<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>int535625.txt
<DESCRIPTION>SEPTEMBER 24, 2002
<TEXT>
                                                     1933 Act File No. 333-97283
                                                     1940 Act File No. 811-21168


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form N-2

           [X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                        [X] Pre-Effective Amendment No. 2
                        [ ] Post-Effective Amendment No.
                                       and

      [ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
                        [X] Amendment No. 2

                Neuberger Berman Intermediate Municipal Fund Inc.
      (Exact Name of Registrant as Specified in Articles of Incorporation)

                      c/o Neuberger Berman Management Inc.
                           605 Third Avenue, 2nd Floor
                          New York, New York 10158-0180
                    (Address of Principal Executive Offices)

                                 (212) 476-8800
              (Registrant's Telephone Number, including Area Code)

                                Peter E. Sundman
                      c/o Neuberger Berman Management Inc.
                           605 Third Avenue, 2nd Floor
                          New York, New York 10158-0180
                     (Name and Address of Agent for Service)

                          Copies of Communications to:

       Arthur C. Delibert, Esq.                 Ellen Metzger, Esq.
       Kirkpatrick & Lockhart LLP               Neuberger Berman, LLC
       1800 Massachusetts Avenue, N.W.          605 Third Avenue
       2nd Floor                                New York, New York 10158-3698
       Washington, DC 20036-1800


Approximate Date of Proposed Public Offering:

As soon as practicable after the effective date of this Registration Statement

                           ---------------------------

If any of the securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [_]

It is proposed that this filing will become effective (check appropriate box)

     [X]  when declared effective pursuant to section 8(c)

<PAGE>

<TABLE>

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Title of Securities       Amount Being           Proposed Maximum        Proposed Maximum       Amount of
Being Registered          Registered (1)         Offering Price Per      Aggregate Offering     Registration Fee (2)
                                                 Unit                    Price
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S>                       <C>                    <C>                     <C>                    <C>
Common Stock              28,750,000             $15.00                  $431,250,000           $39,675
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
(1) Includes 3,750,000 shares which may be offered by the Underwriters  pursuant
to an option to cover over allotments.

(2) Of which $6,348 was previously paid.

The Registrant hereby amends this  Registration  Statement on such date or dates
as may be necessary to delay its effective date until the Registrant  shall file
a further amendment which specifically states this Registration  Statement shall
thereafter  become  effective in accordance  with Section 8(a) of the Securities
Act of 1933 or until the  Registration  Statement shall become effective on such
dates as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.

<PAGE>


PROSPECTUS                                                                [LOGO]


                                     SHARES
               NEUBERGER BERMAN INTERMEDIATE MUNICIPAL FUND INC.
                                 COMMON SHARES
                                $15.00 PER SHARE
                                ----------------

    INVESTMENT OBJECTIVE. Neuberger Berman Intermediate Municipal Fund Inc. (the
"Fund") is a newly organized, diversified, closed-end management investment
company. The Fund's investment objective is to provide common stockholders a
high level of current income exempt from federal income tax.

    PORTFOLIO CONTENTS. The Fund normally invests primarily in investment grade
municipal debt securities issued by state and local governments, including U.S.
territories and possessions, political subdivisions, agencies and public
authorities (municipal bonds) with remaining maturities of less than 15 years.
The Fund's policy is to invest, under normal market conditions, at least 80% of
its total assets in municipal bonds with remaining maturities of less than
15 years. Under normal market conditions, the Fund will invest at least 80% of
its total assets in municipal securities that pay interest that, in the opinion
of bond counsel to the issuer (or on the basis of other authority believed by
Fund's investment manager to be reliable), is exempt from federal income tax.
The Fund seeks to maintain a dollar-weighted average duration between three and
eight years. Under normal market conditions, the Fund will invest at least 80%
of its total assets in municipal bonds that, at the time of investment, are
rated in the four highest categories by a nationally recognized statistical
rating organization ("NRSRO") or are unrated but judged to be of comparable
quality by the Fund's investment manager, Neuberger Berman Management Inc. ("NB
Management"). The Fund may invest up to 20% of its total assets in municipal
bonds that at the time of investment are rated Ba/BB or B by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Rating Agency ("S&P") or
Fitch, Inc. ("Fitch") or that are unrated but judged to be of comparable quality
by NB Management. Bonds of below investment grade quality are regarded as having
predominately speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal, and are commonly referred to as "junk
bonds." There is no assurance that the Fund will achieve its investment
objective.

    NO PRIOR HISTORY. Because the Fund is newly organized, its shares of common
stock ("Common Shares") have no history of public trading. Shares of closed-end
investment companies frequently trade at a discount from their net asset value,
and investors may lose money by purchasing Common Shares in the initial public
offering. The Common Shares have been approved for listing, subject to issuance
of notice, on the American Stock Exchange. The trading or "ticker" symbol of the
Common Shares is expected to be "NBH."

    PREFERRED SHARES. The Fund intends to use leverage by issuing shares of
preferred stock ("Preferred Shares") representing approximately 38% of the
Fund's capital immediately after their issuance. The Fund also may add leverage
to the portfolio by utilizing certain derivative instruments. By using leverage,
the Fund will seek to obtain a higher return for holders of Common Shares
("Common Stockholders") than if the Fund did not use leverage. Leveraging is a
speculative technique and there are special risks involved. There can be no
assurance that a leveraging strategy will be used or that it will be successful
during any period in which it is employed. See "Preferred Shares and Related
Leverage," "Risks -- Leverage Risk" and "Risks -- Derivatives Risk."

