund may
purchase or sell futures contracts with a greater or lesser value than the
securities it wishes to hedge to attempt to compensate for anticipated
differences in volatility between positions a Fund may wish to hedge and the
standardized futures contracts available to it, although this may not be
successful in all cases. Further, a loss incurred on a particular
transaction being used as a hedge does not mean that it failed to achieve its
objective, if the goal was to prevent a worse loss that may have resulted had a
particular securities or cash market investment suffered a substantial loss and
there were no offsetting hedge.
Certain
futures, including index futures and futures not calling for the physical
delivery or acquisition of the instrument underlying the contract, are settled
on a net cash payment basis rather than by the delivery of the underlying
instrument. In addition, although futures contracts by their terms may
call for the physical delivery or acquisition of the instrument underlying the
contract, in most cases the contractual obligation is extinguished by being
closed out before the expiration of the contract. A futures position is closed
out by buying (to close out an earlier sale) or selling (to close out 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 a
Fund will usually be liquidated in this manner, a Fund may instead make or take
delivery of the underlying
instrument
or utilize the cash settlement process whenever it appears economically
advantageous for it to do so.
Because
the futures markets may be more liquid than the cash markets, the use of futures
contracts permits a Fund to enhance portfolio liquidity and maintain a defensive
position without having to sell portfolio securities. For example,
(i) futures contracts on single stocks, interest rates and indices
(including on narrow-based indices) and options thereon may be used as a
maturity or duration management device and/or a device to reduce risk or
preserve total return in an adverse environment for the hedged securities, and
(ii) foreign currency futures and options thereon may be used 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 a Fund.
For
purposes of managing cash flow, a Fund may use futures and options thereon to
increase its exposure to the performance of a recognized securities index.
With
respect to currency futures, a Fund may sell a currency futures contract or a
call option thereon, or may purchase a put option on a currency futures
contract, if the Manager anticipates that exchange rates for a particular
currency will fall. Such a transaction will be used as a hedge (or, in the case
of a sale of a call option, a partial hedge) against a decrease in the value of
portfolio securities denominated in that currency. If the Manager anticipates
that exchange rates for a particular currency will rise, a Fund may purchase a
currency futures contract or a call option thereon to protect against an
increase in the price of securities that are denominated in that currency and
that the Fund intends to purchase. A Fund also may purchase a currency futures
contract or a call option thereon for non-hedging purposes when the Manager
anticipates that a particular currency will appreciate in value, but securities
denominated in that currency do not present attractive investment opportunities
and are not held in the Fund’s investment portfolio.
“Initial
Margin” with respect to a futures contract is the amount of assets that must be
deposited by a Fund with, or for the benefit of, a futures commission merchant
or broker in order to initiate the Fund’s futures positions. Initial
margin is the margin deposit made by a Fund when it enters into a futures
contract; it is intended to assure performance of the contract by the Fund. If
the value of the Fund’s futures account declines by a specified amount, the Fund
will receive a margin call and be required to post assets sufficient to restore
the equity in the account to the initial margin level. (This is sometimes
referred to as “variation margin;” technically, variation margin refers to daily
payments that a clearing member firm is required to pay to the clearing
organization based upon marking to market of the firm’s portfolio.)
However, if favorable price changes in the futures account cause the margin
deposit to exceed the required initial margin level, the excess margin may be
transferred to the Fund. The futures commission merchant or clearing member firm
through which a Fund enters into and clears futures contracts may require a
margin deposit in excess of exchange minimum requirements based upon its
assessment of a Fund’s creditworthiness. In computing its NAV, a Fund will mark to market the value of its
open futures positions. A Fund 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 Fund has paid the required premium in full
at the outset). If the futures commission merchant or broker holding the margin
deposit or premium goes bankrupt, a Fund could suffer a delay in recovering
excess margin or other funds and could ultimately suffer a loss.
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 immediate and substantial loss, or gain, to the investor.
Losses that may arise from certain futures transactions are potentially
unlimited, and may exceed initial margin deposits as well as deposits made in
response to subsequent margin calls.
A
Fund may enter into futures contracts and options thereon that are traded on
exchanges regulated by the CFTC or on non-U.S. exchanges. U.S. futures contracts
are traded on exchanges that have been designated as “contract markets” by the
CFTC; futures transactions must be executed through a futures commission
merchant that is a member of the relevant contract market. Futures
executed on regulated futures exchanges have minimal counterparty risk to a Fund
because the exchange’s clearing organization assumes the position of
the counterparty in each transaction. Thus, a Fund is exposed
to risk only in connection with the clearing organization and not in
connection with the original counterparty to the transaction.
However, if a futures customer defaults on a futures contract and
the futures commission merchant carrying that customer’s account
cannot cover the defaulting customer’s obligations on its futures contracts,
the clearing organization may use any or all of the collateral in the
futures commission merchant’s customer omnibus account — including the assets of
the futures commission merchant’s other customers, such as a Fund — to meet
the defaulting customer’s obligations. This is sometimes referred to as
"fellow customer risk." Trading on non-U.S. exchanges is subject to the
legal requirements of the jurisdiction in which the exchange is located and to
the rules of such exchange, and may not involve a clearing mechanism and related
guarantees. Funds deposited in connection with such trading may also be subject
to the bankruptcy laws of such other jurisdiction, which may result in a delay
in recovering such funds in a bankruptcy and could ultimately result in a
loss.
An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume a short futures position (if the
option is a call) or a long futures position (if the option is a put). Upon
exercise of the option, the accumulated cash balance in the writer’s futures
margin account is delivered to the holder of the option. That balance represents
the amount by which the market price of the futures contract at exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option. Options on futures have characteristics and risks
similar to those of securities options, as discussed herein.
Although
a Fund believes that the use of futures contracts and options may benefit it, if
the Manager’s judgment about the general direction of the markets or about
interest rate or currency exchange rate trends is incorrect, the Fund’s overall
return would be lower than if it had not entered into any such contracts. The
prices of futures contracts and options 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 contracts or options and of
securities being hedged can be only approximate due to differences between the
futures and securities markets or differences between the securities or
currencies
underlying
a Fund’s futures or options position and the securities held by or to be
purchased for the Fund. The currency futures or options 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.
Under
certain circumstances, futures exchanges may 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. Daily limits govern only price movements during a
particular trading day, however; they do not limit potential losses. In
fact, a daily limit 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 traders to substantial losses. If this were to happen with
respect to a position held by a Fund, it could (depending on the size of the
position) have an adverse impact on the Fund’s NAV. In addition, a Fund
would continue to be subject to margin calls and might be required to maintain
the position being hedged by the futures contract or option thereon or to
maintain cash or securities in a segregated account.
Many
electronic trading facilities that support futures trading are supported by
computer-based component systems for the order, routing, execution, matching,
registration or clearing of trades. A Fund’s ability to recover certain
losses may be subject to limits on liability imposed by the system provider, the
market, the clearing house or member firms.
Call Options
on Securities. A Fund may write (sell) covered call options and
purchase call options on securities for hedging purposes (i.e., to attempt to reduce, at least in part,
the effect on the Fund’s NAV of price fluctuations of securities held by the
Fund) or non-hedging purposes. When writing call options, a Fund writes only
“covered” call options. A call option is “covered” if a Fund simultaneously
holds an equivalent position in the security underlying the option. Portfolio
securities on which a Fund may write and purchase call options are purchased
solely on the basis of investment considerations consistent with the Fund’s
investment objective.
When
a Fund 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. A Fund will receive a premium for writing a call option.
So long as the obligation of the call option continues, a Fund may be assigned
an exercise notice, requiring it to deliver the underlying security against
payment of the exercise price. A Fund may be obligated to deliver securities
underlying an option at less than the market price.
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 Funds will not do), but is capable
of enhancing a Fund’s total return. When writing a covered call option, a Fund,
in return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but retains the
risk of loss should the price of the security decline.
If
a call option that a Fund has written expires unexercised, the Fund 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 a call option that a Fund has
written is exercised, the Fund will realize a gain or loss from the sale of the
underlying security.
When
a Fund purchases a call option, it pays a premium to the writer for the right to
purchase a security from the writer for a specified amount at any time until a
certain date. A Fund generally would purchase a call option to offset a
previously written call option or to protect itself against an increase in the
price of a security it intends to purchase.
Put Options
on Securities. A Fund may
write (sell) and purchase put options on securities for hedging purposes (i.e., to attempt to reduce, at least in part,
the effect on the Fund’s NAV of price fluctuations of securities held by the
Fund) or non-hedging purposes. Portfolio securities on which a Fund may write and purchase put options
are purchased solely on the basis of investment considerations consistent with
the Fund’s investment objective.
When
a Fund writes a put option, it is obligated to acquire a security at a certain
price at any time until a certain date if the purchaser decides to exercise the
option. A Fund will receive a premium for writing a put option. When writing a
put option, a Fund, in return for the premium, takes the risk 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 a Fund has written expires
unexercised, the Fund will realize a gain in the amount of the premium.
When
a Fund purchases a put option, it pays a premium to the writer for the right to
sell a security to the writer for a specified amount at any time until a certain
date. A Fund generally would purchase a put option to protect itself against a
decrease in the market value of a security it owns.
Low Exercise
Price Options. A Fund may use non-standard warrants, including low
exercise price options (“LEPOs”), to gain exposure to issuers in certain
countries. These securities are issued by banks and other financial
institutions. LEPOs are different from standard warrants in that they do not
give their holders the right to receive a security of the issuer upon exercise.
Rather, LEPOs pay the holder the difference in price of the underlying security
between the date the LEPO was purchased and the date it is sold. By purchasing
LEPOs, a Fund could incur losses because it would face many of the same types of
risks as owning the underlying security directly. Additionally, LEPOs entail the
same risks as other OTC derivatives. These include the risk that the
counterparty or issuer of the LEPO may be unable or unwilling to make payments
or to otherwise honor its obligations, that the parties to the transaction may
disagree as to the meaning or application of contractual terms, or that the
instrument may not perform as expected. Additionally, while LEPOs may be listed
on an exchange, there is no guarantee that a liquid market will exist or that
the counterparty or issuer of a LEPO will be willing to repurchase such
instrument when a Fund wishes to sell it.
General
Information About Options on Securities. 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. American-style options are exercisable at
any time prior to their expiration date. European-style options are exercisable
only immediately prior to their expiration date. The obligation under
any
option written by a Fund terminates upon expiration of the option or, at an
earlier time, when the Fund offsets the option by entering into a “closing
purchase transaction” to purchase an option of the same series. If an option is
purchased by a Fund and is never exercised or closed out, the Fund will lose the
entire amount of the premium paid.
Options
are traded both on U.S. national securities exchanges and in the OTC market.
Options also are traded on non-U.S. exchanges. Exchange-traded options are
issued by a clearing organization affiliated with the exchange on which the
option is listed; the clearing organization in effect guarantees completion of
every exchange-traded option. In contrast, OTC options are contracts between a
Fund and a counterparty, with no clearing organization guarantee. Thus, when a
Fund 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 Fund originally sold (or
purchased) the option. There can be no assurance that a Fund would be able to
liquidate an OTC option at any time prior to expiration. Unless a Fund is able
to effect a closing purchase transaction in a covered OTC call option it has
written, it will not be able to liquidate securities used as cover until the
option expires or is exercised or until different cover is substituted. In the
event of the counterparty’s insolvency, a Fund may be unable to liquidate its
options position and the associated cover. The Manager monitors the
creditworthiness of dealers with which a Fund may engage in OTC options
transactions.
The
premium a Fund receives (or pays) 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 a Fund receives when it writes an option is
recorded as a liability on the Fund’s statement of assets and liabilities. This
liability is adjusted daily to the option’s current market value.
Closing
transactions are effected in order to realize a profit (or minimize a loss) on
an outstanding option, to prevent an underlying security from being called, or
to permit the sale or the put of the underlying security. Furthermore, effecting
a closing transaction permits a Fund 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 a Fund will be able to effect closing
transactions at favorable prices. If a Fund 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 might otherwise not have bought), in which
case it would continue to be at market risk on the security.
A
Fund 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 Fund;
however, the Fund could be in a less advantageous position than if it had not
written the call option.
A
Fund pays brokerage commissions or spreads in connection with purchasing or
writing options, including those used to close out existing positions. From time
to time, a Fund may purchase an underlying security for delivery in accordance
with an exercise notice of a call option assigned to it, rather than deliver the
security from its inventory. In those cases, additional brokerage commissions
are incurred.
The
hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities close, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the options markets.
Additionally,
volatility in the market for equity securities, which has been dramatically
increased recently for certain stocks, can meaningfully increase the risk of
loss associated with options.
Policies and
Limitations. The assets used as cover (or segregated) for illiquid
OTC options written by a Fund will be considered illiquid and thus subject to
the Fund’s 15% limitation on illiquid securities, unless such OTC options are
sold to qualified dealers who agree that the Fund may repurchase such OTC
options it writes at a maximum price to be calculated by a formula set forth in
the option agreement. The cover for an illiquid 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.
Put and Call
Options on Securities Indices and Other Financial Indices. A Fund may write (sell) and purchase put
and call options on securities indices and other financial indices for hedging
or non-hedging purposes. In so doing, a Fund can pursue many of the same
objectives it would pursue through the purchase and sale of options on
individual securities or other instruments.
Options
on securities indices and other financial indices are similar to options on a
security or other instrument except that, rather than settling by physical
delivery of the underlying instrument, options on indices settle by cash
settlement; that is, an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based is greater than, in the case of a call,
or is less than, in the case of a put, the exercise price of the option (except
if, in the case of an OTC option, physical delivery is specified). This amount
of cash is equal to the difference between the closing price of the index and
the exercise price of the option times a specified multiple (multiplier), which
determines the total dollar value for each point of such difference. The seller
of the option is obligated, in return for the premium received, to make delivery
of this amount.
A
securities index fluctuates with changes in the market values of the securities
included in the index. The gain or loss on an option on an index depends
on price movements in the instruments comprising the market, market segment,
industry or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to options
on securities. The risks of investment in options on indices may be greater than
the risks of investment in options on securities.
The
effectiveness of hedging through the purchase of securities index options will
depend upon the extent to which price movements in the securities being hedged
correlate with price movements in the selected securities index. Perfect
correlation is not possible because the securities held or to be acquired by a
Fund will not exactly match the composition of the securities indices on which
options are available.
For
purposes of managing cash flow, a Fund may purchase put and call options on
securities indices to increase its exposure to the performance of a recognized
securities index.
Securities
index options have characteristics and risks similar to those of securities
options, as discussed herein. Certain securities index options are traded in the
OTC market and involve liquidity and credit risks that may not be present in the
case of exchange-traded securities index options.
Options on
Foreign Currencies. A Fund
may write (sell) and purchase covered call and put options on foreign currencies
for hedging or non-hedging purposes. A Fund may use options on foreign
currencies to protect against decreases in the U.S. dollar value of securities
held or increases in the U.S. dollar cost of securities to be acquired by the
Fund or to protect the U.S. dollar equivalent of dividends, interest, or other
payments on those securities. In addition, a Fund may write and purchase covered
call and put options on foreign currencies for non-hedging purposes (e.g., when the Manager anticipates that a
foreign currency will appreciate or depreciate in value, but securities
denominated in that currency do not present attractive investment opportunities
and are not held in the Fund’s investment portfolio). A Fund may write covered
call and put options on any currency in order to realize greater income than
would be realized on portfolio securities alone.
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.
Forward
Foreign Currency Transactions. A Fund may enter into contracts for the
purchase or sale of a specific currency at a future date, which may be any fixed
number of days in excess of two days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract (“forward currency
contracts”) for hedging or non-hedging purposes. A Fund also may engage in
foreign currency transactions on a spot basis (i.e., cash transaction that results in actual
delivery within two days) at the spot rate prevailing in the foreign currency
market.
A
Fund may enter into forward currency contracts in an attempt to hedge against
changes in prevailing currency exchange rates (i.e., as a means of establishing more
definitely the effective return on, or the purchase price of, securities
denominated in foreign currencies). A Fund may also enter into forward currency
contracts to protect against decreases in the U.S. dollar value of securities
held or increases in the U.S. dollar cost of securities to be acquired by a Fund
or to protect the U.S. dollar equivalent of dividends, interest, or other
payments on those securities. In addition, a Fund may enter into forward
currency contracts for non-hedging purposes when the Manager anticipates that a
foreign currency will appreciate or depreciate in value, but securities
denominated in that currency do not present attractive investment opportunities
and are not held
in the
Fund’s investment portfolio. The cost to a Fund of engaging in forward
currency contracts varies with factors such as the currency involved, the length
of the contract period, and the market conditions then prevailing.
Sellers
or purchasers of forward currency contracts can enter into offsetting closing
transactions, similar to closing transactions on futures, by purchasing or
selling, respectively, an instrument identical to the instrument sold or bought,
respectively. Secondary markets generally do not exist for forward currency
contracts, however, with the result that closing transactions generally can be
made for forward currency contracts only by negotiating directly with the
counterparty. Thus, there can be no assurance that a Fund will in fact be able
to close out a forward currency contract at a favorable price prior to maturity.
In addition, in the event of insolvency of the counterparty, a Fund might be
unable to close out a forward currency contract at any time prior to maturity.
In either event, the Fund would continue to be subject to market risk with
respect to the position, and would continue to be required to maintain a
position in the securities or currencies that are the subject of the hedge or to
maintain cash or securities.
The
precise matching of forward currency contract amounts and the value of the
securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
The
Manager believes that the use of foreign currency hedging techniques, including
“proxy-hedges,” can provide significant protection of NAV in the event of a
general increase or decrease in the value of the U.S. dollar against foreign
currencies. For example, the return available from securities denominated in a
particular foreign currency would decline 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 the value of a hedge involving a forward currency
contract to sell that foreign currency or a proxy-hedge involving a forward
currency contract to sell a different foreign currency whose behavior is
expected to resemble the behavior of the currency in which the securities being
hedged are denominated but which is available on more advantageous terms.
However,
a hedge or a proxy-hedge cannot protect against exchange rate risks perfectly
and, if the Manager is incorrect in its judgment of future exchange rate
relationships, a Fund could be in a less advantageous position than if such a
hedge had not been established. If a Fund 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 currency contracts to protect the value of a Fund’s
securities against a decline in the value of a currency does not eliminate
fluctuations in the prices of the underlying securities. Because forward
currency contracts may not be traded on an exchange, the assets used to cover
such contracts may be illiquid. A Fund may experience delays in the settlement
of its foreign currency transactions.
Forward
currency contracts in which a Fund may engage include foreign exchange forwards.
The consummation of a foreign exchange forward requires the actual exchange of
the
principal
amounts of the two currencies in the contract (i.e., settlement on a physical basis).
Because foreign exchange forwards are physically settled through an exchange of
currencies, they are traded in the interbank market directly between currency
traders (usually large commercial banks) and their customers. A foreign exchange
forward 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 the
prices at which they are selling various currencies.When a Fund enters into a
foreign exchange forward, it relies on the counterparty to make or take delivery
of the underlying currency at the maturity of the contract. Failure by the
counterparty to do so would result in the loss of any expected benefit of the
transaction.
A
Fund may be required to obtain the currency that it must deliver under the
foreign exchange forward through the sale of portfolio securities denominated in
such currency or through conversion of other assets of the Fund into such
currency. When a Fund engages in foreign currency transactions for hedging
purposes, it will not enter into foreign exchange forwards to sell currency or
maintain a net exposure to such contracts if their consummation would obligate
the Fund to deliver an amount of foreign currency materially in excess of the
value of its portfolio securities or other assets denominated in that
currency.
Forward
currency contracts in which a Fund may engage also include non-deliverable
forwards (“NDFs”). NDFs are cash-settled, short-term forward contracts on
foreign currencies (each a “Reference Currency”) that are non-convertible and
that may be thinly traded or illiquid. NDFs involve an obligation to pay
an amount (the “Settlement Amount”) equal to the difference between the
prevailing market exchange rate for the Reference Currency and the agreed upon
exchange rate (the “NDF Rate”), with respect to an agreed notional amount.
NDFs have a fixing date and a settlement (delivery) date. The fixing date
is the date and time at which the difference between the prevailing market
exchange rate and the agreed upon exchange rate is calculated. The settlement
(delivery) date is the date by which the payment of the Settlement Amount is due
to the party receiving payment.
Although
NDFs are similar to forward exchange forwards, NDFs do not require physical
delivery of the Reference Currency on the settlement date. Rather, on the
settlement date, the only transfer between the counterparties is the monetary
settlement amount representing the difference between the NDF Rate and the
prevailing market exchange rate. NDFs typically may have terms from one month up
to two years and are settled in U.S. dollars.
NDFs
are subject to many of the risks associated with derivatives in general and
forward currency transactions, including risks associated with fluctuations in
foreign currency and the risk that the counterparty will fail to fulfill its
obligations. Although NDFs have historically been traded OTC, in the
future, pursuant to the Dodd-Frank Act, they may be exchange-traded. Under
such circumstances, they may be centrally cleared and a secondary market for
them will exist. With respect to NDFs that are centrally-cleared, an
investor could lose margin payments it has deposited with the clearing
organization as well as the net amount of gains not yet paid by the clearing
organization if the clearing organization breaches its obligations under the
NDF, becomes insolvent or goes into bankruptcy. In the event of bankruptcy of
the clearing organization, the investor may be entitled to the net amount of
gains the investor is entitled to receive plus the return of margin owed to it
only in proportion to the amount received by the clearing organization’s
other
customers,
potentially resulting in losses to the investor. Even if some NDFs remain
traded OTC, they will be subject to margin requirements for uncleared swaps and
counterparty risk common to other swaps, as discussed below.
A
Fund may purchase securities of an issuer domiciled in a country other than the
country in whose currency the securities are denominated.
Swap
Agreements. A Fund may
enter into swap agreements to manage or gain exposure to particular types of
investments (including commodities, equity securities, interest rates or indices
of equity securities in which the Fund otherwise could not invest
efficiently).
Swap
agreements historically have been individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Swap agreements are two party contracts entered into primarily by
institutional investors. Swap agreements can vary in term like other
fixed-income investments. Most swap agreements are currently traded
over-the-counter. In a standard “swap” transaction, two parties agree to
exchange one or more payments based, for example, on the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments (such as securities, indices, or other financial or
economic interests). The gross payments to be exchanged (or “swapped”) between
the parties are calculated with respect to a notional amount, which is the
predetermined dollar principal of the trade representing the hypothetical
underlying quantity upon which payment obligations are computed. If a swap
agreement provides for payment in different currencies, the parties may agree to
exchange the principal amount. A swap also includes an instrument that is
dependent on the occurrence, nonoccurrence or the extent of the occurrence of an
event or contingency associated with a potential financial, economic or
commercial consequence, such as a credit default swap.
Depending
on how they are used, swap agreements may increase or decrease the overall
volatility of a Fund’s investments and its share price and yield. Swap
agreements are subject to liquidity risk, meaning that a Fund may be unable to
sell a swap agreement to a third party at a favorable price. Swap
agreements may involve leverage and may be highly volatile; depending on how
they are used, they may have a considerable impact on a Fund’s performance. The
risks of swap agreements depend upon a Fund’s ability to terminate its swap
agreements or reduce its exposure through offsetting transactions. Swaps are
highly specialized instruments that require investment techniques and risk
analyses different from those associated with stocks, bonds, and other
traditional investments.
Some
swaps currently are, and more in the future will be, centrally cleared. Swaps
that are centrally cleared are subject to the creditworthiness of the clearing
organization involved in the transaction. For example, an investor could
lose margin payments it has deposited with its futures commission merchant as
well as the net amount of gains not yet paid by the clearing organization if the
clearing organization becomes insolvent or goes into bankruptcy. In the event of
bankruptcy of the clearing organization, the investor may be entitled to the net
amount of gains the investor is entitled to receive plus the return of margin
owed to it only in proportion to the amount received by the clearing
organization’s other customers, potentially resulting in losses to the
investor.
To
the extent a swap is not centrally cleared, the use of a swap involves the risk
that a loss may be sustained as a result of the insolvency or bankruptcy of the
counterparty or the failure of
the
counterparty to make required payments or otherwise comply with the terms of the
agreement. If a counterparty’s creditworthiness declines, the value of the swap
might decline, potentially resulting in losses to a Fund. Changing conditions in
a particular market area, whether or not directly related to the referenced
assets that underlie the swap agreement, may have an adverse impact on the
creditworthiness of the counterparty. If a default occurs by the counterparty to
such a transaction, a Fund may have contractual remedies pursuant to the
agreements related to the transaction.
The
regulation of the U.S. and non-U.S. swaps markets has undergone substantial
change in recent years. Although the CFTC released final rules relating to
clearing, reporting, recordkeeping and registration requirements under the
legislation, many of the provisions of Dodd-Frank Act are subject to further
final rule making or phase-in periods, and thus their ultimate impact remains
unclear. New regulations could, among other things, restrict a Fund’s ability to
engage in swap transactions (for example, by making certain types of swaps no
longer available to a Fund) and/or increase the costs of such swap transactions
(for example, by increasing margin or capital requirements), and a Fund might be
unable to fully execute its investment strategies as a result. Limits or
restrictions applicable to the counterparties with which a Fund engages in swaps
also could prevent the Fund from using these instruments or affect the pricing
or other factors relating to these instruments, or may change the availability
of certain investment.
Regulations
adopted by the CFTC, SEC and banking regulators may require a Fund to post
margin on OTC swaps, and exchanges will set minimum margin requirements
for exchange-traded and cleared swaps. The prudential regulators issued final
rules that will require banks subject to their supervision to exchange variation
and initial margin in respect of their obligations arising under OTC swap
agreements. The CFTC adopted similar rules that apply to CFTC-registered
swap dealers that are not banks. Such rules generally require a Fund to
segregate additional assets in order to meet the new variation and initial
margin requirements when they enter into OTC swap agreements. The European
Supervisory Authorities (“ESA”), various national regulators in Europe, the
Australian Securities & Investment Commission, the Japanese Financial
Services Agency and the Canadian Office of the Superintendent of Financial
Institutions adopted rules and regulations that are similar to that of the
Federal Reserve. The variation margin requirements are now effective and the
initial margin requirements are being phased-in through 2022 based on average
daily aggregate notional amount of covered swaps between swap dealers and swap
entities. Due to these regulations, a Fund could be required to engage in
greater documentation and recordkeeping with respect to swap agreements.
Separately,
on December 8, 2020, the CFTC adopted regulations allowing investment advisers
for registered investment companies and other institutional investors to apply a
minimum transfer amount (“MTA”) of variation margin based upon the separately
managed investment account or sleeve (“Sleeve”) that the adviser is responsible
for, rather than having to calculate the MTA across all accounts of the
investor. An investment manager must abide by the following conditions: (1) any
such swaps are entered into with the swap dealer by an asset manager on behalf
of a Sleeve owned by the legal entity pursuant to authority granted under an
investment management agreement; (2) the swaps of such Sleeve are subject to a
master netting agreement that does not permit netting of initial or variation
margin obligations across Sleeves of the legal entity that have swaps
outstanding with the swap dealer; and (3) the swap dealer applies an MTA no
greater than $50,000 to the initial and variation margin collection and posting
obligations
required
of such Sleeve. As of the date of this SAI, the banking regulators have
not provided similar relief, although swaps dealers subject to a banking
regulator are expected to act in a manner consistent with the relief provided by
the CFTC.
Regulations
adopted by the prudential regulators require certain banks to include in a range
of financial contracts, including swap agreements, terms delaying or restricting
default, termination and other rights in the event that the bank and/or its
affiliates become subject to certain types of resolution or insolvency
proceedings. The regulations could limit a Fund’s ability to exercise a range of
cross-default rights if its counterparty, or an affiliate of the counterparty,
is subject to bankruptcy or similar proceedings. Such regulations could further
negatively impact a Fund’s use of swaps.
Swap
agreements can take many different forms and are known by a variety of names
including, but not limited to, interest rate swaps, mortgage swaps, total return
swaps, inflation swaps, asset swaps (where parties exchange assets, typically a
debt security), currency swaps, equity swaps, credit default swaps,
commodity-linked swaps, and contracts for differences. A Fund may also write
(sell) and purchase options on swaps (swaptions).
Interest Rate Swaps, Mortgage Swaps, and Interest
Rate “Caps,” “Floors,” and “Collars.” In a typical interest rate swap
agreement, one party agrees to make regular payments equal to a floating rate on
a specified amount in exchange for payments equal to a fixed rate, or a
different floating rate, on the same amount for a specified period. Mortgage
swap agreements are similar to interest rate swap agreements, except the
notional principal amount is tied to a reference pool of mortgages or index of
mortgages. In an interest rate cap or floor, one party agrees, usually in
return for a fee, to make payments under particular circumstances. For example,
the purchaser of an interest rate cap has the right to receive payments to the
extent a specified interest rate exceeds an agreed level; the purchaser of an
interest rate floor has the right to receive payments to the extent a specified
interest rate falls below an agreed level. An interest rate collar entitles the
purchaser to receive payments to the extent a specified interest rate falls
outside an agreed range.
Among
other techniques, a Fund may use interest rate swaps to offset declines in the
value of fixed income securities held by the Fund. In such an instance, a
Fund may agree with a counterparty to pay a fixed rate (multiplied by a notional
amount) and the counterparty to pay a floating rate multiplied by the same
notional amount. If long-term interest rates rise, resulting in a diminution in
the value of a Fund’s portfolio, the Fund would receive payments under the swap
that would offset, in whole or in part, such diminution in value; if interest
rates fall, the Fund would likely lose money on the swap transaction. A Fund may
also enter into constant maturity swaps, which are a variation of the typical
interest rate swap. Constant maturity swaps are exposed to changes in long-term
interest rate movements.
Total Return Swaps. A Fund may enter
into total return swaps (“TRS”) to obtain exposure to a security or market
without owning or taking physical custody of such security or market. A
Fund may be either a total return receiver or a total return payer. Generally,
the total return payer sells to the total return receiver an amount equal to all
cash flows and price appreciation on a defined security or asset payable at
periodic times during the swap term (i.e., credit risk) in return for a periodic
payment from the total return receiver based on a designated index (e.g., the London Interbank Offered Rate, known
as LIBOR or the Secured Overnight Financing Rate, known as
SOFR)
and spread, plus the amount of any price depreciation on the reference security
or asset. The total return payer does not need to own the underlying security or
asset to enter into a total return swap. The final payment at the end of the
swap term includes final settlement of the current market price of the
underlying reference security or asset, and payment by the applicable party for
any appreciation or depreciation in value. Usually, collateral must be posted by
the total return receiver to secure the periodic interest-based and market price
depreciation payments depending on the credit quality of the underlying
reference security and creditworthiness of the total return receiver, and the
collateral amount is marked-to-market daily equal to the market price of the
underlying reference security or asset between periodic payment dates.
TRS
may effectively add leverage to a Fund’s portfolio because, in addition to its
net assets, the Fund would be subject to investment exposure on the notional
amount of the swap. If a Fund is the total return receiver in a TRS, then
the credit risk for an underlying asset is transferred to the Fund in exchange
for its receipt of the return (appreciation) on that asset. If a Fund is the
total return payer, it is hedging the downside risk of an underlying asset but
it is obligated to pay the amount of any appreciation on that asset.
Inflation Swaps. In an inflation swap, one
party agrees to pay the cumulative percentage increase in a price index, such as
the Consumer Price Index, over the term of the swap (with some lag on the
referenced inflation index) and the other party agrees to pay a compounded fixed
rate. Inflation swaps may be used to protect a Fund’s NAV against an unexpected
change in the rate of inflation measured by an inflation index.
Currency Swaps. A currency swap involves
the exchange by a Fund and another party of the cash flows on a notional amount
of two or more currencies based on the relative value differential among them,
such as exchanging a right to receive a payment in foreign currency for the
right to receive U.S. dollars. A Fund may enter into currency swaps (where
the parties exchange their respective rights to make or receive payments in
specified currencies). Currency swap agreements may be entered into on a net
basis or may involve the delivery of the entire principal value of one
designated currency in exchange for the entire principal value of another
designated currency. In such cases, the entire principal value of a currency
swap is subject to the risk that the counterparty will default on its
contractual delivery obligations.
Equity Swaps. Equity swaps are contracts that
allow one party to exchange the returns, including any dividend income, on an
equity security or group of equity securities for another payment stream.
Under an equity swap, payments may be made at the conclusion of the equity swap
or periodically during its term. A Fund may enter into equity swaps.
An equity swap may be used to invest in a market without owning or taking
physical custody of securities in circumstances in which direct investment may
be restricted for legal reasons or is otherwise deemed impractical or
disadvantageous. Furthermore, equity swaps may be illiquid and a
Fund may be unable to terminate its obligations when desired. In addition,
the value of some components of an equity swap (such as the dividends on a
common stock) may also be sensitive to changes in interest rates.
Credit Default Swaps. In a credit default
swap, the credit default protection buyer makes periodic payments, known as
premiums, to the credit default protection seller. In return, the credit default
protection seller will make a payment to the credit default protection buyer
upon the
occurrence
of a specified credit event. A credit default swap can refer to a single issuer
or asset, a basket of issuers or assets or index of assets, each known as the
reference entity or underlying asset. A Fund may act as either the buyer or the
seller of a credit default swap. A Fund may buy or sell credit default
protection on a basket of issuers or assets, even if a number of the underlying
assets referenced in the basket are lower-quality debt securities. In an
unhedged credit default swap, a Fund buys credit default protection on a single
issuer or asset, a basket of issuers or assets or index of assets without owning
the underlying asset or debt issued by the reference entity. Credit default
swaps involve greater and different risks than investing directly in the
referenced asset, because, in addition to market risk, credit default swaps
include liquidity, counterparty and operational risk.
Credit
default swaps allow a Fund to acquire or reduce credit exposure to a particular
issuer, asset or basket of assets. If a swap agreement calls for payments by a
Fund, the Fund must be prepared to make such payments when due. If a Fund is the
credit default protection seller, the Fund will experience a loss if a credit
event occurs and the credit of the reference entity or underlying asset has
deteriorated. If a Fund is the credit default protection buyer, the Fund will be
required to pay premiums to the credit default protection seller. In the case of
a physically settled credit default swap in which a Fund is the protection
seller, the Fund must be prepared to pay par for and take possession of debt of
a defaulted issuer delivered to the Fund by the credit default protection buyer.
Any loss would be offset by the premium payments a Fund receives as the seller
of credit default protection. If a Fund sells (writes) a credit default swap, it
currently intends to segregate the full notional value of the swap, except if
the Fund sells a credit default swap on an index with certain characteristics
(i.e., on a broad based index and cash settled) where the Manager believes
segregating only the amount out of the money more appropriately represents the
Fund’s exposure.
Commodity-Linked Swaps. Commodity-linked
swaps are two party contracts in which the parties agree to exchange the return
or interest rate on one instrument for the return of a particular commodity,
commodity index or commodity futures or options contract. The payment streams
are calculated by reference to an agreed upon notional amount. A one-period swap
contract operates in a manner similar to a forward or futures contract because
there is an agreement to swap a commodity for cash at only one forward date. A
Fund may engage in swap transactions that have more than one period and
therefore more than one exchange of payments. A Fund may invest in total return
commodity swaps to gain exposure to the overall commodity markets. In a total
return commodity swap, a Fund will receive the price appreciation of a commodity
index, a portion of the index, or a single commodity in exchange for paying an
agreed-upon fee. If a commodity swap is for one period, a Fund will pay a fixed
fee, established at the outset of the swap. However, if the term of a
commodity swap is more than one period, with interim swap payments, a Fund will
pay an adjustable or floating fee. With “floating” rate, the fee is pegged to a
base rate such as LIBOR or SOFR, and is adjusted each period. Therefore, if
interest rates increase over the term of the swap contract, a Fund may be
required to pay a higher fee at each swap reset date.
Contracts for Differences. A Fund may
purchase contracts for differences (“CFDs”). A CFD is a form of equity swap in
which its value is based on the fluctuating value of some underlying instrument
(e.g., a single security, stock basket or index). A CFD is a privately
negotiated contract between two parties, buyer and seller, stipulating that the
seller will pay to or receive from the buyer the difference between the nominal
value of the underlying instrument at
the
opening of the contract and that instrument’s value at the end of the
contract. The buyer and seller are both required to post margin, which is
adjusted daily, and adverse market movements against the underlying instrument
may require the buyer to make additional margin payments. The buyer will
also pay to the seller a financing rate on the notional amount of the capital
employed by the seller less the margin deposit. A CFD is usually terminated at
the buyer’s initiative.
A
CFD can be set up to take either a short or long position on the underlying
instrument and enables a Fund to potentially capture movements in the share
prices of the underlying instrument without the need to own the underlying
instrument. By entering into a CFD transaction, a Fund could incur losses
because it would face many of the same types of risks as owning the underlying
instrument directly.
As
with other types of swap transactions, CFDs also carry counterparty risk, which
is the risk that the counterparty to the CFD transaction may be unable or
unwilling to make payments or to otherwise honor its financial obligations under
the terms of the contract, that the parties to the transaction may disagree as
to the meaning or application of contractual terms, or that the instrument may
not perform as expected. If the counterparty were to do so, the value of the
contract, and of a Fund’s shares, may be reduced.
Options on Swaps (Swaptions). A swaption is an
option to enter into a swap agreement. The purchaser of a swaption pays a
premium for the option and obtains the right, but not the obligation, to enter
into an underlying swap on agreed-upon terms. The seller of a swaption, in
exchange for the premium, becomes obligated (if the option is exercised) to
enter into an underlying swap on agreed-upon terms. Depending on the terms
of the particular option agreement, a Fund generally will incur a greater degree
of risk when it writes a swaption than when it purchases a swaption. When
a Fund purchases a swaption, it risks losing only the amount of the premium it
has paid should it decide to let the option expire unexercised.
Policies and
Limitations. In accordance
with SEC staff requirements, a Fund will segregate cash or appropriate liquid
assets in an amount equal to its obligations under security-based swap
agreements.
Combined
Transactions. A Fund may
enter into multiple transactions, which may include multiple options
transactions, multiple interest rate transactions and any combination of options
and interest rate transactions, instead of a single Financial Instrument, as
part of a single or combined strategy when, in the judgment of the Manager, it
is in the best interests of the Fund to do so. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions. Although a Fund will normally enter into combined transactions
based on the Manager’s judgment that the combined transactions will reduce risk
or otherwise more effectively achieve the desired portfolio management goal, it
is possible that the combined transactions will instead increase risk or hinder
achievement of the desired portfolio management goal.
Regulatory
Limitations on Using Futures, Options on Futures, and Swaps. The CFTC has adopted regulations that
subject registered investment companies and/or their investment advisors to
regulation by the CFTC if the registered investment company invests more than a
prescribed level of its NAV in commodity futures, options on commodities or
commodity futures, swaps, or
other
financial instruments regulated under the Commodities and Exchange Act, or if
the registered investment company is marketed as a vehicle for obtaining
exposure to such commodity interests.
As
discussed in more detail below, the Advisor has claimed an exclusion from CPO
registration pursuant to CFTC Rule 4.5, with respect to all of the Funds. To
remain eligible for this exclusion, a Fund must comply with certain limitations,
including limits on trading in commodity interests, and restrictions on the
manner in which the Fund markets its commodity interests trading activities.
These limitations may restrict a Fund’s ability to pursue its investment
strategy, increase the costs of implementing its strategy, increase its expenses
and/or adversely affect its total return.
To
qualify for the CFTC Rule 4.5 exclusion, a Fund is permitted to engage in
unlimited “bona fide hedging” (as defined by the CFTC), but if a Fund uses
commodity interests other than for bona fide hedging purposes, the aggregate
initial margin and premiums required to establish these positions, determined at
the time the most recent position was established, may not exceed 5% of
the Fund’s NAV (after taking into account unrealized profits and unrealized
losses on any such positions and excluding the amount by which options that are
“in-the-money” at the time of purchase are “in-the-money”) or, alternatively,
the aggregate net notional value of non-bona fide hedging commodity interest
positions, determined at the time the most recent position was established, may
not exceed 100% of the Fund’s NAV (after taking into account unrealized
profits and unrealized losses on any such positions). In addition to complying
with these de minimis trading
limitations, to qualify for the exclusion, a Fund must satisfy a marketing test,
which requires, among other things, that a Fund not hold itself out as a vehicle
for trading commodity interests.
A Fund
may be exposed to commodity interests indirectly in excess of the de minimis trading limitations described
above. Such exposure may result from a Fund’s investment in other
investment vehicles, such as real estate investment trusts, collateralized loan
obligations, collateralized debt obligations and other securitization vehicles
that may invest directly in commodity interests. These investment vehicles are
referred to collectively as “underlying investment vehicles.” The CFTC treats
a fund as a commodity pool whether it invests in commodity
interests directly or indirectly through its investments in underlying
investment vehicles. The CFTC staff has issued a no-action letter
permitting the manager of a fund that invests in such underlying investment
vehicles to defer registering as a CPO or claiming the exclusion from the CPO
definition until six months from the date on which the CFTC issues additional
guidance on the application of the calculation of the de minimis trading limitations in the context
of the CPO exemption in CFTC Regulation 4.5 (the "Deadline"). Such guidance is
expected to clarify how to calculate compliance with the de minimis trading limitations
given a fund’s investments in underlying investment vehicles
that may cause the fund to be deemed to be indirectly trading
commodity interests. The Manager has filed the required notice to claim
this no-action relief with respect to each Fund. In addition, the Manager
has claimed an exclusion (under CFTC Regulation 4.5) from the CPO definition
with respect to each Fund. As a result, at this time the Manager is not
required to register as a CPO with respect to any Fund and need not generally
comply with the regulatory requirements otherwise applicable to a registered
CPO. Prior to the Deadline, however, the Manager will determine with
respect to each Fund whether it must operate as a registered CPO or whether it
can rely on an exemption or exclusion from the CPO definition. If the Manager
determines that it can rely on the exclusion in CFTC Regulation 4.5 with
respect
to a
Fund, then the Manager, in its management of that Fund, will comply with one of
the two alternative de minimis trading limitations in that
regulation. Complying with the de
minimis trading limitations may restrict the Manager’s ability to
use derivatives as part of a Fund’s investment strategies. Although the Manager
believes that it will be able to execute each Fund’s investment strategies
within the de minimis trading
limitations, a Fund’s performance could be adversely affected. If the Manager
determines that it cannot rely on the exclusion in CFTC Regulation 4.5 with
respect to a Fund, then the Manager will serve as a registered CPO with respect
to that Fund. CPO regulation would increase the regulatory requirements to which
a Fund is subject and it is expected that it would increase costs for a
Fund.
Pursuant
to authority granted under the Dodd-Frank Act, the Treasury Department issued a
notice of final determination stating that foreign exchange forwards and foreign
exchange swaps, as defined in the Dodd-Frank Act and described above, should not
be considered swaps for most purposes. Thus, foreign exchange forwards and
foreign exchange swaps are not deemed to be commodity interests. Therefore, if
the Manager determines that it can rely on the exclusion in CFTC Regulation 4.5
with respect to a Fund, the Fund may enter into foreign exchange forwards and
foreign exchange swaps without such transactions counting against the de minimis trading limitations discussed
above. Notwithstanding the Treasury Department determination, foreign exchange
forwards and foreign exchange swaps (1) must be reported to swap data
repositories, (2) may be subject to business conduct standards, and (3) are
subject to antifraud and anti-manipulation proscriptions of swap execution
facilities. In addition, for purposes of determining whether any Fund may
be subject to initial margin requirements for uncleared swaps, the average daily
aggregate notional amount of a foreign exchange forward or a foreign exchange
swap must be included in the calculation of whether such Fund has a “material
swaps exposure” as defined in the regulations.
In
addition, pursuant to the Dodd-Frank Act and regulations adopted by the CFTC in
connection with implementing the Dodd-Frank Act, NDFs are deemed to be commodity
interests, including for purposes of amended CFTC Regulation 4.5, and are
subject to the full array of regulations under the Dodd-Frank Act.
Therefore, if the Manager determines that it can rely on the exclusion in CFTC
Regulation 4.5 with respect to a Fund, the Fund will limit its investment in
NDFs as discussed above.
The
staff of the CFTC has issued guidance providing that, for purposes of
determining compliance with CFTC Regulation 4.5, and the de minimis trading
limitations discussed above, swaps that are centrally-cleared on the same
clearing organization may be netted where appropriate, but no such netting is
permitted for uncleared swaps. To the extent some NDFs remain traded OTC
and are not centrally-cleared, the absolute notional value of all such
transactions, rather than the net notional value, would be counted against the
de minimis trading limitations discussed above.
Cover for
Financial Instruments. Transactions using Financial
Instruments, other than purchased options, expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless it owns
either (1) an offsetting (“covering”) position in securities, currencies or
other options, futures contracts, forward contracts, or swaps, or (2) cash
and liquid assets held in a segregated account, or designated on its records as
segregated, with a value,
marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered
as provided in (1) above. Each Fund will comply with SEC guidelines regarding
“cover” for Financial Instruments and, if the guidelines so require, segregate
the prescribed amount of cash or appropriate liquid assets.
Assets
used as cover or held in a segregated account cannot be sold while the position
in the corresponding Financial Instrument is outstanding, unless they are
replaced with other suitable assets. As a result, the segregation of a large
percentage of a Fund’s assets could impede Fund management or a Fund’s ability
to meet redemption requests or other current obligations. A Fund may be unable
to promptly dispose of assets that cover, or are segregated with respect to, an
illiquid futures, options, forward, or swap position; this inability may result
in a loss to the Fund.
General
Risks of Financial Instruments. The primary risks in using
Financial Instruments are: (1) imperfect correlation or no
correlation between changes in market value of the securities or currencies held
or to be acquired by a Fund and the prices of Financial Instruments;
(2) possible lack of a liquid secondary market for Financial Instruments
and the resulting inability to close out Financial Instruments when desired;
(3) the fact that the skills needed to use Financial Instruments are
different from those needed to select a Fund’s securities; (4) the fact
that, although use of Financial 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;
(5) the possible inability of a Fund to purchase or sell a portfolio
security at a time that would otherwise be favorable for it to do so, or the
possible need for a Fund 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 Financial Instruments; and (6) when traded on non-U.S. exchanges,
Financial Instruments may not be regulated as rigorously as in the United
States. There can be no assurance that a Fund’s use of Financial Instruments
will be successful.
In
addition, Financial Instruments may contain leverage to magnify the exposure to
the underlying asset or assets.
A
Fund’s use of Financial Instruments may be limited by the provisions of the Code
and Treasury Department regulations with which it must comply to continue to
qualify as a RIC. See “Additional Tax Information.” Financial Instruments may
not be available with respect to some currencies, especially those of so-called
emerging market countries.
Policies and
Limitations. When hedging,
the Manager intends to reduce the risk of imperfect correlation by investing
only in Financial Instruments whose behavior is expected to resemble or offset
that of a Fund’s underlying securities or currency. The Manager intends to
reduce the risk that a Fund will be unable to close out Financial Instruments by
entering into such transactions only if the Manager believes there will be an
active and liquid secondary market.
Illiquid
Securities.
Generally, an illiquid security is any investment that may not reasonably be
expected to be sold or disposed of in current market conditions in seven
calendar days or less without the sale or disposition significantly changing the
market value of the investment. Illiquid securities 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 1933 Act, 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 the Manager determines
they are liquid. Most such securities held by the Funds are deemed 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 a Fund to value or dispose of
due to the absence of an active trading market. The sale of some illiquid
securities by a Fund may be subject to legal restrictions, which could be costly
to the Fund.
Policies and
Limitations.
For the Funds’ policies and limitations on illiquid securities, see “Investment
Policies and Limitations -- Illiquid Securities” above.
Indexed
Securities. A Fund may invest in indexed securities whose
values are linked to currencies, interest rates, commodities, indices, or other
financial indicators, domestic or foreign. 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. An indexed security
may be more volatile than the underlying instrument itself.
Inflation-Indexed
Securities. Inflation-indexed bonds are fixed income
securities whose principal value or coupon (interest payment) is periodically
adjusted according to the rate of inflation. A Fund may invest in
inflation-indexed securities issued in any country. Two structures are common.
The Treasury Department and some other issuers use a structure that accrues
inflation into the principal value of the bond. Other issuers pay out the index
based accruals as part of a semiannual coupon. A Fund may invest in Treasury
Department securities the principal value of which 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 a Fund holds the security, the Fund may earn less on it than on a
conventional bond.
A
Fund may invest in Treasury Department inflation-indexed securities, formerly
called “U.S. Treasury Inflation Protected Securities” (“U.S. TIPS”), which are
backed by the full faith and credit of the U.S. Government. The periodic
adjustment of U.S. TIPS is currently tied to the Consumer Price Index for All
Urban Consumers (“CPI-U”), which is calculated by the Bureau of Labor Statistics
(BLS), which is part of the Labor Department. The CPI-U is a measurement of
changes in the cost of living, made up of components such as housing, food,
transportation and energy. Inflation-indexed bonds issued by a non-U.S.
government are generally adjusted to reflect a comparable inflation index,
calculated by that government. There can be no assurance that the CPI-U or any
non-U.S. inflation index will accurately measure the real rate of inflation in
the prices of goods and services. In addition, there can be no assurance that
the rate of inflation in a non-U.S. country will be correlated to the rate of
inflation in the United States. The three-month
lag in
calculating the CPI-U for purposes of adjusting the principal value of U.S. TIPS
may give rise to risks under certain circumstances.
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. However, if a
Fund purchases inflation-indexed securities in the secondary market whose
principal values have been adjusted upward due to inflation since issuance, the
fund may experience a loss if there is a subsequent period of deflation.
If inflation is lower than expected during the period a Fund holds the security,
the Fund may earn less on it than on a conventional bond. A Fund may also invest
in other inflation-related bonds which may or may not provide a guarantee of
principal. If a guarantee of principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less than the original principal
amount.
Because
the coupon rate on inflation-indexed securities is lower than fixed-rate
Treasury Department securities, the CPI-U would have to rise at least to the
amount of the difference between the coupon rate of the fixed-rate Treasury
Department 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 Department 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 Treasury Department securities 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 the principal value of an inflation-indexed security is taxable in
the year the increase occurs, even though its holders do not receive cash
representing the increase until the security matures. Because a Fund must
distribute substantially all of its net investment income (including non-cash
income attributable to those principal value increases) and net realized gains
to its shareholders each taxable year to continue to qualify for treatment as a
RIC and to minimize or avoid payment of federal income and excise taxes, a Fund
may have to dispose of other investments under disadvantageous circumstances to
generate cash, or may be required to borrow, to satisfy its distribution
requirements.
The
Treasury Department began issuing inflation-indexed bonds in 1997. Certain
non-U.S. governments, such as the United Kingdom, Canada and Australia, have a
longer history of issuing inflation-indexed bonds, and there may be a more
liquid market in certain of these countries for these securities.
Investments
by Funds of Funds or Other Large Shareholders. A Fund may
experience large redemptions or investments due to transactions in Fund
shares by funds of funds, other large shareholders, or similarly managed
accounts. While it is impossible to predict the overall effect of these
transactions over time, there could be an adverse impact on a Fund’s
performance. In the event of such redemptions or investments, a Fund could
be required to sell securities or to invest cash at a time when it may not
otherwise desire to do so. Such transactions may increase a Fund’s
brokerage and/or other transaction costs and affect the liquidity of
a Fund’s portfolio. In addition,
when
funds of funds or other investors own a substantial portion of a Fund’s
shares, a large redemption by such an investor could cause actual expenses to
increase, or could result in the Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in the Fund’s expense
ratio. Redemptions of Fund shares could also accelerate a Fund’s
realization of capital gains (which would be taxable to its shareholders when
distributed to them) if sales of securities needed to fund the redemptions
result in net capital gains. The impact of these transactions is likely to be
greater when a fund of funds or other significant investor purchases, redeems,
or owns a substantial portion of a Fund’s shares. A high volume of
redemption requests can impact a Fund the same way as the transactions of a
single shareholder with substantial investments.
Leverage. A Fund may engage in transactions
that have the effect of leverage. Although leverage creates an opportunity
for increased total return, it also can create special risk
considerations. For example, leverage from borrowing may amplify changes
in a Fund’s NAV. Although the principal of such borrowings will be fixed,
a Fund’s assets may change in value during the time the borrowing is
outstanding. Leverage from borrowing creates interest expenses for a
Fund. To the extent the income derived from securities purchased with
borrowed funds is sufficient to cover the cost of leveraging, the net income of
a Fund will be greater than it would be if leverage were not used.
Conversely, to the extent the income derived from securities purchased with
borrowed funds is not sufficient to cover the cost of leveraging, the net income
of a Fund will be less than it would be if leverage were not used and,
therefore, the amount (if any) available for distribution to the Fund’s
shareholders as dividends will be reduced. Reverse repurchase agreements,
securities lending transactions, when-issued and delayed-delivery transactions,
certain Financial Instruments (as defined above), and short sales, among others,
may create leverage.