    INVESTING IN THE FUND'S COMMON SHARES INVOLVES CERTAIN RISKS. SEE "RISKS"
BEGINNING ON PAGE 21 OF THIS PROSPECTUS.
                               ------------------

<Table>
<Caption>
                                                              PER SHARE           TOTAL
                                                              ---------           -----
<S>                                                           <C>               <C>
Public offering price.......................................    $15.00              $
Sales load..................................................     $.675              $
Estimated offering expenses(1)..............................      $.03              $
Proceeds to the Fund........................................   $14.295              $
</Table>

    (1)  In addition to the sales load, the Fund will pay organizational and
         offering expenses of up to $.03 per Common Share, estimated to total
         $       , which will reduce the "Proceeds to the Fund" (above). NB
         Management has agreed to pay organizational expenses and offering costs
         of the Fund (other than the sales load) that exceed $.03 per Common
         Share.

    The underwriters may also purchase up to an additional    Common Shares at
the public offering price, less the sales load, within 45 days from the date of
this prospectus to cover over-allotments.

    Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

    The Common Shares will be ready for delivery on or about September   , 2002.
                          ----------------------------

<Table>
<S>                                   <C>                         <C>
                                         MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.                                               LEGG MASON WOOD WALKER
                                                                             INCORPORATED
QUICK & REILLY, INC.                     RBC CAPITAL MARKETS              WELLS FARGO SECURITIES, LLC
ADVEST, INC.                            ROBERT W. BAIRD & CO.   H&R BLOCK FINANCIAL ADVISORS, INC.
FAHNESTOCK & CO. INC.                    FERRIS, BAKER WATTS,             JANNEY MONTGOMERY SCOTT LLC
                                             INCORPORATED
</Table>

<Table>
<S>                                   <C>                         <C>
J.J.B. HILLIARD, W.L. LYONS, INC.     MCDONALD INVESTMENTS INC.         MORGAN KEEGAN & COMPANY, INC.
</Table>

                          ----------------------------


               The date of this prospectus is September 24, 2002.

<Page>
    You should read this prospectus, which contains important information about
the Fund, before deciding whether to invest in the Common Shares, and retain it
for future reference. A Statement of Additional Information, dated            ,
2002, containing additional information about the Fund, has been filed with the
Securities and Exchange Commission and is incorporated by reference in its
entirety into this prospectus, which means that it is part of the prospectus for
legal purposes. You may request a free copy of the Statement of Additional
Information, the table of contents of which is on page 41 of this prospectus, by
calling 877-461-1899 or by writing to the Fund, or obtain a copy (and other
information regarding the Fund) from the Securities and Exchange Commission's
web site (http://www.sec.gov).

    The Fund's Common Shares do not represent a deposit or obligation of, and
are not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.

                                       2
<Page>
                               TABLE OF CONTENTS


<Table>
<Caption>
                                                    PAGE
                                                    ----
<S>                                                 <C>
Prospectus Summary................................    4
Summary of Fund Expenses..........................   13
The Fund..........................................   14
Use of Proceeds...................................   14
The Fund's Investments............................   15
Preferred Shares and Related Leverage.............   19
Risks.............................................   21
How the Fund Manages Risk.........................   27
Management of the Fund............................   29
Net Asset Value...................................   30
Distributions.....................................   31
Dividend Reinvestment Plan........................   31
Description of Shares.............................   33
Anti-Takeover and Other Provisions in the
  Articles of Incorporation.......................   35
Repurchase of Common Shares; Tender Offers;
  Conversion to Open-End Fund.....................   35
Tax Matters.......................................   36
Underwriting......................................   39
Custodian and Transfer Agent......................   41
Legal Matters.....................................   41
Table of Contents for Statement of Additional
  Information.....................................   42
</Table>


    YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THE FUND HAS NOT, AND THE UNDERWRITERS HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. THE FUND IS NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU
SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE
DATE OF THIS PROSPECTUS. THE FUND'S BUSINESS, FINANCIAL CONDITION AND PROSPECTS
MAY HAVE CHANGED SINCE THAT DATE.

    Until            , 2002 (25 days after the date of this prospectus), all
dealers that buy, sell or trade the Common Shares, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

                                       3
<Page>
                               PROSPECTUS SUMMARY

    THIS IS ONLY A SUMMARY. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION
THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON SHARES. YOU SHOULD
REVIEW THE MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS AND IN THE
STATEMENT OF ADDITIONAL INFORMATION.


<Table>
<S>                                                 <C>
THE FUND..........................................  Neuberger Berman Intermediate Municipal Fund Inc.
                                                    is a newly organized, diversified closed-end
                                                    management investment company. See "The Fund."

THE OFFERING......................................  The Fund is offering           shares of common
                                                    stock, with a par value of $.0001 per share, at
                                                    $15.00 per share through a group of underwriters
                                                    (the "Underwriters") led by Merrill Lynch, Pierce
                                                    Fenner & Smith Incorporated ("Merrill Lynch"). The
                                                    shares of common stock are called "Common Shares"
                                                    in the rest of this prospectus. You must purchase
                                                    at least 100 Common Shares ($1,500) in order to
                                                    participate in this offering. The Fund has given
                                                    the Underwriters an option to purchase up to
                                                    additional Common Shares to cover orders in excess
                                                    of           Common Shares. See "Underwriting."
                                                    NB Management has agreed to pay organizational
                                                    expenses and offering costs of the Fund (other
                                                    than the sales load) that exceed $.03 per Common
                                                    Share.

INVESTMENT OBJECTIVE
AND POLICIES......................................  The Fund's investment objective is to provide
                                                    Common Stockholders a high level of current income
                                                    exempt from federal income tax. This income, if
                                                    any, will be distributed to Common Stockholders
                                                    after the satisfaction of the obligation to pay
                                                    dividends on Preferred Shares. The Fund seeks to
                                                    achieve its objective by investing primarily in
                                                    investment grade municipal debt securities issued
                                                    by state and local governments, including U.S.
                                                    territories and possessions, political
                                                    subdivisions, agencies and public authorities
                                                    (municipal bonds) with remaining maturities of
                                                    less than 15 years. The Fund's policy is to
                                                    invest, under normal market conditions, at least
                                                    80% of its total assets in municipal bonds with
                                                    remaining maturities of less than 15 years. Under
                                                    normal market conditions, the Fund will invest at
                                                    least 80% of its total assets in municipal
                                                    securities that pay interest that, in the opinion
                                                    of bond counsel to the issuer (or on the basis of
                                                    other authority believed by Fund's investment
                                                    manager to be reliable), is exempt from federal
                                                    income tax. As a fundamental policy, the Fund will
                                                    invest at least 80% of its total assets in
                                                    Municipal Bonds.

                                                    The Fund seeks to maintain a dollar-weighted
                                                    average duration between three and eight years.
                                                    Under normal market conditions, the Fund will
                                                    invest at least 80% of its total assets in
                                                    municipal bonds that, at the time of investment,
                                                    are rated in the four highest rating categories by
                                                    an NRSRO or are unrated but considered to be of
                                                    comparable quality by NB Management. The Fund may
                                                    invest up to 20% of its total assets in municipal
                                                    bonds that at the time of investment are rated
                                                    Ba/BB or B by Moody's,
</Table>


                                       4
<Page>


<Table>
<S>                                                 <C>
                                                    S&P or Fitch or that are unrated but judged to be
                                                    of comparable quality by NB Management. There is
                                                    no assurance that the Fund will achieve its
                                                    investment objective. See "The Fund's
                                                    Investments."

                                                    The Fund's investments are subject to
                                                    diversification, liquidity and related guidelines
                                                    that may be established in connection with the
                                                    Fund's desire to receive from Moody's and Fitch of
                                                    ratings of "Aaa" and "AAA", respectively, for
                                                    Preferred Shares. Ratings issued by NRSROs,
                                                    including Moody's and Fitch, do not eliminate or
                                                    mitigate the risk of investing in Fund shares.

PROPOSED OFFERING OF
PREFERRED SHARES AND OTHER
FORMS OF LEVERAGE.................................  Subject to the Board's approval in light of market
                                                    conditions and other factors, approximately one to
                                                    three months after completion of this offering,
                                                    the Fund intends to offer Preferred Shares
                                                    representing approximately 38% of the Fund's
                                                    capital after their issuance. For purposes of this
                                                    prospectus, the Fund's capital means the total
                                                    assets of the Fund less all liabilities and
                                                    indebtedness not representing Preferred Shares or
                                                    other senior securities. The liquidation
                                                    preference of the Preferred Shares is not a
                                                    liability. The issuance of Preferred Shares will
                                                    leverage your investment in Common Shares.
                                                    Leverage involves special risks. There is no
                                                    assurance that the Fund will issue Preferred
                                                    Shares or that, if issued, the Fund's leveraging
                                                    strategy will be successful. The net proceeds the
                                                    Fund obtains from selling the Preferred Shares
                                                    will be invested, in accordance with the Fund's
                                                    investment objective and policies, principally in
                                                    intermediate-term municipal bonds, which generally
                                                    will pay fixed rates of interest over the life of
                                                    the bond. The Preferred Shares will pay dividends
                                                    based on short-term interest rates (which will be
                                                    redetermined periodically, pursuant to an auction
                                                    process). So long as the rate of return, net of
                                                    applicable Fund expenses, on the intermediate-term
                                                    bonds and other instruments purchased by the Fund
                                                    with the proceeds from selling the Preferred
                                                    Shares exceeds Preferred Share dividend rates as
                                                    reset periodically, plus associated expenses, the
                                                    investment of the proceeds of the Preferred Shares
                                                    will generate more income than will be needed to
                                                    pay dividends on the Preferred Shares. If so, the
                                                    excess will be used to pay higher dividends to
                                                    Common Stockholders than if the Fund were not so
                                                    leveraged through the issuance of Preferred
                                                    Shares. If not, the issuance of Preferred Shares
                                                    could reduce the return to the Common
                                                    Stockholders. The Fund also may add leverage to
                                                    the portfolio by utilizing derivative instruments.
                                                    The Fund may issue Preferred Shares so long as
                                                    after their issuance the liquidation value of the
                                                    Preferred Shares, plus the aggregate amount of
                                                    senior securities representing indebtedness, does
                                                    not exceed 50% of the Fund's capital. See
                                                    "Risks--Leverage Risk." The Fund cannot assure you
                                                    that the issuance of Preferred Shares or the use
                                                    of other forms of leverage will result in a higher
                                                    yield on your Common Shares. Once Preferred Shares
                                                    are issued and/or other
</Table>