Policies and
Limitations. For
the Funds’ policies and limitations on borrowing, see “Investment Policies and
Limitations -- Borrowing” above. In addition, each Fund may borrow to purchase
securities needed to close out short sales entered into for hedging purposes and
to facilitate other hedging transactions.
LIBOR Rate
Risk. Many debt
securities, derivatives and other financial instruments, including some of the
Funds’ investments, utilize the London Interbank Offered Rate (“LIBOR”) as the
reference or benchmark rate for variable interest rate calculations. However,
concerns have arisen regarding LIBOR’s viability as a benchmark, due to
manipulation allegations dating from about 2012 and, subsequently, reduced
activity in the financial markets that it measures. In 2017, the UK Financial
Conduct Authority announced that after 2021 it would cease its active
encouragement of UK banks to provide the quotations needed to sustain LIBOR.
Thus, there is a risk that LIBOR may cease to be published after that time or,
possibly, before.
Also
in 2017, the Alternative Reference Rates Committee, a group of large U.S. banks
working with the Federal Reserve, announced its selection of a new Secured
Overnight Funding Rate (“SOFR”), which is a broad measure of the cost of
overnight borrowings secured by Treasury Department securities, as an
appropriate replacement for LIBOR. Bank working groups and regulators in other
countries have suggested other alternatives for their markets, including the
Sterling Overnight Interbank Average Rate (“SONIA”) in England.
The
Federal Reserve Bank of New York began publishing SOFR in April, 2018, with the
expectation that it could be used on a voluntary basis in new instruments and
for new transactions under existing instruments. However, SOFR is fundamentally
different from LIBOR. It is a secured, nearly risk-free rate, while LIBOR is an
unsecured rate that includes an element of bank credit risk. Also, SOFR is
strictly an overnight rate, while LIBOR historically has been published for
various maturities, ranging from overnight to one year. Thus, LIBOR may be
expected to be higher than SOFR, and the spread between the two is likely to
widen in times of market stress.
Various
financial industry groups have begun planning for the transition from LIBOR to
SOFR or another new benchmark, but there are obstacles to converting certain
longer term securities and transactions. Transition planning is ongoing, and
neither the effect of the transition process nor its ultimate success can yet be
known. The transition process might lead to increased volatility and illiquidity
in markets that currently rely on the LIBOR to determine interest rates. It also
could lead to a reduction in the value of some LIBOR-based investments and
reduce the effectiveness of new hedges placed against existing LIBOR-based
instruments. Since the usefulness of LIBOR as a benchmark could deteriorate
during the transition period, these effects could occur prior to the end of
2021.
Lower-Rated
Debt Securities.
Lower-rated debt securities or “junk” or “junk bonds” are those rated below the
fourth highest category (including those securities rated as low as D by
S&P) or unrated securities of comparable quality. Securities rated
below investment grade are often considered to be speculative. These securities
have poor protection 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. These securities are susceptible to default or decline in market
value due to real or perceived adverse economic and business developments
relating to the issuer, market interest rates and market liquidity. In addition,
a Fund that invests in lower-quality securities may incur additional expenses to
the extent recovery is sought on defaulted securities. Because of the many risks
involved in investing in lower-rated debt securities, the success of such
investments is dependent on the credit analysis of the Manager.
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.
At
certain times in the past, the market for lower-rated debt securities has
expanded rapidly, and its growth generally paralleled a long economic expansion.
In the past, the prices of many lower-rated debt securities declined
substantially, reflecting an expectation that many issuers of such securities
might experience financial difficulties. As a result, the yields on lower-rated
debt securities rose dramatically. However, such higher yields did not reflect
the value of the income
stream
that holders of such securities expected, but rather the risk that holders of
such securities could lose a substantial portion of their value as a result of
the issuers’ financial restructuring or defaults. There can be no assurance that
such declines will not recur.
The
market for lower-rated debt issues generally is thinner or less active than that
for higher quality securities, which may limit a Fund’s ability to sell such
securities at fair value in response to changes in the economy or financial
markets. 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.
A
Fund may invest in securities whose ratings imply an imminent risk of default
with respect to such payments. Issuers of securities in default may fail
to resume principal or interest payments, in which case a Fund may lose its
entire investment.
See
Appendix A for further information about the ratings of debt securities
assigned by S&P, Fitch, Inc., and Moody’s.
Master
Limited Partnerships. Master limited partnerships
(“MLPs”) are limited partnerships (or similar entities, such as limited
liability companies) in which the ownership units (e.g., limited partnership interests) are
publicly traded. MLP units are registered with the SEC and are freely traded on
a securities exchange or in the OTC market. Many MLPs operate in oil and gas
related businesses, including energy processing and distribution. Many
MLPs are pass-through entities that generally are taxed at the unitholder level
and are not subject to federal or state income tax at the entity level. Annual
income, gains, losses, deductions and credits of such an MLP pass-through
directly to its unitholders. Distributions from an MLP may consist in part of a
return of capital. Generally, an MLP is operated under the supervision of one or
more general partners. Limited partners are not involved in the day-to-day
management of an MLP.
Investing
in MLPs involves certain risks related to investing in their underlying assets
and risks associated with pooled investment vehicles. MLPs holding
credit-related investments are subject to interest rate risk and the risk of
default on payment obligations by debt issuers. MLPs that concentrate in a
particular industry or a particular geographic region are subject to risks
associated with such industry or region. Investments held by MLPs may be
relatively illiquid, limiting the MLPs’ ability to vary their portfolios
promptly in response to changes in economic or other conditions. MLPs may have
limited financial resources, their securities may trade infrequently and in
limited volume, and they may be subject to more abrupt or erratic price
movements than securities of larger or more broadly based companies.
The
risks of investing in an MLP are generally those inherent in investing in a
partnership as opposed to a corporation. For example, state law governing
partnerships is different than state law governing corporations. Accordingly,
there may be fewer protections afforded investors in an MLP than investors in a
corporation. For example, although unitholders of an MLP are generally limited
in their liability, similar to a corporation’s shareholders, creditors typically
have the right to seek the return of distributions made to unitholders if the
liability in question arose before the distributions were paid. This liability
may stay attached to a unitholder even after it sells its units.
Policies and
Limitations. Under certain
circumstances, an MLP could be deemed an investment company. If that
occurred, a Fund’s investment in the MLP’s securities would be limited by the
1940 Act. See “Securities of Other Investment Companies.”
Mortgage-Backed Securities. Mortgage-backed securities,
including residential and commercial mortgage-backed securities, represent
direct or indirect participations in, or are secured by and payable from, pools
of mortgage loans. Those securities may be guaranteed by a U.S. Government
agency or instrumentality (such as by Ginnie Mae); issued and guaranteed by a
government-sponsored stockholder-owned corporation, though not backed by the
full faith and credit of the United States (such as by Fannie Mae or Freddie Mac
(collectively, the “GSEs”), and described in greater detail below); or issued by
fully 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 backed by U.S. Government agency supported
mortgage loans or some form of non-governmental credit enhancement.
Government-related
guarantors (i.e., not backed by the full
faith and credit of the U.S. Government) include Fannie Mae and Freddie Mac.
Fannie Mae is a government-sponsored corporation owned by stockholders. It is
subject to general regulation by the Federal Housing Finance Authority (“FHFA”).
Fannie Mae purchases residential mortgages from a list of approved
seller/servicers that include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks, credit unions and mortgage
bankers. Fannie Mae guarantees the timely payment of principal and interest on
pass-through securities that it issues, but those securities are not backed by
the full faith and credit of the U.S. Government.
Freddie
Mac is a government-sponsored corporation formerly owned by the twelve Federal
Home Loan Banks and now owned by stockholders. Freddie Mac issues Participation
Certificates (“PCs”), which represent interests in mortgages from Freddie Mac’s
national portfolio. Freddie Mac guarantees the timely payment of interest and
ultimate collection of principal on the PCs it issues, but those PCs are not
backed by the full faith and credit of the U.S. Government.
The
Treasury Department has historically had the authority to purchase obligations
of Fannie Mae and Freddie Mac. However, in 2008, due to capitalization
concerns, Congress provided the Treasury Department with additional authority to
lend the GSEs emergency funds and to purchase their stock. In September
2008, those capital concerns led the Treasury Department and the FHFA to
announce that the GSEs had been placed in conservatorship.
Since
that time, the GSEs have received significant capital support through Treasury
Department preferred stock purchases as well as Treasury Department and Federal
Reserve purchases of their mortgage backed securities (“MBS”). While the MBS
purchase programs ended in 2010, the Treasury Department announced in December
2009 that it would continue its support for the entities’ capital as necessary
to prevent a negative net worth. However, no assurance can be given that the
Federal Reserve, Treasury Department, or FHFA initiatives will ensure that the
GSEs will remain successful in meeting their obligations with respect to the
debt and MBS they issue into the future.
In
2012, the FHFA initiated a strategic plan to develop a program related to credit
risk transfers intended to reduce Fannie Mae’s and Freddie Mac’s overall risk
through the creation of credit risk transfer assets (“CRTs”). CRTs come in two
primary series: Structured Agency Credit Risk (“STACRs”) for Freddie Mac and
Connecticut Avenue Securities (“CAS”) for Fannie Mae, although other series may
be developed in the future. CRTs are typically structured as unsecured general
obligations of either entities guaranteed by a government-sponsored
stockholder-owned corporation, though not backed by the full faith and credit of
the United States (such as by Fannie Mae or Freddie Mac (collectively, the
“GSEs”) or special purpose entities), and their cash flows are based on the
performance of a pool of reference loans. Unlike traditional residential
MBS securities, bond payments typically do not come directly from the underlying
mortgages. Instead, the GSEs either make the payments to CRT investors, or
the GSEs make certain payments to the special purpose entities and the special
purpose entities make payments to the investors. In certain structures,
the special purpose entities make payments to the GSEs upon the occurrence of
credit events with respect to the underlying mortgages, and the obligation of
the special purpose entity to make such payments to the GSE is senior to the
obligation of the special purpose entity to make payments to the CRT
investors. CRTs are typically floating rate securities and may have
multiple tranches with losses first allocated to the most junior or subordinate
tranche. This structure results in increased sensitivity to dramatic
housing downturns, especially for the subordinate tranches. Many CRTs also have
collateral performance triggers (e.g., based on credit enhancement,
delinquencies or defaults, etc.) that could shut off principal payments to
subordinate tranches. Generally, GSEs have the ability to call all of the CRT
tranches at par in 10 years.
In
addition, the future of the GSEs is in serious question as the U.S. Government
is considering multiple options, ranging on a spectrum from significant reform,
nationalization, privatization, consolidation, or abolishment of the entities.
Congress is considering several pieces of legislation that would reform the
GSEs, proposing to address their structure, mission, portfolio limits, and
guarantee fees, among other issues.
The
FHFA and the Treasury Department (through its agreement to purchase GSE
preferred stock) have imposed strict limits on the size of GSEs’ mortgage
portfolios. In August 2012, the Treasury Department amended its preferred stock
purchase agreements to provide that the GSEs’ portfolios would be wound down at
an annual rate of 15 percent (up from the previously agreed annual rate of 10
percent), requiring the GSEs to reach the $250 billion target by December 31,
2018. Fannie Mae and Freddie Mac were below the $250 billion cap for
year-end 2018. On December 21, 2017, a letter agreement between the Treasury and
Fannie Mae and Freddie Mac changed the terms of the senior preferred stock
certificates to permit the GSEs each to retain a $3 billion capital reserve,
quarterly. Under the 2017 letter, each GSE paid a dividend to Treasury equal to
the amount that its net worth exceeded $3 billion at the end of each quarter. On
September 30, 2019, the Treasury and the FHFA, acting as conservator to Fannie
Mae and Freddie Mac, announced amendments to the respective senior preferred
stock certificates that will permit the GSEs to retain earnings beyond the $3
billion capital reserves previously allowed through the 2017 letter agreements.
Fannie Mae and Freddie Mac are now permitted to maintain capital reserves of $25
billion and $20 billion, respectively.
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, a Fund 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 Funds use an approach
that the Manager believes is reasonable in light of all relevant circumstances.
If this determination is not borne out in practice, it could positively or
negatively affect the value of a Fund 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 collateralized mortgage obligations
(“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. The Manager considers such insurance and
guarantees, as well as the creditworthiness of the issuers thereof, in
determining whether a mortgage-backed security meets a Fund’s investment quality
standards. There can be no assurance that private insurers or guarantors can
meet their obligations under insurance policies or guarantee arrangements. A
Fund may buy mortgage-backed securities without insurance or guarantees, if the
Manager determines that the securities meet the Fund’s quality standards. The
Manager will, consistent with a Fund’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. A Fund may not purchase mortgage-backed
securities that, in the Manager’s opinion, are illiquid if, as a result, more
than 15% of the Fund’s net assets would be invested in illiquid
securities.
Other Mortgage-Related
Securities. Other mortgage-related securities include securities
other than those described above that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property, including stripped mortgage-backed securities. Other mortgage-related
securities may be equity or debt securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks, partnerships,
trusts and special purpose entities of the foregoing.
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. A Fund
determines the tax-exempt status of the interest on any issue of municipal
obligations based on an opinion of the issuer’s bond counsel, which is not
binding on the Internal Revenue Service (“Service”) or the courts, at the time
the obligations are issued.
Municipal
obligations include “general obligation” securities, which are backed by the
full taxing power of the issuing governmental entity, and “revenue” securities,
which are backed only by the income from a specific project, facility, or tax.
Municipal obligations also include PABs, which are issued by or on behalf of
public authorities to finance various privately operated facilities, and are
generally supported only by revenue from those facilities, if any. They
are not backed by the credit of any governmental or public authority.
“Anticipation notes” are issued by municipalities in expectation of future
proceeds from the issuance of bonds or from taxes or other revenues and are
payable from those bond proceeds, taxes, or revenues. Municipal obligations also
include tax-exempt commercial paper, which is issued by municipalities to help
finance short-term capital or operating requirements.
The
value of municipal obligations depends on the continuing payment of interest and
principal when due by the issuers of the municipal obligations (or, in the case
of PABs, the revenues generated by the facility financed by the bonds or, in
certain other instances, the provider of the credit facility backing the
obligations or insurers issuing insurance backing the obligations).
A
Fund may purchase municipal securities that are fully or partially backed by
entities providing credit support such as letters of credit, guarantees, or
insurance. The credit quality of the entities that provide such credit support
will affect the market values of those securities. The insurance feature of a
municipal security guarantees the full and timely payment of interest and
principal through the life of an insured obligation. The insurance feature does
not, however, guarantee the market value of the insured obligation or the NAV of
a Fund’s shares represented by such an insured obligation. The Portfolio
Managers generally look to the credit quality of the issuer of a municipal
security to determine whether the security meets a Fund’s quality restrictions,
even if the security is covered by insurance. However, a downgrade in the
claims-paying ability of an insurer of a municipal security could have an
adverse effect on the market value of the security. Certain significant
providers of insurance for municipal securities can incur and, in the past have
incurred, significant losses as a result of exposure to certain categories of
investments, such as sub-prime mortgages and other lower credit quality
investments that have experienced defaults or otherwise suffered extreme credit
deterioration. Such losses can adversely impact the capital adequacy of
these insurers and may call into question the insurers’ ability to fulfill their
obligations under such insurance if they are called to do so, which could
negatively affect a Fund. There are a limited number of providers of
insurance for municipal securities and a Fund may have multiple investments
covered by one insurer. Accordingly, this may make the value of those
investments dependent on the claims-paying ability of that one insurer and could
result in share price volatility for a Fund’s shares.
As
with other fixed income securities, an increase in interest rates generally will
reduce the value of a Fund’s investments in municipal obligations, whereas a
decline in interest rates generally will increase that value.
Some
municipal securities, including those in the high yield market, may include
transfer restrictions (e.g., may only be transferred to qualified institutional
buyers and purchasers meeting other qualification requirements set by the
issuer). As such, it may be difficult to sell municipal securities at a time
when it may otherwise be desirable to do so or a Fund may be able to sell them
only at prices that are less than what the Fund regards as their fair market
value.
Periodic
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
may experience substantial deficits and may find it difficult for political or
economic reasons to increase taxes. Efforts are periodically undertaken 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.
Unlike
other types of investments, municipal obligations have traditionally not been
subject to the registration requirements of the federal securities laws,
although there have been proposals to provide for such registration. This lack
of SEC regulation has adversely affected the quantity and quality of information
available to the bond markets about issuers and their financial condition. The
SEC has responded to the need for such information with Rule 15c2-12 under the
Securities Exchange Act of 1934, as amended (the “Rule”). The Rule requires that
underwriters must reasonably determine that an issuer of municipal securities
undertakes in a written agreement for the benefit of the holders of such
securities to file with a nationally recognized municipal securities information
repository certain information regarding the financial condition of the
issuer
and
material events relating to such securities. The SEC’s intent in adopting the
Rule was to provide holders and potential holders of municipal securities with
more adequate financial information concerning issuers of municipal securities.
The Rule provides exemptions for issuances with a principal amount of less than
$1,000,000 and certain privately placed issuances.
The
federal bankruptcy statutes provide that, in certain circumstances, political
subdivisions and authorities of states may initiate bankruptcy proceedings
without prior notice to or consent of their creditors. These proceedings could
result in material and adverse changes in the rights of holders of their
obligations.
From
time to time, federal legislation has affected the availability of municipal
obligations for investment by a Fund. There can be no assurance that legislation
adversely affecting the tax-exempt status of the interest on municipal
obligations will not be enacted in the future. If that occurred, Neuberger
Berman Municipal High Income Fund,
Neuberger Berman Municipal Impact Fund,
and Neuberger Berman Municipal Intermediate
Bond Fund would reevaluate their investment objectives, policies and
limitations.
In
response to the national economic downturn, governmental cost burdens may be
reallocated among federal, state and local governments. Also as a result of the
downturn, many state and local governments are experiencing significant
reductions in revenues and are consequently experiencing difficulties meeting
ongoing expenses. Certain of these state or local governments may have
difficulty paying principal or interest when due on their outstanding debt and
may experience credit ratings downgrades on their debt. In addition, municipal
securities backed by revenues from a project or specified assets may be
adversely impacted by a municipality’s failure to collect the revenue.
The
Service occasionally challenges the tax-exempt status of the interest on
particular municipal securities. If the Service determined that interest earned
on a municipal security a Fund held was taxable and the issuer thereof failed to
overcome that determination, that interest would be taxable to the Fund,
possibly retroactive to the time the Fund purchased the security.
Listed
below are different types of municipal obligations:
General Obligation Bonds. A
general obligation bond is backed by the governmental issuer’s pledge of its
full faith and credit and power to raise taxes for payment of principal and
interest under the bond. The taxes or special assessments that can be levied for
the payment of debt service may be limited or unlimited as to rate or amount.
Many jurisdictions face political and economic constraints on their ability to
raise taxes. These limitations and constraints may adversely affect the ability
of the governmental issuer to meet its obligations under the bonds in a timely
manner.
Revenue Bonds. Revenue bonds are
backed by the income from a specific project, facility or tax. Revenue bonds are
issued to finance a wide variety of public projects, including (1) housing,
(2) electric, gas, water, and sewer systems, (3) highways, bridges,
and tunnels, (4) port and airport facilities, (5) colleges and
universities, and (6) hospitals. In some cases, repayment of these bonds
depends upon annual legislative appropriations; in other cases, if the issuer is
unable to meet its legal obligation to repay the bond, repayment becomes an
unenforceable “moral obligation” of a
related
governmental unit. Revenue bonds issued by housing finance authorities are
backed by a wider range of security, including partially or fully insured
mortgages, rent subsidized and/or collateralized mortgages, and net revenues
from housing projects.
Most
PABs are revenue bonds, in that principal and interest are payable only from the
net revenues of the facility financed by the bonds. These bonds generally do not
constitute a pledge of the general credit of the public issuer or private
operator or user of the facility. In some cases, however, payment may be secured
by a pledge of real and personal property constituting the facility.
Resource Recovery Bonds.
Resource recovery bonds are a type of revenue bond issued to build facilities
such as solid waste incinerators or waste-to-energy plants. Typically, a private
corporation will be involved on a temporary basis during the construction of the
facility, and the revenue stream will be secured by fees or rents paid by
municipalities for use of the facilities. The credit and quality of resource
recovery bonds may be affected by the viability of the project itself, tax
incentives for the project, and changing environmental regulations or
interpretations thereof.
Municipal Lease Obligations.
These obligations, which may take the form of a lease, an installment purchase,
or a conditional sale contract, are issued by a state or local government or
authority to acquire land and a wide variety of equipment and facilities. A Fund
will usually invest in municipal lease obligations through certificates of
participation (“COPs”), which give the Fund a specified, undivided interest in
the obligation. For example, a COP may be created when long-term revenue bonds
are issued by a governmental corporation to pay for the acquisition of property.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds. Once these lease payments are completed, the
municipality gains ownership of the property. These obligations are
distinguished from general obligation or revenue bonds in that they typically
are not backed fully by the municipality’s credit, and their interest may become
taxable if the lease is assigned. The lease subject to the transaction usually
contains a “non-appropriation” clause. A non-appropriation clause states that,
while the municipality will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if its appropriating body
does not allocate the necessary funds. Such termination would result in a
significant loss to a Fund.
Municipal Notes. Municipal notes
include the following:
1. Project notes are issued by local
issuing agencies created under the laws of a state, territory, or possession of
the United States to finance low-income housing, urban redevelopment, and
similar projects. These notes are backed by an agreement between the local
issuing agency and the Department of Housing and Urban Development (“HUD”).
Although the notes are primarily obligations of the local issuing agency, the
HUD agreement provides the full faith and credit of the United States as
additional security.
2. Tax anticipation notes are issued to
finance working capital needs of municipalities. Generally, they are issued in
anticipation of future seasonal tax revenues, such as property, income and sales
taxes, and are payable from these future revenues.
3. Revenue anticipation notes are issued
in expectation of receipt of other types of revenue, including revenue made
available under certain state aid funding programs. Such appropriation of
revenue is generally accounted for in the state budgetary process.
4. Bond anticipation notes are issued to
provide interim financing until long-term bond financing can be arranged. In
most cases, the long-term bonds provide the funds for the repayment of the
notes.
5. Construction loan notes are sold to
provide construction financing. After completion of construction, many projects
receive permanent financing from Fannie Mae (also known as the Federal National
Mortgage Association) or Ginnie Mae (also known as the Government National
Mortgage Association).
6. Tax-exempt commercial paper is a
short-term obligation issued by a state or local government or an agency thereof
to finance seasonal working capital needs or as short-term financing in
anticipation of longer-term financing.
7. Pre-refunded and “escrowed” municipal
bonds are bonds with respect to which the issuer has deposited, in an
escrow account, an amount of securities and cash, if any, that will be
sufficient to pay the periodic interest on and principal amount of the bonds,
either at their stated maturity date or on the date the issuer may call the
bonds for payment. This arrangement gives the investment a quality equal to the
securities in the account, usually U.S. Government Securities (defined below). A
Fund can also purchase bonds issued to refund earlier issues. The proceeds of
these refunding bonds are often used for escrow to support
refunding.
Yield and Price Characteristics of Municipal
Obligations. Municipal obligations generally have the same yield
and price characteristics as other debt securities. Yields depend on a variety
of factors, including general conditions in the money and bond markets and, in
the case of any particular securities issue, its amount, maturity, duration, and
rating. Market prices of fixed income securities usually vary upward or downward
in inverse relationship to market interest rates.
Municipal
obligations with longer maturities or durations tend to produce higher yields.
They are generally subject to potentially greater price fluctuations, and thus
greater appreciation or depreciation in value, than obligations with shorter
maturities or durations and lower yields. An increase in interest rates
generally will reduce the value of a Fund’s investments, whereas a decline in
interest rates generally will increase that value. The ability of a Fund to
achieve its investment objective also is dependent on the continuing ability of
the issuers of the municipal obligations in which the Fund invests (or, in the
case of PABs, the revenues generated by the facility financed by the bonds or,
in certain other instances, the provider of the credit facility backing the
bonds) to pay interest and principal when due.
Participation Interests of Municipal
Obligations. A Fund may purchase from banks participation interests in
all or part of specific holdings of short-term municipal obligations. Each
participation interest is backed by an irrevocable letter of credit issued by a
selling bank determined by the Manager to be creditworthy. A Fund has the right
to sell the participation interest back to the bank, usually after seven days’
notice, for the full principal amount of its participation, plus accrued
interest, but only (1) to provide portfolio liquidity, (2) to maintain
portfolio quality, or
(3) to
avoid losses when the underlying municipal obligations are in default. Although
no Fund currently intends to acquire participation interests, each Fund reserves
the right to do so in the future.
Policies and
Limitations. Each of Neuberger Berman Municipal High Income Fund, Neuberger Berman
Municipal Impact Fund and Neuberger
Berman Municipal Intermediate Bond Fund
will not purchase a participation interest unless there is an opinion of counsel
or a ruling of the Service that the interest the Fund will earn on the municipal
obligations in which it holds the participation interest will be excludable from
gross income for federal income tax purposes.
Purchases with a Standby Commitment to
Repurchase. When a Fund purchases municipal obligations, it also
may acquire a standby commitment obligating the seller to repurchase the
obligations at an agreed upon price on a specified date or within a specified
period. A standby commitment is the equivalent of a nontransferable “put” option
held by a Fund that terminates if the Fund sells the obligations to a third
party.
A
Fund may enter into standby commitments only with banks and (if permitted under
the 1940 Act) securities dealers determined to be creditworthy. A Fund’s ability
to exercise a standby commitment depends on the ability of the bank or
securities dealer to pay for the obligations on exercise of the commitment. If a
bank or securities dealer defaults on its commitment to repurchase such
obligations, a Fund may be unable to recover all or even part of any loss it may
sustain from having to sell the obligations elsewhere.
Although
no Fund currently intends to invest in standby commitments, each Fund reserves
the right to do so in the future. By enabling a Fund to dispose of municipal
obligations at a predetermined price prior to maturity, this investment
technique allows a Fund to be fully invested while preserving the flexibility to
make commitments for when-issued securities, take advantage of other buying
opportunities, and meet redemptions.
Standby
commitments are valued at zero in determining NAV. The maturity or duration of
municipal obligations purchased by a Fund is not shortened by a standby
commitment. Therefore, standby commitments do not affect the dollar-weighted
average maturity or duration of a Fund’s investment portfolio.
Policies and
Limitations. Each of Neuberger Berman Municipal High Income Fund, Neuberger Berman
Municipal Impact Fund and Neuberger
Berman Municipal Intermediate Bond Fund
will not invest in a standby commitment unless there is an opinion of counsel or
a ruling of the Service that the interest the Fund will earn on the municipal
obligations subject to the standby commitment will be excludable from gross
income for federal income tax purposes.
No
Fund will acquire standby commitments with a view to exercising them when the
exercise price exceeds the current value of the underlying obligations; a Fund
will do so only to facilitate portfolio liquidity.
Residual Interest Bonds. A Fund
may purchase one component of a municipal security that is structured in two
parts: A variable rate security and a residual interest bond. The interest rate
for the variable rate security is determined by an index or an auction process
held
approximately
every 35 days, while the residual interest bond holder receives the balance of
the income less an auction fee. These instruments are also known as inverse
floaters because the income received on the residual interest bond is inversely
related to the market rates. The market prices of residual interest bonds are
highly sensitive to changes in market rates and may decrease significantly when
market rates increase.
Tender Option Bonds. Tender option
bonds are fixed income instruments created when the Fund transfers municipal
bonds to a special purpose vehicle, which is generally organized as a trust,
created by a sponsor (usually a bank, broker-dealer, or other financial
institution). In exchange for depositing municipal bonds into the trust, a
Fund typically receives cash and a residual interest security (often referred to
as an “inverse floater,” as described below) representing the difference between
the cash received and the value of the deposited (or “underlying”) municipal
bonds. The trust issues two classes of certificates with varying economic
interests.
The
first class of interests are floating rate certificates (commonly called
“floaters”), which generally have a fixed principal amount representing a senior
interest in the underlying municipal bonds. Floaters typically pay
interest at a short-term floating rate that is usually reset weekly based on a
specified index. Holders of the floaters typically receive interest on a
tax-exempt basis. The floaters are designed to be eligible for investment by
tax-exempt money market funds and other short-term institutional investors and
generally have both short-term ratings (based upon the rating of the liquidity
provider, generally the same entity sponsor of the trust or an affiliate of the
sponsor) and long-term ratings (based upon the ratings of the municipal bonds
deposited into the trust). The floaters typically grant the holders the
option, at periodic intervals prior to maturity or upon the occurrence of
specified events or conditions, to tender their securities to the issuer or its
agent and receive the face value (or “par” value) thereof plus accrued
interest. A remarketing agent for the trust is required to attempt to
resell to new investors any floaters that are tendered for repurchase and if the
remarketing is unsuccessful, the trust’s liquidity provider must contribute cash
to ensure that the tendering holders receive the purchase price of their
securities on the repurchase date.
The
second class of interests are residual income certificates (commonly called
inverse floaters), which represent a residual, subordinate interest in the
underlying municipal bonds. Inverse floaters pay interest at a rate based
on the difference between the interest rate earned on the underlying municipal
bonds and the interest rate paid on the floating rate certificates. As
such, a Fund continues to earn all of the interest from the underlying municipal
bond, less the amount of interest paid on the floaters and the expenses of the
special purpose vehicle (e.g., payments to the sponsor and the liquidity
provider and administrative and organizational costs). Holders of the inverse
floaters typically receive interest on a tax-exempt basis.
A
Fund may invest in inverse floaters to seek greater income and total return. The
proceeds (generally cash) of the sale of the underlying municipal bond by a Fund
remaining after it buys the inverse floater can be used for any purpose. A
Fund typically uses the cash received from the transaction for investment
purposes, which involves leverage risk. The value of, and income earned on, an
inverse floater that has a higher degree of leverage (meaning it has a larger
outstanding principal amount of related floaters relative to the par value of
the underlying municipal bond) will fluctuate more significantly in response to
changes in interest rates and to changes in the market value of the related
underlying municipal bond, than the value of, and income earned on, an inverse
floater that has a lower degree of leverage.
A
Fund’s use of tender option bonds may reduce the Fund's return and/or increase
volatility. The liquidity of a tender option bond is a function of the credit
quality of both the bond issuer and the financial institution providing
liquidity. As such, investments in tender option bonds expose a Fund to
counterparty risk. Because the principal amount of the floaters is fixed, any
change in the market value of the underlying municipal bond will impact the
value of the inverse floater. Additionally, during periods of rising
rates, the market values of inverse floaters will tend to decline more quickly
than the market values of fixed rate securities. Further, as short-term
interest rates rise, inverse floaters produce less current income (and, in
extreme cases, may produce no current income). In certain instances, a
Fund may enter into an agreement with the liquidity provider to reimburse the
provider if it must contribute cash to the trust upon the occurrence of certain
events, including mandatory tender events, which could reduce the Fund’s
returns.
Under
certain circumstances, the trust may be terminated or “collapsed” either by a
Fund or upon the occurrence of certain adverse events, such as a downgrade in
the credit quality of the underlying bond, the bankruptcy of a liquidity
provider, or the inability of the remarketing agent to resell the floaters.
Following such an event, the underlying municipal bond is generally sold for
current market value and the proceeds are distributed, first to the holders of
the floaters and then to the holder of the inverse floater (the Fund). The sale
of the underlying municipal bond following such an event could be at an adverse
price, which could result in a loss by the Fund of a substantial portion, or
even all, of its investment in the related inverse floater.
A
Fund may purchase an inverse floater created as part of a tender option bond
transaction not initiated by the Fund when a third party, such as a municipal
issuer or financial institution, transfers underlying municipal bonds to a
special purpose vehicle.
There
is a risk that the Service might take the position that a Fund will not be
considered the owner of tender option bonds in which it invests and thus will
not be entitled to treat the interest thereon as exempt from federal income tax.
Additionally, the federal income tax treatment of certain other aspects of a
Fund’s investments in those bonds, including the proper treatment of the
associated fees, is unclear. A Fund intends to manage its portfolio to eliminate
or minimize any adverse impact from the federal income tax rules applicable to
these investments.
Natural
Disasters and Adverse Weather Conditions. Certain areas of
the world historically have been prone to major natural disasters, such as
hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting
volcanoes, wildfires or droughts, and have been economically sensitive to
environmental events. Such disasters, and the resulting damage, could have a
severe and negative impact on a Fund’s investment portfolio and, in the longer
term, could impair the ability of issuers in which a Fund invests to conduct
their businesses in the manner normally conducted. Adverse weather conditions
may also have a particularly significant negative effect on issuers in the
agricultural sector and on insurance companies that insure against the impact of
natural disasters.
Operational
and Cybersecurity Risk. With the increased use of
technologies such as the Internet and the dependence on computer systems to
perform necessary business functions, the Funds and their service providers, and
your ability to transact with the Funds, may be negatively impacted due to
operational matters arising from, among other problems, human errors,
systems
and
technology disruptions or failures, or cybersecurity incidents. A cybersecurity
incident may refer to intentional or unintentional events that allow an
unauthorized party to gain access to Fund assets, customer data, or proprietary
information, or cause a Fund or Fund service providers (including, but not
limited to, the Funds’ manager, distributor, fund accountants, custodian,
transfer agent, sub-advisers (if applicable), and financial intermediaries), as
well as the securities trading venues and their service providers, to suffer
data corruption or lose operational functionality. A cybersecurity incident
could, among other things, result in the loss or theft of customer data or
funds, customers or employees being unable to access electronic systems (“denial
of services”), loss or theft of proprietary information or corporate data,
physical damage to a computer or network system, or remediation costs associated
with system repairs. Any of these results could have a substantial adverse
impact on the Funds and their shareholders. For example, if a cybersecurity
incident results in a denial of service, Fund shareholders could lose access to
their electronic accounts and be unable to buy or sell Fund shares for an
unknown period of time, and employees could be unable to access electronic
systems to perform critical duties for the Funds, such as trading, NAV
calculation, shareholder accounting or fulfillment of Fund share purchases and
redemptions.
A
Fund’s service providers may also be negatively impacted due to operational
risks arising from factors such as processing errors and human errors,
inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third-party service
providers or trading counterparties. In particular, these errors or failures as
well as other technological issues may adversely affect the Funds’ ability to
calculate their NAVs in a timely manner, including over a potentially extended
period.
The
occurrence of an operational or cybersecurity incident could result in
regulatory penalties, reputational damage, additional compliance costs
associated with corrective measures, or financial loss of a significant
magnitude and could result in allegations that the Fund or Fund service provider
violated privacy and other laws. Similar adverse consequences could result from
incidents affecting issuers of securities in which a Fund invests,
counterparties with which a Fund engages in transactions, governmental and other
regulatory authorities, exchange and other financial market operators, banks,
brokers, dealers, insurance companies, and other financial institutions and
other parties. Although the Funds and their Manager endeavor to determine that
service providers have established risk management systems that seek to reduce
these operational and cybersecurity risks, and business continuity plans in the
event there is an incident, there are inherent limitations in these systems and
plans, including the possibility that certain risks may not have been
identified, in large part because different or unknown threats may emerge in the
future. Furthermore, the Funds do not control the operational and cybersecurity
systems and plans of the issuers of securities in which the Funds invest or the
Funds’ third party service providers or trading counterparties or any other
service providers whose operations may affect a Fund or its shareholders.
Preferred
Stock. Unlike
interest payments on debt securities, dividends on preferred stock are generally
payable at the discretion of the issuer’s board of directors. Preferred
shareholders may have certain rights if dividends are not paid but generally
have no legal recourse against the issuer. Shareholders may suffer a loss of
value if dividends are not paid. The market prices of preferred stocks are
generally more sensitive to changes in the issuer’s creditworthiness than are
the prices of debt securities.
Private
Companies and Pre-IPO Investments. Investments in private
companies, including companies that have not yet issued securities publicly in
an IPO (“Pre-IPO shares”) involve greater risks than investments in securities
of companies that have traded publicly on an exchange for extended periods of
time. Investments in these companies are generally less liquid than investments
in securities issued by public companies and may be difficult for a Fund to
value. Compared to public companies, private companies may have a more
limited management group and limited operating histories with narrower, less
established product lines and smaller market shares, which may cause them to be
more vulnerable to competitors’ actions, market conditions and consumer
sentiment with respect to their products or services, as well as general
economic downturns. In addition, private companies may have limited
financial resources and may be unable to meet their obligations. This
could lead to bankruptcy or liquidation of such private company or the dilution
or subordination of a Fund’s investment in such private company. Additionally,
there is significantly less information available about private companies’
business models, quality of management, earnings growth potential and other
criteria used to evaluate their investment prospects and the little public
information available about such companies may not be reliable. Because
financial reporting obligations for private companies are not as rigorous as
public companies, it may be difficult to fully assess the rights and values of
certain securities issued by private companies. A Fund may only have
limited access to a private company’s actual financial results and there is no
assurance that the information obtained by the Fund is reliable. Although
there is a potential for pre-IPO shares to increase in value if the company does
issue shares in an IPO, IPOs are risky and volatile and may cause the value of a
Fund’s investment to decrease significantly. Moreover, because securities issued
by private companies are generally not freely or publicly tradable, a Fund may
not have the opportunity to purchase or the ability to sell these shares in the
amounts or at the prices the Fund desires. The private companies a Fund may
invest in may not ever issue shares in an IPO and a liquid market for their
pre-IPO shares may never develop, which may negatively affect the price at which
the Fund can sell these shares and make it more difficult to sell these shares,
which could also adversely affect the Fund’s liquidity. Furthermore, these
investments may be subject to additional contractual restrictions on resale that
would prevent the Fund from selling the company’s securities for a period of
time following any IPO. A Fund’s investment in a private company’s
securities will involve investing in restricted securities. See
“Restricted Securities and Rule 144A Securities” for risks related to restricted
securities. If a Fund invests in private companies or issuers, there is a
possibility that NBIA may obtain access to material non-public information about
an issuer of private placement securities, which may limit NBIA’s ability to
sell such securities, could negatively impact NBIA’s ability to manage the Fund
since NBIA may be required to sell other securities to meet redemptions, or
could adversely impact a Fund’s performance.
Real
Estate-Related Instruments. A Fund will not invest directly in
real estate, but a Fund may invest in securities issued by real estate
companies. Investments in the securities of companies in the real estate
industry subject a Fund to the risks associated with the direct ownership of
real estate. These risks include declines in the value of real estate, risks
associated with general and local economic conditions, possible lack of
availability of mortgage funds, overbuilding, extended vacancies of properties,
increased competition, increase in property taxes and operating expenses,
changes in zoning laws, losses due to costs resulting from the clean-up of
environmental problems, liability to third parties for damages resulting from
environmental problems, casualty or condemnation losses, limitation on rents,
changes in neighborhood values and the appeal of properties to tenants, and
changes in interest rates. In addition, certain real estate
valuations,
including residential real estate values, are influenced by market sentiments,
which can change rapidly and could result in a sharp downward adjustment from
current valuation levels.
Real
estate-related instruments include securities of real estate investment trusts
(also known as “REITs”), commercial and residential mortgage-backed securities
and real estate financings. Such instruments are sensitive to factors such as
real estate values and property taxes, interest rates, cash flow of underlying
real estate assets, overbuilding, and the management skill and creditworthiness
of the issuer. Real estate-related instruments may also be affected by tax and
regulatory requirements, such as those relating to the environment.
REITs
are sometimes informally characterized as equity REITs, mortgage REITs and
hybrid REITs. An equity REIT invests primarily in the fee ownership or leasehold
ownership of land and buildings and derives its income primarily from rental
income. An equity REIT may also realize capital gains (or losses) by selling
real estate properties in its portfolio that have appreciated (or depreciated)
in value. A mortgage REIT invests primarily in mortgages on real estate, which
may secure construction, development or long-term loans, and derives its income
primarily from interest payments on the credit it has extended. A hybrid REIT
combines the characteristics of equity REITs and mortgage REITs, generally by
holding both ownership interests and mortgage interests in real estate.
REITs
(especially mortgage REITs) are subject to interest rate risk. Rising interest
rates may cause REIT investors to demand a higher annual yield, which may, in
turn, cause a decline in the market price of the equity securities issued by a
REIT. Rising interest rates also generally increase the costs of obtaining
financing, which could cause the value of a Fund’s REIT investments to decline.
During periods when interest rates are declining, mortgages are often
refinanced. Refinancing may reduce the yield on investments in mortgage REITs.
In addition, because mortgage REITs depend on payment under their mortgage loans
and leases to generate cash to make distributions to their shareholders,
investments in such REITs may be adversely affected by defaults on such mortgage
loans or leases.
REITs
are dependent upon management skill, are not diversified, and are subject to
heavy cash flow dependency, defaults by borrowers, and self-liquidation.
Domestic REITs are also subject to the possibility of failing to qualify for
tax-free “pass-through” of distributed net income and net realized gains under
the Code and failing to maintain exemption from the 1940 Act.
REITs
are subject to management fees and other expenses. Therefore, investments in
REITs will cause a Fund to bear its proportionate share of the costs of the
REITs’ operations. At the same time, a Fund will continue to pay its own
management fees and expenses with respect to all of its assets, including any
portion invested in REITs.
Recent Market
Conditions. Certain
illnesses spread rapidly and have the potential to significantly and adversely
affect the global economy. Outbreaks such as the novel coronavirus, COVID-19, or
other similarly infectious diseases may have material adverse impacts on a Fund.
Epidemics and/or pandemics, such as the coronavirus, have and may further result
in, among other things, closing borders, extended quarantines and stay-at-home
orders, order cancellations, disruptions to supply chains and customer activity,
widespread business closures and layoffs, as well as general concern and
uncertainty. The impact of this virus, and other epidemics and/or
pandemics
that may arise in the future, has negatively affected and may continue to affect
the economies of many nations, individual companies and the global securities
and commodities markets, including their liquidity, in ways that cannot
necessarily be foreseen at the present time. Widespread layoffs and job
furloughs may negatively affect the value of many mortgage-backed and
asset-backed securities. The impact of the outbreak may last for an
extended period of time. The current pandemic has
accelerated trends toward working remotely and shopping on-line, which may
negatively affect the value of office and commercial real estate. The
travel, hospitality and public transit industries may suffer long-term negative
effects from the pandemic and resulting changes to public behavior.
Governments
and central banks have moved to limit these negative economic effects with
interventions that are unprecedented in size and scope and may continue to do
so, but the ultimate impact of these efforts is uncertain. Governments’ efforts
to limit potential negative economic effects of the pandemic may be altered,
delayed, or eliminated at inopportune times for political, policy or other
reasons. The impact of infectious diseases may be greater in
countries that do not move effectively to control them, which may occur for
political reasons or because of a lack of health care or economic resources.
Health crises caused by the recent coronavirus outbreak may exacerbate other
pre-existing political, social and economic risks in certain countries. Although
promising vaccines have been released, it may be many months before vaccinations
are sufficiently widespread to allow the restoration of full economic
activity.
High
public debt in the U.S. and other countries creates ongoing systemic and market
risks and policymaking uncertainty and there may be a further increase in the
amount of debt due to the economic effects of the COVID-19 pandemic and ensuing
economic relief and public health measures. Interest rates have been unusually
low in recent years in the U.S. and abroad, and central banks have reduced rates
further in an effort to combat the economic effects of the COVID-19 pandemic.
Extremely low or negative interest rates may become more prevalent. In that
event, to the extent a Fund has a bank deposit, holds a debt instrument with a
negative interest rate, or invests its cash in a money market fund holding such
instruments, the Fund would generate a negative return on that investment.
Because there is little precedent for this situation, it is difficult to predict
the impact on various markets of a significant rate increase or other
significant policy changes, whether brought about by U.S. policy makers or by
dislocations in world markets. For example, because investors may buy
equity securities or other investments with borrowed money, a significant
increase in interest rates may cause a decline in the markets for those
investments. Also, regulators have expressed concern that rate increases may
cause investors to sell fixed income securities faster than the market can
absorb them, contributing to price volatility. Over the longer term, rising
interest rates may present a greater risk than has historically been the case
due to the current period of relatively low rates and the effect of government
fiscal and monetary policy initiatives and potential market reaction to those
initiatives or their alteration or cessation.
During
times of market turmoil, investors tend to look to the safety of securities
issued or backed by the Treasury Department, causing the prices of these
securities to rise and the yield to decline. Reduced liquidity in fixed income
and credit markets may negatively affect many issuers worldwide and make it more
difficult for borrowers to obtain financing on attractive terms, if at
all. Historical patterns of correlation among asset classes may break down
in unanticipated ways during times of market turmoil, disrupting investment
programs and potentially causing losses.
National
economies are increasingly interconnected, as are global financial markets,
which increases the possibilities that conditions in one country or region might
adversely impact issuers in a different country or region. A rise in
protectionist trade policies, tariff “wars,” changes to some major international
trade agreements and the potential for changes to others, and campaigns to “buy
American,” could affect international trade and the economies of many nations in
ways that cannot necessarily be foreseen at the present time. Equity markets in
the U.S. and China have been very sensitive to the outlook for resolving the
U.S.-China “trade war,” a trend that may continue in the future.
In
December 2020, the United Kingdom (“UK”) and the European Union (“EU”) signed a
Trade and Cooperation Agreement (“TCA”) to delineate the terms on which the UK
left the EU. The TCA did little to address financial services and products
provided by UK entities to customers in the EU, leaving the future of such
services uncertain. Also left uncertain was the long-term future of the UK
auto industry, which relies heavily on exports to the EU, although the TCA
leaves a long period for issues to be resolved. New trading rules have
disrupted the cross-border flow of products and supplies for many businesses; it
remains to be seen whether these will be smoothed out with the passage of time
or cause long-term damage to affected businesses.
Funds
and their advisers, as well as many of the companies in which they invest, are
subject to regulation by the federal government. Over the past several
years, the U.S. has moved away from tighter legislation and industry regulation
impacting businesses and the financial services industry. There is a
potential for a materially increased regulation in the future, as well as
higher taxes or taxes restructured to incentivize different activities.
These changes, should they occur, may impose added costs on the Fund and its
service providers and affect the businesses of various portfolio companies, in
ways that cannot necessarily be foreseen at the present time. Unexpected
political, regulatory and diplomatic events within the U.S. and abroad may
affect investor and consumer confidence and may adversely impact financial
markets and the broader economy.
Climate Change. Economists and others have
expressed increasing concern about the potential effects of global climate
change on property and security values. A rise in sea levels, an increase
in powerful windstorms and/or a climate-driven increase in flooding could cause
coastal properties to lose value or become unmarketable altogether.
Economists warn that, unlike previous declines in the real estate market,
properties in affected coastal zones may not ever recover their value.
Large wildfires driven by high winds and prolonged drought may devastate
businesses and entire communities and may be very costly to any business found
to be responsible for the fire. The new U.S.
administration appears concerned about the climate change problem and may focus
regulatory and public works projects around those concerns. Regulatory
changes and divestment movements tied to concerns about climate change could
adversely affect the value of certain land and the viability of industries whose
activities or products are seen as accelerating climate change.
Losses
relating to climate change could adversely affect corporate issuers and mortgage
lenders, the value of mortgage-backed securities, the bonds of municipalities
that depend on tax or other revenues and tourist dollars generated by affected
properties, and insurers of the property and/or of corporate, municipal or
mortgage-backed securities. Since property and security values
are
driven largely by buyers’ perceptions, it is difficult to know the time period
over which these market effects might unfold.
LIBOR Transition. Trillions of dollars’ worth
of financial contracts around the world specify rates that are based on the
London Interbank Offered Rate (LIBOR). LIBOR is produced daily by averaging the
rates for inter-bank lending reported by a number of banks. Current plans call
for LIBOR to be phased out by the end of 2021. There are risks that the
financial services industry will not have a suitable substitute in place by that
time and that there will not be time to perform the substantial work necessary
to revise the many existing contracts that rely on LIBOR. The transition
process, or a failure of the industry to transition properly, might lead to
increased volatility and illiquidity in markets that currently rely on LIBOR. It
also could lead to a reduction in the value of some LIBOR-based investments and
reduce the effectiveness of new hedges placed against existing LIBOR-based
instruments. Since the usefulness of LIBOR as a benchmark could deteriorate
during the transition period, these effects could occur prior to the end of
2021.
Repurchase
Agreements. In a
repurchase agreement, a Fund purchases securities from a bank that is a member
of the Federal Reserve System, from a foreign bank or from a U.S. branch or
agency of a foreign bank, or from a securities dealer that agrees to repurchase
the securities from the Fund 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. The
Manager monitors the creditworthiness of sellers. If a Fund enters into a
repurchase agreement subject to foreign law and the counter-party defaults, that
Fund may not enjoy protections comparable to those provided to certain
repurchase agreements under U.S. bankruptcy law and may suffer delays and losses
in disposing of the collateral as a result.
Policies and
Limitations. Repurchase agreements with a maturity or demand
of more than seven days are considered to be illiquid securities. No Fund may
enter into a repurchase agreement with a maturity or demand 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. A
Fund may enter into a repurchase agreement only if (1) the underlying
securities (excluding maturity and duration limitations, if any) are of a type
that the Fund’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 Fund’s account by its
custodian or a bank acting as the Fund’s agent.
Restricted
Securities and Rule 144A Securities. A Fund may invest in
“restricted securities,” which generally are securities that may be resold to
the public only pursuant to an effective registration statement under the 1933
Act or an exemption from registration. Regulation S under the 1933 Act is
an exemption from registration that permits, under certain circumstances, the
resale of restricted securities in offshore transactions, subject to certain
conditions, and Rule 144A under the 1933 Act is an exemption that permits the
resale of certain restricted securities to qualified institutional buyers.
Since
its adoption by the SEC in 1990, Rule 144A has facilitated trading of restricted
securities among qualified institutional investors. To the extent
restricted securities held by a Fund
qualify
under Rule 144A and an institutional market develops for those securities, the
Fund expects that it will be able to dispose of the securities without
registering the resale of such securities under the 1933 Act. However, to
the extent that a robust market for such 144A securities does not develop, or a
market develops but experiences periods of illiquidity, investments in Rule 144A
securities could increase the level of a Fund’s illiquidity.
Where
an exemption from registration under the 1933 Act is unavailable, or where an
institutional market is limited, a Fund may, in certain circumstances, be
permitted to require the issuer of restricted securities held by the Fund to
file a registration statement to register the resale of such securities under
the 1933 Act. In such case, the Fund will typically 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 Fund may be permitted to resell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, or the value of the security were to
decline, the Fund 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 Fund Trustees believe accurately reflects fair value.
Reverse
Repurchase Agreements. In a reverse repurchase agreement, a Fund
sells portfolio securities to another party and agrees to repurchase the
securities at an agreed-upon price and date, which reflects an interest payment.
Reverse repurchase agreements involve the risk that the other party will fail to
return the securities in a timely manner, or at all, which may result in losses
to a Fund. A Fund could lose money if it is unable to recover the securities and
the value of the collateral held by the Fund is less than the value of the
securities. These events could also trigger adverse tax consequences to a Fund.
Reverse repurchase agreements also involve the risk that the market value of the
securities sold will decline below the price at which a Fund is obligated to
repurchase them. Reverse repurchase agreements may be viewed as a form of
borrowing by a Fund. When a Fund enters into a reverse repurchase agreement, any
fluctuations in the market value of either the securities transferred to another
party or the securities in which the proceeds may be invested would affect the
market value of the Fund’s assets. During the term of the agreement, a Fund may
also be obligated to pledge additional cash and/or securities in the event of a
decline in the fair value of the transferred security. The Manager monitors the
creditworthiness of counterparties to reverse repurchase agreements. For the
Funds’ policies and limitations on borrowing, see “Investment Policies and
Limitations -- Borrowing” above.
Policies and
Limitations. Reverse repurchase
agreements are considered borrowings for purposes of a Fund’s investment
policies and limitations concerning borrowings. While a reverse repurchase
agreement is outstanding, a Fund will deposit in a segregated account with its
custodian, or designate on its records as segregated, cash or appropriate liquid
securities, marked to market daily, in an amount at least equal to that Fund’s
obligations under the agreement.
Risks of
Investments in China through Bond Connect Programs. There are
significant risks inherent in investing through China’s Bond Connect Programs
(“Bond Connect”), which allow non-Chinese investors to purchase certain China
mainland fixed-income investments available from China’s interbank bond market.
The Chinese investment and banking systems are materially different in nature
from many developed markets, which exposes investors to risks that are different
from those in the U.S. Bond Connect uses the trading infrastructure of both Hong
Kong and China. If either one or both markets involved are closed on a day the
Fund is open, the
Fund
may not be able to add to or exit a position on such a day, which could
adversely affect the Fund’s performance. Securities offered through Bond Connect
may lose their eligibility for trading through Bond Connect at any time, and if
such an event occurs, the Fund could sell, but could no longer purchase, such
securities through Bond Connect. Securities purchased through Bond Connect
generally may not be sold, purchased, or otherwise transferred other than
through Bond Connect in accordance with applicable rules.