                                       5
<Page>

<Table>
<S>                                                 <C>
                                                    forms of leverage are used, the net asset value
                                                    and market price of the Common Shares and the
                                                    yield to Common Stockholders will be more
                                                    volatile. See "Preferred Shares and Related
                                                    Leverage," "Description of Shares--Preferred
                                                    Shares" and "Risks--Leverage Risk."

INVESTMENT MANAGER................................  NB Management serves as the investment manager of
                                                    the Fund. Subject to the general supervision of
                                                    the Board of Directors, NB Management is
                                                    responsible for managing, either directly or
                                                    through others selected by it, the investment
                                                    activities of the Fund and the Fund's business
                                                    affairs and other administrative matters.
                                                    NB Management will receive a fee, payable monthly,
                                                    in a maximum annual amount equal to .55% of the
                                                    Fund's average daily total assets minus
                                                    liabilities other than the aggregate indebtedness
                                                    entered into for purposes of leverage ("Managed
                                                    Assets"). NB Management has contractually agreed
                                                    to waive a portion of the management fees it is
                                                    entitled to receive from the Fund at the annual
                                                    rate of .25% of the Fund's average daily Managed
                                                    Assets from the commencement of operations through
                                                    October 31, 2007 (I.E., roughly the first five
                                                    years of operations), and at a declining amount
                                                    for an additional four years of operations
                                                    (through October 31, 2011).

                                                    NB Management has retained Neuberger Berman, LLC
                                                    ("Neuberger Berman") to serve as the Fund's
                                                    sub-adviser. See "Sub-Adviser" below. Together,
                                                    the firms and their affiliates manage $58.7
                                                    billion in total assets (as of June 30, 2002) and
                                                    continue an asset management history that began in
                                                    1939.

                                                    Theodore P. Giuliano, Thomas J. Brophy and Lori
                                                    Canell are the portfolio managers of the Fund. See
                                                    "Management of the Fund--Investment Manager" for a
                                                    description of their backgrounds and experience.

SUB-ADVISER.......................................  NB Management retains Neuberger Berman to serve as
                                                    the Fund's sub-adviser responsible for providing
                                                    investment recommendations and research. NB
                                                    Management (and not the Fund) will pay a portion
                                                    of the fees it receives to Neuberger Berman in
                                                    return for its services.

DISTRIBUTIONS.....................................  Commencing with the Fund's first dividend, it
                                                    intends to pay regular monthly cash dividends to
                                                    you at a rate based on its projected performance.
                                                    The dividend rate that the Fund pays on its Common
                                                    Shares will depend on a number of factors,
                                                    including dividends payable on the Preferred
                                                    Shares. As portfolio and market conditions change,
                                                    the rate of dividends on the Common Shares and the
                                                    Fund's dividend policy could change. Over time,
                                                    the Fund will distribute substantially all of its
                                                    net investment income (after it pays accrued
                                                    dividends on any outstanding Preferred Shares). In
                                                    addition, at least annually, the Fund intends to
                                                    distribute to you your pro rata share of any
                                                    available net capital gains. Your initial dividend
                                                    is expected to be declared approximately 45 days,
                                                    and paid approximately 60 to 90 days, from the
                                                    completion of this offering, depending on market
</Table>

                                       6
<Page>


<Table>
<S>                                                 <C>
..................................................  conditions. Unless you electto receive
                                                    distributions in cash, all of your distributions
                                                    will be automatically reinvested in additional
                                                    Common Shares under the Fund's Dividend
                                                    Reinvestment Plan. See "Distributions" and
                                                    "Dividend Reinvestment Plan."

TAXATION..........................................  Because under normal circumstances the Fund will
                                                    invest substantially all of its assets in
                                                    municipal bonds that pay interest that is exempt
                                                    from federal income tax, the dividends paid on
                                                    Common Shares and Preferred Shares attributable to
                                                    that interest will be similarly exempt. However,
                                                    dividends paid on Common Shares and Preferred
                                                    Shares may be subject to state and local taxes.
                                                    All or a portion of the interest paid on the
                                                    municipal bonds held by the Fund may be an item of
                                                    tax preference for purposes of the federal
                                                    alternative minimum tax ("AMT") ("Tax Preference
                                                    Item"), with the result that all or a portion of
                                                    the dividends paid to Fund stockholders also would
                                                    be such an item. Common Shares thus may not be a
                                                    suitable investment if you are subject to the AMT
                                                    or would become subject thereto by investing in
                                                    Common Shares. The Fund also may realize net long-
                                                    or short-term capital gain on the sale or exchange
                                                    of its securities, which would be taxable to its
                                                    stockholders when distributed to them. Taxable
                                                    income or gain earned or realized by the Fund will
                                                    be allocated proportionately to Common
                                                    Stockholders and holders of Preferred Shares
                                                    ("Preferred Stockholders"), based on the
                                                    percentage of total dividends and capital gain
                                                    distributions, respectively, paid to each class
                                                    for that year. Accordingly, certain specified
                                                    Common Shares distributions may be subject to
                                                    federal income tax.