The
Hong Kong investor compensation funds, which are set up to protect against
defaults on trades in relation to exchange-traded products in Hong Kong, do not
apply to trades made through the Bond Connect which currently relates only to
China interbank bonds. A Fund may not be able to participate in corporate
actions for securities purchased through Bond Connect as a result of time zone
differences and operational constraints, which could cause delays in the Fund’s
receipt of distribution payments. Bond Connect trades are typically settled in
Renminbi (“RMB”) although the Chinese regulator permits the use of foreign
currencies for funding and has also provided for settlement through onshore RMB
conversion and hedging through recognized Hong Kong local custodians
specifically for that Bond Connect activity. Since offshore RMB is the
most-widely accepted form of settlement, the Fund must therefore have timely
access to a supply of RMB in Hong Kong, which cannot be guaranteed, or,
alternatively, opt for settlement in other currencies or onshore RMB conversion
and hedging which may require additional time. The unavailability of a ready
supply of accepted settlement currencies could subject the Fund to losses.
Bond
Connect is in its early stages and the actual effect on the market for trading
fixed-income investments available from China’s interbank bond market with the
introduction of large numbers of foreign investors is unknown. In the event of
systems malfunctions, trading via Bond Connect could be disrupted. In
particular, since aspects of the settlement process for one of the principal
Chinese bond clearinghouses, China Central Depository & Clearing Co
(“CDCC”), are not automated, there may be an increased risk of settlement
delays, errors and counterparty default.
Investments
made through Bond Connect are subject to order, clearance and settlement
procedures that are new and untested. Further, securities purchased via Bond
Connect will be held by the Hong Kong Monetary Authority Central Money Markets
Unit on behalf of ultimate investors via a book entry omnibus account in the
books of a China-based custodian (typically, either the CDCC or the Shanghai
Clearing House (“SCH”)). A Fund’s interest in securities purchased through Bond
Connect will not be reflected directly in a book entry with CDCC or SCH and will
instead only be reflected on the books of its Hong Kong sub-custodian, and the
Fund will be a beneficial owner, a concept that is relatively undeveloped in
Chinese law. This recordkeeping system subjects a Fund to various additional
risks, including the risk that the Fund may have a limited ability to enforce
its rights as a bondholder as well as the risks of settlement delays and
counterparty default related to the sub-custodian.
Further
regulations, restrictions, interpretation or guidance, such as limitations on
redemptions and availability of securities, may adversely impact Bond Connect.
There can be no assurance that Bond Connect will not be restricted, suspended,
or abolished. There can be no assurance that further regulations will not affect
the availability of securities in the program, the frequency of redemptions or
other limitations. In addition, the application and interpretation of the laws
and regulations of Hong Kong and China, and the rules, policies or guidelines
published or applied by relevant regulators and exchanges with respect to the
Bond Connect program, including tax
rules governing investments via Bond Connect, are
uncertain, and they may have a detrimental effect on a Fund’s investments and
returns. With respect to tax treatment, investments via Bond Connect could
result in unexpected tax liabilities for a Fund, and there is also some
uncertainty around the tax treatment of payments such as interest payable to
U.S. investors. In 2018, the Chinese government announced that interest income
received by foreign institutional investors in the China bond market will be
exempted from the corporate income tax and value added tax for at least three
years until November 2021. While it is
currently unknown if the Chinese government will extend the exemption beyond
November 2021, it is currently anticipated that such an extension is likely to
occur. If an extension did not occur, it could result in tax liabilities
for a Fund.
Risks of
Reliance on Computer Programs or Codes. Many processes used
in Fund management, including security selection, rely, in whole or in part, on
the use of computer programs or codes, some of which are created or maintained
by the Manager or its affiliates and some of which are created or maintained by
third parties. Errors in these programs or codes may go undetected,
possibly for quite some time, which could adversely affect a Fund’s operations
or performance. Computer programs or codes are susceptible to human error
when they are first created and as they are developed and maintained.
While
efforts are made to guard against problems associated with computer programs or
codes, there can be no assurance that such efforts will always be
successful. The Funds have limited insight into the computer programs and
processes of some service providers and may have to rely on contractual
assurances or business relationships to protect against some errors in the
service providers’ systems.
Sector
Risk. From time to time, based on market or economic conditions, a
Fund may have significant positions in one or more sectors of the market.
To the extent a Fund invests more heavily in one sector, industry, or sub-sector
of the market, its performance will be especially sensitive to developments that
significantly affect those sectors, industries, or sub-sectors. An
individual sector, industry, or sub-sector of the market may be more volatile,
and may perform differently, than the broader market. The industries that
constitute a sector may all react in the same way to economic, political or
regulatory events. A Fund’s performance could also be affected if the sectors,
industries, or sub-sectors do not perform as expected. Alternatively, the lack
of exposure to one or more sectors or industries may adversely affect
performance.
Communication Services Sector.
The communication services sector, particularly telephone operating companies,
are subject to both federal and state government regulations. Many
telecommunications companies intensely compete for market share and can be
impacted by technology changes within the sector such as the shift from wired to
wireless communications. In September 2018, the communication services sector
was redefined to also include media, entertainment and select internet-related
companies. Media and entertainment companies can be subject to the risk
that their content may not be purchased or subscribed to. Internet-related
companies may be subject to greater regulatory oversight given increased
cyberattack risk and privacy concerns. Additionally, internet-related
companies may not achieve investor expectations for higher growth levels, which
can result in stock price declines.
Consumer
Discretionary Sector. The consumer discretionary sector can be
significantly affected by the performance of the overall economy, interest
rates, competition, and consumer confidence. Success can depend heavily on
disposable household income and consumer spending. Changes in demographics and
consumer tastes can also affect the demand for, and success of, consumer
discretionary products.
Consumer
Staples Sector. The consumer staples sector can be significantly
affected by demographic and product trends, competitive pricing, food fads,
marketing campaigns, and environmental factors, as well as the performance of
the overall economy, interest rates, consumer confidence, and the cost of
commodities. Regulations and policies of various domestic and foreign
governments affect agricultural products as well as other consumer
staples.
Energy Sector. The energy sector can be significantly affected by
fluctuations in energy prices and supply and demand of energy fuels caused by
geopolitical events, energy conservation, the success of exploration projects,
weather or meteorological events, and tax and other government regulations.
In addition, companies in the energy sector are at risk of civil
liability from accidents resulting in pollution or other environmental damage
claims. In addition, since the terrorist attacks in the United States on
September 11, 2001, the U.S. government has issued public warnings indicating
that energy assets, specifically those related to pipeline infrastructure and
production, transmission, and distribution facilities, might be future targets
of terrorist activity. Further, because a significant portion of revenues of
companies in this sector are derived from a relatively small number of customers
that are largely composed of governmental entities and utilities, governmental
budget constraints may have a significant impact on the stock prices of
companies in this sector.
Financials
Sector. The financials sector is subject to extensive government
regulation, which can limit both the amounts and types of loans and other
financial commitments that companies in this sector can make, and the interest
rates and fees that these companies can charge. Profitability can be largely
dependent on the availability and cost of capital and the rate of corporate and
consumer debt defaults, and can fluctuate significantly when interest rates
change. Financial difficulties of borrowers can negatively affect the financials
sector. Insurance companies can be subject to severe price competition. The
financials sector can be subject to relatively rapid change as distinctions
between financial service segments become increasingly blurred.
Health Care
Sector. The health care sector is subject to government regulation
and reimbursement rates, as well as government approval of products and
services, which could have a significant effect on price and availability.
Furthermore, the types of products or services produced or provided by health
care companies quickly can become obsolete. In addition, pharmaceutical
companies and other companies in the health care sector can be significantly
affected by patent expirations.
Industrials
Sector. The industrials sector can be significantly affected by
general economic trends, including employment, economic growth, and interest
rates, changes in consumer sentiment and spending, commodity prices,
legislation, government regulation and spending, import controls, and worldwide
competition. Companies in this sector also can be adversely affected by
liability for environmental damage, depletion of resources, and mandated
expenditures for safety and pollution control.
Information Technology
Sector. The information technology
sector can be significantly affected by obsolescence of existing technology,
short product cycles, falling prices and profits, competition from new market
entrants, and general economic conditions. The issuers of technology
securities also may be smaller or newer companies, which may lack depth of
management, be unable to generate funds necessary for growth or potential
development, or be developing or marketing new products or services for which
markets are not yet established and may never become established.
Materials
Sector. The materials sector can be significantly affected by the
level and volatility of commodity prices, the exchange value of the dollar,
import and export controls, and worldwide competition. At times, worldwide
production of materials has exceeded demand as a result of over-building or
economic downturns, which has led to commodity price declines and unit price
reductions. Companies in this sector also can be adversely affected by liability
for environmental damage, depletion of resources, and mandated expenditures for
safety and pollution control.
Utilities
Sector. The utilities sector can be significantly affected by
government regulation, interest rate changes, financing difficulties, supply and
demand of services or fuel, changes in taxation, natural resource conservation,
intense competition, and commodity price fluctuations.
Securities
Loans. A
Fund may lend portfolio securities to banks, brokerage firms, and other
institutional investors, provided that cash or equivalent collateral, initially
equal to at least 102% (105% in the case of foreign securities) of the market
value of the loaned securities, is maintained by the borrower with the Fund or
with the Fund’s lending agent, who holds the collateral on the Fund’s
behalf. Thereafter, cash or equivalent collateral, equal to at least 100%
of the market value of the loaned securities, is to be continuously maintained
by the borrower with the Fund. A Fund may invest the cash collateral and earn
income, or it may receive an agreed upon amount of interest income from a
borrower that has delivered equivalent collateral. During the time securities
are on loan, the borrower will pay the Fund an amount equivalent to any
dividends or interest paid on such securities. These loans are subject to
termination at the option of the Fund or the borrower. A Fund may 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. A Fund does not have the right to vote on securities while they
are on loan. However, it is each Fund’s policy to attempt to terminate
loans in time to vote those proxies that the Fund has determined are material to
the interests of the Fund. The Manager 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. A Fund may loan
securities through third parties not affiliated with Neuberger Berman BD LLC
(“Neuberger Berman”) that would act as agent to lend securities to principal
borrowers.
Policies and
Limitations. A Fund may lend portfolio securities with a
value not exceeding 33-1/3% of its total assets (taken at current value) to
banks, brokerage firms, or other institutional investors. The Funds have
authorized State Street and Trust Company (“State Street”) to effect loans of
available securities of the Funds with entities on State Street’s approved list
of borrowers, which includes State Street and its affiliates. The Funds
may obtain a list of these approved borrowers. Borrowers are required
continuously to secure their obligations to return securities on
loan
from a Fund by depositing collateral in a form determined to be satisfactory by
the Fund Trustees. The collateral, which must be marked to market daily, must be
initially equal to at least 102% (105% in the case of foreign securities) of the
market value of the loaned securities, which will also be marked to market
daily. Thereafter, the collateral must be equal to at least 100% of the market
value of the loaned securities. See the section entitled “Cash Management
and Temporary Defensive Positions” for information on how a Fund may invest the
collateral obtained from securities lending. A Fund does not count
uninvested collateral for purposes of any investment policy or limitation that
requires the Fund to invest specific percentages of its assets in accordance
with its principal investment program.
The
following tables show the dollar amounts of income and dollar amounts of fees
and/or compensation paid, relating to the securities lending activities during
the fiscal year ended October 31, 2020 of Neuberger Berman Emerging Markets Debt Fund, Neuberger Berman
High Income Bond Fund, Neuberger Berman
Short Duration Bond Fund and Neuberger
Berman Strategic Income Fund.
|
Emerging Markets
Debt Fund
|
Gross income from securities lending activities |
$317 |
Fees
and/or compensation paid by the Fund for securities lending activities and
related services |
Fees paid to securities lending agent
from a revenue split |
$27 |
Fees paid for any
cash collateral management service (including fees deducted from a pooled
cash collateral reinvestment vehicle) that are not included in the revenue
split |
$42 |
Administrative fees not included in
revenue split |
$0 |
Indemnification fees not included in
revenue split |
$0 |
Rebate (paid to borrower) |
$0 |
Other fees relating to the securities
lending program that are not included in the revenue split |
$0 |
Aggregate
fees/compensation for securities lending activities |
$70 |
Net income from
securities lending activities |
$248 |
|
High
Income Bond Fund
|
Gross income from
securities lending activities |
$232,866 |
Fees
and/or compensation paid by the Fund for securities lending activities and
related services |
Fees paid to securities lending agent
from a revenue split |
$22,030 |
Fees paid for any
cash collateral management service (including fees deducted from a pooled
cash collateral reinvestment vehicle) that are not included in the revenue
split |
$12,164 |
Administrative fees not included in
revenue split |
$0 |
Indemnification fees not included in
revenue split |
$0 |
Rebate (paid to borrower) |
$194 |
Other fees relating to the securities
lending program that are not included in the revenue split |
$0 |
Aggregate fees/compensation for
securities lending activities |
$34,388 |
Net income from securities lending
activities |
$198,478 |
|
Short
Duration Bond Fund
|
Gross income from
securities lending activities |
$2,740 |
Fees
and/or compensation paid by the Fund for securities lending activities and
related services |
Fees paid to securities lending agent
from a revenue split |
$265 |
Fees paid for any
cash collateral management service (including fees deducted from a pooled
cash collateral reinvestment vehicle) that are not included in the revenue
split |
$84 |
Administrative fees not included in
revenue split |
$0 |
Indemnification fees not included in
revenue split |
$0 |
Rebate (paid to borrower) |
$0 |
Other fees relating to the securities
lending program that are not included in the revenue split |
$0 |
Aggregate fees/compensation for securities
lending activities |
$348 |
Net income from securities lending
activities |
$2,392 |
|
Strategic Income
Fund |
Gross income from
securities lending activities |
$89,172 |
Fees
and/or compensation paid by the Fund for securities lending activities and
related services |
Fees paid to securities lending agent
from a revenue split |
$8,330 |
Fees paid for any
cash collateral management service (including fees deducted from a pooled
cash collateral reinvestment vehicle) that are not included in the revenue
split |
$5,551 |
Administrative fees not included in
revenue split |
$0 |
Indemnification fees not included in
revenue split |
$0 |
Rebate (paid to borrower) |
$197 |
Other fees relating to the securities
lending program that are not included in the revenue split |
$0 |
Aggregate fees/compensation for securities
lending activities |
$14,078 |
Net income from securities lending
activities |
$75,094 |
Securities of
ETFs and Other Exchange-Traded Investment Vehicles. A Fund
may invest in the securities of ETFs and other pooled investment vehicles that
are traded on an exchange and that hold a portfolio of securities or other
financial instruments (collectively, “exchange-traded investment vehicles”).
When investing in the securities of exchange-traded investment vehicles, a Fund
will be indirectly exposed to all the risks of the portfolio securities or other
financial instruments they hold. The performance of an
exchange-traded investment vehicle will be reduced by transaction and other
expenses, including fees paid by the exchange-traded investment vehicle to
service providers. ETFs are investment companies that are registered as
open-end management companies or unit investment trusts. The limits that apply
to a Fund’s investment in securities of other investment companies generally
apply also to a Fund’s investment in securities of ETFs. See “Securities
of Other Investment Companies.”
Shares
of exchange-traded investment vehicles are listed and traded in the secondary
market. Many exchange-traded investment vehicles are passively managed and seek
to provide returns that track the price and yield performance of a particular
index or otherwise provide exposure to an asset class (e.g., currencies or
commodities). Although such exchange-traded investment vehicles may invest
in other instruments, they largely hold the securities (e.g., common stocks) of
the relevant index or financial instruments that provide exposure to the
relevant asset class. The share price of an exchange-traded investment vehicle
may not track its specified market index, if any, and may trade below its NAV.
An active secondary market in the shares of an exchange-traded investment
vehicle may not develop or be maintained and may be halted or interrupted due to
actions by its listing exchange, unusual market conditions, or other
reasons.
There
can be no assurance that the shares of an exchange-traded investment vehicle
will continue to be listed on an active exchange.
A
Fund also may effect short sales of exchange-traded investment vehicles and may
purchase and sell options on shares of exchange-traded investment
vehicles. If a Fund effects a short sale of an exchange-traded investment
vehicle, it may take long positions in individual securities held by the
exchange-traded investment vehicle to limit the potential loss in the event of
an increase in the market price of the exchange-traded investment vehicle sold
short.
Securities of
Other Investment Companies. As indicated above, investments
by a Fund in shares of other investment companies are subject to the limitations
of the 1940 Act and the rules and regulations thereunder. However, pursuant to
an exemptive order from the SEC, a Fund is permitted to invest in shares of
certain investment companies beyond the limits contained in the 1940 Act and the
rules and regulations thereunder subject to the terms and conditions of the
order. A Fund may invest in the securities of other investment companies,
including open-end management companies, closed-end management companies
(including business development companies (“BDCs”)) and unit investment trusts,
that are consistent with its investment objectives and policies. Such an
investment may be the most practical or only manner in which a Fund can invest
in certain asset classes or participate in certain markets, such as foreign
markets, because of the expenses involved or because other vehicles for
investing in those markets may not be available at the time the Fund is ready to
make an investment. When investing in the securities of other investment
companies, a Fund will be indirectly exposed to all the risks of such investment
companies’ portfolio securities. In addition, as a shareholder in an
investment company, a Fund would indirectly bear its pro rata share of that
investment company’s advisory fees and other operating expenses. Fees and
expenses incurred indirectly by a Fund as a result of its investment in shares
of one or more other investment companies generally are referred to as “acquired
fund fees and expenses” and may appear as a separate line item in a Fund’s
Prospectus fee table. For certain investment companies, such as BDCs, these
expenses may be significant. The 1940 Act imposes certain restraints upon the
operations of a BDC. For example, BDCs are required to invest at least 70% of
their total assets primarily in securities of private companies or thinly traded
U.S. public companies, cash, cash equivalents, U.S. government securities and
high quality debt investments that mature in one year or less. As a result, BDCs
generally invest in less mature private companies, which involve greater risk
than well-established, publicly-traded companies. In addition, the shares of
closed-end management companies may involve the payment of substantial premiums
above, while the sale of such securities may be made at substantial discounts
from, the value of such issuer’s portfolio securities. Historically, shares of
closed-end funds, including BDCs, have frequently traded at a discount to their
NAV, which discounts have, on occasion, been substantial and lasted for
sustained periods of time.
Certain
money market funds that operate in accordance with Rule 2a-7 under the 1940 Act
float their NAV while others seek to preserve the value of investments at a
stable NAV (typically $1.00 per share). An investment in a money market fund,
even an investment in a fund seeking to maintain a stable NAV per share, is not
guaranteed, and it is possible for a Fund to lose money by investing in these
and other types of money market funds. If the liquidity of a money market fund’s
portfolio deteriorates below certain levels, the money market fund may suspend
redemptions (i.e., impose a redemption gate) and thereby prevent a Fund from
selling its investment in the money
market
fund or impose a fee of up to 2% on amounts a Fund redeems from the money market
fund (i.e., impose a liquidity fee).
Policies and
Limitations. For cash management purposes, a Fund may invest
an unlimited amount of its uninvested cash and cash collateral received in
connection with securities lending in shares of money market funds and
unregistered funds that operate in compliance with Rule 2a-7 under the 1940 Act,
whether or not advised by the Manager or an affiliate, under specified
conditions. See “Cash Management and Temporary Defensive Positions.”
Otherwise,
a Fund’s investment in securities of other investment companies is generally
limited to (i) 3% of the total voting stock of any one investment company, (ii)
5% of the Fund’s total assets with respect to any one investment company and
(iii) 10% of the Fund’s total assets in all investment companies in the
aggregate. However, a Fund may exceed these limits when investing in
shares of an ETF, subject to the terms and conditions of an exemptive order from
the SEC obtained by the ETF that permits an investing fund, such as a Fund, to
invest in the ETF in excess of the limits described above. In addition, each
Fund may exceed these limits when investing in shares of certain other
investment companies, subject to the terms and conditions of an exemptive order
from the SEC. See “Fund of Funds Structure.”
Each
Fund is also able to invest up to 100% of its total assets in a master portfolio
with the same investment objectives, policies and limitations as the Fund.
Short
Sales. Each of these Funds may use short sales for hedging
and non-hedging purposes. To effect a short sale, a Fund borrows a security from
or through a brokerage firm to make delivery to the buyer. The Fund is then
obliged to replace the borrowed security by purchasing it at the market price at
the time of replacement. Until the security is replaced, the Fund is required to
pay the lender any dividends on the borrowed security and may be required to pay
loan fees or interest. Short sales, at least theoretically, present a risk of
unlimited loss on an individual security basis, particularly in cases where the
Fund is unable, for whatever reason, to close out its short position, since the
Fund may be required to buy the security sold short at a time when the security
has appreciated in value, and there is potentially no limit to the amount of
such appreciation.
A
Fund may realize a gain if the security declines in price between the date of
the short sale and the date on which the Fund replaces the borrowed security. A
Fund will incur a loss if the price of the security increases between those
dates. The amount of any gain will be decreased, and the amount of any loss will
be increased, by the amount of any premium or interest a Fund is required to pay
in connection with a short sale. A short position may be adversely affected by
imperfect correlation between movements in the prices of the securities sold
short and the securities being hedged.
A
Fund may also make short sales against-the-box, in which it sells short
securities only if it owns or has the right to obtain without payment of
additional consideration an equal amount of the same type of securities sold.
The effect of short selling is similar to the effect of leverage. Short selling
may amplify changes in a Fund’s NAV. Short selling may also produce higher than
normal portfolio turnover, which may result in increased transaction costs to a
Fund.
When
a Fund is selling stocks short, it must maintain a segregated account of cash or
high-grade securities that, together with any collateral (exclusive of short
sale proceeds) that it is required to deposit with the securities lender or the
executing broker, is at least equal to the value of the shorted securities,
marked to market daily. As a result, a Fund may need to maintain high levels of
cash or liquid assets (such as Treasury Department bills, money market accounts,
repurchase agreements, certificates of deposit, high quality commercial paper
and long equity positions). The need to maintain cash or other liquid
assets in segregated accounts could limit the Fund’s ability to pursue other
opportunities as they arise.
Policies and
Limitations. A Fund’s ability to engage in short sales may be
impaired by any temporary prohibitions on short selling imposed by domestic and
certain foreign government regulators.
Special
Purpose Acquisition Companies. A Fund may invest in stock,
warrants or other securities of special purpose acquisition companies (“SPACs”)
or similar special purpose entities that pool funds to seek potential
acquisition opportunities. Unless and until an acquisition is completed, a SPAC
or similar entity generally maintains assets (less a portion retained to cover
expenses) in a trust account comprised of U.S. Government securities, money
market securities, and cash. If an acquisition is not completed within a
pre-established period of time, the invested funds are returned to the entity’s
shareholders. Because SPACs and similar entities are in essence blank-check
companies without an operating history or ongoing business other than seeking
acquisitions, the value of their securities is particularly dependent on the
ability of the entity’s management to identify and complete a profitable
acquisition. More recently, SPACs have provided an opportunity for startups to
go public without going through the traditional IPO process. This presents the
risk that startups may become publicly traded with potentially less due
diligence than what is typical in a traditional IPO through an underwriter.
Since SPAC sponsors often stand to earn equity in the company if a deal is
completed, SPAC sponsors may have a potential conflict of interest in completing
a deal that may be unfavorable for other investors in the SPAC. SPACs may
allow shareholders to redeem their pro rata investment immediately after the
SPAC announces a proposed acquisition, sometimes including interest, which may
prevent the entity’s management from completing the transaction. Some SPACs may
pursue acquisitions only within certain industries or regions, which may
increase the volatility of their prices. In addition, investments in SPACs may
include private placements, including PIPEs, and, accordingly, may be considered
illiquid and/or be subject to restrictions on resale.
Stripped
Mortgage Backed Securities (SMBS). SMBS are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS
are usually structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage assets. A common
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the interest-only or “IO” class), while
the other class will receive all of the principal (the principal-only or “PO”
class). The yield to
maturity
on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Fund’s yield
to maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Fund may fail to recoup
some or all of its initial investment in these securities even if the security
is in one of the highest rating categories.
Although
SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be deemed “illiquid” and
subject to a Fund’s limitations on investments in illiquid securities.
Stripped
Securities. Stripped securities are the separate income or
principal components of a debt security. The risks associated with stripped
securities are similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of stripped
securities may move in the same direction as interest rates. Treasury Department
securities that have been stripped by a Federal Reserve Bank are obligations
issued by the Treasury Department.
Privately
stripped government securities are created when a dealer deposits a Treasury
Department security or other U.S. Government security with a custodian for
safekeeping. The custodian issues separate receipts for the coupon payments and
the principal payment, which the dealer then sells. These coupons are not
obligations of the Treasury Department.
Structured
Notes. A Fund may
invest in structured notes, such as participatory notes, credit linked notes and
securities (“CLNs”), exchange-traded notes (“ETNs”) and other related
instruments. These instruments are notes where the principal and/or interest
rate or value of the structured note is determined by reference to the
performance of an underlying indicator. Underlying indicators may include
a security or other financial instrument, asset, currency, interest rate, credit
rating, commodity, volatility measure or index. Generally, investments in such
notes are used as a substitute for positions in underlying indicators. The
interest and/or principal payments that may be made on a structured note may
vary widely, depending on a variety of factors, including the volatility of the
underlying indicator. The performance results of structured notes will not
replicate exactly the performance of the underlying indicator that the notes
seek to replicate due to transaction costs and other expenses. Issuers of
structured notes can vary and may include corporations, banks, broker-dealers
and limited purpose trusts or other vehicles. Structured notes may
be exchange traded or traded OTC and privately
negotiated.
Investments
in structured notes involve many of the same risks associated with a direct
investment in the underlying indicator the notes seek to replicate. Structured
notes may be considered hybrid instruments as they may exhibit features of both
fixed income securities and derivatives. The return on a structured note that is
linked to a particular underlying indicator that pays dividends generally is
increased to the extent of any dividends paid in connection with the underlying
indicator. However, the holder of a structured note typically does not receive
voting rights and other rights as it would if it directly owned the underlying
indicator. In addition, structured notes are subject to counterparty risk, which
is the risk that the issuer of the structured
note
will not fulfill its contractual obligation to complete the transaction with a
Fund. Structured notes constitute general unsecured contractual obligations of
the issuer of the note and a Fund is relying on the creditworthiness of such
issuer and has no rights under a structured note against the issuer of an
underlying indicator. Structured notes involve transaction costs. Structured
notes may be considered illiquid and, therefore, structured notes considered
illiquid will be subject to a Fund’s percentage limitation on investments in
illiquid securities.
CLNs
are typically issued by a limited purpose trust or other vehicle (the “CLN
trust”) that, in turn, invests in a derivative or basket of derivatives
instruments, such as credit default swaps, interest rate swaps and/or other
securities, in order to provide exposure to certain high yield, sovereign debt,
emerging markets, or other fixed income markets. Generally, investments in CLNs
represent the right to receive periodic income payments (in the form of
distributions) and payment of principal at the end of the term of the CLN.
However, these payments are conditioned on the CLN trust’s receipt of payments
from, and the CLN trust’s potential obligations, to the counterparties to the
derivative instruments and other securities in which the CLN trust invests. For
example, the CLN trust may sell one or more credit default swaps, under which
the CLN trust would receive a stream of payments over the term of the swap
agreements provided that no event of default has occurred with respect to the
referenced debt obligation upon which the swap is based. If a default were to
occur, the stream of payments may stop and the CLN trust would be obligated to
pay the counterparty the par (or other agreed upon value) of the referenced debt
obligation. This, in turn, would reduce the amount of income and principal that
a Fund would receive as an investor in the CLN trust.
A
Fund may enter in CLNs to gain access to sovereign debt and securities in
emerging markets, particularly in markets where the Fund is not able to purchase
securities directly due to domicile restrictions or tax restrictions or tariffs.
In such an instance, the issuer of the CLN may purchase the reference security
directly and/or gain exposure through a credit default swap or other
derivative.
A
Fund’s investments in CLNs are subject to the risks associated with the
underlying reference obligations and derivative instruments, including, among
others, credit risk, default risk, counterparty risk, interest rate risk,
leverage risk and management risk.
Structured
notes may also include exchange-traded notes (“ETNs”), which are typically
unsecured and unsubordinated like other structured notes. ETN returns are based
upon the performance of one or more underlying indicators and typically, no
periodic coupon payments are distributed and no principal protections exists,
even at maturity. ETNs are listed on an exchange and traded in the
secondary market. An ETN can be held until maturity, at which time the issuer
pays the investor a cash amount equal to the principal amount, subject to the
day’s market benchmark or strategy factor. When a Fund invests in ETNs, it will
bear its proportionate share of any fees and expenses borne by the ETN. Because
fees reduce the amount of return at maturity or upon redemption, if the value of
the underlying indicator decreases or does not increase significantly, a Fund
may receive less than the principal amount of its investment at maturity or upon
redemption. In addition, the value of an ETN also may be influenced by time to
maturity, level of supply and demand for the ETN, volatility and lack of
liquidity in underlying indicator, changes in the applicable interest rates, and
economic, legal, political, or geographic events that affect the underlying
indicator. Some ETNs that use leverage can, at times, be relatively
illiquid,
and
thus they may be difficult to purchase or sell at a fair price. Leveraged ETNs
are subject to the same risk as other instruments that use leverage in any form.
There may be restrictions on a Fund’s right to redeem its investment in an ETN,
which are generally meant to be held until maturity. A decision by a Fund to
sell ETN holdings may be limited by the availability of a secondary market. In
addition, although an ETN may be listed on an exchange, the issuer may not be
required to maintain the listing, and there can be no assurance that a secondary
market will exist for an ETN.
Sukuk. Sukuk are financial certificates which
are structured to comply with Shariah law and its investment principles, which
prohibit the charging or payment of interest. Sukuk represent undivided
shares in the ownership of tangible assets relating to a specific investment
activity. The sukuk issuer, often a special purpose vehicle established to
issue the sukuk, holds title to an asset or pool of assets. The sukuk represent
an interest in that asset, so the income to the investor comes from a share in
revenues generated from the asset, not from interest on the investor’s money.
The sukuk investor’s investment in the sukuk does not represent a debt by the
issuer of the underlying asset to the entity that issued the sukuk. The
issuer of the sukuk agrees in advance to repurchase the sukuk from the investor
on a certain date at a certain price.
As
unsecured investments, sukuk are backed only by the credit of the issuing
entity, which may be a special purpose vehicle that holds no other assets. They
are thus subject to the risk that the issuer may not be able to repurchase the
instrument at the agreed upon date for the agreed upon price, if at all.
Furthermore, since the purchasers of sukuk are investors in the underlying
asset, they are subject to the risk that the asset may not perform as expected,
and the flow of income from the investments may be slower than expected or may
cease altogether. In the event of default, the process may take longer to
resolve than conventional bonds. Evolving interpretations of Islamic law by
courts or prominent scholars may affect the free transferability of sukuk in
ways that cannot now be foreseen. In that event, a Fund may be required to hold
its sukuk for longer than intended, even if their condition is
deteriorating.
While
the sukuk market has grown significantly in recent years, there may be times
when the market is illiquid and it is difficult for a Fund to make an investment
in or dispose of sukuk. Furthermore, the global sukuk market is
significantly smaller than the conventional bond markets and restrictions
imposed by the Shariah board of the issuing entity may limit the investable
universe of the Fund. Although a Fund may invest in sukuk, other
investments by the Fund, and the Fund as a whole, will not conform to Shariah
law.
TALF
Program. A Fund may
purchase certain asset-backed securities with the proceeds from loans obtained
under the 2020 Term Asset-Backed Securities Loan Facility Program (“TALF
Program”), delivering such securities as collateral. In addition, a Fund may
deliver mortgage-backed securities, including commercial mortgage-backed
securities (“CMBS”) and asset-backed securities already owned by the Fund as
collateral for such a loan, and may use the proceeds to purchase other
securities consistent with the Fund’s investment strategies. The TALF Program is
a federal program created by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”) and the Treasury Department, and operated by the
Federal Reserve Bank of New York (the “New York Fed”) through a special purpose
vehicle. Up to $100 billion is being made available to borrowers under the TALF
Program, with a minimum loan amount of $5 million.
Under
the TALF Program, except in limited circumstances, loans received by a Fund are
nonrecourse, and if the Fund does not repay the loan, the New York Fed may
enforce its rights only against the eligible collateral pledged by the
Fund and not against any other assets of the Fund. The Fund will have the
ability to surrender collateral in full satisfaction of a TALF loan. The
types of securities included as eligible TALF collateral may expand, but will
generally include asset-backed securities backed by cash portfolios of
auto loans and leases, student loans, credit card receivables, equipment loans,
dealer floorplan loans, insurance premium finance loans, U.S. Small Business
Administration 7(a) guaranteed loans, leveraged loans, and commercial mortgages.
Among other requirements, all eligible collateral must at issuance be rated in
the highest investment-grade rating category by at least two ratings agencies
(without the benefit of a third-party guarantee), and must not have been placed
on a watch list or downgraded by any such rating agency. In general,
asset-backed securities used as eligible collateral must be issued on or after
March 23, 2020, while CMBS must be issued before March 23, 2020. For CMBS, the
underlying credit exposures must be to real property located in the United
States or one of its territories.
In
order to obtain a loan under the TALF Program, a Fund is required to pay
up-front to the counterparty a certain percentage of the purchase price or value
of the eligible collateral (called the “haircut”). In addition, it will be
required to pay an administrative fee to the New York Fed special purpose
vehicle on the settlement date of each TALF Program loan received by a Fund. The
New York Fed has the authority to set different interest rates for TALF loans
issued on different settlement dates during the term of the TALF Program. The
New York Fed may not adjust the interest rate applicable to an outstanding TALF
loan (other than as set forth in the Master Loan and Security Agreement (the
“MLSA”) relating to penalty or default rates). If the New York Fed elects to
raise interest rates applicable to TALF loans, or the spread between the
applicable TALF loan interest rate and the interest rate on eligible TALF
collateral available for purchase by the Fund otherwise decreases, such change
could significantly reduce the returns to the Fund and adversely impact the
Fund’s performance. Moreover, if collateral securing a TALF loan ceases to pay
interest sufficient to cover the interest rate applicable to the TALF loan, the
Fund may be compelled to “put” such collateral back to the New York Fed in
satisfaction of the loan. Depending on returns to date and the market value of
such collateral at the time the Fund puts the collateral back to the New York
Fed, the Fund could lose part or all of its investment in such collateral.
A
Fund will pledge eligible collateral, which will consist of either certain
eligible asset- backed securities that the Fund currently owns or other
asset-backed securities that the Fund purchases with TALF loan proceeds. A Fund
may not substitute eligible collateral during the term of the TALF loan. Except
in limited circumstances, TALF loans by the New York Fed to a Fund are
non-recourse, and if the Fund does not repay the loan, the New York Fed may
enforce its rights only against the eligible collateral pledged by the Fund and
not against any other assets of the Fund. TALF loans are prepayable, in whole or
in part, at the option of a Fund without penalty, and the Fund may satisfy its
loan obligation in full at any time by surrendering the eligible collateral to
the New York Fed. Generally, under the terms of the TALF Program a payment of
principal on eligible collateral must be used immediately to reduce the
principal amount of the TALF loan in proportion to the haircut (for example, if
the original haircut was 10%, 90% of any principal repaid must be immediately
paid to the New York Fed). A Fund will participate in the TALF Program in
accordance with applicable regulatory guidance and no-action relief provided by
the SEC staff.
The
risk of leverage to a Fund under the TALF Program is the same risk of leverage
that applies to other types of borrowings the Fund may engage in (see
“Additional Investment information – Leverage” above for more details). Loans
under the TALF Program would not be subject to a Fund’s limitations on
borrowings (which are generally limited to 33 1/3 % of the Fund’s total assets).
However, a Fund will borrow under the TALF Program only if it maintains
segregated liquid assets (in addition to any assets pledged as eligible
collateral), marked-to-market daily, in an amount equal to the Fund’s
outstanding principal and interest under the TALF loan, treating the loans under
the TALF Program similar to other financial instruments (such as reverse
repurchase agreements) that obligate a Fund to “cover” its obligation to
purchase or deliver cash or securities at a future time.
Participation
in the TALF Program and other loan programs sponsored by the United States of
America (and any of its subdivisions, agencies, departments, commissions,
boards, authorities, instrumentalities or bureaus) will not be considered
purchasing securities on margin for purposes of a Fund’s limits on margin. The
New York Fed reserves the right to reject any request for a loan, in whole or in
part, in its sole discretion, even if a Fund meets all requirements if the TALF
Program. The New York Fed has the right to review and make adjustments to the
TALF Program’s terms and conditions, including size of program, pricing, loan
maturity, and asset and borrower eligibility requirements, consistent with the
policy objectives of the TALF program. The announced terms and conditions of the
TALF Program have undergone rapid changes to date, and are likely to continue to
change. A Fund cannot predict the form any such changes or modifications might
take and, if a Fund participates in the TALF Program, such changes may adversely
affect the value of the Fund’s assets and the ability of the Fund to achieve its
investment objectives. Any changes to the TALF Program may, among other things,
further limit or expand the types of securities that may be purchased with the
proceeds of a TALF Program loan.
Participation
in the TALF Program requires a Fund to contract with a primary dealer that will
be authorized to act as agent for the Fund. A primary dealer may receive direct
or indirect fees for its services. Any such fees incurred will be borne by a
Fund. Under the terms of the TALF Program, any interest and principal payments
from TALF-eligible collateral will be directed first to a custodial account in
the name of the primary dealer prior to remittance to a Fund. As a result, a
Fund will be subject to the counterparty risk of the primary dealer. Any voting
rights held in respect of TALF eligible collateral under a TALF Program loan
currently are subject to the consent of the New York Fed, whose consent must be
obtained via the primary dealer, which may delay a Fund’s voting ability. Any
transfer or assignment with respect to obligations under a TALF loan and the
associated collateral will require the consent of the New York Fed. The New York
Fed has indicated that it will not consent to any assignment by a borrower of
its TALF loan and associated collateral after the termination date for making
new loans, which is September 30, 2020 (unless extended by the Federal Reserve
and the U.S. Department of the Treasury). Moreover, under the 2009 TALF program,
the New York Fed withheld consent to such transfers, except under unusual and
exigent circumstances. If similar restrictions apply to the TALF Program, the
Fund may have limited liquidity with respect to its investments pledged as
collateral for TALF loans, and by extension limited ability to realize the value
of these investments pledged as collateral.
Under
certain circumstances, loans under the TALF Program may become recourse to a
Fund, which may adversely affect the Fund’s ability to achieve its investment
objective. In connection with any borrowing by a Fund under the TALF Program,
the Fund will be required to represent, among other things, that at the time of
borrowing the Fund is an eligible borrower and that the collateral is eligible
collateral. A determination that a Fund is, at any time, not an eligible
borrower (based on the criteria that is applicable at the time of borrowing), or
a determination that certain representations made by the Fund under the TALF
Program were untrue when made, will cause the loan to become full recourse to
the Fund, and the Fund must then repay the loan or surrender the eligible
collateral at a time when it may not be advantageous to do so, which may result
in losses to the Fund. If loans under the TALF Program become recourse against a
Fund and the value of the eligible collateral pledged to the New York Fed does
not at least equal the amount of principal and interest the Fund owes to the New
York Fed under the loan, then the Fund will be required to pay the difference to
the New York Fed. In order to make this payment, a Fund may be required to sell
portfolio securities during adverse market conditions or at other times it would
not otherwise choose to sell such securities. Finally, if a TALF loan were to
become recourse and a Fund were to surrender its eligible collateral under the
terms of the TALF Program, it would lose the amount of the haircut.
Under
the terms of its agreement with a Fund, the primary dealer may disclaim all
liability for losses that may occur in connection with the TALF Program, the
risk of which is borne by the Fund. Further, a Fund may agree to indemnify the
primary dealer for any losses that the primary dealer may incur under the terms
of the TALF Program. The primary dealer may terminate its agreement with a Fund
at any time. If a Fund is not able to find a replacement primary dealer within
the requisite period of time, it may be required to either repay the loan, sell
the eligible collateral, or surrender the eligible collateral at a time when it
may not be advantageous to do so, which may result in losses to the Fund.
Agreements with the primary dealer are subject to amendment by the primary
dealer without a Fund’s consent, in order to conform to any future amendments of
the TALF Program by the Federal Reserve.
Notwithstanding
that the Fund would generally not be liable for a TALF loan in excess of its
investment in pledged collateral (i.e., the applicable “haircut amount”), given
the Fund’s aggregate leverage the Fund may have limited resources with which to
defend its equity position in collateral securing a TALF loan in the event of a
collateral enforcement event under the MLSA with respect to such TALF loan. A
collateral enforcement event would include, among others, failure of the Fund to
make periodic payments under the TALF loan. The New York Fed’s remedies upon the
occurrence of such collateral enforcement event may include a right of
acceleration of all amounts due with respect to such TALF loan, including the
entire loan and unpaid accrued interest, and foreclosure upon such collateral.
If the Fund does not intend to surrender collateral in full satisfaction of a
TALF loan upon a collateral enforcement event with respect to such TALF loan,
the Fund will be required to pay principal and interest as required under such
TALF loan even if the payments from the collateral securing such TALF loan are
insufficient to do so.
In
addition, the collateral pledged for a TALF loan may mature after the maturity
date of the applicable TALF loan, or the collateral’s maturity date may be
extended to a date after the maturity date of the applicable TALF loan. In such
a case, upon the maturity of the TALF loan,
the
Fund must either surrender the pledged collateral in full satisfaction of the
TALF loan (in which case the Fund will lose the value of the pledged collateral
in excess of the Fund’s remaining obligations under the TALF loan), pay the
outstanding amount of the TALF loan and recover the collateral, or arrange for
sale of the collateral, with sale proceeds in excess of the Fund’s remaining
obligations under the TALF loan remitted back to the Fund.
If
the Fund wishes to pay the outstanding amount of the TALF loan and recover the
collateral (for example, because it cannot find a purchaser at a price
commensurate with the Manager’s valuation of such collateral), the Fund must pay
the remaining principal and interest
outstanding
on such TALF loan, notwithstanding that the Fund may have limited resources with
which to do so given the Fund’s aggregate leverage.The New York Fed will have
the right to access the financial records of the Fund. The Fund must provide any
reports or statements that the New York Fed reasonably requests in connection
with the Fund’s TALF loans, collateral and other obligations under the TALF
Program. The Fund must also permit the New York Fed’s designees to visit the
Fund’s offices, discuss the Fund’s affairs, finances and condition with the
Fund’s officers, directors, employees and accountants, and audit and inspect the
Fund’s financial records, which the Fund may consider confidential and
proprietary, and make extracts and copies therefrom. The Manager may be required
to disclose information in connection with verifying to a primary dealer that
the Fund is an eligible borrower under the TALF Program, or otherwise in
connection
with the TALF Program (including with respect to the New York Fed’s or a primary
dealer’s diligence obligations thereunder). The New York Fed is in turn
obligated to disclose to the public certain information which the Fund may
consider confidential and proprietary, including without limitation the identity
of certain material investors (as defined under the TALF Program) in the Fund or
the Manager. The terms and conditions of the TALF loans may become less
attractive if the TALF Program gains popularity, general economic conditions
improve, the spread of the COVID-19 virus is contained, and/or liquidity
improves in the credit markets.
Finally,
the TALF Program, constituting one of several responses by the U.S. government
to address distress in the U.S. credit markets, is being closely monitored by
the administration, Congress and the media. The administration or Congress,
prompted by political, economic or policy considerations arising from the
performance of the TALF Program itself or other circumstances or developments,
could intervene to change terms and conditions of the TALF Program in a manner
detrimental to the interest of the Fund and its shareholders.
Terrorism
Risks. The
terrorist attacks in the United States on September 11, 2001, had a
disruptive effect on the U.S. economy and financial markets. Terrorist attacks
and other geopolitical events have led to, and may in the future lead to,
increased short-term market volatility and may have long-term effects on U.S.
and world economies and financial markets. Those events could also have an acute
effect on individual issuers, related groups of issuers, or issuers concentrated
in a single geographic area. A similar disruption of the financial markets or other terrorist attacks could
adversely impact interest rates, auctions, secondary trading, ratings, credit
risk, inflation and other factors relating to portfolio securities and adversely
affect Fund service providers and the Funds’ operations.
U.S.
Government and Agency Securities. “U.S. Government Securities”
are obligations of the Treasury Department backed by the full faith and credit
of the United States. During times of market turbulence, investors may
turn to the safety of securities issued or guaranteed by the
Treasury
Department, causing the prices of these securities to rise and their yields to
decline. As a result of this and other market influences, yields of
short-term Treasury Department debt instruments are currently near historical
lows.
“U.S.
Government Agency Securities” are issued or guaranteed by U.S. Government
agencies or by instrumentalities of the U.S. Government, such as Ginnie Mae
(also known as the Government National Mortgage Association), Fannie Mae (also
known as the Federal National Mortgage Association), Freddie Mac (also known as
the Federal Home Loan Mortgage Corporation), SLM Corporation (formerly, the
Student Loan Marketing Association) (commonly known as “Sallie Mae”), Federal
Home Loan Banks (“FHLB”), and the 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 Treasury Department, subject to the Treasury Department’s discretion in
certain cases, or only by the credit of the issuer. Accordingly, there is
at least a possibility of default. U.S. Government Agency Securities
include U.S. Government agency mortgage-backed securities. (See
“Mortgage-Backed Securities” above.) The market prices of U.S. Government
Agency Securities are not guaranteed by the U.S. Government and generally
fluctuate inversely with changing interest rates.
U.S.
Government Agency Securities are deemed to include (i) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (ii) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is extremely limited. In the absence of a suitable
secondary market, such participations may therefore be regarded as
illiquid.
A Fund may invest in separately traded
principal and interest components of securities issued or guaranteed by the
Treasury Department. The principal and interest components of selected
securities are traded independently under the Separate Trading of Registered
Interest and Principal of Securities (“STRIPS”) program. Under the STRIPS
program, the principal and interest components are individually numbered and
separately issued by the Treasury Department at the request of depository
financial institutions, which then trade the component parts
independently. The market prices of STRIPS generally are more volatile
than that of Treasury Department bills with comparable maturities.
Policies and
Limitations.
Under normal circumstances, each of Neuberger Berman Floating Rate Income Fund and Neuberger
Berman High Income Bond Fund may invest
up to 20% of its total assets in U.S. Government and Agency Securities.
Neuberger
Berman Core Bond Fund, Neuberger Berman
Emerging Markets Debt Fund, Neuberger
Berman Municipal High Income Fund,
Neuberger Berman Municipal Impact Fund,
Neuberger Berman Municipal Intermediate
Bond Fund, Neuberger Berman Short
Duration Bond Fund and
Neuberger Berman Strategic Income Fund
have no specific limits or requirements relating to the amount of assets
invested in U.S. Government and Agency Securities; however, each of these Funds
must invest according to its investment objective and policies.
Variable or
Floating Rate Securities; Demand and Put Features. Variable rate and floating rate
securities provide for automatic adjustment of the interest rate at fixed
intervals (e.g.,
daily,
weekly, monthly, or semi-annually) or 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 Treasury Department Bill rate, the rate of return on commercial
paper or bank CDs, an index of short-term tax-exempt rates or some other
objective measure.
Adjustable
Rate Securities frequently permit the holder to demand payment of the
obligations’ principal and accrued interest at any time or at specified
intervals not exceeding one year. The demand feature usually is backed by a
credit instrument (e.g., a bank letter of credit) from a creditworthy issuer and
sometimes by insurance from a creditworthy insurer. Without these credit
enhancements, some Adjustable Rate Securities might not meet a Fund’s quality
standards. Accordingly, in purchasing these securities, a Fund relies primarily
on the creditworthiness of the credit instrument issuer or the insurer. A Fund
can also buy fixed rate securities accompanied by a demand feature or by a put
option, which permits the Fund to sell the security to the issuer or third party
at a specified price. A Fund may rely on the creditworthiness of issuers of the
credit enhancements in purchasing these securities.
Policies and
Limitations. No Fund may invest more than 5% of its total
assets in securities backed by credit instruments from any one issuer or by
insurance from any one insurer. For purposes of this limitation, each Fund
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,
a Fund calculates the remaining maturity of variable and floating rate
instruments as provided in Rule 2a-7. In calculating its dollar-weighted
average maturity and duration, a Fund 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, the Manager considers whether the interest rate reset is
expected to cause the security to trade at approximately its par value.
Warrants and
Rights. Warrants
and rights may be acquired by a Fund in connection with other securities or
separately. Warrants are securities permitting, but not obligating, their
holder to subscribe for other securities or commodities and provide a Fund with
the right to purchase at a later date other securities of the issuer. Rights are
similar to warrants but typically are issued by a company to existing holders of
its stock and provide those holders the right to purchase additional shares of
stock at a later date. Rights also normally have a shorter duration than
warrants. Warrants and rights do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. Warrants and rights may be more speculative than certain other types
of investments and entail risks that are not associated with a similar
investment in a traditional equity instrument. While warrants and rights are
generally considered equity securities, because the value of a warrant or right
is derived, at least in part, from the value of the underlying securities, they
may be considered hybrid instruments that have features of both equity
securities and derivative instruments. However, there are characteristics
of warrants and rights that differ from derivatives, including that the value of
a warrant or right does not necessarily change with the value of the underlying
securities. The purchase of warrants and rights involves the risk that a Fund
could lose the purchase value of the warrants or rights if the right to
subscribe to additional shares is not exercised prior to the warrants’ or
rights’ expiration date because warrants and rights cease to have value if they
are not exercised prior to their expiration date. Also, the purchase of
warrants and
rights
involves the risk that the effective price paid for the warrants or rights added
to the subscription price of the related security may exceed the value of the
subscribed security’s market price such as when there is no movement in the
price of the underlying security. The market for warrants or rights may be
very limited and it may be difficult to sell them promptly at an acceptable
price.
Policies and Limitations.
Neuberger
Berman Strategic Income Fund normally
will not invest more than 10% of its total assets in rights, warrants or common
stock.
When-Issued
and Delayed-Delivery Securities and Forward Commitments. A Fund
may purchase securities on a when-issued or delayed-delivery basis and may
purchase or sell securities on a forward commitment basis. These transactions
involve a commitment by a Fund to purchase or sell securities at a future date
(ordinarily within two months, although a Fund may agree to a longer settlement
period). These transactions may involve mortgage-backed securities, such as
GNMA, Fannie Mae and Freddie Mac certificates. 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 and delayed-delivery purchases
and forward commitment transactions are negotiated directly with the other
party, and such commitments are not traded on exchanges.
When-issued
and delayed-delivery purchases and forward commitment transactions enable a Fund
to “lock in” what the Manager believes to be an attractive price or yield on a
particular security for a period of time, regardless of future changes in
interest rates. For instance, in periods of rising interest rates and falling
prices, a Fund might sell securities it owns on a forward commitment basis to
limit its exposure to falling prices. In periods of falling interest rates and
rising prices, a Fund might purchase a security on a when-issued,
delayed-delivery or forward commitment basis and sell a similar security to
settle such purchase, thereby obtaining the benefit of currently higher yields.
When-issued, delayed-delivery and forward commitment transactions are subject to
the risk that the counterparty may fail to complete the purchase or sale of the
security. If this occurs, a Fund may lose the opportunity to purchase or sell
the security at the agreed upon price. To reduce this risk, a Fund will enter
into transactions with established counterparties and the Manager will monitor
the creditworthiness of such counterparties.
The
value of securities purchased on a when-issued, delayed-delivery or forward
commitment basis and any subsequent fluctuations in their value are reflected in
the computation of a Fund’s NAV starting on the date of the agreement to
purchase the securities. Because a Fund has not yet paid for the securities,
this produces an effect similar to leverage. A Fund does not earn interest on
securities it has committed to purchase until the securities are paid for and
delivered on the settlement date. Because a Fund is committed to buying them at
a certain price, any change in the value of these securities, even prior to
their issuance, affects the value of the Fund’s interests. The purchase of
securities on a when-issued or delayed-delivery basis also involves a risk of
loss if the value of the security to be purchased declines before the settlement
date. When a Fund makes a forward commitment to sell securities it owns, the
proceeds to be received upon settlement are included in that Fund’s assets.
Fluctuations in the market value of the underlying securities are not reflected
in a Fund’s NAV as long as the commitment to sell remains in effect.
When-issued,
delayed-delivery and forward commitment transactions may cause a Fund to
liquidate positions when it may not be advantageous to do so in order to satisfy
its purchase or sale obligations.
A
Fund will purchase securities on a when-issued or delayed-delivery basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, a
Fund may dispose of or renegotiate a commitment after it has been entered into.
A Fund also may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. A Fund may realize
capital gains or losses in connection with these transactions.
Each
Fund may also enter into a TBA agreement and “roll over” such agreement prior to
the settlement date by selling the obligation to purchase the pools set forth in
the agreement and entering into a new TBA agreement for future delivery of pools
of mortgage-backed securities. TBA mortgage-backed securities may increase
prepayment risks because the underlying mortgages may be less favorable than
anticipated by a Fund.