LISTING...........................................  The Common Shares have been approved for listing,
                                                    subject to issuance of notice, on the
                                                    American Stock Exchange. The trading or "ticker"
                                                    symbol of the Common Shares is expected to be
                                                    "NBH." See "Description of Shares--Common Shares."

CUSTODIAN AND TRANSFER AGENT......................  State Street Bank and Trust Company serves as
                                                    custodian of the Fund's assets. The Bank of New
                                                    York serves as transfer agent and dividend
                                                    disbursement agent. See "Custodian and Transfer
                                                    Agent."

MARKET PRICE OF SHARES............................  Shares of closed-end investment companies
                                                    frequently trade at prices lower than their
                                                    per-share net asset value. Net asset value will be
                                                    reduced immediately following the offering by the
                                                    sales load and the amount of organization and
                                                    offering expenses paid by the Fund. See "Use of
                                                    Proceeds." In addition to net asset value, market
                                                    price may be affected by such factors relating to
                                                    the Fund and its portfolio holdings as dividend
                                                    levels (which are in turn affected by expenses),
                                                    dividend stability, portfolio credit quality and
                                                    liquidity and call protection and market supply
                                                    and demand. See "Preferred Shares and Related
                                                    Leverage," "Risks," "Description of Shares," and
                                                    "Repurchase of Common Shares; Conversion to
                                                    Open-End Fund" in this prospectus, and the
                                                    Statement of Additional Information under
                                                    "Repurchase of Common Shares; Conversion to
                                                    Open-End Fund." The Common
</Table>


                                       7
<Page>

<Table>
<S>                                                 <C>
                                                    Shares are designed primarily for long-term
                                                    investors, and you should not view the Fund as a
                                                    vehicle for trading purposes.

SPECIAL RISK CONSIDERATIONS.......................  NO OPERATING HISTORY. The Fund is a newly
                                                    organized, diversified, closed-end management
                                                    investment company with no history of operations.

                                                    MARKET DISCOUNT RISK. Shares of closed-end
                                                    management investment companies like the Fund
                                                    frequently trade at a discount from their
                                                    per-share net asset value. The Fund's shares may
                                                    trade at a price that is less than the initial
                                                    offering price. This risk may be greater for
                                                    investors who sell their shares in a relatively
                                                    short period of time after completion of the
                                                    initial offering.

                                                    INTEREST RATE RISK. Generally, when market
                                                    interest rates fall, bond prices rise, and vice
                                                    versa. Interest rate risk is the risk that the
                                                    municipal bonds in the Fund's portfolio will
                                                    decline in value because of increases in market
                                                    interest rates. The prices of longer-term bonds
                                                    generally fluctuate more than prices of shorter-
                                                    term bonds as interest rates change. Because the
                                                    Fund will invest primarily in intermediate-term
                                                    bonds, the Common Share net asset value and market
                                                    price per share will fluctuate more in response to
                                                    changes in market interest rates than if the Fund
                                                    invested primarily in short-term bonds. The Fund's
                                                    use of leverage, as described below, will tend to
                                                    increase Common Share interest rate risk. See
                                                    "Risks--Interest Rate Risk" for additional
                                                    information.

                                                    CREDIT RISK. Credit risk is the risk that an
                                                    issuer of a municipal bond will become unable to
                                                    meet its obligation to make interest and principal
                                                    payments. In general, lower rated municipal bonds
                                                    carry a greater degree of credit risk. If rating
                                                    agencies lower their ratings of municipal bonds in
                                                    the Fund's portfolio, the value of those
                                                    obligations could decline, which could jeopardize
                                                    the rating agencies' ratings of Preferred Shares.
                                                    In addition, the underlying revenue source for a
                                                    municipal obligation other than a general
                                                    obligation bond may be insufficient to pay
                                                    principal or interest in a timely manner. Because
                                                    the primary source of income for the Fund is the
                                                    interest and principal payments on the municipal
                                                    bonds in which it invests, any default by an
                                                    issuer of a municipal obligation could have a
                                                    negative impact on the Fund's ability to pay
                                                    dividends on Common Shares and could result in the
                                                    redemption of some or all Common Shares. This risk
                                                    of default may be greater for private activity
                                                    bonds or other municipal bonds whose payments are
                                                    dependent upon a specific source of revenue. Even
                                                    if the issuer does not actually default, adverse
                                                    changes in the issuer's financial condition may
                                                    negatively affect its credit rating or presumed
                                                    creditworthiness. These developments would
                                                    adversely affect the market value of the issuer's
                                                    obligations.

                                                    The Fund may invest up to 20% of its total assets
                                                    in municipal bonds that at the time of investment
                                                    are rated Ba/BB or B by Moody's, S&P or Fitch or
                                                    that are unrated but judged to be of comparable
                                                    quality by NB Management. Bonds of below
</Table>

                                       8
<Page>


<Table>
<S>                                                 <C>
                                                    investment grade quality are regarded as having
                                                    predominantly speculative characteristics with
                                                    respect to capacity to pay interest and repay
                                                    principal, and these bonds are commonly referred
                                                    to as "junk bonds." The prices of these lower
                                                    grade bonds are more sensitive to negative
                                                    developments, such as a decline in the issuer's
                                                    revenues or a general economic downturn, than are
                                                    the prices of higher grade securities. Municipal
                                                    bonds in the lowest investment grade category may
                                                    also be considered to possess some speculative
                                                    characteristics by certain rating agencies.

                                                    MUNICIPAL BOND MARKET RISK. The amount of public
                                                    information available about the municipal bonds in
                                                    the Fund's portfolio is generally less than that
                                                    for corporate equities or bonds, and the
                                                    investment performance of the Fund may therefore
                                                    be more dependent on the analytical abilities of
                                                    NB Management than would be a stock fund or
                                                    taxable bond fund. The secondary market for
                                                    municipal bonds, particularly below investment
                                                    grade bonds in which the Fund may invest, also
                                                    tends to be less well-developed and less liquid
                                                    than many other securities markets, which may
                                                    adversely affect the Fund's ability to sell bonds
                                                    from its portfolio at attractive prices. Some
                                                    municipal bonds are supported only by the revenue
                                                    of a particular project or privately operated
                                                    facility, and are not supported by the taxing
                                                    power of any governmental entity.

                                                    The recent economic downturn, which is of
                                                    uncertain duration, has absorbed the reserves that
                                                    many states and municipalities had accumulated
                                                    during the long economic expansion of the 1990's
                                                    and has unbalanced many state and municipal
                                                    budgets. If the economy remains slow, it could
                                                    also impact many private enterprises whose
                                                    revenues support private activity bonds.

                                                    TERRORISM RISKS. Municipal securities are subject
                                                    to a risk that terror attacks could result in
                                                    substantial loss of life, damage the local economy
                                                    and damage or destroy significant portions of the
                                                    municipal infrastructure. The impact of these
                                                    events may extend beyond the immediately affected
                                                    area and beyond the time of the attack. Businesses
                                                    that leave an affected area in the wake of such an
                                                    attack may not return, and economic activity may
                                                    slow if tourists and local consumers avoid the
                                                    affected city. These events could severely affect
                                                    the tax base of a particular issuer of municipal
                                                    securities and could damage or destroy a facility
                                                    whose revenues support the payment of particular
                                                    municipal securities. These attacks, and measures
                                                    taken to prevent them, may also impose substantial
                                                    overtime costs on municipal budgets. See "Recent
                                                    Developments."

                                                    HIGH YIELD RISK. Investing in high yield bonds
                                                    involves additional risks, including credit risk.
                                                    The value of high yield, lower quality bonds is
                                                    affected by the creditworthiness of the issuers of
                                                    the securities and by general economic and
                                                    specific industry conditions. Issuers of high
                                                    yield bonds are not as strong financially as those
                                                    with higher credit ratings, so their bonds are
                                                    usually
</Table>


                                       9
<Page>

<Table>
<S>                                                 <C>
                                                    considered speculative investments. These issuers
                                                    are more vulnerable to financial setbacks and
                                                    recession than more creditworthy issuers, which
                                                    may impair their ability to make interest and
                                                    principal payments. Investments in lower grade
                                                    securities will expose the Fund to greater risks
                                                    than if the Fund owned only higher grade
                                                    securities.

                                                    REINVESTMENT RISK. Income from the Fund's
                                                    municipal bond portfolio will decline if and when
                                                    the Fund invests the proceeds from matured, traded
                                                    or called bonds at market interest rates that are
                                                    below the portfolio's current earnings rate. A
                                                    decline in income could affect the Common Shares'
                                                    market price or their overall return.

                                                    LEVERAGE RISK. The Fund's use of leverage through
                                                    the issuance of Preferred Shares creates an
                                                    opportunity for increased Common Share net income,
                                                    but also creates special risks for Common
                                                    Stockholders. There is no assurance that the
                                                    Fund's leveraging strategy will be successful. The
                                                    Preferred Shares will pay dividends based on
                                                    short-term interest rates (which will be
                                                    redetermined periodically, pursuant to an auction
                                                    process), and the Fund will invest the net
                                                    proceeds of the Preferred Shares offering
                                                    principally in intermediate-term, typically fixed
                                                    rate, municipal bonds. So long as the portfolio
                                                    securities the Fund purchases with the proceeds of
                                                    selling the Preferred Shares provide a higher rate
                                                    of return (net of Fund expenses) than the
                                                    Preferred Share dividend rate, as reset
                                                    periodically, plus associated expenses, the
                                                    leverage will allow Common Stockholders to receive
                                                    a higher current rate of return than if the Fund
                                                    were not leveraged. If, however, short-term
                                                    tax-exempt interest rates rise substantially after
                                                    the issuance of the Preferred Shares, the
                                                    Preferred Share dividend rate could approach or
                                                    exceed the acquisition yield on intermediate-term
                                                    bonds and other investments held by the Fund that
                                                    were acquired during periods of generally lower
                                                    interest rates, reducing dividend yields and
                                                    returns to Common Stockholders. Investment by the
                                                    Fund in derivative instruments may increase its
                                                    leverage and, during periods of rising interest
                                                    rates, may adversely affect its income,
                                                    distributions and total return to Common
                                                    Stockholders. See "The Fund's Investments" for a
                                                    discussion of these instruments. Preferred Shares
                                                    are expected to pay cumulative dividends, which
                                                    may tend to increase leverage risk. Leverage
                                                    creates two major types of risks for Common
                                                    Stockholders:

                                                    (1) the likelihood of greater volatility of net
                                                    asset value and market price of Common Shares,
                                                    because changes in the value of the Fund's
                                                    municipal bond portfolio (including securities
                                                    bought with the proceeds of the Preferred Shares
                                                    offering) are borne entirely by the Common
                                                    Stockholders; and

                                                    (2) the possibility either that Common Share
                                                    income will fall if the Preferred Share dividend
                                                    rate rises, or that Common Share
</Table>

                                       10
<Page>


<Table>
<S>                                                 <C>
                                                    income will fluctuate because the Preferred Share
                                                    dividend rate varies.

                                                    Because the fees received by NB Management are
                                                    based on the Managed Assets of the Fund (including
                                                    assets represented by Preferred Shares and any
                                                    leverage created thereby), NB Management has a
                                                    financial incentive for the Fund to issue
                                                    Preferred Shares, which may create a conflict of
                                                    interest between NB Management and the Common
                                                    Stockholders.

                                                    INFLATION RISK. Inflation risk is the risk that
                                                    the value of assets or income from the Fund's
                                                    investments will be worth less in the future as
                                                    inflation decreases the present value of payments
                                                    at future dates.

                                                    LIQUIDITY RISK. The Fund may invest up to 20% of
                                                    its net assets in securities that are illiquid at
                                                    the time of investment, which means a security
                                                    that cannot be sold within seven days at a price
                                                    which approximates the price at which the Fund is
                                                    carrying it. Illiquid securities may trade at a
                                                    discount from comparable, more liquid investments,
                                                    and may be subject to wide fluctuations in market
                                                    value. Also, the Fund may not be able to dispose
                                                    of illiquid securities when that would be
                                                    beneficial at a favorable time or price.

                                                    DERIVATIVES RISK. The Fund may utilize a variety
                                                    of derivative instruments for investment or risk
                                                    management purposes, such as engaging in interest
                                                    rate and other hedging and risk management
                                                    transactions, and purchasing and selling options
                                                    (including swaps, caps, floors and collars) on
                                                    municipal bonds and on indices based on municipal
                                                    bonds. In general, the Fund may purchase and sell
                                                    (or write) options on up to 20% of its total
                                                    assets. Derivatives are subject to a number of
                                                    risks described elsewhere in this prospectus, such
                                                    as liquidity risk, interest rate risk, credit risk
                                                    and management risk. In addition, investment by
                                                    the Fund in derivative instruments may increase
                                                    the Fund's leverage and, during periods of rising
                                                    interest rates, may adversely affect the Fund's
                                                    income, distributions and total returns to Common
                                                    Stockholders. Derivatives also involve the risk of
                                                    mispricing or improper valuation, and the risk
                                                    that changes in the value of a derivative may not
                                                    correlate perfectly with an underlying asset,
                                                    interest rate or index. Suitable derivative
                                                    transactions may not be available in all
                                                    circumstances and there can be no assurance that
                                                    the Fund will engage in these transactions to
                                                    reduce exposure to other risks when that would be
                                                    beneficial.

                                                    MANAGEMENT RISK. The Fund is subject to management
                                                    risk because it is an actively managed investment
                                                    portfolio. NB Management and the portfolio
                                                    managers will apply investment techniques and risk
                                                    analyses in making investment decisions for the
                                                    Fund, but there can be no guarantee that these
                                                    will produce the desired results.
</Table>


                                       11
<Page>


<Table>
<S>                                                 <C>
                                                    ECONOMIC SECTOR AND GEOGRAPHIC RISK. The Fund may
                                                    invest 25% or more of its total assets in
                                                    municipal obligations of issuers in the same state
                                                    (or U.S. territory) or in municipal obligations in
                                                    the same economic sector, including the following:
                                                    lease rental obligations of state and local
                                                    authorities; obligations dependent on annual
                                                    appropriations by a state's legislature for
                                                    payment; obligations of state and local housing
                                                    finance authorities; municipal utilities systems
                                                    or public housing authorities; obligations of
                                                    hospitals or life care facilities; and industrial
                                                    development or pollution control bonds issued for
                                                    electrical utility systems, steel companies, paper
                                                    companies or other purposes. This may make the
                                                    Fund more susceptible to adverse economic,
                                                    political or regulatory occurrences affecting a
                                                    particular state or economic sector. For example,
                                                    health care related issuers are susceptible to
                                                    Medicare, Medicaid and other third party payor
                                                    reimbursement policies, and national and state
                                                    health care legislation. As concentration
                                                    increases, so does the potential for fluctuation
                                                    in the net asset value of the Common Shares.