When
a Fund purchases securities on a when-issued, delayed-delivery or forward
commitment basis, the Fund will deposit in a segregated account with its
custodian, or designate on its records as segregated, until payment is made,
appropriate liquid securities having a value (determined daily) at least equal
to the amount of the Fund’s purchase commitments. In the case of a forward
commitment to sell portfolio securities, the portfolio securities will be held
in a segregated account, or the portfolio securities will be designated on a
Fund’s records as segregated, while the commitment is outstanding. These
procedures are designed to ensure that a Fund maintains sufficient assets at all
times to cover its obligations under when-issued and delayed-delivery purchases
and forward commitment transactions.
Zero Coupon
Securities, Step Coupon Securities, Pay-in-Kind Securities and Discount
Obligations. Each
Fund may invest in zero coupon securities, step coupon securities and
pay-in-kind securities. Zero coupon securities and step coupon securities are
debt obligations that are issued and traded at a discount from their face amount
or par value (known as “original issue discount” or “OID”) and 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. A Fund may also
acquire certain debt securities at a discount. These discount obligations
involve special risk considerations. OID 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 securities and step coupon securities are redeemed at face value when
they mature. Accrued OID must be included in a Fund’s gross income for federal
tax purposes ratably each taxable year prior to the receipt of any actual
payments. Pay-in-kind securities pay “interest” through the issuance of
additional securities.
Because
each Fund must distribute substantially all of its net investment income
(including non-cash income attributable to OID and “interest” on pay-in-kind
securities) and net realized gains to its shareholders each taxable year to
continue to qualify for treatment as a RIC and to
minimize
or avoid payment of federal income and excise taxes, a Fund may have to dispose
of portfolio securities under disadvantageous circumstances to generate cash, or
may be required to borrow, to satisfy the distribution requirements. See
“Additional Tax Information – Taxation of the Funds.”
The
market prices of zero coupon securities, step coupon securities, pay-in-kind
securities and discount obligations generally are more volatile than the prices
of securities that pay cash interest periodically. Those securities and
obligations are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having a similar maturity and credit
quality.
Each
Fund’s performance figures are based on historical results and are not intended
to indicate future performance. The yield and total return of each Fund will
vary. The share price of each Fund will vary, and an investment in a Fund, when
redeemed, may be worth more or less than an investor’s original cost.
The
following tables set forth information concerning the Fund Trustees and Officers
of the Trust. All persons named as Fund Trustees and Officers also serve in
similar capacities for other funds administered or managed by NBIA. A Fund
Trustee who is not an “interested person” of NBIA (including its affiliates) or
the Trust is deemed to be an independent Fund Trustee (“Independent Fund
Trustee”).
Name, (Year of Birth), and Address (1)
|
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3)
|
Number of Funds in Fund Complex Overseen by Fund Trustee |
Other Directorships
Held Outside Fund
Complex by Fund Trustee
(3) |
Independent Fund
Trustees |
Michael J. Cosgrove (1949) |
Trustee since 2015 |
President, Carragh Consulting USA, since 2014; formerly, Executive,
General Electric Company, 1970 to 2014, including President, Mutual Funds
and Global Investment Programs, GE Asset Management, 2011 to 2014,
President and Chief Executive Officer, Mutual Funds and Intermediary
Business, GE Asset Management, 2007 to 2011, |
46 |
Director, America Press, Inc. (not-for-profit Jesuit publisher),
since 2015; formerly, Director, Fordham University, 2001 to 2018;
formerly, Director, The Gabelli Go Anywhere Trust, June 2015 to June 2016;
formerly, Director, Skin Cancer Foundation (not-for-profit), 2006 to 2015;
formerly, Director, GE Investments Funds, Inc., 1997 to
2014; |
Name, (Year of Birth), and Address (1)
|
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3)
|
Number of Funds in Fund Complex Overseen by Fund Trustee |
Other Directorships
Held Outside Fund
Complex by Fund Trustee
(3) |
|
|
President, Institutional Sales and Marketing, GE Asset Management,
1998 to 2007, and Chief Financial Officer, GE Asset
Management, and Deputy Treasurer, GE
Company, 1988 to 1993. |
|
formerly, Trustee, GE Institutional Funds, 1997 to 2014; formerly,
Director, GE Asset Management, 1988 to 2014; formerly, Director, Elfun
Trusts, 1988 to 2014; formerly, Trustee, GE Pension & Benefit Plans,
1988 to 2014; formerly, Member of Board of Governors, Investment Company
Institute. |
Marc Gary (1952) |
Trustee since 2015 |
Executive Vice Chancellor and Chief Operating Officer, Jewish
Theological Seminary, since 2012; formerly, Executive Vice President and
General Counsel, Fidelity Investments, 2007 to 2012; formerly, Executive
Vice President and General Counsel, BellSouth Corporation, 2004 to 2007;
formerly, Vice President and Associate General Counsel, BellSouth
Corporation, 2000 to 2004; formerly, Associate, Partner, and National
Litigation Practice Co-Chair, Mayer, Brown LLP, 1981 to 2000; formerly,
Associate Independent Counsel, Office of Independent Counsel, 1990 to
1992. |
46 |
Director, UJA Federation of Greater New York, since 2019; Trustee,
Jewish Theological Seminary, since 2015; Director, Legility, Inc.
(privately held for-profit company), since 2012; Director, Lawyers
Committee for Civil Rights Under Law (not-for-profit), since 2005;
formerly, Director, Equal Justice Works (not-for-profit), 2005 to 2014;
formerly, Director, Corporate Counsel Institute, Georgetown University Law
Center, 2007 to 2012; formerly, Director, Greater Boston Legal Services
(not-for-profit), 2007 to 2012. |
Martha C. Goss (1949) |
Trustee since 2007 |
President, Woodhill Enterprises Inc./Chase Hollow Associates LLC
(personal investment vehicle), since 2006; formerly, Consultant, Resources
Global Professionals (temporary staffing), 2002 to 2006; formerly, Chief
Financial Officer, Booz-Allen & Hamilton, Inc., 1995 to 1999;
formerly, Enterprise Risk Officer, Prudential Insurance, 1994 to1995;
formerly, President, Prudential Asset Management Company, 1992 to 1994;
formerly, President, Prudential |
46 |
Director, American Water (water utility), since 2003; Director,
Allianz Life of New York (insurance), since 2005; Director, Berger Group
Holdings, Inc. (engineering consulting firm), since 2013; Director,
Financial Women’s Association of New York (not-for-profit association),
since 2003; Trustee Emerita, Brown University, since 1998; Director,
Museum of American Finance (not-for-profit), since 2013; formerly,
Non-Executive Chair and Director, Channel |
Name, (Year of Birth), and Address (1)
|
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3)
|
Number of Funds in Fund Complex Overseen by Fund Trustee |
Other Directorships
Held Outside Fund
Complex by Fund Trustee
(3) |
|
|
Power Funding (investments in electric and gas utilities and
alternative energy projects), 1989 to 1992; formerly, Treasurer,
Prudential Insurance Company, 1983 to 1989. |
|
Reinsurance (financial guaranty reinsurance), 2006 to 2010; formerly,
Director, Ocwen Financial Corporation (mortgage servicing), 2005 to 2010;
formerly, Director, Claire’s Stores, Inc. (retailer), 2005 to 2007;
formerly, Director, Parsons Brinckerhoff Inc. (engineering consulting
firm), 2007 to 2010; formerly, Director, Bank Leumi (commercial bank),
2005 to 2007; formerly, Advisory Board Member, Attensity (software
developer), 2005 to 2007. |
Michael M. Knetter (1960) |
Trustee since 2007 |
President and Chief Executive Officer, University of Wisconsin
Foundation, since 2010; formerly, Dean, School of Business, University of
Wisconsin - Madison; formerly, Professor of International Economics and
Associate Dean, Amos Tuck School of Business - Dartmouth College, 1998 to
2002. |
46 |
Director, 1 William Street Credit Income Fund, since 2018; Board
Member, American Family Insurance (a mutual company, not publicly traded),
since March 2009; formerly, Trustee, Northwestern Mutual Series Fund,
Inc., 2007 to 2011; formerly, Director, Wausau Paper, 2005 to 2011;
formerly, Director, Great Wolf Resorts, 2004 to 2009. |
Deborah C. McLean (1954) |
Trustee since 2015 |
Member, Circle Financial Group (private wealth management membership
practice), since 2011; Managing Director, Golden Seeds LLC (an angel
investing group), since 2009; Adjunct Professor, Columbia University
School of International and Public Affairs, since 2008; formerly, Visiting
Assistant Professor, Fairfield University, Dolan School of Business, Fall
2007; formerly, Adjunct Associate Professor of Finance, Richmond, The
American International |
46 |
Board member, Norwalk Community College Foundation, since 2014;
Dean’s Advisory Council, Radcliffe Institute for Advanced Study, since
2014; formerly, Director and Treasurer, At Home in Darien
(not-for-profit), 2012 to 2014; formerly, Director, National Executive
Service Corps (not-for-profit), 2012 to 2013; formerly, Trustee, Richmond,
The American International University in London, 1999 to
2013. |
Name, (Year of Birth), and Address (1)
|
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3)
|
Number of Funds in Fund Complex Overseen by Fund Trustee |
Other Directorships
Held Outside Fund
Complex by Fund Trustee
(3) |
|
|
University in London, 1999 to 2007. |
|
|
George W. Morriss (1947) |
Trustee since 2007 |
Adjunct Professor, Columbia University School of International and
Public Affairs, since 2012; formerly, Executive Vice President and Chief
Financial Officer, People’s United Bank, Connecticut (a financial services
company), 1991 to 2001. |
46 |
Director, 1 William Street Credit Income Fund, since 2018; Director
and Chair, Thrivent Church Loan and Income Fund, since 2018; formerly,
Trustee, Steben Alternative Investment Funds, Steben Select Multi-Strategy
Fund, and Steben Select Multi-Strategy Master Fund, 2013 to 2017;
formerly, Treasurer, National Association of Corporate Directors,
Connecticut Chapter, 2011 to 2015; formerly, Manager, Larch Lane
Multi-Strategy Fund complex (which consisted of three funds), 2006 to
2011; formerly, Member, NASDAQ Issuers’ Affairs Committee, 1995 to
2003. |
Tom D. Seip (1950) |
Trustee since 2000; Chairman of the Board
since 2008; formerly Lead Independent Trustee from 2006 to 2008 |
Formerly, Managing Member, Ridgefield Farm LLC (a private investment
vehicle), 2004 to 2016; formerly, President and CEO, Westaff, Inc.
(temporary staffing), May 2001 to January 2002; formerly, Senior
Executive, The Charles Schwab Corporation, 1983 to 1998, including Chief
Executive Officer, Charles Schwab Investment Management, Inc.; Trustee,
Schwab Family of Funds and Schwab Investments, 1997 to 1998; and Executive
Vice President-Retail Brokerage, Charles Schwab & Co., Inc., 1994 to
1997. |
46 |
Formerly, Director, H&R Block, Inc. (tax services company), 2001
to 2018; formerly, Director, Talbot Hospice Inc., 2013 to 2016; formerly,
Chairman, Governance and Nominating Committee, H&R Block, Inc., 2011
to 2015; formerly, Chairman, Compensation Committee, H&R Block, Inc.,
2006 to 2010; formerly, Director, Forward Management, Inc. (asset
management company), 1999 to 2006. |
James G. Stavridis (1955) |
Trustee since 2015 |
Operating Executive, The Carlyle Group, since 2018; Commentator, NBC
News, since |
46 |
Director, American Water (water utility), since 2018; Director, NFP
Corp. (insurance |
Name, (Year of Birth), and Address (1)
|
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3)
|
Number of Funds in Fund Complex Overseen by Fund Trustee |
Other Directorships
Held Outside Fund
Complex by Fund Trustee
(3) |
|
|
2015; formerly, Dean, Fletcher School of Law and Diplomacy, Tufts
University, 2013 to 2018; formerly, Admiral, United States Navy, 1976 to
2013, including Supreme Allied Commander, NATO and Commander, European
Command, 2009 to 2013, and Commander, United States Southern Command, 2006
to 2009. |
|
broker and consultant), since 2017; Director, U.S. Naval Institute,
since 2014; Director, Onassis Foundation, since 2014; Director, BMC
Software Federal, LLC, since 2014; Director, Vertical Knowledge, LLC,
since 2013; formerly, Director, Navy Federal Credit Union,
2000-2002. |
Peter P. Trapp (1944) |
Trustee since 2000 |
Retired; formerly, Regional Manager for Mid-Southern Region, Ford
Motor Credit Company, September 1997 to 2007; formerly, President,
Ford |
46 |
None. |
Name, (Year of Birth), and Address (1)
|
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3)
|
Number of Funds in Fund Complex Overseen by Fund Trustee |
Other Directorships
Held Outside Fund
Complex by Fund Trustee
(3) |
|
|
Life Insurance Company, April 1995 to August 1997. |
|
|
Fund Trustees who are “Interested
Persons” |
Joseph V. Amato*
(1962) |
Chief Executive Officer and President
since 2018 and Trustee since 2009 |
President and Director, Neuberger Berman Group LLC, since 2009;
President and Chief Executive Officer, Neuberger Berman BD LLC and
Neuberger Berman Holdings LLC (including its predecessor, Neuberger Berman
Inc.), since 2007; Chief Investment Officer (Equities) and President
(Equities), NBIA (formerly, Neuberger Berman Fixed Income LLC and
including predecessor entities), since 2007, and Board Member of NBIA
since 2006; formerly, Global Head of Asset Management of Lehman Brothers
Holdings Inc.’s (“LBHI”) Investment Management Division, 2006 to 2009;
formerly, member of LBHI’s Investment Management Division’s Executive
Management Committee, 2006 to 2009; formerly, Managing Director, Lehman
Brothers Inc. (“LBI”), 2006 to 2008; formerly, Chief Recruiting and
Development Officer, LBI, 2005 to 2006; formerly, Global Head of LBI’s
Equity Sales and a Member of its Equities Division Executive Committee,
2003 to 2005; President and Chief Executive Officer, ten registered
investment companies for which NBIA acts as investment manager and/or
administrator. |
46 |
Member of Board of Advisors, McDonough School of Business, Georgetown
University, since 2001; Member of New York City Board of Advisors, Teach
for America, since 2005; Trustee, Montclair Kimberley Academy (private
school), since 2007; Member of Board of Regents, Georgetown University,
since 2013. |
|
|
|
|
|
|
(1) |
The business address of each listed person is 1290 Avenue of the
Americas, New York, NY 10104. |
|
(2) |
Pursuant to the Trust’s Trust Instrument, subject to any limitations
on the term of service imposed by the By-Laws or any retirement policy
adopted by the Fund Trustees, each of these Fund Trustees shall hold
office for life or until his or her successor is elected or the Trust
terminates; except that (a) any Fund Trustee may resign by delivering a
written resignation; (b) any Fund Trustee may be removed with or without
cause at any time by a written instrument signed by at least two-thirds of
the other Fund Trustees; (c) any Fund Trustee who requests to be retired,
or who has become unable to serve, may be retired by a written instrument
signed by a majority of the other Fund Trustees; and (d) any Fund Trustee
may be removed at any shareholder meeting by a vote of at least two-thirds
of the outstanding shares. |
|
(3) |
Except as otherwise indicated, each individual has held the positions
shown during at least the last five years. |
|
* |
Indicates a Fund Trustee who is an “interested person” within the
meaning of the 1940 Act. Mr. Amato is an interested person of the Trust by
virtue of the fact that he is an officer of NBIA and/or its
affiliates. |
Name, (Year of Birth), and Address (1) |
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3) |
Claudia A. Brandon (1956) |
Executive Vice President since 2008 and
Secretary since 1985 |
Senior Vice President, Neuberger Berman, since 2007 and Employee
since 1999; Senior Vice President, NBIA, since 2008 and Assistant
Secretary since 2004; formerly, Vice President, Neuberger Berman, 2002 to
2006; formerly, Vice President – Mutual Fund Board Relations, NBIA, 2000
to 2008; formerly, Vice President, NBIA, 1986 to 1999 and Employee,
1984 to 1999; Executive Vice President and Secretary, twenty-nine
registered investment companies for which NBIA acts as investment manager
and/or administrator. |
Agnes Diaz (1971) |
Vice President since 2013 |
Senior Vice President, Neuberger Berman, since 2012; Senior Vice
President, NBIA, since 2012 and Employee since 1996; formerly, Vice
President, Neuberger Berman, 2007 to 2012; Vice President, ten registered
investment companies for which NBIA acts as investment manager and/or
administrator. |
Anthony DiBernardo (1979) |
Assistant Treasurer since 2011 |
Senior Vice President, Neuberger Berman, since 2014; Senior Vice
President, NBIA, since 2014, and Employee since 2003; formerly, Vice
President, Neuberger Berman, 2009 to 2014; Assistant Treasurer, ten
registered investment companies for which NBIA acts as investment manager
and/or administrator. |
Savonne L. Ferguson (1973) |
Chief Compliance Officer since
2018 |
Senior Vice President, Chief Compliance Officer (Mutual Funds) and
Associate General Counsel, NBIA, since November 2018; formerly, Vice
President T. Rowe Price Group, Inc. (2018), Vice President and Senior
Legal Counsel, T. Rowe Price Associates, Inc. (2014-2018), Vice President
and Director of Regulatory Fund Administration, PNC Capital Advisors, LLC
(2009-2014), Secretary, PNC Funds and PNC Advantage Funds (2010-2014);
Chief Compliance Officer, twenty-nine registered investment companies for
which NBIA acts as investment manager and/or
administrator. |
Name, (Year of Birth), and Address (1) |
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3) |
Corey A. Issing
(1978) |
Chief Legal Officer since 2016 (only for
purposes of sections 307 and 406 of the Sarbanes-Oxley Act of
2002) |
General Counsel and Head of Compliance – Mutual Funds since 2016 and
Managing Director, NBIA, since 2017; formerly, Associate General Counsel
(2015 to 2016), Counsel (2007 to 2015), Senior Vice President (2013 –
2016), Vice President (2009 – 2013); Chief Legal Officer (only for
purposes of sections 307 and 406 of the Sarbanes-Oxley Act of 2002),
twenty-nine registered investment companies for which NBIA acts as
investment manager and/or administrator. |
Sheila R. James (1965) |
Assistant Secretary since 2002 |
Vice President, Neuberger Berman, since 2008 and Employee since 1999;
Vice President, NBIA, since 2008; formerly, Assistant Vice President,
Neuberger Berman, 2007; Employee, NBIA, 1991 to 1999; Assistant Secretary,
twenty-nine registered investment companies for which NBIA acts as
investment manager and/or administrator. |
Brian Kerrane (1969) |
Chief Operating Officer since 2015 and
Vice President since 2008 |
Managing Director, Neuberger Berman, since 2014; Chief Operating
Officer – Mutual Funds and Managing Director, NBIA, since 2015; formerly,
Senior Vice President, Neuberger Berman, 2006 to 2014; Vice President,
NBIA, 2008 to 2015 and Employee since 1991; Chief Operating Officer, ten
registered investment companies for which NBIA acts as investment manager
and/or administrator; Vice President, twenty-nine registered investment
companies for which NBIA acts as investment manager and/or
administrator. |
Anthony Maltese (1959)
|
Vice President since 2015 |
Senior Vice President, Neuberger Berman,
since 2014 and Employee since 2000; Senior Vice President, NBIA, since
2014; Vice President, ten registered investment companies for which NBIA
acts as investment manager and/or administrator. |
Josephine Marone (1963) |
Assistant Secretary since 2017 |
Senior Paralegal, Neuberger Berman, since 2007 and Employee since
2007; Assistant Secretary, twenty-nine registered investment companies for
which NBIA acts as investment manager and/or administrator. |
Owen F. McEntee, Jr. (1961) |
Vice President since 2008 |
Vice President, Neuberger Berman, since 2006; Vice President, NBIA,
since 2006 and Employee since 1992; Vice President, ten registered
investment companies for which NBIA acts as investment manager and/or
administrator. |
John M. McGovern (1970) |
Treasurer and Principal Financial and
Accounting Officer since 2005 |
Senior Vice President, Neuberger Berman, since 2007; Senior Vice
President, NBIA, since 2007 and Employee since 1993; formerly, Vice
President, Neuberger Berman, 2004 to 2006; formerly, Assistant Treasurer,
2002 to 2005; Treasurer and Principal Financial and Accounting Officer,
ten registered investment companies for which NBIA acts as investment
manager and/or administrator. |
Name, (Year of Birth), and Address (1) |
Position(s) and Length of Time Served (2) |
Principal Occupation(s)
(3) |
Frank Rosato (1971) |
Assistant Treasurer since 2005 |
Vice President, Neuberger Berman, since 2006; Vice President, NBIA,
since 2006 and Employee since 1995; Assistant Treasurer, ten registered
investment companies for which NBIA acts as investment manager and/or
administrator. |
Niketh Velamoor (1979) |
Anti-Money Laundering Compliance Officer
since 2018 |
Senior Vice President and Associate General Counsel, Neuberger
Berman, since July 2018; Assistant United States Attorney, Southern
District of New York, 2009 to 2018; Anti-Money Laundering Compliance
Officer, four registered investment companies for which NBIA acts as
investment manager and/or administrator. |
|
(1) |
The business address of each listed person is 1290 Avenue of the
Americas, New York, NY 10104. |
|
(2) |
Pursuant to the By-Laws of the Trust, each officer elected by the
Fund Trustees shall hold office until his or her successor shall have been
elected and qualified or until his or her earlier death, inability to
serve, or resignation. Officers serve at the pleasure of the Fund Trustees
and may be removed at any time with or without
cause. |
|
(3) |
Except as otherwise indicated, each individual has held the positions
shown during at least the last five years. |
The
Board of Trustees (“Board”) is responsible for managing the business and affairs
of the Trust. Among other things, the Board generally oversees the portfolio
management of each Fund and reviews and approves each Fund’s investment advisory
and sub-advisory contracts and other principal contracts.
The
Board has appointed an Independent Fund Trustee to serve in the role of Chairman
of the Board. The Chair’s primary responsibilities are (i) to participate
in the preparation of the agenda for meetings of the Board and in the
identification of information to be presented to the Board; (ii) to preside at
all meetings of the Board; (iii) to act as the Board’s liaison with management
between meetings of the Board; and (iv) to act as the primary contact for board
communications. The Chair may perform such other functions as may be
requested by the Board from time to time. Except for any duties specified
herein or pursuant to the Trust’s Declaration of Trust or By-laws, the
designation as Chair does not impose on such Independent Fund Trustee any
duties, obligations or liability that is greater than the duties, obligations or
liability imposed on such person as a member of the Board, generally.
As
described below, the Board has an established committee structure through which
the Board considers and addresses important matters involving the Funds,
including those identified as presenting conflicts or potential conflicts of
interest for management. The Independent Fund Trustees also regularly meet
outside the presence of management and are advised by experienced independent
legal counsel knowledgeable in matters of investment company regulation.
The Board periodically evaluates its structure and composition as well as
various aspects of its operations. The Board believes that its leadership
structure, including its Independent Chair and its committee structure, is
appropriate in light of, among other factors, the asset size of the fund
complex
overseen by the Board, the nature and number of funds overseen by the Board, the
number of Fund Trustees, the range of experience represented on the Board, and
the Board’s responsibilities.
Additional Information About Fund
Trustees
In
choosing each Fund Trustee to serve, the Board was generally aware of each Fund
Trustee’s skills, experience, judgment, analytical ability, intelligence, common
sense, previous profit and not-for-profit board membership and, for each
Independent Fund Trustee, his or her demonstrated willingness to take an
independent and questioning stance toward management. Each Fund Trustee
also now has considerable familiarity with the Trust and each Fund of the Trust,
their investment manager, sub-advisers, administrator and distributor, and their
operations, as well as the special regulatory requirements governing regulated
investment companies and the special responsibilities of investment company
directors, and in the case of each Trustee who has served on the Board over
multiple years, as a result of his or her substantial prior service as a Trustee
of the Trust. No particular qualification, experience or background
establishes the basis for any Fund Trustee’s position on the Board and the
Governance and Nominating Committee and individual Board members may have
attributed different weights to the various factors.
In
addition to the information set forth in the table above and other relevant
qualifications, experience, attributes or skills applicable to a particular Fund
Trustee, the following provides further information about the qualifications and
experience of each Fund Trustee.
Independent
Fund Trustees
Michael J. Cosgrove: Mr. Cosgrove is
President of an asset management consulting firm. He has experience as
President, Chief Executive Officer, and Chief Financial Officer of the asset
management division of a major multinational corporation. He also has experience
as a President of institutional sales and marketing for the asset management
division of the same corporation, where he was responsible for all distribution,
marketing, and development of mutual fund products. He also has served as a
member of the boards of various not-for-profit organizations. He has served as a
Fund Trustee for multiple years.
Marc Gary: Mr. Gary has legal and investment
management experience as executive vice president and general counsel of a major
asset management firm. He also has experience as executive vice president and
general counsel at a large corporation, and as national litigation practice
chair at a large law firm. He has served as a member of the boards of
various profit and not-for-profit organizations. He currently is a trustee and
the executive vice chancellor and COO of a religious seminary where he oversees
the seminary’s institutional budget. He has served as a Fund Trustee for
multiple years.
Martha Clark Goss: Ms. Goss has
experience as chief operating and financial officer of an insurance holding
company. She has experience as an investment professional, head of an
investment unit and treasurer for a major insurance company, experience as the
Chief Financial Officer of two consulting firms, and experience as a lending
officer and credit analyst at a major bank. She has experience managing a
personal investment vehicle. She has served as a member of the boards
of
various
profit and not-for-profit organizations and a university. She has served
as a Fund Trustee for multiple years.
Michael M. Knetter: Dr. Knetter has
organizational management experience as a dean of a major university business
school and as President and CEO of a university supporting foundation. He
also has responsibility for overseeing management of the university’s
endowment. He has academic experience as a professor of international
economics. He has served as a member of the boards of various public
companies and another mutual fund. He has served as a Fund Trustee for
multiple years.
Deborah C. McLean: Ms. McLean has experience in the
financial services industry. She is currently involved with a high net worth
private wealth management membership practice and an angel investing group,
where she is active in investment screening and deal leadership and execution.
For many years she has been engaged in numerous roles with a variety of
not-for-profit and private company boards and has taught corporate finance at
the graduate and undergraduate levels. She commenced her professional training
at a major financial services corporation, where she was employed for multiple
years. She has served as a Fund Trustee for
multiple years.
George W. Morriss: Mr. Morriss has
experience in senior management and as chief financial officer of a financial
services company. He has investment management experience as a portfolio
manager managing personal and institutional funds. He has served as a
member of a committee of representatives from companies listed on NASDAQ.
He has served on the board of another mutual fund complex. He has
served as a member of the board of funds of hedge funds. He has an
advanced degree in finance. He has served as a Fund Trustee for multiple
years.
Tom D. Seip: Mr. Seip has experience in
senior management and as chief executive officer and director of a financial
services company overseeing other mutual funds and brokerage. He has
experience as director of an asset management company. He has experience
in management of a private investment partnership. He has served as a Fund
Trustee for multiple years and as Independent Chair and/or Lead Independent
Trustee of the Board.
James G. Stavridis: Admiral Stavridis has
organizational management experience as a dean of a major university school of
law and diplomacy. He also held many leadership roles with the United
States Navy over the span of nearly four decades, including serving as NATO’s
Supreme Allied Commander Europe and serving at the Pentagon at different periods
of time as a strategic and long range planner on the staffs of the chief of
Naval Operations, as the chairman of the Joint Chiefs of Staff, and as
Commander, U.S. Southern Command. He has also served as an advisor to
private and public companies on geopolitical and cybersecurity matters. He has
served as a Fund Trustee for multiple years.
Peter P. Trapp: Mr. Trapp has experience
in senior management of a credit company and several insurance companies.
He has served as a member of the board of other mutual funds. He is a
Fellow in the Society of Actuaries. He has served as a Fund Trustee for
multiple years.
Fund
Trustees who are “Interested Persons”
Joseph V. Amato: Mr. Amato has
investment management experience as an executive with Neuberger Berman and
another financial services firm. Effective July 1, 2018, Mr. Amato serves
as Managing Director of Neuberger Berman and President–Mutual Funds of NBIA. He
also serves as Neuberger Berman’s Chief Investment Officer for equity
investments. He has experience in leadership roles within Neuberger Berman
and its affiliated entities. He has served as a member of the board of a
major university business school. He has served as a Fund Trustee since
2009.
Information About Committees
The
Board has established several standing committees to oversee particular aspects
of the Funds’ management. The standing committees of the Board are described
below.
Audit Committee. The Audit Committee’s
purposes are: (a) in accordance with exchange requirements and Rule 32a-4 under
the 1940 Act, to oversee the accounting and financial reporting processes of the
Funds and, as the Committee deems appropriate, to inquire into the internal
control over financial reporting of service providers; (b) in accordance with
exchange requirements and Rule 32a-4 under the 1940 Act, to oversee the quality
and integrity of the Funds’ financial statements and the independent audit
thereof; (c) in accordance with exchange requirements and Rule 32a-4 under the
1940 Act, to oversee, or, as appropriate, assist Board oversight of, the Funds’
compliance with legal and regulatory requirements that relate to the Funds’
accounting and financial reporting, internal control over financial reporting
and independent audits; (d) to approve prior to appointment the engagement of
the Funds’ independent registered public accounting firms and, in connection
therewith, to review and evaluate the qualifications, independence and
performance of the Funds’ independent registered public accounting firms; (e) to
act as a liaison between the Funds’ independent registered public accounting
firms and the full Board; (f) to monitor the operation of policies and
procedures reasonably designed to ensure that each portfolio holding is valued
in an appropriate and timely manner, reflecting information known to management
about the issuer, current market conditions, and other material factors
(“Pricing Procedures”); (g) to consider and evaluate, and recommend to the Board
when the Committee deems it appropriate, amendments to the Pricing Procedures
proposed by management, counsel, the auditors and others; and (h) from time to
time, as required or permitted by the Pricing Procedures, to establish or ratify
a method of determining the fair value of portfolio securities for which market
prices are not readily available. Its members are Michael J. Cosgrove (Chair),
Martha C. Goss (Vice Chair), Deborah C. McLean, and Peter P. Trapp. All members
are Independent Fund Trustees. During the fiscal year ended October 31, 2020,
the Committee met 7 times.
Contract Review Committee. The Contract Review
Committee is responsible for overseeing and guiding the process by which the
Independent Fund Trustees annually consider whether to approve or renew the
Trust’s principal contractual arrangements and Rule 12b-1 plans. Its members are
Marc Gary, Deborah C. McLean (Chair), and George W. Morriss (Vice Chair).
All
members are Independent Fund Trustees. During the fiscal year ended October 31,
2020, the Committee met 5 times.
Ethics and Compliance Committee. The Ethics
and Compliance Committee generally oversees: (a) the Trust’s program for
compliance with Rule 38a-1 and the Trust’s implementation and enforcement of its
compliance policies and procedures; (b) the compliance with the Trust’s Code of
Ethics, which restricts the personal securities transactions, including
transactions in Fund shares, of employees, officers, and trustees; (c) the
activities of the Trust’s Chief Compliance Officer (“CCO”); (d) the activities
of management personnel responsible for identifying, prioritizing, and managing
compliance risks; (e) the adequacy and fairness of the arrangements for
securities lending, if any, in a manner consistent with applicable regulatory
requirements, with special emphasis on any arrangements in which a Fund deals
with the manager or any affiliate of the manager as principal or agent; (f) the
program by which the manager seeks to monitor and improve the quality of
execution for portfolio transactions; and (g) the quarterly and annual
management reports on contractual arrangements with third party intermediaries,
including payments to, and the nature and quality of the services provided by,
such parties. The Committee shall not assume oversight duties to the extent that
such duties have been assigned by the Board expressly to another Committee of
the Board (such as oversight of internal controls over financial reporting,
which has been assigned to the Audit Committee.) The Committee’s primary
function is oversight. Each investment adviser, subadviser, principal
underwriter, administrator, custodian and transfer agent (collectively, “Service
Providers”) is responsible for its own compliance with the federal securities
laws and for devising, implementing, maintaining and updating appropriate
policies, procedures and codes of ethics to ensure compliance with applicable
laws and regulations and their contracts with the Funds. The CCO is
responsible for administering each Fund’s Compliance Program, including devising
and implementing appropriate methods of testing compliance by the Fund and its
Service Providers. Its members are Marc Gary (Chair), Michael M. Knetter,
Tom D. Seip, and James G. Stavridis. All members are Independent Fund Trustees.
During the fiscal year ended October 31, 2020, the Committee met 4 times. The
entire Board will receive at least annually a report on the compliance programs
of the Trust and service providers and the required annual reports on the
administration of the Code of Ethics and the required annual certifications from
the Trust, NBIA and NBEL.
Executive Committee. The Executive Committee
is responsible for acting in an emergency when a quorum of the Board of Trustees
is not available; the Committee has all the powers of the Board of Trustees when
the Board is not in session to the extent permitted by Delaware law. Its members
are Joseph V. Amato (Vice Chair), Michael J. Cosgrove, Marc Gary, Martha C.
Goss, Michael M. Knetter, Deborah C. McLean, George W. Morriss, and Tom D. Seip
(Chair). All members, except for Mr. Amato, are Independent Fund Trustees.
During the fiscal year ended October 31, 2020, the Committee met 1 time.
Governance and Nominating Committee. The
Governance and Nominating Committee is responsible for: (a) considering and
evaluating the structure, composition and operation of the Board of Trustees and
each committee thereof, including the operation of the annual self-evaluation by
the Board; (b) evaluating and nominating individuals to serve as Fund Trustees
including as Independent Fund Trustees, as members of committees, as Chair of
the Board and as officers of the Trust; (c) recommending for Board approval any
proposed changes to Committee membership and recommending for Board and
Committee approval any proposed changes to the
Chair
and Vice Chair appointments of any Committee following consultation with members
of each such Committee; and (d) considering and making recommendations
relating to the compensation of Independent Fund Trustees. Its members are
Martha C. Goss (Chair), Michael M. Knetter, Tom D. Seip, and James G. Stavridis
(Vice Chair). All members are Independent Fund Trustees. The selection and
nomination of candidates to serve as independent trustees is committed to the
discretion of the current Independent Fund Trustees. The Committee will consider
nominees recommended by shareholders; shareholders may send resumes of
recommended persons to the attention of Claudia A. Brandon, Secretary, Neuberger
Berman Income Funds, 1290 Avenue of the Americas, New York, NY 10104. During the
fiscal year ended October 31, 2020, the Committee met 3 times.
Investment Performance Committee. The
Investment Performance Committee is responsible for overseeing and guiding the
process by which the Board reviews Fund performance and interfacing with
management personnel responsible for investment risk management. Each Fund
Trustee is a member of the Committee. Michael M. Knetter and Peter P. Trapp are
the Chair and the Vice Chair, respectively, of the Committee. All members,
except for Mr. Amato, are Independent Fund Trustees. During the fiscal
year ended October 31, 2020, the Committee met 4 times.
Risk Management Oversight
As
an integral part of its responsibility for oversight of the Funds in the
interests of shareholders, the Board oversees risk management of the Funds’
administration and operations. The Board views risk management as an
important responsibility of management.
A
Fund faces a number of risks, such as investment risk, counterparty risk,
valuation risk, liquidity risk, reputational risk, risk of operational failure
or lack of business continuity, cybersecurity risk, and legal, compliance and
regulatory risk. Risk management seeks to identify and address risks,
i.e., events or circumstances that could have material adverse effects on the
business, operations, shareholder services, investment performance or reputation
of a Fund. Under the overall supervision of the Board, the Funds, the
Funds’ investment manager, a Fund’s sub-adviser (as applicable), and the
affiliates of the investment manager and the sub-adviser, or other service
providers to the Funds, employ a variety of processes, procedures and controls
to identify various of those possible events or circumstances, to lessen the
probability of their occurrence and/or to mitigate the effects of such events or
circumstances if they do occur. Different processes, procedures and
controls are employed with respect to different types of risks.
The
Board exercises oversight of the investment manager’s risk management processes
primarily through the Board’s committee structure. The various committees,
as appropriate, and/or, at times, the Board, meet periodically with the Chief
Risk Officer, head of operational risk, the Chief Information Security Officer,
the Chief Compliance Officer, the Treasurer, the Chief Investment Officers for
equity, alternative and fixed income, the heads of Internal Audit, and the
Funds’ independent auditor. The committees or the Board, as appropriate,
review with these individuals, among other things, the design and implementation
of risk management strategies in their respective areas, and events and
circumstances that have arisen and responses thereto.
The
Board recognizes that not all risks that may affect the Funds can be identified,
that it may not be practical or cost-effective to eliminate or mitigate certain
risks, that it may be necessary to bear certain risks (such as
investment-related risks) to achieve the Funds’ goals, and that the processes,
procedures and controls employed to address certain risks may be limited in
their effectiveness. Moreover, reports received by the Fund Trustees as to
risk management matters are typically summaries of the relevant
information. Furthermore, it is in the very nature of certain risks that
they can be evaluated only as probabilities, and not as certainties. As a
result of the foregoing and other factors, the Board’s risk management oversight
is subject to substantial limitations, and no risk management program can
predict the likelihood or seriousness of, or mitigate the effects of, all
potential risks.
Compensation and Indemnification
The
Trust’s Trust Instrument provides that the Trust will indemnify its Fund
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 Fund Trustees have not engaged in willful
misfeasance, bad faith, gross negligence, or reckless disregard of their
duties.
Officers
and Fund Trustees who are interested persons of the Trust, as defined in the
1940 Act, receive no salary or fees from the Trust.
Effective
January 1, 2020, for serving as a trustee of the Neuberger Berman Funds, each
Independent Fund Trustee and any Fund Trustee who is an “interested person” of
the Trust but who is not an employee of NBIA or its affiliates receives an
annual retainer of $160,000, paid quarterly, and a fee of $15,000 for each of
the regularly scheduled meetings he or she attends in-person or by
telephone. Prior to January 1, 2020, for serving as a trustee of the
Neuberger Berman Funds, each Independent Fund Trustee and any Fund Trustee who
is an “interested person” of the Trust but who is not an employee of NBIA or its
affiliates received an annual retainer of $150,000, paid quarterly, and a fee of
$15,000 for each of the regularly scheduled meetings he or she attends in-person
or by telephone. For any additional special in-person or telephonic
meeting of the Board, the Governance and Nominating Committee will determine
whether a fee is warranted. To compensate for the additional time commitment,
the Chair of the Audit Committee and the Chair of the Contract Review Committee
each receives $20,000 per year and each Chair of the other Committees receives
$15,000 per year, with the exception of the Chair of the Executive Committee who
receives no additional compensation for this role. No additional compensation is
provided for service on a Board committee. The Chair of the Board who is
also an Independent Fund Trustee receives an additional $50,000 per year.
The
Neuberger Berman Funds reimburse Independent Fund Trustees for their travel and
other out-of-pocket expenses related to attendance at Board meetings. The
Independent Fund
Trustee
compensation is allocated to each fund in the fund family based on a method the
Board of Trustees finds reasonable.
The
following table sets forth information concerning the compensation of the Fund
Trustees. The Trust does not have any retirement plan for the Fund
Trustees.
TABLE
OF COMPENSATION
FOR FISCAL YEAR
ENDED 10/31/2020
Name and Position with the
Trust |
Aggregate Compensation from the Trust |
Total Compensation from Investment
Companies in the Neuberger Berman Fund Complex Paid to
Fund Trustees |
Independent Fund Trustees |
|
|
Michael J. Cosgrove Trustee |
$51,339 |
$237,500 |
Marc Gary Trustee |
$50,258 |
$232,500 |
Martha C. Goss
Trustee |
$50,258 |
$232,500 |
Michael M. Knetter
Trustee |
$50,258 |
$232,500 |
Deborah C. McLean Trustee |
$51,339 |
$237,500 |
George W. Morriss
Trustee |
$50,258 |
$232,500 |
Tom D. Seip Chairman of the Board and Trustee |
$56,213 |
$260,000 |
James G. Stavridis Trustee |
$47,015 |
$217,500 |
Candace L. Straight Trustee2 |
$47,015 |
$217,500 |
Peter P. Trapp Trustee |
$47,015 |
$217,500 |
Fund Trustees who are “Interested
Persons” |
Joseph V. Amato
President, Chief Executive Officer and Trustee |
$0 |
$0 |
Robert Conti Trustee1 |
$36,254 |
$162,500 |
1
All compensation paid to Robert Conti for service as a member of the Boards of
Directors/Trustees of the Neuberger Berman Fund Complex, including the Trust,
were paid for the period following his retirement from employment at Neuberger
Berman. Mr. Conti unexpectedly passed away in July 2020.
2
Ms. Straight unexpectedly passed away in June 2021.
Ownership of Equity Securities by the Fund
Trustees
The
following table sets forth the dollar range of securities owned by each Fund
Trustee in each Fund as of December 31, 2020.
|
Core Bond |
Emerging Markets Debt |
Floating Rate Income |
High Income Bond |
Municipal High Income |
Municipal Impact |
Municipal Intermediate Bond |
Short Duration Bond |
Strategic Income |
Independent Fund Trustees |
Michael J. Cosgrove |
A |
C
|
A |
A |
A |
A |
A |
A |
C
|
Marc Gary |
A |
A |
A |
A |
A |
A |
A |
A |
A |
Martha C. Goss |
A |
A |
A |
A |
A |
A |
A |
A |
A |
Michael M. Knetter |
A |
A |
A |
A |
A |
A |
A |
A |
A |
Deborah C. McLean |
A |
A |
A |
A |
A |
A |
A |
A |
A |
George W. Morriss |
A |
A |
C |
A |
A |
A |
A |
D |
C |
Tom D. Seip |
A |
A |
A |
A |
A |
A |
A |
A |
A |
James G. Stavridis |
C |
A |
A |
C |
A |
A |
A |
A |
B |
Peter P. Trapp |
A |
A |
A |
A |
A |
A |
A |
A |
A |
Fund Trustees who are “Interested
Persons” |
Joseph V. Amato |
A |
A |
A |
E |
A |
A |
A |
A |
A |
A = None; B =
$1-$10,000; C = $10,001 - $50,000; D = $50,001-$100,000; E = over $100,000
The
following table sets forth the aggregate dollar range of securities owned by
each Fund Trustee in all the funds in the fund family overseen by the Fund
Trustee, valued as of December 31, 2020.
Name of Fund Trustee |
Aggregate Dollar Range
of Equity Securities Held in all Registered Investment Companies
Overseen by Fund Trustee in Family of Investment Companies |
Independent Fund Trustees |
Michael J. Cosgrove |
E |
Marc Gary |
E |
Martha C. Goss |
E |
Michael M. Knetter |
E |
Deborah C. McLean |
E |
George W. Morriss |
E |
Tom D. Seip |
E |
James G. Stavridis |
E |
Peter P. Trapp |
E |
Fund Trustees who are “Interested
Persons” |
Joseph V. Amato |
E |
A = None; B =
$1-$10,000; C = $10,001 - $50,000; D = $50,001-$100,000; E = over $100,000
On
January 31, 2021, the Fund Trustees and officers of the Trust, as a group, owned
beneficially or of record 1.95% of the outstanding shares of Neuberger Berman
Floating Rate Income Fund –
Class A shares and less than 1% of the outstanding shares of each Class of each
other Fund. In addition, on June 15, 2021, the Fund Trustees and officers of the
Trust, as a group, owned beneficially or of record less than 1% of the
outstanding shares of each Class of Neuberger Berman High Income Bond
Fund.
Independent Fund Trustees’ Ownership of
Securities
No
Independent Fund Trustee (including his/her immediate family members) owns any
securities (not including shares of registered investment companies) in any
Neuberger Berman entity.
NBIA
serves as the investment manager to each Fund pursuant to management agreements
with the Trust, one for Neuberger Berman Core
Bond Fund, Neuberger Berman Emerging
Markets Debt Fund, Neuberger Berman Floating Rate Income Fund, Neuberger Berman
Municipal High Income Fund and Neuberger
Berman Municipal Impact Fund dated May 4,
2009, and one for Neuberger Berman High
Income Bond Fund, Neuberger
Berman Municipal Intermediate Bond
Fund, Neuberger Berman Short Duration Bond Fund and Neuberger
Berman Strategic Income Fund dated May 4,
2009 (each a “Management Agreement” and collectively, the “Management
Agreements”).
Each
Management Agreement provides, in substance, that NBIA will make and implement
investment decisions for each Fund in its discretion and will continuously
develop an investment program for each Fund’s assets. Each Management Agreement
permits NBIA to effect securities
transactions
on behalf of each Fund through associated persons of NBIA. Each Management
Agreement also specifically permits NBIA to compensate, through higher
commissions, brokers and dealers who provide investment research and analysis to
the Funds.
NBIA
provides to each Fund, without separate cost, office space, equipment, and
facilities and the personnel necessary to perform executive, administrative, and
clerical functions. NBIA pays all salaries, expenses, and fees of the officers,
trustees and employees of the Trust who are officers, directors, or employees of
NBIA. One director of NBIA, who also serves as an officer of NBIA, presently
serves as a Fund Trustee and/or officer of the Trust. See “Trustees and
Officers.” Each Fund pays NBIA a management fee based on the Fund’s average
daily net assets, as described below.
NBIA
engages NBEL as sub-adviser to Neuberger Berman Emerging Markets Debt Fund to choose the Fund’s
investments and handle its day-to-day investment business. See “Sub-Adviser”
below.
NBIA
also provides facilities, services, and personnel as well as accounting, record
keeping and other services to each Fund pursuant to nine administration
agreements with the Trust, one for the Investor Class dated May 4, 2009, one for
the Trust Class of Neuberger Berman Short
Duration Bond Fund dated May
4, 2009, one for the Institutional Class dated May 4, 2009, one for the Trust
Class of Neuberger Berman Strategic
Income Fund dated May 4, 2009, one for Class A dated May 4, 2009, one for
Class C dated May 4, 2009, one for Class R3 dated May 15, 2009, one for Class R6
dated March 14, 2013, and one for Class E dated July 2, 2021 (each an
“Administration Agreement” and collectively, the “Administration Agreements”).
For such administrative services, each Class of a Fund pays NBIA a fee based on
the Class’s average daily net assets, as described below.
Under
each Administration Agreement, NBIA provides to each Class and its shareholders
certain shareholder, shareholder-related, and other services that are not
furnished by the Fund’s shareholder servicing agent or third party investment
providers. NBIA provides the direct shareholder services specified in the
Administration Agreements and assists the shareholder servicing agent or third
party investment providers in the development and implementation of specified
programs and systems to enhance overall shareholder servicing capabilities. NBIA
or the third party investment provider solicits and gathers shareholder proxies,
performs services connected with the qualification of each Fund’s shares for
sale in various states, and furnishes other services the parties agree from time
to time should be provided under the Administration Agreements.
The
services provided by NBIA under the Management Agreements and Administration
Agreements include, among others, overall responsibility for providing all
supervisory, management, and administrative services reasonably necessary for
the operation of the Funds, which may include, among others, compliance
monitoring, operational and investment risk management, legal and administrative
services and portfolio accounting services. These services also include,
among other things: (i) coordinating and overseeing all matters relating to the
operation of the Funds, including overseeing the shareholder servicing agent,
custodian, accounting services agent, independent auditors, legal counsel and
other agents and contractors
engaged
by the Funds; (ii) assuring that all financial, accounting and other records
required to be prepared and preserved by each Fund are prepared and preserved by
it or on its behalf in accordance with applicable laws and regulations; (iii)
assisting in the preparation of all periodic reports by the Funds to
shareholders; (iv) assisting in the preparation of all reports and filings
required to maintain the registration and qualification of each Fund and its
shares, or to meet other regulatory or tax requirements applicable to the Fund
under federal and state securities and tax laws; and (v) furnishing such office
space, office equipment and office facilities as are adequate for the needs of
the Funds.
NBIA
also plays an active role in the daily pricing of Fund shares, provides
information to the Board necessary to its oversight of certain valuation
functions, and annually conducts due diligence on the outside independent
pricing services. NBIA prepares reports and other materials necessary and
appropriate for the Board’s ongoing oversight of each Fund and its service
providers; prepares an extensive report in connection with the Board’s annual
review of the Management Agreement, Sub-Advisory Agreement, Distribution
Agreements and Rule 12b-1 Plans and, in connection therewith, gathers and
synthesizes materials from the Subadviser; and monitors the Subadviser’s
implementation of its compliance program and code of ethics as they relate to
the applicable Funds.
Each
Management Agreement continues until October 31, 2021. Each Management
Agreement is renewable thereafter from year to year with respect to a Fund, so
long as its continuance is approved at least annually (1) by the vote of a
majority of the Independent Fund Trustees, and (2) by the vote of a
majority of the Fund Trustees or by a 1940 Act majority vote of the outstanding
shares of that Fund. Each Administration Agreement continues until
October 31, 2021. Each Administration Agreement is renewable
thereafter from year to year with respect to a Fund, so long as its continuance
is approved at least annually (1) by the vote of a majority of the Independent
Fund Trustees, and (2) by the vote of a majority of the Fund Trustees or by a
1940 Act majority vote of the outstanding shares of that Fund.
Each
Management Agreement is terminable, without penalty, with respect to a Fund on
60 days’ written notice either by the Trust or by NBIA. Each Administration
Agreement is terminable, without penalty, with respect to a Fund on 60 days’
written notice either by the Trust or by NBIA. Each Agreement terminates
automatically if it is assigned.
From
time to time, NBIA or a Fund may enter into arrangements with registered
broker-dealers or other third parties pursuant to which it pays the
broker-dealer or third party a per account fee or a fee based on a percentage of
the aggregate NAV of Fund shares purchased by the broker-dealer or third party
on behalf of its customers, in payment for administrative and other services
rendered to such customers.
NBIA
may engage one or more of foreign affiliates that are not registered under the
1940 Act (“participating affiliates”) in accordance with applicable SEC
no-action letters. As participating affiliates, whether or not registered with
the SEC, the affiliates may provide designated investment personnel to associate
with NBIA as “associated persons” of NBIA and perform specific advisory services
for NBIA, including services for the Funds, which may involve, among other
services, portfolio management and/or placing orders for securities and other
instruments. The designated employees of a participating affiliate act for NBIA
and are subject to
certain
NBIA policies and procedures as well as supervision and periodic monitoring by
NBIA. The Funds will pay no additional fees and expenses as a result of any such
arrangements. NBEL, Neuberger Berman Singapore Pte. Limited and Neuberger Berman
Asset Management Ireland Limited are considered participating affiliates of NBIA
pursuant to applicable regulatory guidance.
Third
parties may be subject to federal or state laws that limit their ability to
provide certain administrative or distribution related services. NBIA and the
Funds intend to contract with third parties for only those services they may
legally provide. If, due to a change in laws governing those third parties or in
the interpretation of any such law, a third party is prohibited from performing
some or all of the above-described services, NBIA or a Fund may be required to
find alternative means of providing those services. Any such change is not
expected to impact the Funds or their shareholders adversely.
From
time to time, NBIA or its affiliates may invest “seed” capital in a Fund. These
investments are generally intended to enable the Fund to commence investment
operations and achieve sufficient scale. NBIA and its affiliates may, from time
to time, hedge some or all of the investment exposure of the seed capital
invested in the Fund.
For
investment management services, Neuberger Berman Core Bond Fund pays NBIA a fee at the annual
rate of 0.18% of the first $2 billion of the Fund’s average daily net assets and
0.15% of average daily net assets in excess of $2 billion. Prior to
January 15, 2020, for investment management services, Neuberger Berman Core Bond Fund paid NBIA a fee at the annual
rate of 0.25% of the first $500 million of the Fund’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
investment management services, Neuberger Berman Emerging Markets Debt Fund pays NBIA a fee at
the annual rate of 0.55% of average daily net assets.
For
investment management services, Neuberger Berman
Floating Rate Income Fund pays NBIA a fee at the annual rate of 0.40% of
average daily net assets. Prior to January 15, 2021, for investment management
services, Neuberger Berman Floating Rate
Income Fund paid NBIA a fee at the annual rate of 0.50% of average daily
net assets.
For
investment management services, Neuberger Berman
High Income Bond Fund pays
NBIA a fee at the annual rate of 0.48% of average daily net assets.
For
investment management services, Neuberger Berman
Municipal High Income Fund pays NBIA a fee at the annual rate of 0.400%
of the first $500 million of the Fund’s average daily net assets, 0.375% of the
next $500 million, 0.350% of the next $500 million, 0.325% of the next $500
million, and 0.300% of average daily net assets in excess of $2 billion.
For
investment management services, Neuberger Berman Municipal Impact Fund pays NBIA a fee at the
annual rate of 0.25% of the first $500 million of the Fund’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
investment management services, Neuberger Berman Municipal Intermediate Bond Fund pays NBIA a
fee at the annual rate of 0.14% of the Fund’s average daily net assets. Prior to
September 12, 2019, for investment management services, Neuberger Berman Municipal Intermediate Bond Fund paid NBIA a
fee at the annual rate of 0.23% of the first $500 million of the Fund’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. Prior to February 28, 2018, for investment management
services, Neuberger Berman Municipal
Intermediate Bond Fund paid NBIA a fee at the annual rate of 0.25% of the
first $500 million of the Fund’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
investment management services, Neuberger Berman Short Duration Bond Fund pays NBIA a fee
at the annual rate of 0.17% of the first $2 billion of the Fund’s average daily
net assets and 0.15% in excess of $2 billion. Prior to February 28, 2020,
Neuberger Berman Short Duration Bond Fund
paid NBIA a fee at the annual rate of 0.20% of the first $1.5 billion of the
Fund’s average daily net assets, 0.175% of the next $500 million, and 0.150% of
average daily net assets in excess of $2 billion. Prior to February 28,
2018, for investment management services, Neuberger Berman Short Duration Bond Fund paid NBIA a fee
at the annual rate of 0.25% of the first $500 million of the Fund’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
investment management services, Neuberger Berman Strategic Income Fund pays NBIA a fee at
the annual rate of 0.40% of the Fund's average daily net assets. Prior to
December 1, 2016, for investment management services, Neuberger
Berman Strategic Income Fund
paid NBIA a fee at an annual rate of 0.55% of average daily net assets.
Investor Class. For administrative
services, the Investor Class of Neuberger Berman Core Bond Fund, Neuberger Berman High Income Bond Fund, Neuberger Berman Municipal Intermediate Bond Fund and Neuberger
Berman Short Duration Bond Fund each pays NBIA a fee at the annual
rate of 0.27% of that Class’s average daily net assets, plus certain
out-of-pocket expenses for technology used for shareholder servicing and
shareholder communications subject to the prior approval of an annual budget by
the Fund Trustees, including a majority of the Independent Fund Trustees, and
periodic reports to the Fund Trustees on actual expenses. With a Fund’s consent,
NBIA may subcontract to third parties, including investment providers, some of
its responsibilities to that Fund under the Administration Agreement. In
addition, a Fund may compensate third parties, including investment providers,
for recordkeeping, accounting and other services. (For the Investor Class
of Neuberger Berman Core Bond Fund, a
portion of this compensation may be derived from the Rule 12b-1 fee paid to the
Distributor by this Class of the Fund; see “Distribution Arrangements”
below.)
The
Investor Class of Neuberger Berman Core
Bond Fund, Neuberger Berman High
Income Bond Fund, Neuberger
Berman Municipal Intermediate Bond Fund
and Neuberger Berman Short
Duration Bond Fund accrued
management and administration fees of the following amounts (before any
reimbursement of the Funds, described below) for the fiscal years ended
October 31, 2020, 2019 and 2018:
|
|
|
|
Investor Class |
2020 |
2019 |
2018 |
Core Bond
Fund |
$58,689 |
$54,399 |
$53,490 |
High
Income Bond Fund |
$598,485 |
$672,133 |
$771,215 |
Municipal Intermediate Bond
Fund |
$53,148 |
$64,440 |
$67,071 |
Short
Duration Bond Fund |
$94,492 |
$101,991 |
$108,550 |
Institutional Class. For administrative
services, the Institutional Class of each Fund pays NBIA a fee at the annual
rate of 0.15% of that Class’s average daily net assets, plus certain
out-of-pocket expenses for technology used for shareholder servicing and
shareholder communications subject to the prior approval of an annual budget by
the Fund Trustees, including a majority of the Independent Fund Trustees, and
periodic reports to the Fund Trustees on actual expenses. With a Fund’s consent,
NBIA may subcontract to third parties, including investment providers, some of
its responsibilities to that Fund under the Administration Agreement and may
compensate each such third party that provides such services. In addition, a
Fund may compensate third parties, including investment providers, for
recordkeeping, accounting and other services.
The
Institutional Class of each Fund accrued management and administration fees of
the following amounts (before any reimbursement of the Funds, described below)
for the fiscal years ended October 31, 2020, 2019 and 2018:
Institutional Class |
2020 |
2019 |
2018 |
Core Bond
Fund |
$1,314,534 |
$1,374,556 |
$1,459,738 |
Emerging Markets Debt
Fund |
$1,095,285 |
$1,335,200 |
$1,477,788 |
Floating
Rate Income Fund |
$1,115,950 |
$1,696,064 |
$2,110,337 |
High
Income Bond Fund |
$7,927,208 |
$8,928,094 |
$8,441,408 |
Municipal
High Income Fund |
$658,201 |
$505,625 |
$505,095 |
Municipal
Impact Fund |
$241,394 |
$225,963 |
$225,813 |
Municipal
Intermediate Bond Fund |
$566,292 |
$675,978 |
$819,005 |
Short
Duration Bond Fund |
$193,075 |
$216,344 |
$210,281 |
Strategic
Income Fund |
$12,474,363 |
$12,079,438 |
$12,154,061 |
Trust Class. For administrative
services, the Trust Class of Neuberger Berman
Short Duration Bond Fund and Neuberger Berman Strategic Income Fund each pays NBIA a fee at
the annual rate of 0.50% and 0.40%, respectively, of its average daily net
assets, plus certain out-of-pocket expenses for technology used for shareholder
servicing and shareholder communications subject to the prior approval of an
annual budget by the Board of Trustees, including a majority of Independent Fund
Trustees, and periodic reports to the Board of Trustees on actual expenses. With
a Fund’s consent, NBIA may subcontract to third parties, including investment
providers, some of its responsibilities to that Fund under the Administration
Agreement and may compensate each such third party that provides such services.
(For the Trust Class of Neuberger Berman Strategic
Income Fund, a portion of this compensation may
be derived from the Rule 12b-1 fee paid to the Distributor by this Class of the
Fund; see “Distribution Arrangements” below.)
The
Trust Class of Neuberger Berman Short Duration
Bond Fund and Neuberger Berman Strategic
Income Fund accrued management and administration fees of the following
amounts (before any reimbursement of the Funds, described below) for the fiscal
years ended October 31, 2020, 2019 and 2018:
Trust Class |
2020 |
2019 |
2018 |
Short
Duration Bond Fund |
$14,524 |
$13,551 |
$17,076 |
Strategic
Income Fund |
$71,927 |
$84,735 |
$144,299 |
Class A and Class C. For administrative
services, Class A and Class C of Neuberger Berman Core Bond Fund, Neuberger Berman Emerging Markets Debt Fund, Neuberger Berman
Floating Rate Income Fund, Neuberger
Berman High Income Bond Fund, Neuberger
Berman Municipal High Income Fund,
Neuberger Berman Municipal Impact Fund,
Neuberger Berman Municipal Intermediate
Bond Fund, Neuberger Berman Short
Duration Bond Fund and
Neuberger Berman Strategic Income Fund
each pays NBIA a fee at the annual rate of 0.27% of that Class’s average daily
net assets, plus certain out-of-pocket expenses for technology used for
shareholder servicing and shareholder communications, subject to the prior
approval of an annual budget by the Fund Trustees, including a majority of the
Independent Fund Trustees, and periodic reports to the Fund Trustees on actual
expenses. With a Fund’s consent, NBIA may subcontract to third parties,
including investment providers, some of its responsibilities to that Fund under
the Administration Agreement, and may compensate each such third party that
provides such services. (A portion of this compensation may be derived from the
Rule 12b-1 fee paid to the Distributor by Class A and Class C of each Fund; see
“Distribution Arrangements” below.)
Class
A of Neuberger Berman Core Bond Fund,
Neuberger Berman Emerging Markets Debt
Fund, Neuberger Berman Floating Rate
Income Fund, Neuberger Berman High Income
Bond Fund, Neuberger Berman Municipal
High Income Fund, Neuberger Berman Municipal Impact Fund, Neuberger Berman Municipal Intermediate Bond Fund, Neuberger
Berman Short Duration Bond Fund and
Neuberger Berman Strategic Income Fund
accrued management and administration fees of the following amounts (before any
reimbursement of the Funds, described below) for the fiscal years ended
October 31, 2020, 2019 and 2018:
Class A |
2020 |
2019 |
2018 |
Core
Bond Fund |
$89,742 |
$100,675 |
$107,783 |
Emerging Markets Debt
Fund |
$17,982 |
$57,594 |
$54,581 |
Floating Rate Income
Fund |
$45,953 |
$71,168 |
$147,272 |
High Income Bond Fund |
$146,753 |
$249,314 |
$402,065 |
Municipal High Income
Fund |
$6,166 |
$6,976 |
$3,588 |
Class A |
2020 |
2019 |
2018 |
Municipal Impact Fund |
$412 |
$297 |
$48* |
Municipal Intermediate Bond
Fund |
$8,232 |
$19,709 |
$34,549 |
Short Duration Bond
Fund |
$4,531 |
$7,953 |
$10,216 |
Strategic Income Fund |
$764,208 |
$771,437 |
$1,183,251 |
*
Fiscal period from June 19, 2018 (commencement of operations of Class A of
Neuberger Berman Municipal Impact Fund) to October 31, 2018.
Class
C of Neuberger Berman Core Bond Fund,
Neuberger Berman Emerging Markets Debt
Fund, Neuberger Berman Floating Rate
Income Fund, Neuberger Berman High Income
Bond Fund, Neuberger Berman Municipal
Impact Fund, Neuberger Berman Municipal
High Income Fund, Neuberger Berman Municipal Intermediate Bond Fund, Neuberger
Berman Short Duration Bond Fund and
Neuberger Berman Strategic Income Fund
accrued management and administration fees of the following amounts (before any
reimbursement of the Funds, described below) for the fiscal years ended
October 31, 2020, 2019 and 2018:
Class C |
2020 |
2019 |
2018 |
Core Bond
Fund |
$10,530 |
$11,658 |
$14,391 |
Emerging Markets Debt
Fund |
$3,970 |
$3,319 |
$4,523 |
Floating
Rate Income Fund |
$68,191 |
$108,662 |
$138,815 |
High
Income Bond Fund |
$70,399 |
$105,144 |
$144,349 |
Municipal
High Income Fund |
$2,988 |
$3,674 |
$3,169 |
Municipal Impact Fund |
$170 |
$133 |
$48* |
Municipal
Intermediate Bond Fund |
$10,024 |
$14,761 |
$16,351 |
Short
Duration Bond Fund |
$7,933 |
$6,382 |
$6,738 |
Strategic
Income Fund |
$590,495 |
$734,462 |
$919,255 |
*
Fiscal period from June 19, 2018 (commencement of operations of Class C of
Neuberger Berman Municipal Impact Fund) to October 31, 2018.
Class R3. For administrative services,
Class R3 of Neuberger Berman High Income
Bond Fund pays NBIA a fee at the annual rate of 0.27% of that Class’s
average daily net assets, plus certain out-of-pocket expenses for technology
used for shareholder servicing and shareholder communications, subject to the
prior approval of an annual budget by the Fund Trustees, including a majority of
the Independent Fund Trustees, and periodic reports to the Fund Trustees on
actual expenses. With the Fund’s consent, NBIA may subcontract to third parties,
including investment providers, some of its responsibilities to the Fund under
the Administration Agreement, and may compensate each such third party that
provides such services. (A portion of this compensation may
be
derived from the Rule 12b-1 fee paid to the Distributor by this Class of the
Fund; see “Distribution Arrangements” below.)
Class
R3 of Neuberger Berman High
Income Bond 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, 2020, 2019 and 2018:
Class R3 |
2020 |
2019 |
2018 |
High
Income Bond Fund |
$15,078 |
$30,122 |
$78,029 |
Class R6. For administrative services,
Class R6 of Neuberger Berman Core Bond
Fund, Neuberger Berman High Income Bond
Fund, Neuberger Berman Short Duration
Bond Fund and Neuberger Berman Strategic
Income Fund each pays NBIA a fee at the annual rate of 0.05% of that
Class’s average daily net assets, plus certain out-of-pocket expenses for
technology used for shareholder servicing and shareholder communications,
subject to the prior approval of an annual budget by the Fund Trustees,
including a majority of the Independent Fund Trustees, and periodic reports to
the Fund Trustees on actual expenses. Prior to December 6, 2018, Class R6
of each Fund paid NBIA a fee at the annual rate of 0.08% of the Class’s average
daily net assets for administrative services, plus certain out-of-pocket
expenses for technology used for shareholder servicing and shareholder
communications, subject to the prior approval of an annual budget by the Fund
Trustees, including a majority of the Independent Fund Trustees, and periodic
reports to the Board of Trustees on actual expenses.
Class R6
of Neuberger Berman High
Income Bond Fund and
Neuberger Berman Strategic Income Fund
accrued management and administration fees of the following amounts (before any
reimbursement of the Funds, described below) for the fiscal years ended
October 31, 2020, 2019 and 2018:
Class R6@ |
2020 |
2019 |
2018 |
Core Bond
Fund |
$6,077 |
$714 |
N/A^ |
High
Income Bond Fund |
$3,026,915 |
$3,650,245 |
$5,221,869 |
Strategic
Income Fund |
$1,378,646 |
$1,345,035 |
$1,552,096 |
@ As of the
date of this SAI, Class R6 of Neuberger Berman Short Duration Bond Fund had not yet commenced
operations. Therefore, there is no data to report.
^ No data available
because this Class of the Fund had not yet commenced operations.
Class E. The Manager has contractually
agreed to waive its management fee for the Class E shares until 10/31/2022. This
undertaking may not be terminated during its term without the consent of the
Board of Trustees. For administrative services, Class E of each Fund pays
NBIA a fee at an annual rate of 0.00% of the Class’s average daily net assets,
plus certain out-of-pocket expenses for technology used for shareholder
servicing and shareholder communications, subject to the prior approval of an
annual budget by the Fund Trustees, including a majority of the Independent Fund
Trustees, and periodic reports to the Board of Trustees on actual
expenses.
As
of the date of this SAI, Class E of Neuberger Berman High Income Fund had not yet commenced
operations. Therefore, there is no data to report.
NBIA
has contractually undertaken, during the respective period noted below, to waive
fees and/or reimburse annual operating expenses of each Class of each Fund
listed below so that its total operating expenses (excluding interest, taxes,
brokerage commissions, dividend and interest expenses relating to short sales,
acquired fund fees and expenses, and extraordinary expenses, if any) (“Operating
Expenses”) do not exceed the rate per annum noted below. Commitment fees
relating to borrowings are treated as interest for purposes of this
exclusion. Because the contractual undertaking excludes certain expenses,
a Fund’s net expenses may exceed its contractual expense limitation.
Each Fund listed agrees to repay NBIA out of assets
attributable to each of its respective Classes noted below for any fees
waived by NBIA under the expense limitation or any Operating Expenses NBIA
reimburses in excess of the expense limitation,
provided that the repayment does not cause that Class’ Operating Expenses to
exceed the expense limitation in place at the time the fees were waived and/or
the expenses were reimbursed, or the expense limitation in place at the
time the Fund repays NBIA, whichever is lower. Any
such repayment must be made within three years after the year in which NBIA
incurred the expense.
With
respect to any Fund, the appropriateness of these undertakings is determined on
a Fund-by-Fund and Class-by-Class basis.
Fund |
Class |
Limitation
Period |
Expense
Limitation |
Core
Bond Fund |
Class A |
10/31/2024 |
0.78%~ |
|
Class C |
10/31/2024 |
1.53%~
~ |
|
Investor |
10/31/2024 |
0.78%~ |
|
Institutional |
10/31/2024 |
0.38%~ ~
~ |
|
R6 |
10/31/2024 |
0.28%~ ~ ~
~ |
Emerging
Markets Debt Fund |
Class A |
10/31/2024 |
1.15% |
|
Class C |
10/31/2024 |
1.90% |
|
Institutional |
10/31/2024 |
0.78% |
Floating Rate
Income Fund |
Class A |
10/31/2024 |
0.97%^ |
|
Class C |
10/31/2024 |
1.72%^^ |
|
Institutional |
10/31/2024 |
0.60%^^^ |
High Income
Bond Fund |
Institutional |
10/31/2024 |
0.75% |
|
Investor |
10/31/2024 |
1.00% |
|
Class A |
10/31/2024 |
1.12% |
|
Class C |
10/31/2024 |
1.87% |
|
R3 |
10/31/2024 |
1.37% |
|
R6 |
10/31/2024 |
0.65%! |
Municipal High Income
Fund |
Institutional |
10/31/2024 |
0.50% |
|
Class A |
10/31/2024 |
0.87% |
|
Class C |
10/31/2024 |
1.62% |
Fund |
Class |
Limitation
Period |
Expense
Limitation |
Municipal
Impact Fund |
Institutional |
10/31/2024 |
0.43%* |
|
Class A |
10/31/2024 |
0.80% |
|
Class C |
10/31/2024 |
1.55% |
Municipal
Intermediate Bond Fund |
Investor |
10/31/2024 |
0.45%# |
|
Class A |
10/31/2024 |
0.67%## |
|
Class C |
10/31/2024 |
1.42%### |
|
Institutional |
10/31/2024 |
0.30%#### |
Short Duration
Bond Fund |
Institutional |
10/31/2024 |
0.34%& |
|
Investor |
10/31/2024 |
0.54%&& |
|
Trust |
10/31/2024 |
0.64%&&& |
|
Class A |
10/31/2024 |
0.71%$ |
|
Class C |
10/31/2024 |
1.46%$$ |
|
R6 |
10/31/2024 |
0.24%$$$ |
Strategic
Income Fund |
Class A |
10/31/2024 |
0.99% |
|
Class C |
10/31/2024 |
1.69% |
|
Institutional |
10/31/2024 |
0.59% |
|
Trust |
10/31/2024 |
0.94% |
|
R6 |
10/31/2024 |
0.49%! |
~
0.85% prior to January 15, 2020.
~
~ 1.60% prior to January 15, 2020.
~
~ ~ 0.45% prior to January 15, 2020.
~
~ ~ ~ 0.35 prior to January 15, 2020.
!
Prior to December 6, 2018, the expense limitation for Class R6 of the Fund was
higher by 0.03%.
*
1.00% prior to June 18, 2018.
#
0.58% prior to September 12, 2019.
##
0.80% prior to September 12, 2019.
###
1.55% prior to September 12, 2019.
####
0.43% prior to September 12, 2019.
&
0.39% prior to February 28, 2020.
&&
0.59% prior to February 28, 2020.
&&&
0.69% prior to February 28, 2020.
$
0.76% prior to February 28, 2020.
$$
1.51% prior to February 28, 2020.
$$$
0.29% prior to February 28, 2020.
^ 1.07% prior to January 15, 2021.
^^ 1.82% prior to January 15, 2021.
^^^ 0.70% prior to January 15, 2021.
NBIA
reimbursed each Class of each Fund listed below the following amount of expenses
pursuant to that Fund’s contractual expense limitation:
Fund |
2020 |
2019 |
2018 |
Core
Bond Fund – Class A |
$7,793 |
$13,844 |
$13,557 |
Core
Bond Fund – Class C |
$998 |
$1,746 |
$1,869 |
Core
Bond Fund – Investor Class |
$24,104 |
$27,317 |
$27,349 |
Core
Bond Fund – Institutional Class |
$254,794 |
$328,676 |
$325,526 |
Core
Bond Fund – Class R6+ |
$1,676 |
$330 |
- |
Emerging
Markets Debt Fund - Class A |
$5,716 |
$15,905 |
$15,759 |
Emerging
Markets Debt Fund - Class C |
$1,193 |
$930 |
$1,301 |
Emerging
Markets Debt Fund - Institutional Class |
$363,531 |
$406,354 |
$457,406 |
Floating Rate
Income Fund – Class A |
$15,631 |
$19,217 |
$30,445 |
Floating Rate
Income Fund – Class C |
$20,399 |
$26,631 |
$26,854 |
Floating Rate
Income Fund – Institutional Class |
$385,554 |
$469,596 |
$475,802 |
High Income
Bond Fund – Class A |
- |
$16,174 |
$11,115 |
High Income
Bond Fund – Class R3 |
- |
- |
- |
Municipal High
Income Fund – Institutional Class |
$359,725 |
$329,680 |
$341,403 |
Municipal High
Income Fund – Class A |
$3,325 |
$4,413 |
$2,546 |
Municipal High
Income Fund – Class C |
$1,390 |
$2,011 |
$1,802 |
Municipal
Impact Fund – Class A* |
$248 |
$400 |
$89 |
Municipal
Impact Fund – Class C* |
$149 |
$225 |
$91 |
Municipal
Impact Fund – Institutional Class |
$299,893 |
$382,133 |
$162,783 |
Municipal Intermediate Bond
Fund – Investor Class |
$26,332 |
$23,657 |
$18,441 |
Municipal Intermediate Bond
Fund – Class A |
$3,397 |
$5,508 |
$6,691 |
Municipal Intermediate Bond
Fund – Class C |
$4,117 |
$4,287 |
$3,285 |
Municipal Intermediate Bond
Fund – Institutional Class |
$315,219 |
$248,495 |
$202,676 |
Short Duration
Bond Fund – Institutional Class |
$249,736 |
$239,009 |
$232,853 |
Short Duration
Bond Fund – Investor Class |
$97,811 |
$94,340 |
$102,348 |
Short Duration
Bond Fund – Trust Class |
$10,631 |
$8,902 |
$11,423 |
Short Duration
Bond Fund – Class A |
$4,533 |
$6,786 |
$8,714 |
Short Duration
Bond Fund – Class C |
$7,744 |
$5,488 |
$5,866 |
Strategic
Income Fund – Class A |
- |
$13,789 |
$20,071 |
Strategic
Income Fund – Class C |
$31,253 |
$53,704 |
$63,520 |
Strategic
Income Fund – Institutional Class |
$293,431 |
$573,799 |
$540,043 |
Strategic
Income Fund – Trust Class |
$6,415 |
$7,844 |
$9,494 |
Strategic
Income Fund – Class R6 |
$43,096 |
$79,636 |
$81,957 |
+ Fiscal period from
January 18, 2019 (commencement of operations of Class R6 of Neuberger Berman
Core Bond Fund) to October 31, 2019
*
Fiscal period from June 19, 2018 (commencement of operations of Class A and
Class C of Neuberger Berman Municipal Impact Fund) to October 31, 2018.
Each
Class of each Fund listed below repaid NBIA the following amounts of expenses
that NBIA had reimbursed to each Class.
|
Expenses Repaid for
Fiscal Years
Ended
October 31, |
Fund |
2020 |
2019 |
2018 |
High Income
Bond Fund – Class R3 |
$0 |
$0 |
$0 |
High Income
Bond Fund – Class A |
$16,063 |
$0 |
$0 |
Strategic
Income Fund – Class A |
$5,279 |
$0 |
$0 |
|
|
|
|
For
so long as a Fund invests any assets in an affiliated underlying fund, NBIA
undertakes to waive a portion of the Fund’s advisory fee equal to the advisory
fee it receives from such affiliated underlying fund on those assets, as
described in the Fund’s prospectus. This undertaking may not be terminated
without the consent of the Board of Trustees.
The
table below shows the amounts reimbursed by NBIA pursuant to this
arrangement:
|
Expenses Reimbursed for
Fiscal Years
Ended
October 31, |
Fund |
2020 |
2019 |
2018 |
Strategic
Income Fund – Trust Class |
$0 |
$0 |
$264 |
Strategic
Income Fund – Institutional Class |
$0 |
$0 |
$27,841 |
Strategic
Income Fund – Class A |
$0 |
$0 |
$2,593 |
Strategic
Income Fund – Class C |
$0 |
$0 |
$2,016 |
Strategic
Income Fund – Class R6 |
$0 |
$0 |
$4,187 |
NBIA
retains NBEL, Lansdowne House, 57 Berkeley Square, London, W1J 6ER, as
sub-adviser with respect to Neuberger Berman Emerging Markets Debt Fund pursuant to a
sub-advisory agreement dated December 1, 2013.
Pursuant
to the sub-advisory agreement, NBIA has delegated responsibility for the Fund’s
day-to-day investment management to NBEL. The sub-advisory agreement provides in
substance
that
NBEL will make and implement investment decisions for the Fund in its discretion
and will continuously develop an investment program for the portion of the
Fund’s assets allocated to it. The sub-advisory agreement permits NBEL to
effect securities transactions on behalf of the Fund through associated persons
of NBEL. The sub-advisory agreement also specifically permits NBEL to
compensate, through higher commissions, brokers and dealers who provide
investment research and analysis to the Fund.
The
sub-advisory agreement continues until October 31, 2021 for the Fund and is
renewable from year to year thereafter, subject to approval of its continuance
in the same manner as each Management Agreement. The sub-advisory agreement is
subject to termination, without penalty, with respect to the Fund by the Fund
Trustees or by a 1940 Act majority vote of the outstanding shares of that Fund,
by NBIA, or by NBEL on not less than 30 nor more than 60 days’ prior
written notice to the Fund. The sub-advisory agreement also terminates
automatically with respect to the Fund if it is assigned or if the Management
Agreement terminates with respect to the Fund.
The
table below lists the Portfolio Manager(s) of each Fund and the Fund(s) for
which the Portfolio Manager has day-to-day management responsibility.
Portfolio Manager |
Fund(s)
Managed |
Thanos Bardas |
Neuberger Berman Core Bond Fund |
|
Neuberger Berman Strategic Income Fund |
Ashok Bhatia |
Neuberger Berman Strategic Income Fund |
David M.
Brown |
Neuberger Berman Core Bond Fund |
|
Neuberger Berman Short Duration Bond Fund |
|
Neuberger
Berman Strategic Income Fund
|
Stephen Casey |
Neuberger Berman Floating Rate Income Fund |
Russ Covode |
Neuberger Berman High Income Bond Fund |
Daniel Doyle |
Neuberger Berman High Income Bond Fund |
Rob
Drijkoningen |
Neuberger Berman Emerging Markets Debt Fund |
Michael
Foster |
Neuberger Berman Short Duration Bond Fund |
Jennifer
Gorgoll |
Neuberger Berman Emerging Markets
Debt Fund |
Jeffrey Hunn |
Neuberger Berman Municipal Impact Fund |
James L.
Iselin |
Neuberger Berman Municipal High Income Fund |
|
Neuberger Berman Municipal Impact Fund |
|
Neuberger Berman Municipal Intermediate Bond
Fund |
Vera Kartseva |
Neuberger Berman Emerging Markets
Debt Fund |
Christopher
Kocinski |
Neuberger Berman High Income
Bond Fund |
Portfolio Manager |
Fund(s)
Managed |
Nathan Kush |
Neuberger Berman Core Bond
Fund |
Joseph Lind |
Neuberger Berman High Income
Bond Fund |
Raoul Luttik |
Neuberger Berman Emerging Markets
Debt Fund |
James A.
Lyman |
Neuberger Berman Municipal Impact Fund |
Joseph Lynch |
Neuberger Berman Floating Rate Income Fund |
Matthew
McGinnis |
Neuberger Berman Short Duration Bond Fund |
S. Blake
Miller |
Neuberger Berman Municipal High Income Fund |
|
Neuberger Berman Municipal Impact Fund |
|
Neuberger Berman Municipal Intermediate Bond
Fund |
Woolf Norman
Milner |
Neuberger Berman Short Duration Bond Fund |
Eric Pelio |
Neuberger Berman Municipal High Income Fund |
Nish Popat |
Neuberger Berman Emerging Markets
Debt Fund |
Thomas Sontag |
Neuberger Berman Short Duration Bond Fund |
Bradley C.
Tank |
Neuberger Berman Core Bond Fund |
|
Neuberger Berman Strategic Income Fund |
Gorky
Urquieta |
Neuberger Berman Emerging Markets
Debt Fund |
Bart Van der
Made |
Neuberger Berman Emerging Markets
Debt Fund |
Accounts Managed
The table below
describes the accounts for which each Portfolio Manager has day-to-day
management responsibility as of October 31, 2020, unless otherwise
indicated.
Type of
Account |
Number
of Accounts Managed |
Total
Assets Managed
($ millions) |
Number of
Accounts Managed for which Advisory Fee
is Performance-Based |
Assets Managed
for which Advisory Fee is Performance-Based
($
millions) |
|
|
|
|
|
Thanos Bardas*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
7 |
5,406 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
23 |
3,946 |
1 |
134 |
|
|
|
|
|
Other Accounts** |
90 |
26,362 |
4 |
113 |
|
|
|
|
|
Ashok Bhatia*** |
|
|
|
|
Type of
Account |
Number
of Accounts Managed |
Total
Assets Managed
($ millions) |
Number of
Accounts Managed for which Advisory Fee
is Performance-Based |
Assets Managed
for which Advisory Fee is Performance-Based
($
millions) |
|
|
|
|
|
Registered Investment Companies* |
5 |
2,983 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
17 |
5,284 |
1 |
1,875 |
|
|
|
|
|
Other Accounts** |
40 |
3,668 |
- |
- |
|
|
|
|
|
David M. Brown***,
+
|
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
9
|
5,674 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
72
|
3,957 |
2 |
2,145 |
|
|
|
|
|
Other Accounts** |
122 |
36,345
|
2 |
150 |
|
|
|
|
|
Stephen Casey*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
4 |
258 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
62 |
16,514 |
19 |
8,174 |
|
|
|
|
|
Other Accounts** |
17 |
899 |
- |
- |
|
|
|
|
|
Russ Covode*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
6 |
2,318 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
23 |
10,306 |
- |
- |
|
|
|
|
|
Other Accounts** |
30 |
6,809 |
2 |
481 |
|
|
|
|
|
Daniel Doyle*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
6 |
2,336 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
21 |
9,881 |
- |
- |
|
|
|
|
|
Other Accounts** |
30 |
6,740 |
2 |
481 |
|
|
|
|
|
Rob Drijkoningen*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
7 |
1,424 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
29 |
17,497 |
1 |
285 |
|
|
|
|
|
Other Accounts** |
33 |
6,982 |
3 |
1,386 |
Type of
Account |
Number
of Accounts Managed |
Total
Assets Managed
($ millions) |
Number of
Accounts Managed for which Advisory Fee
is Performance-Based |
Assets Managed
for which Advisory Fee is Performance-Based
($
millions) |
|
|
|
|
|
Michael Foster*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
2 |
162 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
2 |
58 |
- |
- |
|
|
|
|
|
Other Accounts** |
65 |
6,655 |
- |
- |
|
|
|
|
|
Jennifer Gorgoll*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
3 |
1,324 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
14 |
10,426 |
- |
- |
|
|
|
|
|
Other Accounts** |
5 |
1,251 |
- |
- |
|
|
|
|
|
Jeffrey
Hunn***† |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
1 |
63 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
- |
- |
- |
- |
|
|
|
|
|
Other Accounts** |
123 |
212 |
- |
- |
|
|
|
|
|
James L. Iselin*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
6 |
1,109 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
- |
- |
- |
- |
|
|
|
|
|
Other Accounts** |
1,590 |
2,110 |
- |
- |
|
|
|
|
|
Vera Kartseva*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
3 |
1,324 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
6 |
2,280 |
- |
- |
|
|
|
|
|
Other Accounts** |
- |
- |
- |
- |
|
|
|
|
|
Christopher
Kocinski*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
5 |
2,267 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
23 |
7,657 |
- |
- |
|
|
|
|
|
Other Accounts** |
30 |
6,740 |
2 |
481 |
Type of
Account |
Number
of Accounts Managed |
Total
Assets Managed
($ millions) |
Number of
Accounts Managed for which Advisory Fee
is Performance-Based |
Assets Managed
for which Advisory Fee is Performance-Based
($
millions) |
|
|
|
|
|
Nathan Kush*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
3 |
2,100 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
10 |
1,252 |
- |
- |
|
|
|
|
|
Other Accounts** |
27 |
6,839 |
- |
- |
|
|
|
|
|
Joseph Lind*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
6 |
2,249 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
25 |
10,099 |
- |
- |
|
|
|
|
|
Other Accounts** |
32 |
6,846 |
2 |
481 |
|
|
|
|
|
Raoul Luttik*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
3 |
1,324 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
8 |
4,905 |
- |
- |
|
|
|
|
|
Other Accounts** |
11 |
2,516 |
- |
- |
|
|
|
|
|
James
Lyman***† |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
1 |
63 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
- |
- |
- |
- |
|
|
|
|
|
Other Accounts** |
- |
- |
- |
- |
|
|
|
|
|
Joseph Lynch*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
4 |
292 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
54 |
14,044 |
18 |
7,832 |
|
|
|
|
|
Other Accounts** |
19 |
1,379 |
- |
- |
|
|
|
|
|
Matthew McGinnis*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
2 |
162 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
1 |
19 |
- |
- |
|
|
|
|
|
Other Accounts** |
19 |
6,467 |
- |
- |
Type of
Account |
Number
of Accounts Managed |
Total
Assets Managed
($ millions) |
Number of
Accounts Managed for which Advisory Fee
is Performance-Based |
Assets Managed
for which Advisory Fee is Performance-Based
($
millions) |
|
|
|
|
|
S. Blake Miller*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
6 |
1,109 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
- |
- |
- |
- |
|
|
|
|
|
Other Accounts** |
120 |
859 |
- |
- |
|
|
|
|
|
Woolf Norman
Milner*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
2 |
265 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
6 |
875 |
- |
- |
|
|
|
|
|
Other Accounts** |
- |
- |
- |
- |
|
|
|
|
|
Eric Pelio*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
1 |
119 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
9 |
2,262 |
- |
- |
|
|
|
|
|
Other Accounts** |
103 |
382 |
- |
- |
|
|
|
|
|
Nish Popat*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
3 |
1,324 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
14 |
10,426 |
- |
- |
|
|
|
|
|
Other Accounts** |
9 |
1,320 |
- |
- |
|
|
|
|
|
Thomas Sontag*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
5 |
1,871 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
11 |
447 |
- |
- |
|
|
|
|
|
Other Accounts** |
69 |
4,424 |
- |
- |
Type of
Account |
Number
of Accounts Managed |
Total
Assets Managed
($ millions) |
Number of
Accounts Managed for which Advisory Fee
is Performance-Based |
Assets Managed
for which Advisory Fee is Performance-Based
($
millions) |
|
|
|
|
|
Brad Tank*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
7 |
5,244 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
17 |
5,310 |
1 |
1,875 |
|
|
|
|
|
Other Accounts** |
39 |
3,536 |
- |
- |
|
|
|
|
|
Gorky Urquieta*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
7 |
1,424 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
29 |
17,497 |
1 |
285 |
|
|
|
|
|
Other Accounts** |
33 |
6,982 |
3 |
1,386 |
|
|
|
|
|
Bart Van der Made*** |
|
|
|
|
|
|
|
|
|
Registered Investment Companies* |
7 |
1,459 |
- |
- |
|
|
|
|
|
Other Pooled Investment Vehicles |
19 |
14,127 |
- |
- |
|
|
|
|
|
Other Accounts** |
25 |
4,228 |
3 |
1,386 |
*
Registered Investment Companies include all funds managed by the Portfolio
Manager, including the Funds.
**
Other Accounts include: Institutional Separate Accounts, Sub-Advised Accounts,
and Managed Accounts (WRAP Accounts).
*** A portion of
certain accounts may be managed by other Portfolio Managers; however, the total
assets of such accounts are included even though the Portfolio Manager listed is
not involved in the day-to-day management of the entire account.
+ Information is as of
May 31, 2021.
Conflicts of Interest
Actual
or apparent conflicts of interest may arise when a Portfolio Manager has
day-to-day management responsibilities with respect to more than one Fund or
other account. The management of multiple funds and accounts (including
proprietary accounts) may give rise to actual or potential conflicts of interest
if the funds and accounts have different or similar objectives, benchmarks, time
horizons, and fees, as the Portfolio Manager must allocate his or her time and
investment ideas across multiple funds and accounts. The Portfolio Manager
may execute transactions for another fund or account that may adversely impact
the value of securities or instruments held by a Fund, and which may include
transactions that are directly contrary to the positions taken by a Fund.
For example, a Portfolio Manager may engage in short sales of securities or
instruments for another account that are the same type of securities or
instruments in which a Fund it manages also invests. In such a case, the
Portfolio Manager could be seen as harming the performance of the Fund for the
benefit of the account engaging in short sales if the short sales cause the
market value of the securities or instruments to fall. Additionally, if
a
Portfolio
Manager identifies a limited investment opportunity that may be suitable for
more than one fund or other account, a Fund may not be able to take full
advantage of that opportunity. There may also be regulatory limitations that
prevent a Fund from participating in a transaction that another account or fund
managed by the same Portfolio Manager will invest. For example, the 1940 Act
prohibits the Funds from participating in certain transactions with certain of
its affiliates and from participating in “joint” transactions alongside certain
of its affiliates. The prohibition on “joint” transactions may limit the ability
of the Funds to participate alongside its affiliates in privately negotiated
transactions unless the transaction is otherwise permitted under existing
regulatory guidance and may reduce the amount of privately negotiated
transactions that the Funds may participate. Further, the Manager may take an
investment position or action for a fund or account that may be different from,
inconsistent with, or have different rights than (e.g., voting rights, dividend
or repayment priorities or other features that may conflict with one another),
an action or position taken for one or more other funds or accounts, including a
Fund, having similar or different objectives. A conflict may also be
created by investing in different parts of an issuer’s capital structure (e.g.,
equity or debt, or different positions in the debt structure). Those
positions and actions may adversely impact, or in some instances benefit, one or
more affected accounts, including the funds. Potential conflicts may also
arise because portfolio decisions and related actions regarding a position held
for a fund or another account may not be in the best interests of a position
held by another fund or account having similar or different objectives. If one
account were to buy or sell portfolio securities or instruments shortly before
another account bought or sold the same securities or instruments, it could
affect the price paid or received by the second account. Securities
selected for funds or accounts other than a Fund may outperform the securities
selected for the Fund. Finally, a conflict of interest may arise if the
Manager and a Portfolio Manager have a financial incentive to favor one account
over another, such as a performance-based management fee that applies to one
account but not all funds or accounts for which the Portfolio Manager is
responsible. In the ordinary course of operations, certain businesses within the
Neuberger Berman organization (the “Firm”) will seek access to material
non-public information. For instance, NBIA portfolio managers may obtain
and utilize material non-public information in purchasing loans and other debt
instruments and certain privately placed or restricted equity instruments. From
time to time, NBIA portfolio managers will be offered the opportunity on behalf
of applicable clients to participate on a creditors or other similar committee
in connection with restructuring or other “work-out” activity, which
participation could provide access to material non-public information. The
Firm maintains procedures that address the process by which material non-public
information may be acquired intentionally by the Firm. When considering whether
to acquire material non-public information, the Firm will attempt to balance the
interests of all clients, taking into consideration relevant factors, including
the extent of the prohibition on trading that would occur, the size of the
Firm’s existing position in the issuer, if any, and the value of the information
as it relates to the investment decision-making process. The acquisition of
material non-public information would likely give rise to a conflict of interest
since the Firm may be prohibited from rendering investment advice to clients
regarding the securities or instruments of such issuer and thereby potentially
limiting the universe of securities or instruments that the Firm, including a
Fund, may purchase or potentially limiting the ability of the Firm, including a
Fund, to sell such securities or instruments. Similarly, where the Firm declines
access to (or otherwise does not receive or share within the Firm) material
non-public information regarding an issuer, the portfolio managers could
potentially base investment decisions with respect to assets of such issuer
solely on public information, thereby limiting the amount of
information
available to the portfolio managers in connection with such investment
decisions. In determining whether or not to elect to receive material non-public
information, the Firm will endeavor to act fairly to its clients as a whole. The
Firm reserves the right to decline access to material non-public information,
including declining to join a creditors or similar committee.
NBIA,
NBEL and each Fund have adopted certain compliance procedures which are designed
to address these types of conflicts. However, there is no guarantee that such
procedures will detect each and every situation in which a conflict
arises.
Compensation of Portfolio
Managers
Our
compensation philosophy is one that focuses on rewarding performance and
incentivizing our employees. We are also focused on creating a compensation
process that we believe is fair, transparent, and competitive with the
market.
Compensation
for Portfolio Managers consists of fixed (salary) and variable (bonus)
compensation but is more heavily weighted on the variable portion of total
compensation and is paid from a team compensation pool made available to the
portfolio management team with which the Portfolio Manager is associated.
The size of the team compensation pool is determined based on a formula that
takes into consideration a number of factors including the pre-tax revenue that
is generated by that particular portfolio management team, less certain
adjustments. The bonus portion of the compensation is discretionary and is
determined on the basis of a variety of criteria, including investment
performance (including the aggregate multi-year track record), utilization of
central resources (including research, sales and operations/support), business
building to further the longer term sustainable success of the investment team,
effective team/people management, and overall contribution to the success of
Neuberger Berman. Certain Portfolio Managers may manage products other than
mutual funds, such as high net worth separate accounts. For the management of
these accounts, a Portfolio Manager may generally receive a percentage of
pre-tax revenue determined on a monthly basis less certain deductions. The
percentage of revenue a Portfolio Manager receives pursuant to this arrangement
will vary based on certain revenue thresholds.
The
terms of our long-term retention incentives are as follows:
Employee-Owned Equity. Certain employees
(primarily senior leadership and investment professionals) participate in
Neuberger Berman’s equity ownership structure, which was designed to incentivize
and retain key personnel. In addition, in prior years certain employees may have
elected to have a portion of their compensation delivered in the form of equity.
We also offer an equity acquisition program which allows employees a more direct
opportunity to invest in Neuberger Berman.
For
confidentiality and privacy reasons, we cannot disclose individual equity
holdings or program participation.
Contingent Compensation. Certain employees may
participate in the Neuberger Berman Group Contingent Compensation Plan (the
“CCP”) to serve as a means to further align the interests of our employees with
the success of the firm and the interests of our clients, and to reward
continued
employment. Under the CCP, up to 20% of a participant’s annual total
compensation in excess of $500,000 is contingent and subject to vesting. The
contingent amounts are maintained in a notional account that is tied to the
performance of a portfolio of Neuberger Berman investment strategies as
specified by the firm on an employee-by-employee basis. By having a
participant’s contingent compensation tied to Neuberger Berman investment
strategies, each employee is given further incentive to operate as a prudent
risk manager and to collaborate with colleagues to maximize performance across
all business areas. In the case of members of investment teams, including
Portfolio Managers, the CCP is currently structured so that such employees have
exposure to the investment strategies of their respective teams as well as the
broader Neuberger Berman portfolio.
Restrictive Covenants. Most investment
professionals, including Portfolio Managers, are subject to notice periods and
restrictive covenants which include employee and client non-solicit restrictions
as well as restrictions on the use of confidential information. In addition,
depending on participation levels, certain senior professionals who have
received equity grants have also agreed to additional notice and transition
periods and, in some cases, non-compete restrictions. For confidentiality and
privacy reasons, we cannot disclose individual restrictive covenant
arrangements.
Ownership of Securities
Set
forth below is the dollar range of equity securities beneficially owned by each
Portfolio Manager in the Fund(s) that the Portfolio Manager manages, as of
October 31, 2020, unless otherwise indicated. Beneficial ownership
includes a Portfolio Manager’s direct investments, investments by immediate
family members, and notional amounts invested through contingent compensation
plans.
Portfolio
Manager |
Fund(s)
Managed |
Dollar Range
of Equity Securities Owned in the Fund |
Thanos Bardas |
Neuberger Berman Core Bond Fund |
E |
|
Neuberger Berman Strategic Income Fund |
E |
Ashok Bhatia |
Neuberger Berman Strategic Income Fund |
E |
David M.
Brown |
Neuberger Berman Core Bond Fund |
D |
|
Neuberger Berman Short Duration Bond Fund |
A |
|
Neuberger
Berman Strategic Income Fund
|
G
|
Stephen Casey |
Neuberger Berman Floating Rate Income Fund |
D |
Russ Covode |
Neuberger Berman High Income Bond Fund |
D |
Daniel Doyle |
Neuberger Berman High Income Bond Fund |
C |
Rob
Drijkoningen |
Neuberger Berman Emerging Markets
Debt Fund |
F |
Michael
Foster |
Neuberger Berman Short Duration Bond Fund |
C |
Jennifer
Gorgoll |
Neuberger Berman Emerging Markets
Debt Fund |
D |
Portfolio
Manager |
Fund(s)
Managed |
Dollar Range
of Equity Securities Owned in the Fund |
Jeffrey Hunn |
Neuberger Berman Municipal
Impact Fund |
A |
James L.
Iselin |
Neuberger Berman Municipal High
Income Fund |
E |
|
Neuberger Berman Municipal Impact Fund |
C |
|
Neuberger Berman Municipal
Intermediate Bond Fund |
C |
Vera Kartseva |
Neuberger Berman Emerging Markets
Debt Fund |
A |
Christopher
Kocinski |
Neuberger Berman High Income
Bond Fund |
E |
Nathan Kush |
Neuberger Berman Core Bond
Fund |
C |
Joseph Lind |
Neuberger Berman High Income
Bond Fund |
E |
Raoul Luttik |
Neuberger Berman Emerging Markets
Debt Fund |
E |
James Lyman |
Neuberger Berman Municipal Impact
Fund |
A |
Joseph Lynch |
Neuberger Berman Floating Rate Income Fund |
E |
Matthew
McGinnis |
Neuberger Berman Short Duration Bond Fund |
A |
S. Blake
Miller |
Neuberger Berman Municipal High Income Fund |
C |
|
Neuberger Berman Municipal Impact |
C |
|
Neuberger Berman Municipal Intermediate Bond Fund |
C |
Woolf Norman Milner |
Neuberger Berman Short Duration Bond Fund |
A |
Eric Pelio |
Neuberger Berman Municipal High Income Fund |
B |
Nish Popat |
Neuberger Berman Emerging Markets Debt Fund |
D |
Thomas Sontag |
Neuberger Berman Short Duration Bond Fund |
G |
Brad Tank |
Neuberger Berman Core Bond Fund |
E |
|
Neuberger Berman Strategic Income Fund |
E |
Gorky
Urquieta |
Neuberger Berman Emerging Markets
Debt Fund |
G |
Bart Van der Made |
Neuberger Berman Emerging Markets
Debt Fund |
E |
*Information is as of
May 31, 2021.
A = None; B =
$1-$10,000; C = $10,001 - $50,000; D = $50,001-$100,000
E = $100,001 -
$500,000; F = $500,001 - $1,000,000; G = Over $1,000,001
The
investment decisions concerning the Funds and the other registered investment
companies managed by NBIA and/or NBEL (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 Funds. Even
where the investment objectives are similar, however, the methods used by the
Other NB Funds and the Funds to achieve their objectives may differ. The
investment results achieved by all of the registered investment companies
managed by NBIA and NBEL have varied from one another in the past and are likely
to vary in the future. In addition, NBIA or its affiliates may manage one
or more Other NB Funds or other accounts with similar investment objectives and
strategies as the Funds that may have risks that are greater or less than the
Funds.
There
may be occasions when a Fund and one or more of the Other NB Funds or other
accounts managed by NBIA or NBEL are contemporaneously engaged in purchasing or
selling the same securities from or to third parties. When this occurs, the
transactions may be aggregated to obtain favorable execution to the extent
permitted by applicable law and regulations. The transactions will be
allocated according to one or more methods designed to ensure that the
allocation is equitable to the funds and accounts involved. Although in some
cases this arrangement may have a detrimental effect on the price or volume of
the securities as to a Fund, in other cases it is believed that a Fund’s ability
to participate in volume transactions may produce better executions for it. In
any case, it is the judgment of the Fund Trustees that the desirability of a
Fund having its advisory arrangements with NBIA and, as applicable, NBEL
outweighs any disadvantages that may result from contemporaneous
transactions.
The
Funds are subject to certain limitations imposed on all advisory clients of NBIA
or NBEL (including the Funds, the Other NB Funds, and other managed funds or
accounts) and personnel of NBIA or NBEL and their affiliates. These include, for
example, limits that may be imposed in certain industries or by certain
companies, and policies of NBIA or NBEL that limit the aggregate purchases, by
all accounts under management, of the outstanding shares of public
companies.
The
Funds, NBIA, and NBEL have personal securities trading policies that restrict
the personal securities transactions of employees, officers, and Fund Trustees.
Their primary purpose is to ensure that personal trading by these individuals
does not disadvantage any fund managed by NBIA. The Funds’ Portfolio Managers
and other investment personnel who comply with the policies’ preclearance and
disclosure procedures may be permitted to purchase, sell or hold certain types
of securities which also may be or are held in the funds they advise, but are
restricted from trading in close conjunction with their funds or taking personal
advantage of investment opportunities that may belong to the funds. Text-only
versions of the Codes of Ethics can be viewed online or downloaded from the
EDGAR Database on the SEC’s internet web site at www.sec.gov.
NBIA
and NBEL are indirect subsidiaries of Neuberger Berman Group LLC (“NBG”).
The directors, officers and/or employees of NBIA who are deemed “control
persons” are: Joseph Amato and Brad Tank. Mr. Amato is a Trustee of the Trust.
The directors, officers and/or employees of NBEL who are deemed “control
persons,” all of whom have offices at the same address as NBEL, are: Dik Van
Lomwel, Joseph Amato and Heather Zuckerman.
NBG’s
voting equity is owned by NBSH Acquisition, LLC (“NBSH”). NBSH is owned by
portfolio managers, members of the NBG's management team, and certain of NBG's
key employees and senior professionals.
Each
Fund offers the classes of shares shown below:
Fund |
Investor Class |
Trust Class |
Institutional Class |
Class A |
Class C |
Class R3 |
Class R6 |
Class E |
Core Bond Fund |
X |
|
X |
X |
X |
|
X |
|
Emerging Markets Debt
Fund |
|
|
X |
X |
X |
|
|
|
Floating Rate Income
Fund |
|
|
X |
X |
X |
|
|
|
High Income Bond Fund |
X |
|
X |
X |
X |
X |
X |
X |
Municipal High Income
Fund |
|
|
X |
X |
X |
|
|
|
Municipal
Impact Fund |
|
|
X |
X |
X |
|
|
|
Municipal Intermediate Bond
Fund |
X |
|
X |
X |
X |
|
|
|
Short Duration Bond
Fund |
X |
X |
X |
X |
X |
|
X |
|
Strategic Income Fund |
|
X |
X |
X |
X |
|
X |
|
Neuberger
Berman BD LLC (“Neuberger Berman” or the “Distributor”) serves as the
distributor in connection with the continuous offering of each Fund’s shares.
Investor Class, Trust Class, Institutional Class, Class R6, and Class E
shares are offered on a no-load basis. As described in the Funds’
Prospectuses, certain classes are available only through investment providers
(“Institutions”) that have made arrangements with the Distributor and/or NBIA
for shareholder servicing and administration and/or entered into selling
agreements with the Distributor and/or NBIA.
In
connection with the sale of its shares, each Fund has authorized the Distributor
to give only the information, and to make only the statements and
representations, contained in the Prospectuses 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 a Prospectus, which may be delivered personally, through the
mails, or by electronic means. The Distributor is the Funds’ “principal
underwriter”
within
the meaning of the 1940 Act. It acts as agent in arranging for the sale of
Investor Class shares of Neuberger Berman Core
Bond Fund, Neuberger Berman High Income
Bond Fund, Neuberger Berman Municipal
Intermediate Bond Fund and Neuberger Berman Short Duration Bond Fund, Institutional Class
shares of each Fund, Trust Class shares of Neuberger Berman Strategic Income Fund, and Class R6 shares of
Neuberger Berman Core Bond Fund,
Neuberger Berman High Income Bond Fund,
Neuberger Berman Short Duration Bond Fund
and Neuberger Berman Strategic Income
Fund without sales commission or other compensation and either it or its
affiliates bear all advertising and promotion expenses incurred in the sale of
those shares. The Distributor also acts as agent in arranging for the sale of
Class A and Class C shares of each Fund offering Class A and Class C shares,
Trust Class shares of Neuberger Berman Short
Duration Bond Fund, and Class R3 and Class E shares of Neuberger Berman
High Income Bond Fund, to Institutions
and either it or its affiliates bear all advertising and promotion expenses
incurred in the sale of those shares. However, for Class A shares, the
Distributor receives commission revenue consisting of the portion of the Class A
sales charge remaining after the allowances by the Distributor to
Institutions. For Class C shares, the Distributor receives any contingent
deferred sales charges that apply during the first year after purchase. A
Fund pays the Distributor for advancing the immediate service fees and
commissions paid to qualified Institutions in connection with Class C
shares.
Sales
charge revenues collected and retained by the Distributor for the past three
fiscal years are shown in the following table.
|
|
Sales Charge
Revenue |
Deferred Sales
Charge Revenue |
Fund |
Fiscal
Year Ended
October 31, |
Amount
Paid to Distributor |
Amount Retained
by Distributor |
Amount
Paid to Distributor |
Amount Retained
by Distributor |
Core
Bond
Fund –
Class A |
2020 |
$17,077 |
$1,909 |
- |
- |
|
2019 |
$2,129 |
$155 |
- |
- |
|
2018 |
$889 |
$44 |
- |
- |
Core
Bond
Fund –
Class C |
2020 |
- |
- |
- |
- |
|
2019 |
- |
- |
$416 |
- |
|
2018 |
- |
- |
$128 |
- |
Emerging
Markets
Debt
Fund –
Class A |
2020 |
$1,500 |
$100 |
- |
- |
|
2019 |
$3,795 |
$289 |
- |
- |
|
2018 |
$3,717 |
$244 |
- |
- |
Emerging
Markets
Debt
Fund –
Class C |
2020 |
- |
- |
$467 |
- |
|
2019 |
- |
- |
- |
- |
|
2018 |
- |
- |
$121 |
- |
|
|
Sales Charge
Revenue |
Deferred Sales
Charge Revenue |
Fund |
Fiscal
Year Ended
October 31, |
Amount
Paid to Distributor |
Amount Retained
by Distributor |
Amount
Paid to Distributor |
Amount Retained
by Distributor |
Floating
Rate
Income
Fund –
Class A |
2020 |
$4,194 |
$2,360 |
- |
- |
|
2019 |
$444 |
$396 |
- |
- |
|
2018 |
$2,111 |
$303 |
- |
- |
Floating Rate
Income
Fund –
Class C |
2020 |
- |
- |
84 |
- |
|
2019 |
- |
- |
$567 |
- |
|
2018 |
- |
- |
$155 |
- |
High Income
Bond Fund –
Class A |
2020 |
$26,678 |
$2,226 |
- |
- |
|
2019 |
$2,724 |
$219 |
- |
- |
|
2018 |
$4,617 |
$361 |
- |
- |
High Income
Bond
Fund –
Class C |
2020 |
- |
- |
$204 |
- |
|
2019 |
- |
- |
$1,436 |
- |
|
2018 |
- |
- |
$204 |
- |
Municipal
High
Income Fund -- Class
A |
2020 |
$69 |
$69 |
- |
- |
|
2019 |
$18,213 |
$817 |
- |
- |
|
2018 |
$13,878 |
$715 |
- |
- |
Municipal
High Income Fund --
Class C |
2020 |
- |
- |
$100 |
- |
|
2019 |
- |
- |
$1,753 |
- |
|
2018 |
- |
- |
$2500 |
- |
Municipal
Impact
Fund --
Class A |
2020 |
- |
- |
- |
- |
|
2019 |
$1,900 |
$115 |
- |
- |
|
2018* |
- |
- |
- |
- |
Municipal
Impact
Fund --
Class C |
2020 |
- |
- |
- |
- |
|
2019 |
- |
- |
- |
- |
|
2018* |
- |
- |
- |
- |
|
|
Sales Charge
Revenue |
Deferred Sales
Charge Revenue |
Fund |
Fiscal
Year Ended
October 31, |
Amount
Paid to Distributor |
Amount Retained
by Distributor |
Amount
Paid to Distributor |
Amount Retained
by Distributor |
Municipal
Intermediate
Bond Fund – Class A |
2020 |
$4,506 |
$369 |
- |
- |
|
2019 |
- |
- |
- |
- |
|
2018 |
$4,799 |
$375 |
- |
- |
Municipal
Intermediate Bond
Fund –
Class C |
2020 |
- |
- |
- |
- |
|
2019 |
- |
- |
$1,818 |
- |
|
2018 |
- |
- |
- |
- |
Short Duration
Bond Fund –
Class A |
2020 |
$4,480 |
$692 |
- |
- |
|
2019 |
$1,757 |
$393 |
- |
- |
|
2018 |
$2,617 |
$367 |
- |
- |
Short Duration Bond
Fund – Class C |
2020 |
- |
- |
391 |
- |
|
2019 |
- |
- |
- |
- |
|
2018 |
- |
- |
- |
- |
|
2018 |
- |
- |
- |
- |
Strategic Income Fund – Class A |
2020 |
$131,559 |
$20,955 |
- |
- |
|
2019 |
$312,943 |
$32,909 |
- |
- |
|
2018 |
$170,922 |
$11,462 |
- |
- |
Strategic
Income Fund –
Class C |
2020 |
- |
- |
$16,308 |
- |
|
2019 |
- |
- |
$29,691 |
- |
|
2018 |
- |
- |
$11,410 |
- |
* Fiscal period from
June 19, 2018 (commencement of operations of Class A and Class C of Neuberger
Berman Municipal Impact Fund) to October
31, 2018.
For
each Fund that offers a Class that is sold directly to investors, the
Distributor or one of its affiliates may, from time to time, deem it desirable
to offer to shareholders of the Fund, through use of its shareholder list, the
shares of other mutual funds for which the Distributor acts as distributor or
other products or services. Any such use of the Funds’ shareholder lists,
however,
will
be made subject to terms and conditions, if any, approved by a majority of the
Independent Fund Trustees. These lists will not be used to offer the Funds’
shareholders any investment products or services other than those managed by
NBIA or distributed by the Distributor.
From
time to time, the Distributor and/or NBIA and/or their affiliates may enter into
arrangements pursuant to which it compensates a registered broker-dealer or
other third party for services in connection with the distribution of Fund
shares.
The
Trust, on behalf of each Fund, and the Distributor are parties to (i)
Distribution Agreements with respect to Investor Class of each Fund offering
Investor Class (except Neuberger Berman Core
Bond Fund), Trust Class of Neuberger Berman Short Duration Bond Fund, Institutional Class of each Fund,
and Class R6 shares of Neuberger Berman Core
Bond Fund, Neuberger Berman High Income
Bond Fund, Neuberger Berman Short
Duration Bond Fund and Neuberger Berman Strategic Income Fund, and (ii) Distribution
and Services Agreements with respect to Investor Class of Neuberger Berman Core Bond Fund, Trust Class of Neuberger Berman
Strategic Income Fund, Class A and Class
C of each Fund offering Class A and Class C, and Class R3 and Class E of
Neuberger Berman High Income Bond Fund (collectively, the “Distribution
Agreements”). The Distribution Agreements continue until October 31, 2021.
The Distribution Agreements may be renewed annually with respect to a Fund if
specifically approved by (1) the vote of a majority of the Independent Fund
Trustees, and (2) the vote of a majority of the Fund Trustees or a 1940 Act
majority vote of the outstanding shares of that Fund. The Distribution
Agreements may be terminated by either party and will terminate automatically on
their assignment, in the same manner as each Management Agreement.
The
Distributor and/or NBIA and/or their affiliates may pay additional compensation
and/or provide incentives (out of their own resources and not as an expense of
the Funds) to certain brokers, dealers, or other financial intermediaries
(“Financial Intermediaries”) in connection with the sale, distribution,
retention and/or servicing of Fund shares. Neuberger Berman does not provide
ongoing payments to third parties for any record-keeping or administrative
services in connection with investments in Class R6 shares.
Such
payments (often referred to as revenue sharing payments) are intended to provide
additional compensation to Financial Intermediaries for various services,
including without limitation, participating in joint advertising with a
Financial Intermediary, granting the Distributor’s and/or NBIA’s and/or their
affiliates’ personnel reasonable access to a Financial Intermediary’s financial
advisers and consultants, and allowing the Distributor’s and/or NBIA’s and/or
their affiliates’ personnel to attend conferences. The Distributor and/or
NBIA and/or their affiliates may make other payments or allow other promotional
incentives to Financial Intermediaries to the extent permitted by SEC and FINRA
rules and by other applicable laws and regulations.
In
addition, the Distributor and/or NBIA and/or their affiliates may pay for:
placing the Funds on the Financial Intermediary’s sales system, preferred or
recommended fund list, providing periodic and ongoing education and training of
Financial Intermediary personnel regarding the Funds; disseminating to Financial
Intermediary personnel information and product marketing
materials
regarding the Funds; explaining to clients the features and characteristics of
the Funds; conducting due diligence regarding the Funds; providing reasonable
access to sales meetings, sales representatives and management representatives
of a Financial Intermediary; and furnishing marketing support and other
services. Additional compensation also may include non-cash compensation,
financial assistance to Financial Intermediaries in connection with conferences,
seminars for the public and advertising campaigns, technical and systems support
and reimbursement of ticket charges (fees that a Financial Intermediary charges
its representatives for effecting transactions in Fund shares) and other similar
charges.
The
level of such payments made to Financial Intermediaries may be a fixed fee or
based upon one or more of the following factors: reputation in the industry,
ability to attract and retain assets, target markets, customer relationships,
quality of service, actual or expected sales, current assets and/or number of
accounts of the Fund attributable to the Financial Intermediary, the particular
Fund or fund type or other measures as agreed to by the Distributor and/or NBIA
and/or their affiliates and the Financial Intermediaries or any
combination thereof. The amount of these payments is
determined at the discretion of the Distributor and/or NBIA and/or their
affiliates from time to time, may be substantial, and may be different for
different Financial Intermediaries based on, for example, the
nature of the services provided by the Financial Intermediary.
Receipt
of, or the prospect of receiving, this additional compensation, may influence a
Financial Intermediary’s recommendation of the Funds or of any particular share
class of the Funds. These payment arrangements, however, will not change
the price that an investor pays for Fund shares or the amount that a Fund
receives to invest on behalf of an investor and will not increase Fund
expenses. You should review your Financial Intermediary’s compensation
disclosure and/or talk to your Financial Intermediary to obtain more information
on how this compensation may have influenced your Financial Intermediary’s
recommendation of a Fund.
In
addition to the compensation described above, the Funds and/or the Distributor
and/or NBIA and/or their affiliates may pay fees to Financial Intermediaries and
their affiliated persons for maintaining Fund share balances and/or for
subaccounting, administrative or transaction processing services related to the
maintenance of accounts for retirement and benefit plans and other omnibus
accounts (“subaccounting fees”). Such subaccounting fees paid by the Funds
may differ depending on the Fund and are designed to be equal to or less than
the fees the Funds would pay to their transfer agent for similar services.
Because some subaccounting fees are directly related to the number of accounts
and assets for which a Financial Intermediary provides services, these fees will
increase with the success of the Financial Intermediary’s sales
activities.
The
Distributor and NBIA and their affiliates are motivated to make the payments
described above since they promote the sale of Fund shares and the retention of
those investments by clients of Financial Intermediaries. To the extent
Financial Intermediaries sell more shares of the Funds or retain shares of the
Funds in their clients’ accounts, NBIA and/or its affiliates benefit from the
incremental management and other fees paid to NBIA and/or its affiliates by the
Funds with respect to those assets.
The
Trust, on behalf of each Fund, has adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act (“Plan”) with respect to Class A of each Fund.
The Plan provides that Class A of each Fund will compensate the Distributor for
administrative and other services provided to Class A of the Fund, its
activities and expenses related to the sale and distribution of Class A shares,
and ongoing services to investors in Class A of the Fund. Under the Plan, the
Distributor receives from Class A of each Fund a fee at the annual rate of 0.25%
of that Class’s average daily net assets. The Distributor may pay up to the full
amount of this fee to Institutions that make available Class A shares
and/or provide services to Class A and its shareholders. The fee paid to an
Institution is based on the level of such services provided. Institutions may
use the payments for, among other purposes, compensating employees engaged in
sales and/or shareholder servicing. The amount of fees paid by Class A of each
Fund during any year may be more or less than the cost of distribution and other
services provided to that class of the Fund and its investors. FINRA rules limit
the amount of annual distribution and service fees that may be paid by a mutual
fund and impose a ceiling on the cumulative distribution fees paid. Class A’s
Plan complies with these rules.
The
table below sets forth the total amount of fees accrued for Class A of the Funds
indicated below:
Class A |
Fiscal Years Ended October
31, |
|
2020 |
2019 |
2018 |
Core
Bond Fund |
$48,517 |
$48,401 |
$51,842 |
Emerging Markets Debt
Fund |
$5,485 |
$17,535 |
$16,626 |
Floating
Rate Income Fund |
$14,897 |
$23,036 |
$47,796 |
High
Income Bond Fund |
$48,941 |
$82,986 |
$134,105 |
Municipal
High Income Fund |
$2,302 |
$2,600 |
$1,339 |
Municipal
Impact Fund |
$198 |
$142 |
$23* |
Municipal
Intermediate Bond Fund |
$5,020 |
$9,963 |
$17,045 |
Short
Duration Bond Fund |
$2,532 |
$4,235 |
$5,183 |
Strategic
Income Fund |
$284,961 |
$287,877 |
$441,808 |
*
Fiscal period from June 19, 2018 (commencement of operations of Class A of
Neuberger Berman Municipal Impact Fund) to October 31, 2018.
The
Trust, on behalf of the Fund, has also adopted a Plan with respect to Class C of
each Fund offering Class C shares. The Plan provides that Class C of each
Fund will compensate the Distributor for administrative and other services
provided to Class C of the Fund, its activities and
expenses
related to the sale and distribution of Class C shares, and ongoing services to
investors in Class C of the Fund. Under the Plan, the Distributor receives from
Class C of each Fund a fee at the annual rate of 1.00% of that Class’s average
daily net assets, of which 0.75% is a distribution fee and 0.25% is a service
fee. The Distributor may pay up to the full amount of this fee to Institutions
that make available Class C shares and/or provide services to Class C and its
shareholders. The fee paid to an Institution is based on the level of such
services provided. Institutions may use the payments for, among other purposes,
compensating employees engaged in sales and/or shareholder servicing. The amount
of fees paid by Class C of each Fund during any year may be more or less than
the cost of distribution and other services provided to that class of the Fund
and its investors. FINRA rules limit the amount of annual distribution and
service fees that may be paid by a mutual fund and impose a ceiling on the
cumulative distribution fees paid. Class C’s Plan complies with these
rules.
The
table below sets forth the total amount of fees accrued for Class C of the Funds
indicated below:
Class C |
Fiscal Years Ended October
31, |
|
2020 |
2019 |
2018 |
Core
Bond Fund |
$22,730 |
$22,412 |
$27,676 |
Emerging Markets Debt
Fund |
$4,837 |
$4,048 |
$5,512 |
Floating
Rate Income Fund |
$88,449 |
$140,735 |
$180,192 |
High
Income Bond Fund |
$93,824 |
$140,261 |
$192,293 |
Municipal
High Income Fund |
$4,460 |
$5,486 |
$4,729 |
Municipal
Impact Fund |
$326 |
$256 |
$92* |
Municipal
Intermediate Bond Fund |
$24,452 |
$30,170 |
$32,298 |
Short
Duration Bond Fund |
$17,722 |
$13,579 |
$13,802 |
Strategic
Income Fund |
$881,576 |
$1,096,625 |
$1,372,648 |
*
Fiscal period from June 19, 2018 (commencement of operations of Class C of
Neuberger Berman Municipal Impact Fund) to October 31, 2018.
The
Trust, on behalf of Neuberger Berman Core
Bond Fund, has also adopted a Plan with respect to the Investor Class of
the Fund. The Plan provides that the
Investor Class of the Fund will compensate the Distributor for administrative
and other services provided to the Investor Class of the Fund, its activities
and expenses related to the sale and distribution of Investor Class shares, and
ongoing services to investors in the Investor Class of the Fund. Under the Plan,
the Distributor receives from the Investor Class of the Fund a fee at the annual
rate of 0.25% of that Class’ average daily net assets. The Distributor may
pay up to the full amount of this fee to Institutions that make available Investor Class
shares and/or provide services to the Investor Class and its shareholders.
The fee paid to an Institution is based on the level of
such services provided. Institutions may use the payments for, among
other purposes, compensating employees engaged in sales and/or shareholder
servicing. The amount of fees paid by the Investor
Class of the Fund during any year may be more or less than the cost of
distribution and other services provided to that class of the Fund and its investors. FINRA rules limit the amount of
annual distribution and service fees that may be paid by a mutual fund and
impose a ceiling on the cumulative distribution fees paid. The Investor
Class’ Plan complies with these rules.
The
table below sets forth the total amount of fees accrued for the Investor Class
of Neuberger Berman Core Bond Fund:
Investor Class |
Fiscal Years Ended October
31, |
|
2020 |
2019 |
2018 |
Core Bond
Fund |
$31,717 |
$26,147 |
$25,723 |
The
Trust, on behalf of Neuberger Berman Strategic
Income Fund, has also adopted a Plan with respect to the Trust Class of
the Fund. The Plan provides that the Trust Class of the Fund will
compensate the Distributor for administrative and other services provided to the
Trust Class of the Fund, its activities and expenses related to the sale and
distribution of Trust Class shares, and ongoing services to investors in the
Trust Class of the Fund. Under the Plan, the Distributor receives from the Trust
Class of the Fund a fee at the annual rate of 0.10% of that Class’s average
daily net assets. The Distributor may pay up to the full amount of this fee to Institutions that make available Trust
Class shares and/or provide services to the Trust Class and its shareholders.
The fee paid to an Institution is based on the level of such services provided.
Institutions may use the payments for, among other purposes, compensating
employees engaged in sales and/or shareholder servicing. The amount of fees paid
by the Trust Class of the Fund during any year may be more or less than the cost
of distribution and other services provided to that class of the Fund and its
investors. FINRA rules limit the amount of annual distribution and service fees
that may be paid by a mutual fund and impose a ceiling on the cumulative
distribution fees paid. The Trust Class’ Plan complies with these rules.
The
table below sets forth the total amount of fees accrued for the Trust Class of
Neuberger Berman Strategic Income
Fund:
Trust Class |
Fiscal Years Ended October
31, |
|
2020 |
2019 |
2018 |
Strategic Income Fund |
$8,988 |
$10,596 |
$18,040 |
The
Trust, on behalf of Neuberger Berman High Income
Bond Fund, has also adopted a Plan with respect to Class R3 of the
Fund. The Plan provides that Class R3 of the Fund will compensate the
Distributor for administrative and other services provided to Class R3 of the
Fund,
its
activities and expenses related to the sale and distribution of Class R3 shares,
and ongoing services to investors in Class R3 of the Fund. Under the Plan, the
Distributor receives from Class R3 of the Fund a fee at the annual rate of 0.50%
of that Class’s average daily net assets, of which 0.25% is a distribution fee
and 0.25% is a service fee. The Distributor may pay up to the full amount
of this fee to Institutions that make
available Class R3 shares and/or provide services to Class R3 and its
shareholders. The fee paid to an Institution is based on the level of such
services provided. Institutions may use the payments for, among other purposes,
compensating employees engaged in sales and/or shareholder servicing. The amount
of fees paid by Class R3 of the Fund during any year may be more or less than
the cost of distribution and other services provided to that class of the Fund
and its investors. FINRA rules limit the amount of annual distribution and
service fees that may be paid by a mutual fund and impose a ceiling on the
cumulative distribution fees paid. Class R3’s plan complies with these
rules.
The
table below sets forth the total amount of fees accrued for Class R3 of
Neuberger Berman High Income Bond
Fund:
Class R3 |
Fiscal Years Ended October
31, |
|
2020 |
2019 |
2018 |
High Income Bond Fund |
$10,047 |
$20,092 |
$51,969 |
Each
Plan requires that the Distributor provide the Fund Trustees for their review a
quarterly written report identifying the amounts expended by each Class and the
purposes for which such expenditures were made.
Prior
to approving the Plans, the Fund Trustees considered various factors relating to
the implementation of each Plan and determined that there is a reasonable
likelihood that the Plans will benefit the applicable Classes of the Funds and
their shareholders. To the extent the Plans allow the Funds to penetrate markets
to which they would not otherwise have access, the Plans may result in
additional sales of Fund shares; this, in turn, may enable the Funds to achieve
economies of scale that could reduce expenses. In addition, certain on-going
shareholder services may be provided more effectively by Institutions with which
shareholders have an existing relationship.
Each
Plan is renewable from year to year with respect to a Class of a Fund, so long
as its continuance is approved at least annually (1) by the vote of a
majority of the Fund Trustees and (2) by a vote of the majority of those
Independent Fund Trustees who have no direct or indirect financial interest in
the Distribution Agreement or the Plans pursuant to Rule 12b-1 under the 1940
Act (“Rule 12b-1 Trustees”). A Plan may not be amended to increase materially
the amount of fees paid by any Class of any Fund thereunder unless such
amendment is approved by a 1940 Act majority vote of the outstanding shares of
the Class and by the Fund Trustees in the manner described above. A Plan is
terminable with respect to a Class of a Fund at any time by a vote of a majority
of the Rule 12b‑1 Trustees or by a 1940 Act majority vote of the outstanding
shares in the Class.
From
time to time, one or more of the Funds may be closed to new investors. Because
the Plans pay for ongoing shareholder and account services, the Board may
determine that it is appropriate for a Fund to continue paying a 12b-1 fee, even
though the Fund is closed to new investors.
Each
Fund’s shares are bought or sold at the offering price or at a price that is the
Fund’s NAV per share. The NAV for each Class of a Fund is calculated by
subtracting total liabilities of that Class from total assets attributable to
that Class (the market value of the securities the Fund holds plus cash and
other assets). Each Fund’s per share NAV is calculated by dividing its NAV by
the number of Fund shares outstanding attributable to that Class and rounding
the result to the nearest full cent.
Each
Fund normally calculates its NAV on each day the Exchange is open once
daily as of 4:00 P.M., Eastern time. Because the value of a Fund's portfolio
securities changes every business day, its share price usually changes as
well. In the event of an emergency or other disruption in trading on the
Exchange, a Fund’s share price would still normally be determined as of 4:00
P.M., Eastern time. The Exchange is generally closed on all national holidays
and Good Friday; Fund shares will not be priced on those days or other days on
which the Exchange is scheduled to be closed. When the Exchange is closed for
unusual reasons, Fund shares will generally not be priced although a Fund may
decide to remain open and in such a case, the Fund would post a notice on
www.nb.com.
A
Fund generally values its investments based upon their last reported sale
prices, market quotations, or estimates of value provided by an independent
pricing service as of the time as of which the Fund’s share price is
calculated.
A
Fund uses one or more independent pricing services approved by the Board of
Trustees to value its debt portfolio securities and other instruments, including
certain derivative instruments that do not trade on an exchange. Valuations of
debt securities and other instruments provided by an independent pricing service
are based on readily available bid quotations or, if quotations are not readily
available, by methods that include considerations such as: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Valuations of derivatives
that do not trade on an exchange provided by an independent pricing service are
based on market data about the underlying investments. 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, unless other
factors indicate that this method does not provide an accurate estimate of the
short-term security’s value.
A
Fund uses one or more independent pricing services approved by the Board of
Trustees to value its equity portfolio securities (including exchange-traded
derivative instruments and securities issued by ETFs). An independent pricing
service values equity portfolio securities (including exchange-traded derivative
instruments and securities issued by ETFs) listed on the
NYSE,
the NYSE MKT LLC or other national securities exchanges, and other securities or
instruments for which market quotations are readily available, at the last
reported sale price on the day the securities are being valued. Securities
traded primarily on the NASDAQ Stock Market are normally valued by the
independent pricing service at the NASDAQ Official Closing Price (“NOCP”)
provided by NASDAQ each business day. The NOCP is the most recently reported
price as of 4:00:02 p.m., Eastern time, unless that price is outside the range
of the “inside” bid and asked prices (i.e., the bid and asked prices that
dealers quote to each other when trading for their own accounts); in that case,
NASDAQ will adjust the price to equal the inside bid or asked price, whichever
is closer. Because of delays in reporting trades, the NOCP may not be based on
the price of the last trade to occur before the market closes. If there is no
sale of a security or other instrument on a particular day, the independent
pricing services may value the security or other instrument based on market
quotations.
NBIA
has developed a process to periodically review information provided by
independent pricing services for all types of securities.
Investments
in non-exchange traded investment companies are valued using the respective
fund’s daily calculated NAV per share. The prospectuses for these funds explain
the circumstances under which the funds will use fair value pricing and the
effects of using fair value pricing.
If
a valuation for a security is not available from an independent pricing service
or if NBIA believes in good faith that the valuation received does not reflect
the amount a Fund might reasonably expect to receive on a current sale of that
security, the Fund seeks to obtain quotations from brokers or dealers. If such
quotations are not readily available, the Fund may use a fair value estimate
made according to methods the Board of Trustees has approved in the good-faith
belief that the resulting valuation will reflect the fair value of the security.
A Fund may also use these methods to value certain types of illiquid securities
and instruments for which broker quotes are rarely, if ever, available, such as
options that are out of the money, or for which no trading activity exists. Fair
value pricing generally will be used if the market in which a portfolio security
trades closes early or if trading in a particular security was halted during the
day and did not resume prior to a Fund’s NAV calculation. Numerous factors may
be considered when determining the fair value of a security or other instrument,
including available analyst, media or other reports, trading in futures or ADRs,
and whether the issuer of the security or other instrument being fair valued has
other securities or other instruments outstanding.
The
value of a Fund's investments in foreign securities is generally determined
using the same valuation methods used for other Fund investments, as discussed
above. Foreign security prices expressed in local currency values are translated
from the local currency into U.S. dollars using the exchange rates as of 4:00
p.m., Eastern time.
If,
after the close of the principal market on which a security is traded and before
the time a Fund's securities are priced that day, an event occurs that NBIA
deems likely to cause a material change in the value of that security, the Fund
Trustees have authorized NBIA, subject to the Board’s review, to ascertain a
fair value for such security. Such events may include circumstances in which the
value of the U.S. markets changes by a percentage deemed significant with
respect to the security in question.
The
Board has approved the use of ICE Data Service (“ICE”) to assist in determining
the fair value of foreign equity securities when changes in the value of a
certain index suggest that the closing prices on the foreign exchanges may no
longer represent the amount that a Fund could expect to receive for those
securities or on days when foreign markets are closed and U.S. markets are open.
In each of these events, ICE will provide adjusted prices for certain foreign
equity securities using a statistical analysis of historical correlations of
multiple factors. The Board has also approved the use of ICE to evaluate
the prices of foreign income securities as of the time as of which a Fund’s
share price is calculated. ICE utilizes benchmark spread and yield curves
and evaluates available market activity from the local close to the time as of
which a Fund’s share price is calculated to assist in determining prices for
certain foreign income securities. In the case of both foreign equity and
foreign income securities, in the absence of precise information about the
market values of these foreign securities as of the time as of which a Fund’s
share price is calculated, the Board has determined on the basis of available
data that prices adjusted or evaluated in this way are likely to be closer to
the prices a Fund could realize on a current sale than are the prices of those
securities established at the close of the foreign markets in which the
securities primarily trade. Foreign securities are traded in foreign markets
that may be open on days when the NYSE is closed. As a result, the NAV of a Fund
may be significantly affected on days when shareholders do not have access to
that Fund.
Under
the 1940 Act, the Funds are required to act in good faith in determining the
fair value of portfolio securities. The SEC has recognized that a security’s
valuation may differ depending on the method used for determining value. The
fair value ascertained for a security is an estimate and there is no assurance,
given the limited information available at the time of fair valuation, that a
security’s fair value will be the same as or close to the subsequent opening
market price for that security.
The
Funds may from time to time accept securities in exchange for Fund shares.
The Funds have authorized one or more
Financial Intermediaries to receive purchase and redemption orders on their
behalf. Such Financial Intermediaries are authorized to designate other
administrative intermediaries to receive purchase and redemption orders on the
Funds’ behalf. A Fund will be deemed to have received a purchase or
redemption order when a Financial Intermediary or its designee receives the
order. Purchase and redemption orders will be priced at the next share
price or offering price to be calculated after the order has been “received in
proper form” as defined in the Prospectuses.
Shareholders
that hold their shares directly with a Fund (“Direct Shareholders”) may arrange
to have a fixed amount automatically invested in Fund shares of that Class each
month. To do so, a Direct Shareholder must complete an application, available
from the Distributor, electing to have automatic investments funded either
through (1) redemptions from his or her account in an eligible money market
fund outside the Neuberger Berman fund family or
(2) withdrawals
from the shareholder’s checking account. In either case, the minimum monthly
investment is $100. A Direct Shareholder who elects to participate in automatic
investing through his or her checking account must include a voided check with
the completed application. A completed application should be sent to Neuberger
Berman Funds, P.O. Box 219189, Kansas City, MO 64121-9189.
Automatic
investing enables a Direct Shareholder to take advantage of “dollar cost
averaging.” As a result of dollar cost averaging, a Direct Shareholder’s average
cost of Fund shares generally would be lower than if the shareholder purchased a
fixed number of shares at the same pre-set intervals. Additional information on
dollar cost averaging may be obtained from the Distributor.
Dealer commissions and
compensation.
Commissions
(up to 1.00%) are paid to dealers who initiate and are responsible for certain
Class A share purchases not subject to sales charges. Commissions on such
investments are paid to dealers at the following rates: 1.00% on amounts from $1
million to $2,999,999, 0.50% on amounts from $3 million to $29,999,999, and
0.25% on amounts from $30 million and above. Commissions are based on cumulative
investments and are reset annually.
See
the Funds’ Prospectuses for information regarding sales charge reductions and
waivers.
Predecessor Investors
(as defined in Neuberger Berman Municipal Impact Fund’s Prospectus ) of Neuberger
Berman Municipal
Impact Fund may exchange
Institutional Class shares of Neuberger Berman
Municipal
Impact Fund for (i) Class A shares of
other funds in the Neuberger Berman fund family (except Neuberger Berman Strategic Income Fund, Neuberger Berman Real
Estate Fund and Neuberger Berman International Large Cap Fund) or, where Class A
shares are not available, Investor Class shares of other funds in the Neuberger
Berman fund family or (ii) Trust Class shares of Neuberger Berman Strategic Income Fund, Neuberger Berman Real
Estate Fund and Neuberger Berman International Large Cap Fund. Predecessor
Investors also may exchange (i) Class A or Investor Class shares of other funds
in the Neuberger Berman fund family or (ii) Trust Class shares of Neuberger
Berman Strategic Income Fund, Neuberger
Berman Real Estate Fund and Neuberger Berman International Large Cap Fund, for
Institutional Class shares of Neuberger Berman
Municipal
Impact Fund as long as they
continuously maintain an account in Institutional Class shares of Neuberger Berman Municipal Impact Fund. Predecessor Investors also may exchange
Class A shares of a fund in the Neuberger Berman fund family for Class A shares
of other funds in the Neuberger Berman fund family or, where Class A shares are
not available, Investor Class shares of other funds in the Neuberger Berman fund
family. Predecessor Investors also may exchange Investor Class shares of a fund
in the Neuberger Berman fund family for Class A shares of other funds in the
Neuberger Berman fund family or, where Class A shares are not available,
Investor Class shares of other funds in the Neuberger Berman fund family.
Predecessor Investors also may exchange Trust Class shares of Neuberger Berman
Strategic Income Fund, Neuberger Berman
Real Estate Fund and Neuberger Berman
International
Large Cap Fund for Class A shares of other funds in the Neuberger Berman fund
family or, where Class A shares are not available, Investor Class shares of
other funds in the Neuberger Berman fund family.
As
more fully set forth in a Fund’s Prospectus (and except as otherwise set forth
above), if shareholders purchased Institutional Class, Investor Class, Trust
Class, or Class R6 shares of a fund in the fund family directly, they may redeem
at least $1,000 worth of the fund’s shares and invest the proceeds in shares of
the corresponding class of one or more of the other funds in the fund family,
provided that the minimum investment and other eligibility requirements of the
other fund(s) are met. Investor Class shares of a fund in the fund family
may also be exchanged for Trust Class shares where the Distributor is the
Institution acting as the record owner on behalf of the shareholder making the
exchange. Class R6 shares of a fund in the fund family may also be exchanged for
Institutional shares where (1) the Distributor is the Institution acting as the
record owner on behalf of the shareholder making the exchange, and (2) Class R6
shares of the other fund in the fund family are not available (otherwise, Class
R6 shares would be exchanged for Class R6 shares of the other fund in the fund
family).
In
addition, Grandfathered Investors (as defined in the Class A and Class C shares
prospectuses) may exchange their shares (either Investor Class or Trust Class)
for Class A shares where Investor Class or Trust Class shares of the other fund
in the fund family are not available; otherwise, they will exchange their shares
into the corresponding class of the other fund in the fund family.
An
Institution may exchange a fund’s Advisor Class, Investor Class, Trust Class,
Institutional Class, Class A, Class C, Class R3, and Class R6 shares (if the
shareholder did not purchase the fund’s shares directly) for shares of the
corresponding class of one or more of the other funds in the fund family, if
made available through that Institution. Most Institutions allow you to
take advantage of the exchange program.
If
shareholders purchased shares of a fund in the fund family directly, with the
exception of Class R6 and Class E, they may exchange those shares for shares of
the following eligible money market funds (and classes): Investment Class shares
of State Street Institutional U.S. Government Money Market Fund and Investment
Class shares of State Street Institutional Treasury Plus Money Market Fund. An
investor may exchange shares of an eligible money market fund for shares of a
particular class of a fund in the Neuberger Berman fund family only if the
investor holds, through the Distributor, both shares of that eligible money
market fund and shares of that particular class of that fund in the Neuberger
Berman fund family.
Exchanges
are generally not subject to any applicable sales charges. However,
exchanges from eligible money market funds are subject to any applicable sales
charges on the fund in the Neuberger Berman fund family being purchased, unless
the eligible money market fund shares were acquired through an exchange from a
fund in the Neuberger Berman fund family having a sales charge or by
reinvestment or cross-reinvestment of dividends or other distributions from a
fund in the Neuberger Berman fund family having a sales charge.
Most
investment providers allow you to take advantage of the exchange program.
Please contact your investment provider or the Distributor for further
information on exchanging your shares.
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. An exchange is treated as a redemption (sale) and purchase, respectively,
of shares of the two funds for federal income tax purposes and, depending on the
circumstances, a capital gain or loss may be realized on the exchange.
A
Fund may terminate or materially alter its exchange privilege without notice to
shareholders.
The
right to redeem a Fund’s shares may be suspended or payment of the redemption
price postponed (1) when the NYSE or the bond market 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 Fund 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.
Each
Fund reserves the right, under certain conditions, to honor any request for
redemption by making payment in whole or in part in securities valued as
described in “Share Prices and Net Asset Value” above. Each Fund (except
Neuberger Berman Emerging Markets Debt Fund,
Neuberger Berman Municipal High
Income Fund, Neuberger Berman Municipal Impact Fund and Neuberger Berman Strategic Income Fund) may pay in kind only
those requests 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.
If
payment is made in securities, a shareholder or Institution generally will incur
brokerage expenses or other transaction costs in converting those securities
into cash and will be subject to fluctuation in the market prices of those
securities until they are sold. The Funds do not redeem in kind under normal
circumstances, but would do so when NBIA or the Fund Trustees determine that it
is in the best interests of a Fund’s shareholders as a whole or the transaction
is otherwise effected in accordance with procedures adopted by the Fund’s
Trustees.
If
consistent with your investment provider’s program, Advisor Class, Investor
Class, and
Trust
Class shares of a Fund that have been purchased by an investment provider on
behalf of clients participating in (i) certain qualified group retirement plans
(including 401(k) plans, 457 plans, employer-sponsored 403(b) plans),
profit-sharing and money purchase pension plans, defined benefit plans and
non-qualified deferred compensation plans or (ii) investment programs in which
the clients pay a fixed or asset-based fee, may be converted into Institutional
Class shares of the same Fund if the investment provider satisfies any
then-applicable eligibility requirements for investment in Institutional Class
shares of the Fund. If consistent with your investment provider’s policy
and/or investment program, Class A and Class C shares of a Fund that have been
purchased by an investment provider on behalf of clients may be converted into
Institutional Class shares of the same Fund provided any then-applicable
eligibility requirements for investment in Institutional Class shares of the
Fund are satisfied.
Investor
Class, Trust Class, Advisor Class, Institutional Class, Class A, Class C, and
Class R3 shares of a Fund may be converted to Class R6 shares of the same Fund,
provided that any eligibility requirements of Class R6 shares are met and the
investment provider determines such conversion is consistent with its policy
and/or investment program.
Investor
Class, Trust Class, Advisor Class and Institutional Class may be converted into
Class A shares of the same Fund in connection with investor initiated transfers
from fee-based advisory accounts to transaction-based brokerage accounts at the
same intermediary provided that: (i) the intermediary does not offer the Class
of shares the investor held in the fee-based advisory account in its brokerage
accounts; and (ii) the financial intermediary agrees to provide each impacted
investor with prior notice about the conversion and disclosure about increases
in the expenses of Class A shares compared to the Class of shares the investor
held in the fee-based advisory account.
Investor
Class, Trust Class, Advisor Class, Institutional Class, Class A, Class C, Class
R3, and Class R6 shares of a Series may be converted to Class E shares of the
same Series, provided that any eligibility requirements of Class E shares are
met.
Class
C shares that are no longer subject to a CDSC will be automatically converted
into Class A shares of the same Fund at the end of the month following the
eighth anniversary of the purchase date. Class C shares acquired through
reinvestment of distributions will convert into Class A shares based on the date
of the initial purchase of the shares on which the distribution was paid.
Class
C shares held through a financial intermediary in an omnibus account will be
converted into Class A shares only if the financial intermediary can document
that the shareholder has met the required holding period. It is the financial
intermediary’s (and not a Fund’s) responsibility to keep records and to ensure
that the shareholder is credited with the proper holding period. Not all
financial intermediaries are able to track purchases to credit individual
shareholders’ holding periods. In particular, group retirement plans held
through third party intermediaries that hold Class C shares in an omnibus
account may not track participant level share lot aging.
In
addition, a financial intermediary may sponsor and/or control programs or
platforms that impose a different conversion schedule or eligibility
requirements for conversions of Class C
shares.
In these cases, Class C shares of certain shareholders may not be eligible for
conversion as described above. A Fund has no responsibility for overseeing,
monitoring or implementing a financial intermediary’s process for determining
whether a shareholder meets the required holding period for conversion or for
effecting such conversion.
Please
consult with your financial intermediary about your eligibility to exercise the
Class C conversion privilege.
When
an investor’s account is transferred to an investment provider that does not
offer the Class the investor held with their prior investment provider, at the
request of the investment provider, shares of one Class of a Fund may be
converted to shares of another Class in the same Fund provided that: (1)
the investor qualifies for the new Class, and (2) if the new Class has a higher
expense ratio, the investment provider demonstrates that the investor consented
in writing, which shall serve as prior notice of the change, to the
conversion.
Conversions
will be effected at NAV without the imposition of any sales load, fee or other
charges by the Fund. The Board may from time to time approve a Plan of
Share Class conversion for any Class of shares.
In
general, conversions of one Class for a different Class of the same Fund should
not result in the realization by the investor of a taxable capital gain or loss
for U.S. federal income tax purposes, provided that the transaction is
undertaken and processed, with respect to any shareholder, as a conversion
transaction. Shareholders should consult their tax advisors as to the federal,
state, local and non-U.S. tax consequences of an intra-Fund conversion.
Please
contact your investment provider about any fees that it may charge. Share
conversion privileges may not be available for all accounts and may not be
offered at all investment providers.
Each
Fund distributes to its shareholders substantially all of the net investment
income it earns (by Class, after deducting expenses attributable to the Class)
and any net capital gains (both long-term and short-term) and net gains from
foreign currency transactions, if any, it realizes that are allocable to that
Class. A Fund’s net investment income, for financial accounting purposes,
consists of all income accrued on its assets less accrued expenses but does not
include net capital and foreign currency gains and losses. Net investment income
and realized gains and losses of each Fund are reflected in its NAV until they
are distributed.
Each
Fund ordinarily declares income dividends daily. Dividends declared for each
month are ordinarily paid on the last Business Day of the month. Shares of each
Fund begin earning income dividends on the Business Day after the proceeds of a
purchase order for the shares 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.
Each
Fund’s dividends and other distributions are automatically reinvested in
additional shares of the distributing Class of the Fund, unless the shareholder
elects to receive them in cash (“cash election”). If you use an investment
provider, you must consult it about whether your dividends and other
distributions from a Fund will be reinvested in additional shares of the
distributing Class of the Fund or paid to you in cash. To the extent dividends
and other distributions are subject to federal, state, and/or local income
taxation, they are taxable to the shareholders whether received in cash or
reinvested in additional Fund shares.
Direct
Shareholders of each Fund (other than Neuberger
Berman Municipal
Impact Fund) may make a cash election
on the original account application or at a later date by writing to DST Asset
Manager Solutions, Inc. ("DST") at the following address: Attn: Neuberger Berman
Funds, P.O. Box 219189, Kansas City, MO 64121-9189. Cash distributions can be
paid by check or through an electronic transfer to a bank account or used to
purchase shares of another fund in the fund family, designated in the
shareholder’s original account application. A cash election with respect to any
Fund remains in effect until the shareholder notifies DST Asset Manager
Solutions, Inc. (“DST”) in writing (at the above address) to discontinue the
election.
Direct
Shareholders of Neuberger Berman Municipal Impact Fund may make a cash election by contacting the
Fund in writing (Neuberger Berman Funds, P.O. Box 219189, Kansas City, MO
64121-9189) or by phone (800-877-9700). Cash distributions can be paid by check
or through an electronic transfer to a designated bank account. A cash election
with respect to the Fund remains in effect until the shareholder notifies the
Fund in writing (at the above address) to discontinue the election.
If
it is determined that the U.S. Postal Service cannot properly deliver a Fund’s
mailings to a shareholder for 180 days, the Fund will terminate the
shareholder’s cash election and the shareholder’s dividends and other
distributions thereafter will automatically be reinvested in additional Fund
shares of the distributing Class until the shareholder requests in writing to
DST or the Fund that the cash election be reinstated.
Dividend
or other distribution checks that are not cashed or deposited within 180 days
from being issued will be reinvested in additional shares of the distributing
Class of the relevant Fund at the NAV per share on the day the check is
reinvested. No interest will accrue on amounts represented by uncashed dividend
or other distribution checks.
All Funds. To continue to
qualify for treatment as a RIC, each Fund, which is treated as a separate
corporation for federal tax purposes, must distribute to its shareholders for
each taxable year at least the sum of (1) 90% of its investment company taxable
income (consisting generally of taxable net investment income, the excess of net
short-term capital gain over net long-term capital loss, and, for Neuberger
Berman Core Bond Fund, Neuberger Berman
Emerging Markets Debt Fund, Neuberger
Berman Floating Rate Income Fund,
Neuberger Berman High Income Bond Fund,
Neuberger Berman Short Duration Bond Fund
and Neuberger Berman Strategic Income
Fund (each, a “Taxable Bond Fund”), net gains and losses from certain
foreign currency transactions, all determined without regard to any deduction
for dividends paid) plus (2) 90% of
its
net interest income excludable from gross income under section 103(a) of the
Code (“Distribution Requirement”) and must meet several additional requirements.
With respect to each Fund, these requirements include the following:
(1) the
Fund must derive at least 90% of its gross income each taxable year from
(a) 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 certain Financial Instruments) derived with
respect to its business of investing in securities or those currencies and
(b) net income from an interest in a “qualified publicly traded
partnership” (i.e., a “publicly traded
partnership” that is treated as a partnership for federal tax purposes and
satisfies certain qualifying income requirements but derives less than 90% of
its gross income from the items described in clause (a)) (“QPTP”) (“Income
Requirement”); and
(2) at
the close of each quarter of the Fund’s taxable year, (a) at least 50% of
the value of its total assets must be represented by cash and cash items,
Government securities, securities of other RICs, and other securities limited,
in respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund’s total assets and that does not represent more than 10% of the
issuer’s outstanding voting securities (equity securities of QPTPs being
considered voting securities for these purposes), and (b) not more than 25%
of the value of its total assets may be invested in (i) the securities
(other than Government securities or securities of other RICs) of any one
issuer, (ii) the securities (other than securities of other RICs) of two or
more issuers the Fund controls (by owning 20% or more of their voting power)
that are determined to be engaged in the same, similar, or related trades or
businesses, or (iii) the securities of one or more QPTPs (collectively,
“Diversification Requirements”).
If
a Fund invests cash collateral received in connection with securities lending in
an unregistered fund (as noted above under “Investment Information -- Cash
Management and Temporary Defensive Positions”), the Fund generally will be
treated as (1) owning a proportionate share of the unregistered fund’s assets
for purposes of determining the Fund’s compliance with the Diversification
Requirements and certain other provisions (including the provision that permits
it to enable its shareholders to get the benefit of foreign taxes it pays, as
described below) and (2) being entitled to the income on that share for purposes
of determining whether it satisfies the Income Requirement.
By
qualifying for treatment as a RIC, a Fund (but not its shareholders) will be
relieved of federal income tax on the part of its investment company taxable
income and net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss) that it
distributes to its shareholders. If a Fund failed to qualify for that treatment
for any taxable year -- either (1) by failing to satisfy the Distribution
Requirement, even if it satisfied the Income and Diversification Requirements,
or (2) by failing to satisfy the Income Requirement and/or either
Diversification Requirement and was unable, or determined not, to avail itself
of Code provisions that enable a RIC to cure a failure to satisfy any of the
Income and Diversification Requirements as long as the failure “is due to reasonable cause and not due to
willful neglect” and the RIC pays a deductible tax calculated in accordance with
those provisions and meets certain other requirements -- then, (a) the
Fund 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 (b) the
shareholders would treat all those distributions, including distributions of net
capital gain, as ordinary dividends to the extent of the Fund’s earnings and
profits. Those dividends would be taxable as ordinary income, except that,
for individual and certain other non-corporate shareholders (each, an
“individual shareholder”), the part thereof that is “qualified dividend income”
(as described in each Prospectus) (“QDI”) would be taxable for federal tax
purposes at the rates for net capital gain -- a maximum of 15% for a single
shareholder with taxable income not exceeding $445,850, or $501,600 for married
shareholders filing jointly, and 20% for individual shareholders with taxable
income exceeding those respective amounts, which apply for 2021 and will be
adjusted for inflation annually. In the case of corporate shareholders that meet
certain holding period and other requirements regarding their Fund shares, all
or part of those dividends would be eligible for the dividends-received
deduction available to corporations (“DRD”). In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest, and
make substantial distributions before requalifying for RIC treatment.
Each
Fund will be subject to a nondeductible 4% excise tax (“Excise Tax”) to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ended on October 31 of that year, plus certain other amounts.
Each Fund intends to continue to make sufficient distributions each year to
avoid liability for the Excise Tax.
A
Fund’s use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and, in the case of a Taxable Bond Fund, 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 it realizes in connection therewith. Gains from the disposition of
foreign currencies (except certain gains that may be excluded by future
regulations), and gains from certain Financial Instruments a Fund derives with
respect to its business of investing in securities or foreign currencies, will
be treated as “qualifying income” under the Income Requirement.
Some
futures contracts, certain foreign currency contracts, and “nonequity” options
(i.e., certain listed options, such as
those on a “broad-based” securities index) -- except any “securities futures
contract” that is not a “dealer securities futures contract” (both as defined in
the Code) and any interest rate swap, currency swap, basis swap, interest rate
cap, interest rate floor, commodity swap, equity swap, equity index swap, credit
default swap, or similar agreement -- in which a Fund invests may be subject to
Code section 1256 (collectively, “Section 1256 contracts”). Any Section 1256
contracts a Fund holds at the end of its taxable year (and generally for
purposes of the Excise Tax, on October 31 of each year) must be “marked to
market” (that is, treated as having been sold at that time for their fair market
value) for federal tax purposes, with the result that unrealized gains or losses
will be treated as though they were realized. 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; the remainder is treated as short-term capital
gain or loss. These rules may operate to increase the amount that a Fund must
distribute to satisfy the Distribution Requirement (i.e., with respect to the portion treated as
short-term capital gain), which will be taxable to its shareholders as ordinary
income when distributed to them, and to increase the net capital gain the Fund
recognizes, without in either case increasing the cash available to it. Section
1256 contracts also may be marked-to-market for
purposes
of the Excise Tax. A 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 short-term capital gain (taxable to its shareholders
as ordinary income when distributed to them) and/or increasing the amount of
dividends it must distribute to meet the Distribution Requirement and avoid
imposition of the Excise Tax.
The
premium a Fund receives for writing (selling) a put or call option is not
included in gross income at the time of receipt. If an option written (sold) by
a Fund expires, it realizes a short-term capital gain equal to the amount of the
premium it received for writing the option. If a Fund terminates its obligations
under 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 that amount. If a call option written by a Fund is
exercised, it 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 it receives on
the exercise plus the premium it received when it wrote the option is more or
less than its basis in the underlying security.
Neuberger
Berman Emerging Markets Debt Fund,
Neuberger Berman Floating Rate Income
Fund, Neuberger Berman Municipal High
Income Fund, Neuberger Berman Municipal Impact Fund, Neuberger Berman Municipal Intermediate Bond Fund, Neuberger
Berman Short Duration Bond Fund and
Neuberger Berman Strategic Income Fund
may invest in bonds that are purchased, generally not on their original issue,
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) (“market discount bonds”). Market
discount less than the product of (1) 0.25% of the redemption price at
maturity times (2) the number of complete years to maturity after a Fund
acquired the bond is disregarded. Market discount generally is accrued ratably,
on a daily basis, over the period from the acquisition date to the date of
maturity. Gain on the disposition of a market discount bond, 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. In lieu of
treating the disposition gain as described above, a Fund may elect to include
market discount in its gross income currently, for each taxable year to which it
is attributable.
Each
Taxable Bond Fund may acquire zero coupon or other securities issued with OID,
and each Municipal Bond Fund may also acquire municipal securities issued with
OID. Each Fund other than Neuberger Berman
Municipal
Impact Fund, Neuberger Berman Municipal Intermediate Bond Fund, and Neuberger
Berman Short Duration Bond Fund may also
acquire pay-in-kind securities, which pay “interest” through the issuance of
additional securities, and each Taxable Bond Fund may also acquire U.S. TIPS,
the principal value of which is adjusted daily in accordance with changes in the
CPI-U. As a holder of those securities, each Fund must include in gross income
(or take into account, in the case of municipal OID securities) the OID that
accrues on the securities during the taxable year, as well as such “interest”
received on pay-in-kind securities and principal adjustments on U.S. TIPS, even
if it receives no corresponding payment on them during the year. Because each
Fund annually must distribute substantially all of its investment company
taxable income, including any accrued OID and other non-cash income, to satisfy
the Distribution Requirement and avoid imposition of the Excise Tax, a Fund may
be required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives.
Those
distributions will be made from a Fund’s cash assets or, if necessary, from the
proceeds of sales of its securities. A Fund may realize capital gains or losses
from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
If
a Fund 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 position, the Fund will be
treated as having made an actual sale thereof, with the result that it will
recognize gain at that time. A constructive sale generally consists of a short
sale, an offsetting notional principal contract, or a futures or forward
contract a Fund or a related person enters into with respect to the same or
substantially identical property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to any Fund’s
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 Fund holds the appreciated financial position unhedged for 60
days after that closing (i.e., at no
time during that 60-day period is the Fund’s risk of loss regarding that
position reduced by reason of certain specified transactions with respect to
substantially identical or related property, such as having an option to sell,
being contractually obligated to sell, making a short sale of, or granting an
option to buy substantially identical stock or securities).
Each
of Neuberger Berman Core Bond Fund and
Neuberger Berman Strategic Income Fund
may invest in ownership units (i.e.,
limited partnership or similar interests) in MLPs, which generally are
classified as partnerships (and not treated as corporations) for federal tax
purposes. Most MLPs in which a Fund may invest are expected to be QPTPs,
all the net income from which (regardless of source) would be “qualifying
income” for the Fund under the Income Requirement. If a Fund invests in an
MLP, or an ETF organized as a partnership, that is not a QPTP, including a
company principally engaged in the real estate industry that is classified for
federal tax purposes as a partnership (and not as a corporation or REIT), the
net income the Fund earns therefrom would be treated as such qualifying income
only to the extent it would be such if realized directly by the Fund in the same
manner as realized by that MLP, ETF, or company. Effective for taxable years
beginning after December 31, 2017, and before January 1, 2026, the Code (in
general terms) allows individuals and certain noncorporate entities a deduction
for 20% of, among other things, the aggregate amount of its “qualified REIT
dividends” and “qualified publicly traded partnership income” (“QPTPI”) (the
latter including income of an entity such as an MLP). Regulations allow a RIC to
pass the character of its qualified REIT dividends through to its shareholders
provided certain holding period requirements are met. The Treasury Department
has announced that it is considering adopting regulations that would provide a
similar pass-through by RICs of QPTPI, but that pass-through is not currently
available. As a result, a shareholder in a Fund that invests in REITs will be
eligible to receive the benefit of the deductions that are available to direct
investors in REITs, but a shareholder in a Fund that invests in MLPs will not
currently receive the benefit of the deductions that are available to direct
investors in MLPs.
A
Fund may sustain net capital losses (i.e., realized capital losses in excess of
realized capital gains, whether short-term or long-term) for a taxable
year. A Fund’s net capital losses, if any, cannot be used by its
shareholders (i.e., they do not flow through to its shareholders). Rather,
a
Fund may use its net capital losses realized in a particular taxable year,
subject to applicable limitations, to offset its net capital gains realized in
one or more subsequent taxable years (a “capital loss carryover” or “CLCO”) --
realized net capital losses may not be “carried back” -- without being required
to distribute those gains to its shareholders. CLCOs may be applied
against realized capital gains in each succeeding taxable year, until they have
been reduced to zero.
A
Fund’s CLCOs may be carried forward indefinitely. Capital losses
carried over retain their character as either short-term or long-term capital
losses.
As
of October 31, 2020:
(1)
Neuberger Berman Emerging Markets Debt
Fund had an aggregate CLCO of approximately $12,143,346. This CLCO is available
to offset future realized net capital gains.
(2)
Neuberger Berman Floating Rate Income
Fund had an aggregate CLCO of approximately $32,950,566. This CLCO is available
to offset future realized net capital gains.
(3)
Neuberger Berman High Income Bond Fund
had an aggregate CLCO of approximately $212,241,387. This CLCO is available to
offset future realized net capital gains.
(4)
Neuberger Berman Municipal High Income
Fund had an aggregate CLCO of approximately $2,275,129. This CLCO is available
to offset future realized net capital gains.
(5)
Neuberger Berman Short Duration Bond Fund
had an aggregate CLCO of approximately $6,004,655. This CLCO is available to
offset future realized net capital gains.
(6)
Neuberger Berman Strategic Income Fund
had an aggregate CLCO of approximately $75,140,054. This CLCO is available to
offset future realized net capital gains.
(7)
No other Fund has any CLCO.
Taxable Bond Funds Only. Dividends and
interest a Fund receives, and gains it realizes, on foreign securities may be subject to income, withholding, or
other taxes imposed by foreign countries and U.S. possessions (“foreign taxes”)
that would reduce the total return on its investments. Tax treaties between
certain countries and the United States may reduce or eliminate those taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Each
Taxable Bond Fund, other than Neuberger Berman Short Duration Bond Fund, may invest in the
stock of “passive foreign investment companies” (“PFICs”). A PFIC is any
foreign corporation (with certain exceptions) that, in general, meets either of
the following tests for a taxable year: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce,
or are held for the production of, passive income. Under certain
circumstances, a Fund that holds stock of a PFIC will be subject to federal
income tax on a portion of any “excess distribution” it receives on the stock
and of any gain on its disposition of the stock (collectively, “PFIC income”),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be
included in the Fund’s
investment
company taxable income and, accordingly, will not be taxable to it to the extent
it distributes that income to its shareholders. A Fund’s distributions
attributable to PFIC income will not be eligible for the reduced maximum federal
income tax rates on individual shareholders’ QDI.
If
a Fund invests in a PFIC and elects to treat the PFIC as a “qualified electing
fund” (“QEF”), then in lieu of the Fund’s incurring the foregoing tax and
interest obligation, the Fund would be required to include in income each
taxable year its pro rata share of the
QEF’s annual ordinary earnings and net capital gain ‑‑ which the Fund most
likely would have to distribute to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax ‑‑ even if the Fund did not receive those
earnings and gain from the QEF. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
A
Fund may elect to “mark-to-market” any stock in a PFIC it owns at the end of its
taxable year. “Marking-to-market,” in this context, means including in gross
income each taxable year (and treating as ordinary income) the excess, if any,
of the fair market value of the stock over a Fund’s adjusted basis therein
(including net mark-to-market gain or loss for each prior taxable year for which
an election was in effect) as of the end of that year. Pursuant to the
election, a Fund also would be allowed to deduct (as an ordinary, not a capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock the Fund included in income
for prior taxable years under the election. A Fund’s adjusted basis in
each PFIC’s stock subject to the election would be adjusted to reflect the
amounts of income included and deductions taken thereunder.
Investors
should be aware that determining whether a foreign corporation is a PFIC is a
fact-intensive determination that is based on various facts and circumstances
and thus is subject to change, and the principles and methodology used therein
are subject to interpretation. As a result, a Fund may not be able, at the time
it acquires a foreign corporation’s shares, to ascertain whether the corporation
is a PFIC, and a foreign corporation may become a PFIC after a Fund acquires
shares therein. While each Fund generally will seek to minimize its investments
in PFIC shares, and to make appropriate elections when they are available, to
lessen the adverse tax consequences detailed above, there are no guarantees that
it will be able to do so, and each Fund reserves the right to make such
investments as a matter of its investment policy.
Under
Code section 988, gains or losses (1) from the disposition of foreign
currencies, including forward contracts, (2) except in certain
circumstances, from Financial Instruments on or involving foreign currencies and
from notional principal contracts (e.g.,
swaps, caps, floors, and collars) involving payments denominated in foreign
currencies, (3) on the disposition of each foreign-currency-denominated
debt security that are attributable to fluctuations in the value of the foreign
currency between the dates of acquisition and disposition of the security, and
(4) that are attributable to exchange rate fluctuations between the time a
Taxable Bond Fund accrues interest, dividends, or other receivables or expenses
or other liabilities denominated in a foreign currency and the time it actually
collects the receivables or pays the liabilities generally will be treated as
ordinary income or loss. These gains or losses will increase or decrease
the amount of a Taxable Bond Fund’s investment company taxable income to be
distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of its net capital gain. If a Taxable Bond Fund’s
section 988 losses exceed other investment company taxable income for a
taxable year, the
Fund
would not be able to distribute any dividends, and any distributions made during
that year before the losses were realized would be recharacterized as a “return
of capital” to shareholders, rather than as a dividend, thereby reducing each
shareholder’s basis in his or her Fund shares and/or resulting in some
shareholders’ recognition of capital gain. Although each Taxable Bond Fund
values its assets daily in terms of U.S. dollars, it does not intend to convert
its holdings of foreign currencies into U.S. dollars on a daily basis. A
Taxable Bond Fund will do so from time to time, incurring the costs of currency
conversion.
A
Taxable Bond Fund may invest in REITs that (1) hold residual interests in
real estate mortgage investment conduits (“REMICs”) or (2) engage in
mortgage securitization transactions that cause the REITs to be taxable mortgage
pools (“TMPs”) or have a qualified REIT subsidiary that is a TMP. A portion of
the net income allocable to REMIC residual interest holders may be an “excess
inclusion.” The Code authorizes the issuance of regulations dealing with the
taxation and reporting of excess inclusion income of REITs and RICs that hold
residual REMIC interests and of REITs, or qualified REIT subsidiaries, that are
TMPs. Although those regulations have not yet been issued, in 2006 the
Treasury Department and the Service issued a notice (“Notice”) announcing that,
pending the issuance of further guidance, the Service would apply the principles
in the following paragraphs to all excess inclusion income, whether from REMIC
residual interests or TMPs.
The
Notice provides that a REIT must (1) determine whether it or its qualified
REIT subsidiary (or a part of either) is a TMP and, if so, calculate the TMP’s
excess inclusion income under a “reasonable method,” (2) allocate its
excess inclusion income to its shareholders generally in proportion to dividends
paid, (3) inform shareholders that are not “disqualified organizations”
(i.e., governmental units and tax-exempt
entities that are not subject to tax on unrelated business taxable income
(“UBTI”)) of the amount and character of the excess inclusion income allocated
thereto, (4) pay tax (at the highest federal income tax rate imposed on
corporations) on the excess inclusion income allocated to its disqualified
organization shareholders, and (5) apply the withholding tax provisions
with respect to the excess inclusion part of dividends paid to foreign persons
without regard to any treaty exception or reduction in tax rate. Excess
inclusion income allocated to certain tax-exempt entities (including qualified
retirement plans, individual retirement accounts (“IRAs”), and public charities)
constitutes UBTI to them.
A
RIC with excess inclusion income is subject to rules identical to those in
clauses (2) through (5) (substituting “that are nominees” for “that are not
‘disqualified organizations’” in clause (3) and inserting “record shareholders
that are” after “its” in clause (4)). The Notice further provides that a
RIC is not required to report the amount and character of the excess inclusion
income allocated to its shareholders that are not nominees, except that
(1) a RIC with excess inclusion income from all sources that exceeds 1% of
its gross income must do so and (2) any other RIC must do so by taking into
account only excess inclusion income allocated to the RIC from REITs the excess
inclusion income of which exceeded 3% of its dividends. A Taxable Bond
Fund will not invest directly in REMIC residual interests and does not intend to
invest in REITs that, to its knowledge, invest in those interests or are TMPs or
have a qualified REIT subsidiary that is a TMP.
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. In addition, any loss a shareholder realizes on a
redemption of Fund shares will be disallowed to the extent the shares are
replaced within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In that case, the basis in the
acquired shares will be adjusted to reflect the disallowed loss.
Each
Fund is required to withhold and remit to the Treasury Department 24% of
all taxable dividends, capital gain distributions, and redemption proceeds
(regardless of the extent to which gain or loss may be realized) otherwise
payable to any individual shareholders who do not provide the Fund with a
correct taxpayer identification number. Withholding at that rate also is
required from taxable dividends and other distributions otherwise payable to
individual shareholders who are subject to backup withholding for any other
reason. Backup withholding is not an additional tax, and any amounts so withheld
may be credited against a shareholder’s federal income tax liability or
refunded.
For
Neuberger Berman Emerging Markets Debt
Fund, if more than 50% of the value of the Fund’s total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible to, and may (as the Fund has done in the past), file with
the Service an election that will enable its shareholders, in effect, to receive
the benefit of the foreign tax credit with respect to any foreign taxes the Fund
paid. Pursuant to that election, the Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, his or her share
of those taxes, (2) treat his or her share of those taxes and of any dividend
the Fund paid that represents its income from foreign or U.S. possessions
sources (collectively, “foreign-source income”) as his or her own income from
those sources, and (3) either use the foregoing information in calculating the
foreign tax credit against his or her federal income tax or, alternatively,
deduct the taxes deemed paid by him or her in computing his or her taxable
income. A Fund that makes this election will report to its shareholders shortly
after each taxable year their respective shares of the Fund’s foreign taxes and
foreign-source income for that year. An individual shareholder of an electing
Fund who, for a taxable year, has no more than $300 ($600 for a married person
filing jointly) of creditable foreign taxes included on Forms 1099 and all of
whose foreign-source income is “qualified passive income” may elect for that
year to be exempt from the extremely complicated foreign tax credit limitation
and thus be able to claim a foreign tax credit without having to file the
detailed Form 1116 that otherwise is required.
Dividends
a Fund pays to a nonresident alien individual, a foreign corporation or
partnership, or foreign trust or estate (each, a “foreign shareholder”), other
than (1) dividends paid to a foreign shareholder whose ownership of shares
is effectively connected with a U.S. trade or business the shareholder carries
on (“effectively connected”) and (2) capital gain distributions paid to a
nonresident alien individual who is physically present in the United States for
no more than 182 days during the taxable year, generally will be subject to a
federal withholding tax of 30% (or lower treaty rate). If a foreign
shareholder’s ownership of Fund shares is effectively connected, the foreign
shareholder will not be subject to that withholding tax but will be subject to
federal income tax on income dividends from the Fund as if it were a U.S.
shareholder. A foreign shareholder generally will be exempt from federal income
tax on gain realized on the sale of Fund shares and Fund distributions of net
capital gain, unless the shareholder is a nonresident alien individual present
in the United States for a period or periods aggregating 183 days or more during
the taxable year (special rules apply in the case of a shareholder that is a
foreign trust or foreign
partnership).
Two categories of dividends, “interest-related dividends” and “short-term
capital gain dividends,” a Fund pays to foreign shareholders (with certain
exceptions) and reports in writing to its shareholders also are exempt from that
tax. “Interest-related dividends” are dividends that are attributable to
“qualified net interest income” (i.e.,
“qualified interest income,” which generally consists of certain OID, interest
on obligations “in registered form,” and interest on deposits, less allocable
deductions) from sources within the United States. “Short-term capital
gain dividends” are dividends that are attributable to “qualified short-term
gain” (i.e., net short-term capital
gain, computed with certain adjustments).
Under
the Foreign Account Tax Compliance Act (“FATCA”), “foreign financial
institutions” (“FFIs”) and “non-financial foreign entities” (“NFFEs”) that are
shareholders of a Fund may be subject to a generally nonrefundable 30%
withholding tax on (1) income dividends the Fund pays. A withholding tax
that would apply to certain capital gain distributions and the proceeds of
redemptions of Fund shares it pays after December 31, 2018 would be eliminated
by recently issued proposed regulations (having immediate effect). As
discussed more fully below, the FATCA withholding tax generally can be avoided
(a) by an FFI, if it reports certain information regarding direct and
indirect ownership of financial accounts U.S. persons hold with the FFI, and
(b) by an NFFE that certifies its status as such and information regarding
substantial U.S. owners.
An
FFI can avoid FATCA withholding by becoming a “participating FFI,” which
requires the FFI to enter into a tax compliance agreement with the
Service. Under such an agreement, a participating FFI agrees to
(1) verify and document whether it has U.S. accountholders, (2) report
certain information regarding their accounts to the Service, and (3) meet
certain other specified requirements.
The
Treasury Department has negotiated intergovernmental agreements (“IGAs”) with
certain countries and is in various stages of negotiations with other foreign
countries with respect to one or more alternative approaches to implement
FATCA. An entity in one of those countries may be required to comply with
the terms of the IGA instead of Treasury Department regulations.
An
FFI resident in a country that has entered into a Model I IGA with the United
States must report to that country’s government (pursuant to the terms of the
applicable IGA and applicable law), which will, in turn, report to the
Service. An FFI resident in a Model II IGA country generally must comply
with U.S. regulatory requirements, with certain exceptions, including the
treatment of recalcitrant accountholders. An FFI resident in one of those
countries that complies with whichever of the foregoing applies will be exempt
from FATCA withholding.
An
NFFE that is the beneficial owner of a payment from a Fund can avoid FATCA
withholding generally by certifying its status as such and, in certain
circumstances, either that (1) it does not have any substantial U.S. owners
or (2) it does have one or more such owners and reports the name, address,
and taxpayer identification number of each such owner. The NFFE will
report to the Fund or other applicable withholding agent, which may, in turn,
report information to the Service.
Those
foreign shareholders also may fall into certain exempt, excepted, or deemed
compliant categories established by Treasury Department regulations, IGAs, and
other guidance regarding FATCA. An FFI or NFFE that invests in a Fund will
need to provide the Fund with
documentation
properly certifying the entity’s status under FATCA to avoid FATCA
withholding. The requirements imposed by FATCA are different from, and in
addition to, the tax certification rules to avoid backup withholding described
above. Foreign investors are urged to consult their tax advisers regarding
the application of these requirements to their own situation and the impact
thereof on their investment in a Fund.
As
described in “Maintaining Your Account” in each Prospectus, a Fund may close a
shareholder’s account with it and redeem the remaining shares if the account
balance falls below the specified minimum and the shareholder fails to
re-establish the minimum balance after being given the opportunity to do so. If
an account that is closed pursuant to the foregoing was maintained for an IRA
(including a Roth IRA) or a qualified retirement plan (including a simplified
employee pension plan, savings incentive match plan for employees, Keogh plan,
corporate profit-sharing and money purchase pension plan, Code
section 401(k) plan, and Code section 403(b)(7) account), the Fund’s
payment of the redemption proceeds may result in adverse tax consequences for
the accountholder. Shareholders should consult their tax advisers regarding any
such consequences.
A
shareholder’s basis in Fund shares that he or she acquired or acquires after
December 31, 2011 (“Covered Shares”), will be determined in accordance with the
Funds’ default method, which is average basis, unless the shareholder
affirmatively elects in writing (which may be electronic) to use a different
acceptable basis determination method, such as a specific identification
method. The basis determination method a Fund shareholder elects (or the
default method) may not be changed with respect to a redemption of Covered
Shares after the settlement date of the redemption.
In
addition to the requirement to report the gross proceeds from a redemption of
shares, each Fund (or its administrative agent) must report to the Service and
furnish to its shareholders the basis information for Covered Shares and
indicate whether they had a short-term (one year or less) or long-term (more
than one year) holding period. Fund shareholders should consult with their
tax advisers to determine the best Service-accepted basis determination method
for their tax situation and to obtain more information about how the basis
reporting law applies to them.
Taxable Bond Funds. After
calendar year-end, REITs can and often do change the category (e.g., ordinary income dividend, capital gain
distribution, or “return of capital”) of the distributions they have made during
that year, which would result at that time in a Taxable Bond Fund’s also having
to re-categorize some of the distributions it has made to its shareholders.
Those changes would be reflected in your annual Form 1099, together with other
tax information. Although those forms generally will be distributed to you in
mid-February of each year, a Taxable Bond Fund may request from the Service a
30-day extension of time to distribute those forms to enable it to receive the
latest information it can from the REITs in which it invests and thereby
accurately report that information to you on a single form (rather than having
to send you an amended form).
Municipal Bond Funds. Dividends
a Municipal Bond Fund pays will qualify as “exempt-interest dividends” if it
satisfies the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of securities the
interest on which is excludable from gross income under section 103(a) of the
Code (“50% Exempt-Interest Dividend Requirement”); Neuberger Berman Municipal High Income Fund intends to satisfy,
and each other Municipal Bond Fund intends to continue to satisfy this
requirement. Exempt-interest
dividends
constitute the portion of a Municipal Bond Fund’s aggregate dividends equal to
the excess of its excludable interest over certain amounts disallowed as
deductions.
Exempt-interest
dividends are excludable from a shareholder’s gross income for federal income
tax purposes, although the amount of those dividends must be reported on the
recipient’s federal income tax return. Accordingly, the amount of
exempt-interest dividends ‑‑ and, to the extent determination thereof is
possible after reasonable effort, the part thereof constituting interest that is
a Tax Preference Item ‑‑ that a Municipal Bond Fund pays to its shareholders
will be reported to them annually on Forms 1099-INT (or substitutes
therefor).
Interest
on indebtedness incurred or continued by a shareholder to purchase or carry
Municipal Bond Fund shares generally is not deductible for federal income tax
purposes.
Entities
or persons who are “substantial users” (or persons related to “substantial
users”) of facilities financed by PABs should consult their tax advisers before
purchasing Municipal Bond Fund shares because, for users of certain of these
facilities, the interest on PABs is not exempt from federal income tax.
For these purposes, “substantial user” is defined to include a “non-exempt
person” who regularly uses in a trade or business a part of a facility financed
from the proceeds of PABs. Except as noted in the following sentence,
interest on certain PABs is a Tax Preference Item, although that interest
remains fully tax-exempt for regular federal income tax purposes. Interest
on PABs will not be a Tax Preference Item with respect to bonds issued during
2009 and 2010, including refunding bonds issued during that period to refund
bonds issued after 2003 and before 2009.
Up
to 85% of social security and railroad retirement benefits may be included in
taxable income for a taxable year for recipients whose modified adjusted gross
income (including income from tax-exempt sources such as a Municipal Bond Fund)
plus 50% of their benefits for the year exceeds certain base amounts.
Exempt-interest dividends from a Municipal Bond Fund still would be tax-exempt
to the extent described above; they would only be included in the calculation of
whether a recipient’s income exceeded the established amounts.
If
a Municipal Bond Fund invests in instruments that generate taxable interest
income, under the circumstances described in the Prospectuses and in the
discussion of market discount bonds above, the portion of any dividend that Fund
pays that is attributable to the interest earned thereon will be taxable to its
shareholders as ordinary income to the extent of its earnings and profits, and
only the remaining portion will qualify as an exempt-interest dividend.
The respective portions will be determined by the “actual earned” method, under
which the portion of any dividend that qualifies as an exempt-interest dividend
may vary, depending on the relative proportions of tax-exempt and taxable
interest earned during the dividend period. Moreover, if a Municipal Bond
Fund realizes capital gain as a result of market transactions, any distributions
of the gain will be taxable to its shareholders.
Shareholders’
treatment of dividends from a Municipal Bond Fund under state and local income
tax laws may differ from the treatment thereof under the Code. Investors should
consult their tax advisers concerning this matter.
If
a Fund invests its assets in shares of underlying funds, the Fund’s
distributable net income and net realized capital gains will include dividends
and other distributions, if any, from those underlying funds and reflect gains
and losses on the disposition of underlying funds’ shares. To the extent that an
underlying fund realizes net losses on its investments for a given taxable year,
a Fund that invests therein will not be able to benefit from those losses unless
and until (1) the underlying fund realizes gains that it can offset by those
losses or (2) the Fund in effect recognizes its (indirect) proportionate share
of those losses (which will be reflected in the underlying fund’s shares’ NAV)
when it disposes of the shares. Moreover, even when a Fund does make such a
disposition at a loss, a portion of its loss may be recognized as a long-term
capital loss, which will not be treated as favorably for federal income tax
purposes as a short-term capital loss or an ordinary deduction. In particular, a
Fund will not be able to offset any net capital losses from its dispositions of
underlying fund shares against its ordinary income (including distributions of
any net short-term capital gains realized by an underlying fund).
In
addition, in certain circumstances, the so-called “wash sale” rules may apply to
Fund redemptions of underlying fund shares that have generated losses. A wash
sale occurs if a Fund redeems shares of an underlying fund (whether for
rebalancing the Fund’s portfolio of underlying fund shares or otherwise) at a
loss and the Fund acquires other shares of that underlying fund during the
period beginning 30 days before and ending 30 days after the date of the
redemption. Any loss a Fund realizes on such a redemption will be disallowed to
the extent of such a replacement, in which event the basis in the acquired
shares will be adjusted to reflect the disallowed loss. These rules could defer
a Fund’s losses on wash sales of underlying fund shares for extended (and, in
certain cases, potentially indefinite) periods of time.
As
a result of the foregoing rules, and certain other special rules, it is possible
that the amounts of net investment income and net realized capital gains that a
Fund will be required to distribute to its shareholders will be greater than
such amounts would have been had the Fund invested directly in the securities
held by the underlying funds in which it invests (“underlying funds’
securities”), rather than investing in the underlying fund shares. For similar
reasons, the character of distributions from a Fund (e.g., long-term capital
gain, QDI, and eligibility for the DRD) will not necessarily be the same as it
would have been had the Fund invested directly in the underlying fund’s
securities.
Depending
on a Fund’s percentage ownership in an underlying fund before and after a
redemption of the underlying fund’s shares, the redemption may be treated as a
dividend in the full amount of the redemption proceeds instead of generating a
capital gain or loss. This could be the case where the underlying fund is not a
“publicly offered [RIC]” (as defined in the Code) or is a closed-end fund and
the Fund redeems only a small portion of its interest therein. Dividend
treatment of a redemption by a Fund would affect the amount and character of
income the Fund must distribute for the taxable year in which the redemption
occurred. It is possible that such a dividend would qualify as QDI if the
underlying fund reports the distribution of the redemption proceeds as such;
otherwise, it would be taxable as ordinary income and could cause shareholders
of the redeeming Fund to recognize higher amounts of ordinary income than if the
shareholders had held shares of the underlying fund directly.
If
a Fund receives dividends from an underlying fund that reports the dividends as
QDI and/or as eligible for the DRD, then the Fund would be permitted, in turn,
to report to its shareholders the portions of its distributions attributable
thereto as QDI and/or eligible for the DRD, respectively, provided the Fund
meets applicable holding period and other requirements with respect to the
underlying fund’s shares.
If
a Fund is a “qualified fund of funds” (i.e., a RIC at least 50% of the value of
the total assets of which is represented by interests in other RICs at the close
of each quarter of its taxable year), it will be able to (1) pay exempt-interest
dividends to its shareholders without regard to whether it satisfies the 50%
Exempt-Interest Dividend Requirement and (2) elect to pass-through to
its shareholders any foreign taxes paid by an underlying fund in which the Fund
invests that itself has elected to pass those taxes through to its shareholders,
so that shareholders of the Fund would be eligible to claim a tax credit or
deduction for those taxes (as well as any foreign taxes paid by the Fund).
However, even if a Fund qualifies to make the election for any year, it may
determine not to do so.
* * * * *
The
foregoing is an abbreviated summary of certain federal tax considerations
affecting each Fund and its shareholders. It does not purport to be
complete or to deal with all aspects of federal taxation that may be relevant to
shareholders in light of their particular circumstances. It is based on
current provisions of the Code and the regulations promulgated thereunder and
judicial decisions and administrative pronouncements published at the date of
this SAI, all of which are subject to change, some of which may be
retroactive. Prospective investors are urged to consult their own tax
advisers for more detailed information and for information regarding other
federal tax considerations and any state, local or foreign taxes that may apply
to them.
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 Funds typically do not pay
brokerage commissions for such purchases and sales. Instead, the price paid for
newly issued securities usually includes a concession or discount paid by the
issuer to the underwriter, and the prices quoted by market-makers reflect a
spread between the bid and the asked prices from which the dealer derives a
profit.
In
purchasing and selling portfolio securities other than as described above (for
example, in the secondary market), each Fund 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, the Manager 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. The Funds
that are authorized to invest in loans will purchase them in individually
negotiated transactions with commercial banks, thrifts, insurance companies,
finance companies and other financial institutions. In determining whether to
purchase loans from these financial institutions, the NBIA may consider, among
other factors, the financial strength, professional ability, level of service
and research capability of the institution. While financial institutions
generally are not required to
repurchase
loans which they have sold, they may act as principal or on an agency basis in
connection with the Fund’s disposition of loans.
In
effecting securities transactions, the Funds seek to obtain the best price and
execution of orders. While affiliates of NBIA are permitted to act as
brokers for the Funds in the purchase and sale of their portfolio securities
(other than certain securities traded on the OTC market) where such brokers are
capable of providing best execution (“Affiliated Brokers”), the Funds generally
will use unaffiliated brokers. For Fund transactions which involve
securities traded on the OTC market, each Fund purchases and sells OTC
securities in principal transactions with dealers who are the principal market
makers for such securities.
During
the fiscal year ended October 31, 2018, Neuberger Berman Core Bond Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2019, Neuberger Berman Core Bond Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2020, Neuberger Berman Core Bond Fund paid brokerage commissions of
$4,869, of which $0 was paid to Neuberger Berman. During the fiscal year ended
October 31, 2020, transactions in which Neuberger Berman Core Bond Fund used Neuberger Berman as broker
comprised 0% of the aggregate dollar amount of transactions involving the
payment of commissions, and 0% of the aggregate brokerage commissions paid by
Neuberger Berman Core Bond Fund. 100% of
the $4,869 paid to other brokers by Neuberger Berman Core Bond Fund during that fiscal year
(representing commissions on transactions involving approximately $13,287) was
directed to those brokers at least partially on the basis of research services
they provided. During the fiscal year ended October 31, 2020, the Fund
acquired securities of the following of its “regular brokers or dealers” (as
defined under the 1940 Act): Wells Fargo Brokerage Services, LLC, Citigroup,
Inc., Morgan Stanley & Co., Inc., Bank of America Securities, LLC, JP Morgan
Chase & Co., Inc., Goldman Sachs & Co., Barclays Capital, Inc., and BNP
Parabis; at that date, the Fund held the securities of its regular brokers or
dealers with an aggregate value as follows: Wells Fargo Brokerage Services, LLC,
$9,632,300; Citigroup, Inc., $7,152,705; Morgan Stanley & Co., Inc.,
$4,558,024; Bank of America Securities, LLC, $3,474,289; JP Morgan Chase &
Co., Inc., $2,966,064; Goldman Sachs & Co., $2,310,812; Barclays Capital,
Inc., $1,510,064; and BNP Parabis, $1,196,196.
During
the fiscal year ended October 31, 2018, Neuberger Berman Emerging Markets Debt Fund did not pay
brokerage commissions.
During
the fiscal year ended October 31, 2019, Neuberger Berman Emerging Markets Debt Fund did not pay
brokerage commissions.
During
the fiscal year ended October 31, 2020, Neuberger Berman Emerging Markets Debt Fund paid brokerage
commissions of $561, of which $0 was paid to Neuberger Berman. During the fiscal
year ended October 31, 2020, transactions in which Neuberger Berman Emerging Markets Debt Fund used Neuberger
Berman as broker comprised 0% of the aggregate dollar amount of transactions
involving the payment of commissions, and 0% of the aggregate brokerage
commissions paid by Neuberger Berman Emerging
Markets Debt Fund. 100% of the
$561
paid to other brokers by Neuberger Berman Emerging Markets Debt Fund during that fiscal
year (representing commissions on transactions involving approximately $609) was
directed to those brokers at least partially on the basis of research services
they provided. During the fiscal year ended October 31, 2020, the Fund did
not acquire or hold any securities of its regular brokers or dealers.
During
the fiscal year ended October 31, 2018, Neuberger Berman Floating Rate Income Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2019, Neuberger Berman Floating Rate Income Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2020, Neuberger Berman Floating Rate Income Fund paid brokerage
commissions of $1,929, of which $0 was paid to Neuberger Berman. During the
fiscal year ended October 31, 2020, transactions in which Neuberger Berman Floating Rate Income Fund used Neuberger Berman
as broker comprised 0% of the aggregate dollar amount of transactions involving
the payment of commissions, and 0% of the aggregate brokerage commissions paid
by Neuberger Berman Floating Rate Income
Fund. 100% of the $1,929 paid to other brokers by Neuberger Berman Floating Rate Income Fund during that fiscal
year (representing commissions on transactions involving approximately
$8,906,345) was directed to those brokers at least partially on the basis of
research services they provided. During the fiscal year ended October 31,
2020, the Fund did not acquire or hold any securities of its regular brokers or
dealers.
During
the fiscal year ended October 31, 2018, Neuberger Berman High Income Bond Fund paid brokerage
commissions of $55,220, of which $0 was paid to Neuberger Berman.
During
the fiscal year ended October 31, 2019, Neuberger Berman High Income Bond Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2020, Neuberger Berman High Income Bond Fund did not pay brokerage commissions.
During the fiscal year ended October 31, 2020, the Fund did not acquire or hold
any securities of its regular brokers or dealers.
During
the fiscal year ended October 31, 2018, Neuberger Berman Municipal High Income Fund did not pay
brokerage commissions.
During
the fiscal year ended October 31, 2019, Neuberger Berman Municipal High Income Fund did not pay
brokerage commissions.
During
the fiscal year ended October 31, 2020, Neuberger Berman Municipal High Income Fund paid brokerage
commissions of $3,984, of which $0 was paid to Neuberger Berman. During the
fiscal year ended October 31, 2020, transactions in which Neuberger Berman Municipal High Income Fund used Neuberger
Berman as broker comprised 0% of the aggregate dollar amount of transactions
involving the payment of commissions, and 0% of the aggregate brokerage
commissions paid by Neuberger Berman Municipal
High Income Fund. 100% of the $3,984 paid to other brokers by Neuberger
Berman Municipal High Income Fund during
that fiscal year (representing commissions on transactions involving
approximately $7,586,888) was
directed
to those brokers at least partially on the basis of research services they
provided. During the fiscal year ended October 31, 2020, the Fund did not
acquire or hold any securities of its regular brokers or dealers.
During
the fiscal year ended October 31, 2018, Neuberger Berman Municipal Intermediate Bond Fund did not pay
brokerage commissions.
During
the fiscal year ended October 31, 2019, Neuberger Berman Municipal Intermediate Bond Fund did not pay
brokerage commissions.
During
the fiscal year ended October 31, 2020, Neuberger Berman Municipal Intermediate Bond Fund did not pay
brokerage commissions. During the fiscal year ended October 31, 2020, the Fund
did not acquire or hold any securities of its regular brokers or dealers.
During
the fiscal year ended October 31, 2018, Neuberger
Berman Municipal
Impact Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2019, Neuberger
Berman Municipal
Impact Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2020, Neuberger
Berman Municipal
Impact Fund did not pay brokerage
commissions. During the fiscal year ended October 31, 2020, the Fund did not
acquire or hold any securities of its regular brokers or dealers.
During
the fiscal year ended October 31, 2018, Neuberger Berman Short Duration Bond Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2019, Neuberger Berman Short Duration Bond Fund did not pay brokerage
commissions.
During
the fiscal year ended October 31, 2020, Neuberger Berman Short Duration Bond Fund paid brokerage
commissions of $2,653, of which $0 was paid to Neuberger Berman. During the
fiscal year ended October 31, 2020, transactions in which Neuberger Berman Short Duration Bond Fund used Neuberger Berman
as broker comprised 0% of the aggregate dollar amount of transactions involving
the payment of commissions, and 0% of the aggregate brokerage commissions paid
by Neuberger Berman Short Duration Bond
Fund. 100% of the $2,653 paid to other brokers by Neuberger Berman Short Duration Bond Fund during that fiscal
year (representing commissions on transactions involving approximately $3,966)
was directed to those brokers at least partially on the basis of research
services they provided. During the fiscal year ended October 31, 2020, the
Fund acquired securities of the following of its “regular brokers or dealers”
(as defined under the 1940 Act): Wells Fargo Brokerage Services, LLC, Goldman
Sachs & Co., Morgan Stanley & Co., Inc., Citigroup, Inc., JP Morgan
Chase & Co., Inc., and Bank of America Securities, LLC; at that date, the
Fund held the securities of its regular brokers or dealers with an aggregate
value as follows: Wells Fargo Brokerage Services, LLC, $3,363,360; Goldman Sachs
& Co., $3,276,443; Morgan Stanley & Co., Inc., $1,664,560; Citigroup,
Inc., $1,576,576; JP Morgan Chase & Co., Inc., $631,327; and Bank of America
Securities, LLC, $613,994.
During
the fiscal year ended October 31, 2018, Neuberger Berman Strategic Income Fund paid brokerage
commissions of $14,736, of which $0 was paid to Neuberger Berman.
During
the fiscal year ended October 31, 2019, Neuberger Berman Strategic Income Fund paid brokerage
commissions of $132, of which $0 was paid to Neuberger Berman.
During
the fiscal year ended October 31, 2020, Neuberger Berman Strategic Income Fund paid brokerage
commissions of $83,525, of which $0 was paid to Neuberger Berman. During the
fiscal year ended October 31, 2020, transactions in which Neuberger Berman Strategic Income Fund used Neuberger Berman as
broker comprised 0% of the aggregate dollar amount of transactions involving the
payment of commissions, and 0% of the aggregate brokerage commissions paid by
Neuberger Berman Strategic Income Fund.
100% of the $83,525 paid to other brokers by Neuberger Berman Strategic Income Fund during that fiscal year
(representing commissions on transactions involving approximately $97,922,318)
was directed to those brokers at least partially on the basis of research
services they provided. During the fiscal year ended October 31, 2020, the
Fund acquired securities of the following of its “regular brokers or dealers”
(as defined under the 1940 Act): Morgan Stanley & Co., Inc., Bank of America
Securities, LLC, Citigroup, Inc., JP Morgan Chase & Co., Inc., Goldman Sachs
& Co., Wells Fargo Brokerage Services, LLC, BNP Parabis, and Barclays
Capital, Inc.; at that date, the Fund held the securities of its regular brokers
or dealers with an aggregate value as follows: Morgan Stanley & Co., Inc.,
$24,561,201; Bank of America Securities, LLC, $23,391,418; Citigroup, Inc.,
$22,313,170; JP Morgan Chase & Co., Inc., $22,075,270; Goldman Sachs &
Co., $16,343,080; Wells Fargo Brokerage Services, LLC, $13,966,435; BNP Parabis,
$13,244,971; and Barclays Capital, Inc., $2,915,138.
The
amount of brokerage commissions paid by a Fund may vary significantly from year
to year due to a variety of factors, including the types of investments selected
by the Manager, investment strategy changes, changing asset levels, shareholder
activity, and/or portfolio turnover.
Commission
rates, being a component of price, are considered along with other relevant
factors in evaluating best price and execution. In selecting a broker other than
an Affiliated Broker to execute Fund transactions, NBIA generally considers the
quality and reliability of brokerage services, including execution capability,
speed of execution, overall performance, and financial responsibility, and may
consider, among other factors, research and other investment information or
services (“research services”) provided by those brokers as well as any expense
offset arrangements offered by the brokers. Each Fund may use an Affiliated
Broker where, in the judgment of NBIA, that firm is able to obtain a price and
execution at least as favorable as other qualified brokers.
To
the Funds’ knowledge, no affiliate of any Fund receives give-ups or reciprocal
business in connection with its securities transactions. No Fund effects
transactions with or through broker-dealers in accordance with any formula or
for selling shares of any Fund. However, broker-dealers who execute portfolio
transactions may from time to time effect purchases of Fund shares for their
customers. The 1940 Act generally prohibits Neuberger Berman from acting as
principal in the purchase of portfolio securities from, or the sale of portfolio
securities to, a Fund unless an appropriate exemption is available.
The
use of an Affiliated Broker for each Fund is subject to the requirements of
Section 11(a) of the Securities Exchange Act of 1934. Section 11(a) prohibits
members of national securities exchanges from retaining compensation for
executing exchange transactions for accounts which they or their affiliates
manage, except where they have the authorization of the persons authorized to
transact business for the account and comply with certain annual reporting
requirements. Before an Affiliated Broker is used, the Trust and NBIA expressly
authorize the Affiliated Broker to retain such compensation, and the Affiliate
Broker would have to agree to comply with the reporting requirements of Section
11(a).
Under
the 1940 Act, commissions paid by each Fund to an Affiliated Broker in
connection with a purchase or sale of securities on a securities exchange may
not exceed the usual and customary broker’s commission. Accordingly, with
respect to each Fund the commissions paid an Affiliated Broker will be at least
as favorable to the Fund as those that would be charged by other qualified
brokers having comparable execution capability in NBIA’s judgment. The Funds do
not deem it practicable and in their best interests to solicit competitive bids
for commissions on each transaction effected by an Affiliated Broker. However,
when an Affiliated Broker is executing portfolio transactions on behalf of a
Fund, consideration regularly will be given to information concerning the
prevailing level of commissions charged by other brokers on comparable
transactions during comparable periods of time. The 1940 Act generally prohibits
an Affiliated Broker from acting as principal in the purchase of portfolio
securities from, or the sale of portfolio securities to, a Fund unless an
appropriate exemption is available.
A
committee of Independent Fund Trustees from time to time will review, among
other things, information relating to the commissions charged by an Affiliated
Broker to the Funds and to their other customers and information concerning the
prevailing level of commissions charged by other brokers having comparable
execution capability.
To
ensure that accounts of all investment clients, including a Fund, are treated
fairly in the event that an Affiliated Broker receives transaction instructions
regarding the same security for more than one investment account at or about the
same time, the Affiliated Broker may combine orders placed on behalf of clients,
including advisory accounts in which affiliated persons have an investment
interest, for the purpose of negotiating brokerage commissions or obtaining a
more favorable price. Where appropriate, securities purchased or sold may be
allocated, in terms of amount, to a client according to the proportion that the
size of the order placed by that account bears to the aggregate size of orders
contemporaneously placed by the other accounts, subject to de minimis
exceptions. All participating accounts will pay or receive the same price when
orders are combined.
Under
policies adopted by the Board of Trustees, an Affiliated Broker may enter into
agency cross-trades on behalf of a Fund. An agency cross-trade is a securities
transaction in which the same broker acts as agent on both sides of the trade
and the broker or an affiliate has discretion over one of the participating
accounts. In this situation, the Affiliated Broker would receive brokerage
commissions from both participants in the trade. The other account participating
in an agency cross-trade with a Fund cannot be an account over which the
Affiliated Broker exercises investment discretion. A member of the Board of
Trustees who will not be affiliated with the Affiliated Broker will review
information about each agency cross-trade that the Fund participates in.
In
selecting a broker to execute Fund transactions, NBIA considers the quality and
reliability of brokerage services, including execution capability, speed of
execution, overall performance, and financial responsibility, and may consider,
among other factors, research and other investment information provided by
non-affiliated brokers.
A
committee comprised of officers of NBIA and/or employees of NBEL who are
portfolio managers of the Funds and Other NB Funds (collectively, “NB Funds”)
and some of NBIA’s and/or NBEL’s managed accounts (“Managed Accounts”)
periodically evaluates throughout the year the nature and quality of the
brokerage and research services provided by other brokers. Based on this
evaluation, the committee establishes a list and projected rankings of preferred
brokers for use in determining the relative amounts of commissions to be
allocated to those brokers. Ordinarily, the brokers on the list effect a large
portion of the brokerage transactions for the NB Funds and the Managed Accounts.
However, in any semi-annual period, brokers not on the list may be used, and the
relative amounts of brokerage commissions paid to the brokers on the list may
vary substantially from the projected rankings. These variations reflect the
following factors, among others: (1) brokers not on the list or ranking
below other brokers on the list may be selected for particular transactions
because they provide better price and/or execution, which is the primary
consideration in allocating brokerage; (2) adjustments may be required
because of periodic changes in the execution capabilities of or research or
other services provided by particular brokers or in the execution or research
needs of the NB Funds and/or the Managed Accounts; and (3) the aggregate
amount of brokerage commissions generated by transactions for the NB Funds and
the Managed Accounts may change substantially from one semi-annual period to the
next.
The
commissions paid to a broker other than an Affiliated Broker may be higher than
the amount another firm might charge if the Manager determines in good faith
that the amount of those commissions is reasonable in relation to the value of
the brokerage and research services provided by the broker. The Manager believes
that those research services benefit the Funds by supplementing the information
otherwise available to the Manager. That research may be used by the Manager in
servicing Other NB Funds and, in some cases, by NBEL in servicing the Managed
Accounts. On the other hand, research received by the Manager from brokers
effecting portfolio transactions on behalf of the Other NB Funds and by NBEL
from brokers effecting portfolio transactions on behalf of the Managed Accounts
may be used for the Funds’ benefit.
In
certain instances the Manager may specifically allocate brokerage for research
services (including research reports on issuers and industries, as well as
economic and financial data) which may otherwise be purchased for cash. While
the receipt of such services has not reduced the Manager’s normal internal
research activities, the Manager’s expenses could be materially increased if it
were to generate such additional information internally. To the extent such
research services are provided by others, the Manager is relieved of expenses it
may otherwise incur. In some cases research services are generated by third
parties but provided to the Manager by or through broker dealers. Research
obtained in this manner may be used in servicing any or all clients of the
Manager and may be used in connection with clients other than those clients
whose brokerage commissions are used to acquire the research services described
herein. With regard to allocation of brokerage to acquire research services
described above, the Manager always considers its best execution obligation when
deciding which broker to utilize.
A
Fund may, from time to time, loan portfolio securities to broker-dealers
affiliated with NBIA (“Affiliated Borrowers”) in accordance with the terms and
conditions of an order issued by the SEC. The order exempts such transactions
from the provisions of the 1940 Act that would otherwise prohibit these
transactions, subject to certain conditions. In accordance with the order,
securities loans made by a Fund to Affiliated Borrowers are fully secured by
cash collateral. Each loan to an Affiliated Borrower by a Fund will be made on
terms at least as favorable to the Fund as comparable loans to unaffiliated
borrowers, and no loans will be made to an Affiliated Borrower unless the
Affiliated Borrower represents that the terms are at least as favorable to the
Fund as those it provides to unaffiliated lenders in comparable transactions.
All transactions with Affiliated Borrowers will be reviewed periodically by
officers of the Trust and reported to the Board of Trustees.
A
Fund’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 Fund 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 Fund
during the fiscal year.
Portfolio
turnover may vary significantly from year to year due to a variety of factors,
including fluctuating volume of shareholder purchase and redemption orders,
market conditions, investment strategy changes, and/or changes in the Manager’s
investment outlook, as well as changes in mortgage dollar roll transaction
volume.
The
Board of Trustees has delegated to NBIA the responsibility to vote proxies
related to the securities held in the Funds’ portfolios. Under this authority,
NBIA is required by the Board of Trustees to vote proxies related to portfolio
securities in the best interests of each Fund and its shareholders. The Board of
Trustees permits NBIA to contract with a third party to obtain proxy voting and
related services, including research of current issues.
NBIA
has implemented written Proxy Voting Policies and Procedures (“Proxy Voting
Policy”) that are designed to reasonably ensure that NBIA votes proxies
prudently and in the best interest of its advisory clients for whom NBIA has
voting authority, including the Funds. The Proxy Voting Policy also describes
how NBIA addresses any conflicts that may arise between its interests and those
of its clients with respect to proxy voting. The following is a summary of
the Proxy Voting Policy. The Proxy Voting Policy can be found in Appendix
B to this SAI. NBIA’s Governance and Proxy Voting Guidelines (“voting
guidelines”) are available on www.nb.com.
NBIA’s
Governance and Proxy Committee (“Proxy Committee”) is responsible for
developing, authorizing, implementing and updating the Proxy Voting Policy,
administering and overseeing the proxy voting process and engaging and
overseeing any independent third-party vendors as voting delegates to review,
monitor and/or vote proxies. In order to apply the Proxy Voting Policy noted
above in a timely and consistent manner, NBIA utilizes Glass, Lewis & Co.
(“Glass Lewis”) to vote proxies in accordance with NBIA’s voting guidelines or,
in instances
where
a material conflict has been determined to exist, in accordance with the voting
recommendations of an independent third party. NBIA retains final authority and
fiduciary responsibility for proxy voting. NBIA believes that this process is
reasonably designed to address material conflicts of interest that may arise
between NBIA and a client as to how proxies are voted.
In
the event that an investment professional at NBIA believes that it is in the
best interests of a client or clients to vote proxies in a manner inconsistent
with the voting guidelines, the Proxy Committee will review information
submitted by the investment professional to determine that there is no material
conflict of interest between NBIA and the client with respect to the voting of
the proxy in the requested manner.
If
the Proxy Committee determines that the voting of a proxy as recommended by the
investment professional would not be appropriate, the Proxy Committee shall:
(i) take no further action, in which case Glass Lewis shall vote such proxy
in accordance with the voting guidelines; (ii) disclose such conflict to
the client or clients and obtain written direction from the client as to how to
vote the proxy; (iii) suggest that the client or clients engage another
party to determine how to vote the proxy; or (iv) engage another
independent third party to determine how to vote the proxy.
A
Fund may invest in shares of affiliated funds and may own substantial portions
of these underlying affiliated funds. When a Fund holds shares of
underlying affiliated funds, the Fund will vote proxies of those funds in the
same proportion as the vote of all other holders of the fund’s shares, unless
the Board otherwise instructs.
Information
regarding how the Funds voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 is available, without charge, by
calling 1-800-877-9700 (toll-free) or by visiting www.nb.com or the website of
the SEC, www.sec.gov.
The
Funds prohibit the disclosure of their portfolio holdings, before such portfolio
holdings are publicly disclosed, to any outside parties, including individual or
institutional investors, intermediaries, third party service providers to NBIA
or the Funds, rating and ranking organizations, and affiliated persons of the
Funds or NBIA (the “Potential Recipients”) unless such disclosure is consistent
with the Funds’ legitimate business purposes and is in the best interests of
their shareholders (the “Best Interests Standard”).
NBIA
and the Funds have determined that the only categories of Potential Recipients
that meet the Best Interests Standard are certain mutual fund rating and ranking
organizations and third party service providers to NBIA or the Funds with a
specific business reason to know the portfolio holdings of the Funds (e.g.,
custodians, prime brokers, etc.) (the “Allowable Recipients”). As such, certain
procedures must be adhered to before the Allowable Recipients may receive the
portfolio holdings prior to their being made public. Allowable Recipients that
get approved for receipt of the portfolio holdings are known as “Approved
Recipients.” NBIA may expand the categories of Allowable Recipients only if it
is determined that the Best Interests Standard has been met and
only
with the written concurrence of NBIA’s legal and compliance department.
These procedures are designed to address conflicts of interest between the
shareholders, on the one hand, and NBIA or any affiliated person of either NBIA
or the Funds on the other, by creating a review and approval process of
Potential Recipients of portfolio holdings consistent with the Best Interests
Standard.
NBIA
serves as investment adviser to various other funds and accounts that may have
investment objectives, strategies and portfolio holdings that are substantially
similar to or overlap with those of the Funds, and in some cases, these other
funds and accounts may publicly disclose portfolio holdings on a more frequent
basis than is required for the Funds. As a result, it is possible that other
market participants may use such information for their own benefit, which could
negatively impact the Funds’ execution of purchase and sale transactions.
Portfolio Characteristics and Select Portfolio
Holdings Information –
Generally, no earlier than five business days after month end, the Funds may
publicly disclose on the Funds’ website, including in Portfolio Manager
commentaries, Fact Sheets or other marketing materials, certain portfolio
characteristics for the month or quarter as of month-end or quarter-end, as
applicable, including but not limited to: up to the top 10 holdings of the Fund;
up to the top 10 holdings that contributed to or detracted from performance; or
changes to portfolio composition, including up to five Fund holdings that were
bought or sold during the period. Funds that engage in short selling may also
disclose up to the 10 top short positions.
In
addition, the Funds may distribute portfolio attribution analyses, portfolio
characteristics and related data and commentary that may be based on non-public
portfolio holdings (“Portfolio Data”) to third-parties upon request. Such
parties may include, but are not limited to, members of the press, investors or
potential investors in the Fund, or representatives of such investors or
potential investors, such as consultants, financial intermediaries, fiduciaries
of a 401(k) plan or a trust and their advisers and rating and ranking
organizations. This permits the distribution of oral or written information
about the Funds, including, but not limited to, how each Fund’s investments are
divided among: various sectors; industries; countries; value and growth stocks;
small-, mid- and large-cap stocks; and various asset classes such as stocks,
bonds, currencies and cash; as well as types of bonds, bond maturities, bond
coupons and bond credit quality ratings. Portfolio Data may also include
information on how these various weightings and factors contributed to Fund
performance including the attribution of a Fund’s return by asset class, sector,
industry and country. Portfolio Data may also include various financial
characteristics of a Fund or its underlying portfolio securities, including, but
not limited to, alpha, beta, R-squared, duration, maturity, information ratio,
Sharpe ratio, earnings growth, pay-out ratio, price/book value, projected
earnings growth, return on equity, standard deviation, tracking error, weighted
average quality, market capitalization, percent debt to equity, price to cash
flow, dividend yield or growth, default rate, portfolio turnover and risk and
style characteristics.
Complete Portfolio Holdings – Typically, public disclosure is
achieved by required filings with the SEC and/or posting the information to the
Funds’ website, which is accessible to the public. The Funds typically disclose
their complete portfolio holdings 15 to 30 calendar days after the relevant
period end on the Fund’s website at www.nb.com. A Fund may also post
intra-month
updates
to holdings and certain portfolio characteristics to www.nb.com. Any such
intra-month update would be in addition to and not in lieu of the holdings
disclosure policies described above.
Disclosure
of portfolio holdings may be requested by completing and submitting a holdings
disclosure form to NBIA’s legal and compliance department or to the Funds’ Chief
Compliance Officer for review, approval and processing.
Neither
the Funds, NBIA, nor any affiliate of either may receive any compensation or
consideration for the disclosure of portfolio holdings. Each Allowable Recipient
must be subject to a duty of confidentiality or sign a non-disclosure agreement,
including an undertaking not to trade on the information, before they may become
an Approved Recipient. Allowable Recipients are (1) required to keep all
portfolio holdings information confidential and (2) prohibited from trading
based on such information. The Funds’ Chief Compliance Officer shall report any
material issues that may arise under these policies to the Board of
Trustees.
Pursuant
to a Code of Ethics adopted by the Funds and NBIA (“NB Code”), employees are
prohibited from revealing information relating to current or anticipated
investment intentions, portfolio holdings, portfolio transactions or activities
of the Funds except to persons whose responsibilities require knowledge of the
information. The NB Code also prohibits any individual associated with the
Funds or NBIA, from engaging directly or indirectly, in any transaction in
securities held or to be acquired by the Funds while in possession of material
non-public information regarding such securities or their issuer.
The
Funds currently have ongoing arrangements to disclose portfolio holdings
information prior to its being made public with the following Approved
Recipients:
State Street Bank and Trust Company (“State
Street”). Each Fund has selected State Street as custodian for its
securities and cash. Pursuant to a custodian contract, each Fund employs State
Street as the custodian of its assets. As custodian, State Street creates
and maintains all records relating to each Fund’s activities and supplies each
Fund with a daily tabulation of the securities it owns and that are held by
State Street. Pursuant to such contract, State Street agrees that all books,
records, information and data pertaining to the business of each Fund which are
exchanged or received pursuant to the contract shall remain confidential, shall
not be voluntarily disclosed to any other person, except as may be required by
law, and shall not be used by State Street for any purpose not directly related
to the business of any Fund, except with such Fund’s written consent. State
Street receives reasonable compensation for its services and expenses as
custodian.
Securities Lending Agent. Each
Fund may enter into a securities lending agreement under which the Fund loans
securities to a counterparty acting as a principal borrower or a lending
agent. Those principal borrowers or agents may receive each Fund’s
portfolio holdings daily. Each such principal borrower that receives such
information is or will be subject to an agreement that all financial,
statistical, personal, technical and other data and information related to the
Fund’s operations that is designated by the Fund as confidential will be
protected from unauthorized use
and
disclosure by the principal borrower. Each Fund may pay a fee for agency
and/or administrative services related to its role as lending agent. Each
Fund also pays the principal borrowers a fee with respect to the cash collateral
that it receives and retains the income earned on reinvestment of that cash
collateral.
Other Third-Party Service Providers to the
Funds. The Funds may also disclose portfolio holdings information
prior to its being made public to their independent registered public accounting
firms, legal counsel, financial printers, proxy voting firms, pricing
vendors and other third-party service providers to the Funds who require
access to this information to fulfill their duties to the Funds.
In
addition, the Funds may disclose portfolio holdings information to third parties
that calculate information derived from holdings for use by NBIA and/or NBEL.
Currently, each Fund provides its complete portfolio holdings to FactSet
Research Systems Inc. (“FactSet”) each day for this purpose. FactSet
receives reasonable compensation for its services.
The
Funds may also, from time to time, disclose portfolio holdings information to a
proxy solicitation service, Glass Lewis, or to a corporate action service
provider, Financial Recovery Technologies, although they typically receive
holdings information after that information is already public.
The
Funds may also, from time to time, disclose portfolio holdings information to
trade organizations, such as the Investment Company Institute and the Loan
Syndicates & Trading Association.
In
all cases the third-party service provider receiving the information has agreed
in writing (or is otherwise required by professional and/or written
confidentiality requirements or fiduciary duty) to keep the information
confidential, to use it only for the agreed-upon purpose(s) and not to trade
securities on the basis of such information.
Rating, Ranking and Research
Agencies. Each Fund sends its complete portfolio holdings
information to the following rating, ranking and research agencies for the
purpose of having such agency develop a rating, ranking or specific research
product for the Fund. Each Fund provides its complete portfolio holdings
to: Lipper, a Refinitiv company, on the sixth business day following each
month-end and Bloomberg and Morningstar on the 16th calendar day following
month-end if the Fund posts its holdings monthly (but if a Fund posts its
holdings quarterly, it provides its holdings on a quarterly basis no earlier
than the 15th calendar day following the relevant quarter-end). No compensation
is received by any Fund, NBIA, NBEL, or any other person in connection with the
disclosure of this information. NBIA either has entered into or expects
shortly to enter into a written confidentiality agreement, with each rating,
ranking or research agency in which the agency agrees or will agree to keep each
Fund’s portfolio holdings confidential and to use such information only in
connection with developing a rating, ranking or research product for the
Fund.
Shareholders
of each Fund receive unaudited semi-annual financial statements, as well as
year-end financial statements audited by the respective independent registered
public accounting
firm
for the Fund. Each Fund’s statements show the investments owned by it and the
market values thereof and provide other information about the Fund and its
operations.
Each
Fund is a separate ongoing series of the Trust, a Delaware statutory trust
organized pursuant to an Amended and Restated Trust Instrument dated as of March
27, 2014. 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 9 separate operating series. The Fund Trustees may establish
additional series or classes of shares without the approval of shareholders. The
assets of each series belong only to that series, and the liabilities of each
series are borne solely by that series and no other.
Prior
to June 1, 2009, the name of the Trust was Lehman Brothers Income Funds. Prior
to June 1, 2007, the name of the Trust was Neuberger Berman Income Funds.
On
February 28, 2007, each of Neuberger Berman High
Income Bond Fund, Neuberger Berman Short
Duration Bond Fund and Neuberger Berman Strategic Income Fund changed its name from
Neuberger Berman High Income Bond Fund, Neuberger Berman Limited Maturity Bond
Fund and Neuberger Berman Strategic Income Fund to Lehman Brothers High Income
Bond Fund, Lehman Brothers Short Duration Bond Fund and Lehman Brothers
Strategic Income Fund, respectively. On September 26, 2008, each of
Neuberger Berman Core Bond Fund,
Neuberger Berman High Income Bond Fund, Neuberger Berman Short Duration Bond Fund and Neuberger Berman
Strategic Income Fund changed its name
from Lehman Brothers Core Bond Fund, Lehman Brothers High Income Bond Fund,
Lehman Brothers Short Duration Bond Fund and Lehman Brothers Strategic Income
Fund to Neuberger Berman Core Bond Fund, Neuberger Berman High Income Bond Fund,
Neuberger Berman Short Duration Bond Fund and Neuberger Berman Strategic Income
Fund, respectively.
On
February 28, 2007, Neuberger Berman Municipal
Intermediate Bond Fund changed its name from Neuberger Berman Municipal
Securities Trust to Lehman Brothers Municipal Securities Trust; on September 26,
2008, it changed its name from Lehman Brothers Municipal Securities Trust to
Neuberger Berman Municipal Securities Trust; and on February 27, 2009, it
changed its name to Neuberger Berman Municipal Intermediate Bond Fund.
On
June 2, 2014, Neuberger Berman Emerging Markets
Debt Fund changed its name from Neuberger Berman Emerging Markets Income
Fund.
On
June 16, 2018, Neuberger Berman Municipal
Impact Fund changed its name from Neuberger Berman New York Municipal
Income Fund.
Description
of Shares. Each Fund is authorized to issue an unlimited
number of shares of beneficial interest (par value $0.001 per share). Shares of
each Fund represent equal proportionate interests in the assets of that Fund
only and have identical voting, dividend, redemption, liquidation, and other
rights except that expenses allocated to a Class may be borne solely by such
Class as determined by the Fund Trustees and a Class may have exclusive voting
rights with respect to matters affecting only that Class. 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 Fund Trustees do not intend to hold annual
meetings of shareholders of the Funds. The Fund Trustees will call special
meetings of shareholders of a Fund or Class only if required under the 1940 Act
or in their discretion or upon the written request of holders of 25% or more of
the outstanding shares of that Fund or Class entitled to vote at the
meeting.
Certain
Provisions of Trust Instrument. Under Delaware law, the
shareholders of a Fund will not be personally liable for the obligations of any
Fund; a shareholder is entitled to the same limitation of personal liability
extended to shareholders of a Delaware corporation. To guard against the risk
that Delaware law might not be applied in other states, the Trust Instrument
requires that every written obligation of the Trust or a Fund contain a
statement that such obligation may be enforced only against the assets of the
Trust or Fund and provides for indemnification out of Trust or Fund property of
any shareholder nevertheless held personally liable for Trust or Fund
obligations, respectively, merely on the basis of being a shareholder.
Other. For Fund shares that can be bought,
owned and sold through an account with an Institution, a client of an
Institution may be unable to purchase additional shares and/or may be required
to redeem shares (and possibly incur a tax liability) if the client no longer
has a relationship with the Institution or if the Institution no longer has a
contract with the Distributor to perform services. Depending on the
policies of the Institution involved, an investor may be able to transfer an
account from one Institution to another.
Each
Fund has selected State Street, One Lincoln Street, Boston, MA 02111, as
custodian for its securities and cash. DST Asset Manager Solutions, Inc. serves
as each Fund’s transfer and shareholder servicing agent, administering
purchases, redemptions, and transfers of Fund shares and the payment of
dividends and other distributions. All correspondence should be mailed to
Neuberger Berman Funds, P.O. Box 219189, Kansas City, MO 64121-9189.
Each
of Neuberger Berman Emerging Markets Debt
Fund, Neuberger Berman High Income
Bond Fund, Neuberger Berman Municipal
Intermediate Bond Fund, Neuberger Berman Short Duration Bond Fund and Neuberger Berman
Strategic Income Fund has selected Ernst
& Young LLP, 200 Clarendon Street, Boston, MA 02116, as the independent
registered public accounting firm that will audit its financial
statements.
Each
of Neuberger Berman Core Bond Fund,
Neuberger Berman Floating Rate Income
Fund, Neuberger Berman Municipal High Income
Fund and Neuberger Berman Municipal Impact Fund has selected Tait, Weller, Baker LLP, Two
Liberty Place, 50 South 16th Street, Philadelphia, PA 19102, as the independent
registered public accounting firm that will audit its financial
statements.
The
Trust has selected K&L Gates LLP, 1601 K Street, N.W., Washington, D.C.
20006-1600, as its legal counsel.
As of June 15, 2021, the
following are all of the beneficial and record owners of five percent or more of
a Class of a Fund’s shares. Except where indicated with an asterisk, the owners
listed are record owners. These entities hold these shares of record for the
accounts of certain of their clients and have informed the Funds of their policy
to maintain the confidentiality of holdings in their client accounts, unless
disclosure is expressly required by law.
Fund and Class@ |
Name and Address |
Percentage of Shares Held
|
Neuberger Berman Core Bond Fund – Class A |
UMB BANK, NA FIDUCIARY FOR VARIOUS
TAX DEFERRED ACCOUNTS
1 SW SECURITY BENEFIT PL
TOPEKA KS 66636-1000
|
36.14% |
|
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
16.51% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
14.07% |
|
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
|
8.99% |
|
SECURITY BENEFIT LIFE INSURANCE CO
1 SW SECURITY BENEFIT PL
TOPEKA KS 66636-1000 |
8.90% |
Neuberger Berman Core Bond Fund – Class C |
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
28.57% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
18.59% |
|
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN STREET
SAN FRANCISCO CA 94105-1905
|
11.49% |
|
LPL FINANCIAL
A/C 1000-0005
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
|
11.38% |
|
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
|
8.09% |
|
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0002
|
7.83% |
Neuberger Berman Core Bond Fund –
Institutional Class |
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
33.13% |
|
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
20.73% |
|
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103-2226
|
10.95% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
6.57% |
|
SEI PRIVATE TRUST COMPANY
C/O ROPES & GRAY ID 537
ATTN: MUTUAL FUND ADMINISTRATOR
ONE FREEDOM VALLEY DRIVE
OAKS PA 19456-9989
|
5.31% |
|
SEI PRIVATE TRUST COMPANY
C/O ROPES & GRAY ID 537
ATTN: MUTUAL FUND ADMINISTRATOR
ONE FREEDOM VALLEY DRIVE
OAKS PA 19456-9989
|
5.18% |
Neuberger Berman Core Bond Fund – Investor Class |
NEAR NORTH HEALTH SERV CORP
NOT-FOR-PROFIT CORPORATION
1276 N CLYBOURN AVE
CHICAGO IL 60610-2003
|
6.10% |
Neuberger Berman Core Bond Fund – Class R6 |
MID ATLANTIC TRUST COMPANY FBO
MATC FBO VARIOUS CREATIVE WEALTH ST
1251 WATERFRONT PL STE 525
PITTSBURGH PA 15222-4228
|
65.81% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
26.23% |
Neuberger Berman
Emerging
Markets Debt Fund – Class A |
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
66.43% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
13.63% |
Neuberger Berman
Emerging
Markets Debt Fund – Class C |
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0002
|
70.03% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
23.03% |
Neuberger Berman
Emerging
Markets Debt Fund – Institutional Class |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
31.88% |
|
NEBRASKA INVESTMENT COUNCIL PENSION
ATTN STATE INVESTMENT OFFICER
1526 K ST STE 420
LINCOLN NE 68508-2734
|
21.57% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
7.65% |
|
DTE ENERGY COMPANY
AFFILIATES EMPLOYEE BENEFIT PLANS
MASTER TRUST
ATTN: GREG DUREN
1 ENERGY PLZ
DETROIT MI 48226-1221
|
5.79% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN STREET
SAN FRANCISCO CA 94105-1905
|
5.54% |
|
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN STREET
SAN FRANCISCO CA 94105-1905
|
5.12% |
Neuberger Berman Floating Rate Income Fund – Class A |
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
21.44% |
|
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
17.90% |
|
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
10.40% |
|
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
8.32% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
6.57% |
|
DAVID RABINOWITZ
KATHERINE RABINOWITZ JT WROS
NEW YORK NY 10003-6421
|
5.56% |
|
AMERICAN ENTERPRISE INVESTMENT SVC FBO #
41999970 707 2ND AVE S MINNEAPOLIS MN 55402-2405 |
5.45% |
Neuberger Berman Floating Rate Income Fund – Class C |
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
|
35.35% |
|
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
21.90% |
|
LPL FINANCIAL
A/C 1000-0005
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
|
15.12% |
|
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
6.07% |
|
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
5.53% |
Neuberger Berman Floating Rate Income Fund – Institutional
Class |
NATIONAL FINANCIAL SERV CORP LLC
FOR THE EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
29.62% |
|
EMPLOYEES RETIREMENT FUND OF THE
CITY OF DALLAS
ATTN CHERYL D ALSTON
1920 MCKINNEY AVE 10TH FL
DALLAS TX 75201-2483
|
14.34% |
|
SAN JOAQUIN COUNTY EMPLOYEES
RETIREMENT ASSOCIATION (SJCERA)
ATTN: JOHANNA SHICK CEO SJCERA
6 S EL DORADO ST STE 400
STOCKTON CA 95202-2804
|
9.65% |
|
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091 |
8.44% |
|
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523 |
7.61% |
|
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
|
6.19% |
|
DTE ENERGY COMPANY
AFFILIATES EMPLOYEE BENEFIT PLANS
MASTER TRUST
ATTN: GREG DUREN
1 ENERGY PLZ
DETROIT MI 48226-1221
|
5.40% |
Neuberger Berman High Income Bond Fund – Class A |
MLPF&S FOR THE SOLE BENEFIT OF
ITS CUSTOMERS
ATTN FUND ADMINSTRATION (97NX1)
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
23.72% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
16.24% |
|
E*TRADE SAVINGS BANK
FBO #340
PO BOX 6503
ENGLEWOOD CO 80155-6503
|
7.14% |
Neuberger Berman High Income Bond Fund – Class C |
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
42.18% |
|
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
|
18.64% |
|
MLPF&S FOR THE SOLE BENEFIT OF
ITS CUSTOMERS
ATTN FUND ADMINSTRATION (97NX1)
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
8.43% |
Neuberger Berman High Income Bond Fund – Institutional
Class |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
27.81% |
|
EDWARD D JONES & CO
FOR THE BENEFIT OF CUSTOMERS
12555 MANCHESTER RD
SAINT LOUIS MO 63131-3710
|
19.68 |
|
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
9.24% |
|
SEI PRIVATE TRUST COMPANY
C/O TRUIST ID 866
ONE FREEDOM VALLEY DRIVE
OAKS PA 19456-9989
|
8.13% |
|
NEBRASKA INVESTMENT COUNCIL PENSION ATTN
STATE INVESTMENT OFFICER 1526 K ST STE 420 LINCOLN NE
68508-2734
|
5.59% |
Neuberger Berman High Income Bond Fund – Investor
Class |
NATIONAL FINANCIAL SERVICES
FOR THE EXCLUSIVE BENEFIT OF
THEIR CLIENTS
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
25.96% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
23.98% |
Neuberger Berman High Income Bond Fund – Class R3 |
VOYA RETIREMENT INSURANCE AND
ANNUITY COMPANY
TREASURY DEPARTMENT
ONE ORANGE WAY
WINDSOR CT 06095-4773
|
50.79% |
|
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH STREET
DES MOINES IA 50392-0001
|
24.58% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
8.62% |
|
STEVEN HOLLINGSHEAD TTEE FBO
HOLLYS CUSTOM PRINT INC 401K PSP
C/O FASCORE
8515 E ORCHARD RD 2T2
GREENWOOD VILLAGE CO 80111-5002
|
7.92% |
Neuberger Berman High Income Bond Fund – Class R6 |
NFS LLC FEBO
FIIOC AS AGENT FOR
QUALIFIED EMPLOYEE BENEFIT
PLANS (401K) FINOPS-IC FUNDS
100 MAGELLAN WAY # KW1C
COVINGTON KY 41015-1987
|
28.53% |
|
DTE ENERGY COMPANY
AFFILIATES EMPLOYEE BENEFIT PLANS
MASTER TRUST
ATTN: GREG DUREN
1 ENERGY PLZ
DETROIT MI 48226-1221
|
16.46% |
|
STATE STREET BANK AND TRUST AS TTEE
LOCKHEED MARTIN SERP TRUST
ATTN MATT SNYDER
1200 CROWN COLONY DR CC1
QUINCY MA 02169-0938
|
12.86% |
|
HUDSON EAST RIVER SYSTEMS LLC
ATTN WILLIAM LEE
527 MADISON AVE FL 14
NEW YORK NY 10022-4388
|
10.32% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
6.79% |
Neuberger Berman Municipal High Income Fund – Class
A |
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
23.09% |
|
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
19.00% |
|
PREDRAG STORIC
JOANNE STORIC JT WROS
JERICHO NY 11753-2211
|
14.45% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
10.91% |
|
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
|
7.17% |
|
PERSHING LLC 1 PERSHING PLZ JERSEY
CITY NJ 07399-0002 |
6.47% |
Neuberger Berman Municipal High Income Fund – Class
C |
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
27.81% |
|
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
16.04% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
12.79% |
Neuberger Berman Municipal High Income Fund –
Institutional Class |
NATIONAL FINANCIAL SERV CORP LLC
FOR THE EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
92.79% |
|
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
5.08% |
Neuberger Berman Municipal Impact Fund – Class
A |
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
59.31% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
30.93% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
5.27% |
Neuberger Berman Municipal Impact Fund – Class
C |
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
100% |
Neuberger Berman Municipal Impact Fund – Institutional
Class |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT 4TH FL
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
20.29% |
Neuberger Berman Municipal Intermediate Bond Fund – Class A |
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
ATTN FUND ADMINISTRATION (98055)
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
49.51% |
|
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
8.62% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
7.77% |
|
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
7.00% |
|
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
|
6.76% |
|
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
6.01% |
|
PERSHING LLC 1 PERSHING PLZ JERSEY
CITY NJ 07399-0002 |
5.75% |
Neuberger Berman Municipal Intermediate Bond Fund – Class C |
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
45.60% |
|
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
24.59% |
|
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
8.70% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
6.17% |
|
AMERICAN ENTERPRISE INVESTMENT SVC FBO #
41999970 707 2ND AVE S MINNEAPOLIS MN 55402-2405
|
5.74% |
Neuberger Berman Municipal Intermediate Bond Fund – Investor Class |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
ATTN MUTUAL FUNDS DEPT 4TH FL
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
10.81% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
7.57% |
|
MILTON W ROGGENKAMP REVOCABLE TR
MILTON W ROGGENKAMP TTEE
UA DTD 06/17/2008
W LAFAYETTE IN 47906-2105
|
7.49% |
|
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103-2226
|
7.29% |
Neuberger Berman Short Duration Bond Fund – Class A |
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
22.58% |
|
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
14.89% |
|
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
|
14.78% |
|
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
ATTN FUND ADMINISTRATION (98055)
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
14.44% |
|
CHARLES SCHWAB & CO INC SPECIAL CUSTODY
A/C FBO CUSTOMERS ATTN MUTUAL FUNDS 211 MAIN STREET SAN FRANCISCO
CA 94105-1905
|
10.58% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
8.81% |
|
NATIONAL FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
7.57% |
Neuberger Berman Short Duration Bond Fund – Class C |
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
26.19% |
|
WELLS FARGO CLEARING SERVICES LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET
ST SAINT LOUIS MO 63103-2523
|
25.30% |
|
LPL FINANCIAL
A/C 1000-0005
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
|
20.82% |
|
GREG GRAVENMIER TTEE FBO
SEALING SPECIALIST INC 401K PSP
C/O FASCORE LLC
8515 E ORCHARD RD 2T2
GREENWOOD VILLAGE CO 80111-5002
|
20.10% |
Neuberger Berman Short Duration Bond Fund – Institutional
Class |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
59.28% |
|
CITY OF HOLLYWOOD EMPLOYEES
RETIREMENT FUND
PO BOX 229045
HOLLYWOOD FL 33022-9045
|
24.62% |
|
LPL FINANCIAL OMNIBUS CUSTOMER
ACCOUNT ATTN MUTUAL FUND TRADING 4707 EXECUTIVE DR SAN DIEGO
CA 92121-3091
|
8.05% |
Neuberger Berman Short Duration Bond Fund – Investor
Class
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
6.86% |
|
DAVID MICHAEL SCHWARZ
WASHINGTON DC 20036-4213
|
5.70% |
|
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103-2226
|
5.52% |
Neuberger Berman Short Duration Bond Fund – Trust Class
|
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH STREET
DES MOINES IA 50392-0001
|
38.04% |
|
NATIONWIDE LIFE INSURANCE COMPANY
(QPVA)
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
|
22.60% |
|
NATIONAL FINANCIAL SERV CORP
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
19.17% |
|
TALCOTT RESOLUTION
LIFE INSURANCE COMPANY
PO BOX 5051
HARTFORD CT 06102-5051
|
8.33% |
Neuberger Berman Strategic Income Fund – Class A |
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
37.07% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
12.84% |
|
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
10.74% |
|
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
6.78% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
6.48% |
Neuberger Berman Strategic Income Fund – Class C |
RAYMOND JAMES OMNIBUS FOR
MUTUAL FUNDS HOUSE ACCOUNT
FIRM 92500015
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
|
19.83% |
|
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
17.61% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
16.05% |
|
LPL FINANCIAL
A/C 1000-0005
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
|
12.35% |
|
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
10.04% |
|
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
|
7.60% |
|
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
6.03% |
Neuberger Berman Strategic Income Fund –
Institutional Class |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
22.33% |
|
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
15.64% |
|
AMERICAN ENTERPRISE INVESTMENT SVC
FBO # 41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
|
15.46% |
|
CHARLES SCHWAB & CO INC
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
|
7.77% |
|
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
|
7.41% |
|
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
|
5.53% |
Neuberger Berman Strategic Income Fund – Class R6 |
STRATEGIC PARTNERSHIP FUND NB LLC
NEUBERGER BERMAN INV ADVISERS LLC
AS MANAGER
ATTN: PRIVATE FUND CLIENT SERVICE
1290 AVE OF THE AMERICAS 22ND FL
NEW YORK NY 10104-0002
|
12.26% |
|
JOHN HANCOCK TRUST COMPANY LLC
690 CANTON ST STE 100
WESTWOOD MA 02090-2324
|
9.43% |
|
LOCAL 1205 PENSION PLAN
ATTN DIANA PUGLISI - FUND ADMIN
246 CONKLIN ST
FARMINGDALE NY 11735-2657
|
9.18% |
|
NATIONAL FINANCIAL SERVICES LLC
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
9.15% |
|
CEMENT & CONCRETE WORKERS DISTRICT
COUNCIL PENSION FUND
JACK BRUNETTI & ALEX CASTALDI TTEES
ATTN SILVANA BALDO
35-30 FRANCIS LEWIS BLVD
FLUSHING NY 11358-1931
|
8.01% |
|
USWU LOCAL 74 WELFARE FUND
ATTN CHARLES A POEKEL JR ESQ
3636 33RD ST STE 202
LONG ISLAND CITY NY 11106-2329
|
5.08% |
Neuberger Berman Strategic Income Fund – Trust Class |
NATIONAL FINANCIAL SERV CORP
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
499 WASHINGTON BLVD
JERSEY CITY NJ 07310-1995
|
26.45% |
|
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103-2226
|
6.26% |
|
UMB BANK NA
CUST ROLLOVER IRA FBO
CHARLES ALBERT BYER
1730 WINTERGREEN CT
CROWN POINT IN 46307-5312
|
5.65% |
@ As of the
date of this SAI, Class E of the Neuberger Berman High Income Bond Fund had not yet commenced
operations and therefore has neither beneficial not record owners of more than
five percent of Class E shares.
As
of the date of this SAI, Class E of Neuberger Berman High Income Bond Fund had not yet commenced
operations and therefore has neither beneficial not record owners of more than
five percent of Class E shares. As of the date of this SAI, Class R6 of
Neuberger Berman Short Duration Bond Fund
had not yet commenced operations.
As
of June 15, 2021, the following shareholders owned of record or beneficially
more than 25% of the outstanding shares of a Fund as set forth below. A
shareholder who owns of record or beneficially more than 25% of the outstanding
shares of a Fund or who is otherwise deemed to “control” a Fund may be able to
determine or significantly influence the outcome of matters submitted to a vote
of the Fund’s shareholders.
Fund
|
Name and Address |
Percent Owned
|
Neuberger Berman Core Bond Fund |
MERRILL LYNCH PIERCE FENNER &
SMITH INC FUND ADMINISTRATION
ATTN SERVICE TEAM
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
|
31.42% |
Neuberger Berman Emerging Markets Debt Fund |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
31.57% |
Neuberger Berman Floating Rate Income Fund |
NATIONAL FINANCIAL SERV CORP LLC
FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
28.09% |
Neuberger Berman Municipal High Income Fund |
NATIONAL FINANCIAL SERV CORP LLC
FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995
|
91.84% |
Neuberger Berman Municipal Intermediate Bond Fund |
SEI PRIVATE TRUST COMPANY
C/O ROPES & GRAY ID 537
1 FREEDOM VALLEY DR
OAKS PA 19456-9989
|
66.98% |
Neuberger Berman Short Duration Bond Fund |
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-1995 |
42.83% |
As of the date of this
SAI, Class E of each Fund had not yet commenced operations.
This
SAI and the Prospectuses 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 Prospectuses. The registration
statement, including the exhibits filed therewith, may be examined at the SEC’s
offices in Washington, D.C. The SEC maintains a website (http://www.sec.gov)
that contains this SAI, material incorporated by reference, and other
information regarding the Funds.
Statements
contained in this SAI and in the Prospectuses as to the contents of any contract
or other document referred to are not necessarily complete. In each
instance where reference is made to a contract or other document a copy of which
is filed as an exhibit to the registration statement, each such statement is
qualified in all respects by such reference.
The
following financial statements and related documents are incorporated herein by
reference from each Fund’s Annual Report to shareholders for the fiscal year
ended October 31, 2020:
The
audited financial statements of Neuberger Berman Emerging Markets Debt Fund, Neuberger Berman
High Income Bond Fund, Neuberger Berman Short Duration Bond Fund, Neuberger Berman Municipal Intermediate Bond Fund and Neuberger
Berman Strategic Income Fund and notes
thereto, and the reports of Ernst & Young LLP, independent registered public
accounting firm, with respect to such audited financial statements of the
Funds.
The
audited financial statements of Neuberger Berman Core Bond Fund, Neuberger Berman Floating Rate Income Fund, Neuberger Berman
Municipal High Income Fund and Neuberger
Berman Municipal Impact Fund and notes
thereto, and the reports of Tait, Weller & Baker LLP, independent registered
public accounting firm, with respect to such audited financial statements of the
Funds.
The
Board of Trustees adopted a change in Neuberger
Berman Municipal
Impact Fund’s fiscal year end to
October 31. This change was effective beginning March 1, 2013.
Appendix
A
S&P
Global Ratings – Long-Term Issue Credit
Ratings*:
The
following descriptions have been published by Standard & Poor’s Financial
Services LLC.
AAA – An obligation rated ‘AAA’ has the
highest rating assigned by S&P Global Ratings. The obligor’s capacity to
meet its financial commitment on the obligation is extremely strong.
AA – An obligation rated ‘AA’ differs from
the highest-rated obligations only to a small degree. The obligor’s capacity to
meet its financial commitment on the obligation is very strong.
A – An obligation rated ‘A’ is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However, the obligor’s
capacity to meet its financial commitment on the obligation is still
strong.
BBB – An obligation rated ‘BBB’ exhibits
adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
BB, B, CCC,
CC, and C –
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having
significant speculative characteristics. ‘BB’ indicates the least degree of
speculation and ‘C’ the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB – An obligation rated ‘BB’ is less
vulnerable to nonpayment than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligor’s inadequate capacity to meet its
financial commitment on the obligation.
B – An obligation rated ‘B’ is more
vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor’s
capacity or willingness to meet its financial commitment on the
obligation.
CCC – An obligation rated ‘CCC’ is currently
vulnerable to nonpayment, and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet its financial commitment
on the obligation.
CC – An obligation rated ‘CC’ is currently
highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not
yet occurred, but S&P Global Ratings expects default to be a virtual
certainty, regardless of the anticipated time to default.
C – An obligation rated ‘C’ is currently
highly vulnerable to nonpayment, and the obligation is expected to have lower
relative seniority or lower ultimate recovery compared to obligations that are
rated higher.
D – An obligation rated ‘D’ is in default
or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’
rating category is used when payments on an obligation are not made on the date
due, unless S&P Global Ratings believes that such payments will be made
within five business days, in the absence of a stated grace period or within the
earlier of the stated grace period or 30 calendar days. The ‘D’ rating also will
be used upon the filing of a bankruptcy petition or the taking of similar action
and where default on an obligation is a virtual certainty, for example due to
automatic stay provisions. An obligation's rating is lowered to ‘D’ if it is
subject to a distressed exchange offer.
NR – This indicates that no rating has been
requested, or that there is insufficient information on which to base a rating,
or that S&P Global Ratings does not rate a particular obligation as a matter
of policy.
*The
ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating
categories.
Moody’s Investors Service, Inc. (“Moody’s”)
-- Global Long-Term Rating Scale:
The
following descriptions have been published by Moody’s Investors Service,
Inc.
Aaa – Obligations rated Aaa are judged to be
of the highest quality, subject to the lowest level of credit risk.
Aa – Obligations rated Aa are judged to be
of high quality and are subject to very low credit risk.
A – Obligations rated A are judged to be
upper-medium grade and are subject to low credit risk.
Baa – Obligations rated Baa are judged to be
medium-grade and subject to moderate credit risk and as such may possess certain
speculative characteristics.
Ba – Obligations rated Ba are judged to be
speculative and are subject to substantial credit risk.
B – Obligations rated B are considered
speculative and are subject to high credit risk.
Caa – Obligations rated Caa are judged to be
speculative, of poor standing and are subject to very high credit risk.
Ca – Obligations rated Ca are
highly speculative and are likely in, or very near, default, with some prospect
of recovery of principal and interest.
C – Obligations rated C are the
lowest rated and are typically in default, with little prospect for recovery of
principal or interest.
Note: Moody’s appends numerical modifiers 1, 2,
and 3 to each generic rating classification from Aa through Caa. The modifier 1
indicates that the obligation ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of that generic rating category.
Additionally, a “(hyb)” indicator is appended to all ratings of hybrid
securities issued by banks, insurers, finance companies, and securities
firms.*
*
By their terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to
contractually allowable write-downs of principal that could result in
impairment. Together with the hybrid indicator, the long-term obligation
rating assigned to a hybrid security is an expression of the relative credit
risk associated with that security.
Fitch Ratings (“Fitch”) -- Corporate Finance
Obligations – Long-Term Rating Scale:
The
following descriptions have been published by Fitch, Inc. and Fitch Ratings Ltd.
and its subsidiaries.
AAA – Highest credit quality.
‘AAA’ ratings denote the lowest
expectation of credit risk. They are assigned only in cases of exceptionally
strong capacity for payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA – Very high credit quality.
‘AA’ ratings denote expectations of very
low credit risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A – High credit quality. ‘A’ ratings denote expectations of low credit
risk. The capacity for payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to adverse business or
economic conditions than is the case for higher ratings.
BBB – Good credit quality. ‘BBB’ ratings indicate that expectations of
credit risk are currently low. The capacity for payment of financial commitments
is considered adequate but adverse business or economic conditions are more
likely to impair this capacity.
BB – Speculative. ‘BB’ ratings indicate an elevated vulnerability
to credit risk, particularly in the event of adverse changes in business or
economic conditions over time; however, business or financial alternatives may
be available to allow financial commitments to be met.
B – Highly speculative. ‘B’ ratings indicate that material credit risk
is present. For performing obligations, default risk is commensurate with
an Issuer Default Risk (“IDR”) in the ranges ‘BB’ to ‘C’. For issuers with an
IDR below ‘B’, the overall credit risk of this obligation is moderated by the
expected level of recoveries should a default occur. For issuers with an
IDR above ‘B’, the overall credit risk of this obligation is exacerbated by the
expected low level of recoveries should a default occur. For
non-performing obligations, the obligation or issuer is in default, or has
deferred payment, but the rated obligation is expected to have extremely high
recovery rates consistent with a Recovery Rating of ‘RR1’.
CCC – Substantial credit risk.
‘CCC’ ratings indicate that substantial
credit risk is present. For performing obligations, default risk is commensurate
with an IDR in the ranges ‘B’ to ‘C’. For issuers with an IDR below ‘CCC’,
the overall credit risk of this obligation is moderated by the expected level of
recoveries should a default occur. For issuers with an IDR above ‘CCC’,
the overall credit risk of this obligation is exacerbated by the expected low
level of recoveries should a default occur. For non-performing obligations, the
obligation or issuer is in default, or has deferred payment, but the rated
obligation is expected to have a superior recovery rate consistent with a
Recovery Rating of ‘RR2’.
CC – Very high levels of credit
risk. ‘CC’ ratings indicate very high
levels of credit risk. For performing obligations, default risk is
commensurate with an IDR in the ranges ‘B’ to ‘C’. For issuers with an IDR below
‘CC’, the overall credit risk of this obligation is moderated by the expected
level of recoveries should a default occur. For issuers with an IDR above
‘CC’, the overall credit risk of this obligation is exacerbated by the expected
low level of recoveries should a default occur. For non-performing
obligations, the obligation or issuer is in default, or has deferred payment,
but the rated obligation is expected to have a good recovery rate consistent
with a Recovery Rating of ‘RR3’.
C – Exceptionally high levels
of credit risk. ‘C’ indicates
exceptionally high levels of credit risk. For performing obligations, default
risk is commensurate with an IDR in the ranges ‘B’ to ‘C’. The overall credit
risk of this obligation is exacerbated by the expected low level of recoveries
should a default occur. For non-performing obligations, the obligation or issuer
is in default, or has deferred payment, and the rated obligation is expected to
have an average, below-average or poor recovery rate consistent with a Recovery
Rating of ‘RR4’, ‘RR5’ or ‘RR6’.
Defaulted
obligations typically are not assigned ‘RD’ or ‘D’ ratings, but are instead
rated in the ‘B’ to ‘C’ rating categories, depending upon their recovery
prospects and other relevant characteristics. This approach better aligns
obligations that have comparable overall expected loss but varying vulnerability
to default and loss.
Note: The modifiers “+” or “-” may be appended
to a rating to denote relative status within major rating categories. Such
suffixes are not added to the ‘AAA’ obligation rating category, or to corporate
finance obligation ratings in the categories below ‘CCC’.
The
subscript ‘emr’ is appended to a rating to denote embedded market risk which is
beyond the scope of the rating. The designation is intended to make clear that
the rating solely addresses the counterparty risk of the issuing bank. It is not
meant to indicate any limitation in the analysis of the counterparty risk, which
in all other respects follows published Fitch criteria for analyzing the issuing
financial institution. Fitch does not rate these instruments where the principal
is to any degree subject to market risk.
DBRS --Long Term Obligations Rating
Scale:
The
following descriptions have been published by Dominion Bond Rating
Service.
AAA – Highest credit quality.
The capacity for the payment of financial obligations is exceptionally high and
unlikely to be adversely affected by future events.
AA – Superior credit quality.
The capacity for the payment of financial obligations is considered high.
Credit quality differs from AAA only to a small degree. Unlikely to be
significantly vulnerable to future events.
A – Good credit quality. The
capacity for the payment of financial obligations is substantial, but of lesser
credit quality than AA. May be vulnerable to future events, but qualifying
negative factors are considered manageable.
BBB – Adequate credit quality.
The capacity for the payment of financial obligations is considered acceptable.
May be vulnerable to future events.
BB – Speculative, non
investment-grade credit quality. The capacity for the payment of financial
obligations is uncertain. Vulnerable to future events.
B – Highly speculative credit
quality. There is a high level of uncertainty as to the capacity to meet
financial obligations.
CCC, CC,
C – Very highly speculative credit quality. In danger of
defaulting on financial obligations. There is little difference between these
three categories, although CC and C ratings are normally applied to obligations
that are seen as highly likely to default, or subordinated to obligations rated
in the CCC to B range. Obligations in respect of which default has not
technically taken place but is considered inevitable may be rated in the C
category.
D – When the issuer has filed
under any applicable bankruptcy, insolvency or winding up statute or there is a
failure to satisfy an obligation after the exhaustion of grace periods, a
downgrade to D may occur. DBRS may also use SD (Selective Default) in cases
where only some securities are impacted, such as the case of a “distressed
exchange.”
All
rating categories other than AAA and D also contain subcategories "(high)" and
"(low)". The absence of either a "(high)" or "(low)" designation indicates the
rating is in the middle of the category.
S&P Global Ratings -- Short-Term Issue
Credit Ratings:
The
following descriptions have been published by Standard & Poor’s Financial
Services LLC.
A-1 – A short-term obligation
rated ‘A-1’ is rated in the highest category by S&P Global Ratings. The
obligor’s capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor’s capacity to meet its financial commitment on
these obligations is extremely strong.
A-2 - A short-term obligation
rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rating
categories. However, the obligor’s capacity to meet its financial commitment on
the obligation is satisfactory.
A-3 - A short-term obligation
rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the
obligation.
B - A short-term obligation
rated ‘B’ is regarded as vulnerable and has significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitments; however, it faces major ongoing uncertainties which could lead to
the obligor's inadequate capacity to meet its financial commitments.
C - A short-term obligation
rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D - A short-term obligation
rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid
capital instruments, the ‘D’ rating category is used when payments on an
obligation are not made on the date due, unless S&P Global Ratings believes
that such payments will be made within any stated grace period. However, any
stated grace period longer than five business days will be treated as five
business days. The 'D' rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action and where default on an obligation is
a virtual certainty, for example due to automatic stay provisions. An
obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange
offer.
Dual ratings may be assigned to debt issues that
have a put option or demand feature. The first component of the rating addresses
the likelihood of repayment of principal and interest as due, and the second
component of the rating addresses only the demand feature. The first component
of the rating can relate to either a short-term or long-term transaction and
accordingly use either short-term or long-term rating symbols. The second
component of the rating relates to the put option and is assigned a short-term
rating symbol (for example, ‘AAA/A-1+’ or ‘A-1+/A-1’). With U.S. municipal
short-term demand debt, the U.S. municipal short-term note rating symbols are
used for the first component of the rating (for example, ‘SP-1+/A-1+’).
Moody’s -- Global Short-Term Rating
Scale:
The
following descriptions have been published by Moody’s Investors Service,
Inc.
P-1 - Issuers (or supporting
institutions) rated Prime-1 have a superior ability to repay short-term debt
obligations.
P-2 - Issuers (or supporting
institutions) rated Prime-2 have a strong ability to repay short-term debt
obligations.
P-3 - Issuers (or supporting
institutions) rated Prime-3 have an acceptable ability to repay short-term
obligations.
NP - Issuers (or supporting
institutions) rated Not Prime do not fall within any of the Prime rating
categories.
Fitch -- Short-Term Ratings Assigned to
Issuers or Obligations in Corporate, Public and Structured Finance:
The
following descriptions have been published by Fitch Inc. and Fitch Ratings Ltd.
and its subsidiaries.
F1 - Highest short-term credit quality. Indicates
the strongest intrinsic capacity for timely payment of financial commitments;
may have an added “+” to denote any exceptionally strong credit feature.
F2 - Good short-term credit quality. Good
intrinsic capacity for timely payment of financial commitments.
F3 - Fair short-term credit quality. The
intrinsic capacity for timely payment of financial commitments is
adequate.
B – Speculative short-term credit quality.
Minimal capacity for timely payment of financial commitments, plus heightened
vulnerability to near term adverse changes in financial and economic
conditions.
C - High short-term default risk. Default is a
real possibility.
RD – Restricted default. Indicates an entity that
has defaulted on one or more of its financial commitments, although it continues
to meet other financial obligations. Typically applicable to entity ratings
only.
D – Default. Indicates a broad-based default
event for an entity, or the default of a short-term obligation.
DBRS -- Commercial Paper and Short-Term Debt
Rating Scale:
The
following descriptions have been published by Dominion Bond Rating
Service.
R-1
(high) – Highest credit
quality. The capacity for the payment of short-term financial obligations as
they fall due is exceptionally high. Unlikely to be adversely affected by future
events.
R-1
(middle) – Superior credit
quality. The capacity for the payment of short-term financial obligations as
they fall due is very high. Differs from R-1 (high) by a relatively modest
degree. Unlikely to be significantly vulnerable to future events.
R-1
(low) – Good credit
quality. The capacity for the payment of short-term financial obligations as
they fall due is substantial. Overall strength is not as favourable as higher
rating categories. May be vulnerable to future events, but qualifying negative
factors are considered manageable.
R-2
(high) – Upper end of
adequate credit quality. The capacity for the payment of short-term financial
obligations as they fall due is acceptable. May be vulnerable to future
events.
R-2
(middle) – Adequate credit
quality. The capacity for the payment of short-term financial obligations as
they fall due is acceptable. May be vulnerable to future events or may be
exposed to other factors that could reduce credit quality.
R-2
(low) – Lower end of
adequate credit quality. The capacity for the payment of short-term financial
obligations as they fall due is acceptable. May be vulnerable to future events.
A number of challenges are present that could affect the issuer’s ability to
meet such obligations.
R-3 – Lowest end of adequate credit quality. There
is a capacity for the payment of short-term financial obligations as they fall
due. May be vulnerable to future events and the certainty of meeting such
obligations could be impacted by a variety of developments.
R-4 – Speculative credit quality. The capacity for
the payment of short-term financial obligations as they fall due is
uncertain.
R-5 – Highly speculative credit quality. There is
a high level of uncertainty as to the capacity to meet short-term financial
obligations as they fall due.
D – When the issuer has filed under any
applicable bankruptcy, insolvency or winding up statute or there is a failure to
satisfy an obligation after the exhaustion of grace periods, a downgrade to D
may occur. DBRS may also use SD (Selective Default) in cases where only some
securities are impacted, such as the case of a “distressed exchange.”
APRIL 2019
|
|
PROXY
VOTING POLICIES AND PROCEDURES |
I. |
INTRODUCTION AND
GENERAL PRINCIPLES |
|
|
A. |
Certain subsidiaries of Neuberger Berman Group LLC (“NB”) have been
delegated the authority and responsibility to vote the proxies of their
respective investment advisory clients. |
|
|
B. |
NB understands that proxy voting is an integral aspect of investment
management. Accordingly, proxy voting must be conducted with the same
degree of prudence and loyalty accorded any fiduciary or other obligation
of an investment manager. |
|
|
C. |
NB believes that the following policies and procedures are reasonably
expected to ensure that proxy matters are conducted in the best interest
of clients, in accordance with NB’s fiduciary duties, applicable rules
under the Investment Advisers Act of 1940, fiduciary standards and
responsibilities for ERISA clients set out in Department of Labor
interpretations, the UK Stewardship Code, the Japan Stewardship Code and
other applicable laws and regulations. |
|
|
D. |
In instances where NB does not have authority to vote client proxies,
it is the responsibility of the client to instruct the relevant custody
bank or banks to mail proxy material directly to such client. |
|
|
E. |
In all circumstances, NB will comply with specific client directions
to vote proxies, whether or not such client directions specify voting
proxies in a manner that is different from NB’s policies and
procedures. |
|
|
F. |
NB will seek to vote all shares under its authority so long as that
action is not in conflict with client instructions. There may be
circumstances under which NB may abstain from voting a client proxy, such
as when NB believes voting would not be in clients’ best interests (e.g.,
not voting in countries with share blocking or meetings in which voting
would entail additional costs). NB understands that it must weigh
the costs and benefits of voting proxy proposals relating to foreign
securities and make an informed decision with respect to whether voting a
given proxy proposal is prudent and solely in the interests of the clients
and, in the case of an ERISA client and other accounts and clients subject
to similar local laws, a plan’s participants and beneficiaries. NB’s
decision in such circumstances will take into account the effect that the
proxy vote, either by itself or together with other votes, is expected to
have on the value of the client’s investment and whether this expected
effect would outweigh the cost of
voting. |
II. |
RESPONSIBILITY AND
OVERSIGHT |
|
|
A. |
NB has designated a Governance & Proxy Committee (“Proxy
Committee”) with the responsibility for: (1) developing, authorizing,
implementing and updating NB’s policies and procedures; (2) administering
and overseeing the governance and proxy voting processes; and (3) engaging
and overseeing any third-party vendors as voting delegates to review,
monitor and/or vote proxies. NB, at the recommendation of the Proxy
Committee, has retained Glass, Lewis & Co., LLC (“Glass Lewis”) as its
voting delegate. |
|
|
B. |
The Proxy Committee will meet as frequently and in such manner as
necessary or appropriate to fulfill its responsibilities. |
|
|
C. |
The members of the Proxy Committee will be appointed from time to
time and will include the Chief Investment Officer (Equities), the Head of
Global Equity Research, the Head of ESG Investing, and senior portfolio
managers. A senior member of the Legal and Compliance Department will
advise the Proxy Committee and may be included for purposes of ensuring a
quorum. |
|
|
D. |
In the event that one or more members of the Proxy Committee are not
independent with respect to a particular matter, the remaining members of
the Proxy Committee shall constitute an ad hoc independent subcommittee of
the Proxy Committee, which will have full authority to act upon such
matter. |
|
|
III. |
PROXY VOTING
GUIDELINES |
|
|
A. |
The Proxy Committee developed the Governance and Proxy Voting
Guidelines (“Voting Guidelines”) based on our Governance and Engagement
Principles. These Guidelines are updated as appropriate and generally on
an annual basis. With input from certain of our investment professionals,
the modifications are intended to reflect emerging corporate governance
issues and themes. The Proxy Committee recognizes that in certain
circumstances it may be in the interests of our clients to deviate from
our Voting Guidelines. |
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B. |
Our views regarding corporate governance and engagement, and the
related stewardship actions, are led by our ESG Investing group, in
consultation with professionals in the Legal & Compliance and Global
Equity Research groups, among others. These insightful, experienced and
dedicated groups enable us to think strategically about engagement and
stewardship priorities. |
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C. |
We believe NB’s Voting Guidelines generally represent the voting
positions most likely to support our clients’ best economic interests
across a range of sectors and contexts. These guidelines are not intended
to constrain our consideration of the specific issues facing a particular
company on a particular vote, and so there will be times when we deviate
from the Voting Guidelines. |
D. |
In the event that a senior investment professional at Neuberger
Berman believes that it is in the best interest of a client or clients to
vote proxies in a manner inconsistent with NB’s Voting Guidelines, the
investment professional will submit in writing the basis for his or her
recommendation. The Proxy Committee will review this recommendation in the
context of the specific circumstances of the situation and with the
intention of remaining consistent with our Engagement
Principles. |
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IV. |
PROXY VOTING
PROCEDURES |
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A. |
NB will vote client proxies in accordance with a client’s specific
request even if it is in a manner inconsistent with NB’s policies and
procedures. Such specific requests should be made in writing by the
individual client or by an authorized officer, representative or named
fiduciary of a client. |
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B. |
NB has engaged Glass Lewis as its advisor and voting agent to: (1)
provide research on proxy matters; (2) vote proxies in accordance with
NB’s Voting Guidelines or as otherwise instructed and submit such proxies
in a timely manner; (3) handle other administrative functions of proxy
voting; (4) maintain records of proxy statements received in connection
with proxy votes and provide copies of such proxy statements promptly upon
request; and (5) maintain records of votes cast. |
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C. |
Except in instances where clients have retained voting authority, NB
will instruct custodians of client accounts to forward all proxy
statements and materials received in respect of client accounts to Glass
Lewis. |
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D. |
Notwithstanding
the foregoing, NB retains final authority and fiduciary responsibility for
proxy voting. |
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V. |
CONFLICTS OF
INTEREST |
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A. |
Glass Lewis will vote proxies in accordance with the Voting
Guidelines described in Section III or, in instances where a material
conflict has been determined to exist, as Glass Lewis recommends. NB
believes that this process is reasonably designed to address material
conflicts of interest that may arise in conjunction with proxy voting
decisions. Potential conflicts considered by the Proxy Committee when it
is determining whether to deviate from NB’s Voting Guidelines include,
among others: a material client relationship with the corporate issuer
being considered; personal or business relationships between the portfolio
managers and an executive officer; director, or director nominee of the
issuer; joint business ventures; or a direct transactional relationship
between the issuer and senior executives of
NB. |
B. |
In the event that an NB Investment Professional believes that it is
in the best interest of a client or clients to vote proxies in a manner
inconsistent with the Voting Guidelines described in Section III, such NB
Investment Professional will contact a member of the Legal &
Compliance Department advising the Proxy Committee and complete and sign a
questionnaire in the form adopted from time to time. Such questionnaires
will require specific information, including the reasons the NB Investment
Professional believes a proxy vote in this manner is in the best interest
of a client or clients and disclosure of specific ownership, business or
personal relationship, or other matters that may raise a potential
material conflict of interest with respect to the voting of the proxy. The
Proxy Committee will meet with the NB Investment Professional to review
the completed questionnaire and consider such other matters as it deems
appropriate to determine that there is no material conflict of interest
with respect to the voting of the proxy in the requested manner. The Proxy
Committee shall document its consideration of such other matters. In the
event that the Proxy Committee determines that such vote will not present
a material conflict, the Proxy Committee will make a determination whether
to vote such proxy as recommended by the NB Investment Professional. In
the event of a determination to vote the proxy as recommended by the NB
Investment Professional, an authorized member of the Legal &
Compliance Department advising the Proxy Committee will instruct Glass
Lewis to vote in such manner with respect to the client or clients. In the
event that the Proxy Committee determines that the voting of a proxy as
recommended by the NB Investment Professional would not be appropriate,
the Proxy Committee will: |
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(i) |
take no further action, in which case Glass Lewis shall vote such
proxy in accordance with the Voting Guidelines; |
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(ii) |
disclose such conflict to the client or clients and obtain written
direction from the client with respect to voting the proxy; |
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(iii) |
suggest that the client or clients engage another party to determine
how to vote the proxy; or |
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(iv) |
engage another independent third party to determine how to vote the
proxy. A record of the Proxy Committee’s determinations shall be prepared
and maintained in accordance with applicable
policies. |
C. |
In the event that the Voting Guidelines described in Section III do
not address how a proxy should be voted and Glass Lewis refrains from
making a recommendation as to how such proxy should be voted, the Proxy
Committee will make a determination as to how the proxy should be voted.
The Proxy Committee will consider such matters as it deems appropriate to
determine how such proxy should be voted including whether there is a
material conflict of interest with respect to the voting of the proxy in
accordance with its decision. The Proxy Committee shall document its
consideration of such matters, and an authorized member of the Legal &
Compliance Department advising the Proxy Committee will instruct Glass
Lewis to vote in such manner with respect to such client or
clients. |
D. |
Material conflicts cannot be resolved by simply abstaining from
voting. |
NB
will maintain records relating to the implementation of the Voting Guidelines
and these procedures, including: (1) a copy of the Voting Guidelines and these
procedures, which shall be made available to clients upon request; (2) proxy
statements received regarding client securities (which will be satisfied by
relying on EDGAR or Glass Lewis); (3) a record of each vote cast (which
Glass Lewis maintains on NB’s behalf); (4) a copy of each questionnaire
completed by any NB Investment Professional under Section V above; and (5) any
other document created by NB that was material to a determination regarding the
voting of proxies on behalf of clients or that memorializes the basis for that
decision. Such proxy voting books and records shall be maintained in an easily
accessible place, which may include electronic means, for a period of five
years, the first two by the Legal & Compliance Department.
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VII. |
ENGAGEMENT AND MONITORING |
Consistent with the
firm’s active management strategies, NB portfolio managers and members of the
Global Equity Research team continuously monitor material investment factors at
portfolio companies. NB professionals remain informed of trends and best
practices related to the effective fiduciary administration of proxy voting. NB
will make revisions to its Voting Guidelines and related procedures document
when it determines it is appropriate or when we observe the opportunity to
materially improve outcomes for our clients. Additionally, we will regularly
undertake a review of selected voting and engagement cases to better learn how
to improve the monitoring of our portfolio companies and the effectiveness of
our stewardship activities.
Some NB products may
participate in a securities lending program. Where a security on loan is subject
to a proxy event and a determination has been made that the shares on loan may
have a meaningful impact on the vote outcome and the potential value of the
security, a portfolio manager, in consultation with relevant investment
professionals, will restrict the security from lending, or will make best
efforts to recall the security from the lending program, in the best interest of
the client. NB maintains the list of securities restricted from lending and
receives daily updates on
upcoming proxy events
from the custodian.
Neuberger
Berman will publicly disclose all voting records of its co-mingled funds
(Undertakings for Collective Investment in Transferable Securities [UCITS] and
mutual funds). Neuberger Berman cannot publicly disclose vote level records for
separate accounts without express permission of the client. Neuberger Berman
will publicly disclose aggregate reporting on at least an annual basis for all
votes cast across co-mingled and separate accounts. Neuberger Berman welcomes
the opportunity to discuss the rationale for a given vote with investee
companies after the meeting has taken place as part of our ongoing engagement
activities. Neuberger Berman may also choose to provide broad explanations for
its voting positions on important or topical issues (e.g., climate change or
gender diversity). Additionally, our current and ongoing activities can be
viewed through regular publication of case studies and thematic papers on NB’s
ESG Investing website: www.nb.com/esg
Proxy
Committee Membership as of March 2021:
Joseph Amato,
President and Chief Investment Officer (Equities)
Jonathan Bailey, Head
of ESG Investing
Timothy Creedon,
Director of Global Equity Research
Ingrid Dyott,
Portfolio Manager
Richard Glasebrook,
Portfolio Manager
Benjamin Nahum,
Portfolio Manager
Corey Issing*, Legal
and Compliance
Jake Walko*,
ESG Investing
*Corey
Issing and Jake Walko serve in advisory roles to the Committee. Mr. Issing is an
ex officio member of the Committee. Mr.
Issing will only vote as a full member of the Committee if his vote is needed to
establish a quorum or in the event that his vote is needed to break a tie
vote.