                                                    ANTI-TAKEOVER PROVISIONS. The Fund's Articles of
                                                    Incorporation (the "Articles") contain provisions
                                                    limiting (1) the ability of other entities or
                                                    persons to acquire control of the Fund, (2) the
                                                    Fund's freedom to engage in certain transactions
                                                    and (3) the ability of the Fund's directors or
                                                    stockholders to amend the Articles. These
                                                    provisions of the Articles may be regarded as
                                                    "anti-takeover" provisions. See "Anti-Takeover and
                                                    Other Provisions in the Articles of
                                                    Incorporation."

                                                    RECENT DEVELOPMENTS. As a result of the terrorist
                                                    attacks on the World Trade Center and the Pentagon
                                                    on September 11, 2001, some of the U.S. securities
                                                    markets were closed for a four-day period. These
                                                    terrorist attacks and related events have led to
                                                    increased short-term market volatility and may
                                                    have long-term effects on U.S. and world economies
                                                    and markets. A similar disruption of the financial
                                                    markets could impact interest rates, auctions,
                                                    secondary trading, ratings, credit risk, inflation
                                                    and other factors relating to the securities.

SPECIAL TAX CONSIDERATIONS........................  While the Fund expects most of its income to be
                                                    exempt from federal income tax, the Fund's
                                                    distributions of any taxable net investment income
                                                    and any net short-term capital gain (I.E.,
                                                    dividends) will be taxable to stockholders as
                                                    ordinary income, and distributions of any net
                                                    capital gain (the excess of net long-term capital
                                                    gain over net short-term capital loss) will be
                                                    subject to tax as long-term capital gain. See "Tax
                                                    Matters."
</Table>


                                       12
<Page>
                            SUMMARY OF FUND EXPENSES

    The following table assumes the issuance of Preferred Shares in an amount
equal to 38% of the Fund's capital (after their issuance), and shows Fund
expenses as a percentage of net assets attributable to Common Shares. Footnote 5
to the table also shows Fund expenses as a percentage of net assets attributable
to Common Shares, but assumes that no Preferred Shares are issued or outstanding
(such as will be the case prior to the Fund's expected issuance of Preferred
Shares).

<Table>
<S>                                                 <C>
STOCKHOLDER TRANSACTION EXPENSES
  Sales Load (as a percentage of offering
    price)........................................  4.50%
  Expenses Borne by the Fund......................   .20%(1)(2)
  Dividend Reinvestment Plan......................  None(3)
</Table>

<Table>
<Caption>
                                                      PERCENTAGE OF NET
                                                     ASSETS ATTRIBUTABLE
                                                      TO COMMON SHARES
                                                     (ASSUMES PREFERRED
                                                    SHARES ARE ISSUED)(5)
                                                    ---------------------
<S>                                                 <C>
ANNUAL EXPENSES
  Management Fees.................................           .89%
  Other Expenses..................................           .39%
                                                            ----
  Total Annual Expenses...........................          1.28%
  Fee Waiver (Years 1-5)(4).......................          (.40%)(6)
                                                            ----
  Net Annual Expenses (Years 1-5)(4)..............           .88%(6)
</Table>

-------------------


(1)  NB Management has agreed to pay organizational expenses, and offering costs
     of the Fund (other than the sales load) that exceed $.03 per Common Share
     (.20% of the offering price).
(2)  If the Fund offers Preferred Shares, costs of that offering, estimated to
     be slightly more than 1.3% of the total amount of the Preferred Share
     offering, will effectively be borne by Common Stockholders and result in
     the reduction of the paid-in-capital attributable to the Common Shares.
     Assuming the issuance of Preferred Shares in an amount equal to 38% of the
     Fund's capital (after issuance), those offering costs are estimated to be
     no more than approximately $1.3 million or $.13 per Common Share (.8% of
     the offering price).
(3)  You will pay brokerage charges if you direct the Plan Agent (as defined
     below) to sell your Common Shares held in a dividend reinvestment account.
(4)  Year 1 represents the period from commencement of operations through
     October 31, 2003.
(5)  The table presented in this footnote estimates what the Fund's annual
     expenses would be, stated as percentages of the Fund's net assets
     attributable to Common Shares but, unlike the table above, assumes that no
     Preferred Shares are issued or outstanding. This will be the case, for
     instance, prior to the Fund's expected issuance of Preferred Shares. In
     accordance with these assumptions, the Fund's expenses would be estimated
     as follows:

<Table>
<Caption>
                                                     PERCENTAGE OF NET
                                                    ASSETS ATTRIBUTABLE
                                                     TO COMMON SHARES
                                                        (ASSUMES NO
                                                     PREFERRED SHARES
                                                       ARE ISSUED OR
                                                       OUTSTANDING)
                                                    -------------------
<S>                                                 <C>
ANNUAL EXPENSES
  Management Fees.................................          .55%
  Other Expenses..................................          .21%
                                                           ----
  Total Annual Expenses...........................          .76%
  Fee Waiver (Years 1-5)(4).......................         (.25)%(6)
                                                           ----
  Net Annual Expenses (Years 1-5)(4)..............          .51%(6)
</Table>


(6)  NB Management has contractually agreed to waive a portion of the management
     fees it is entitled to receive from the Fund at the annual rate of .25% of
     the Fund's Managed Assets from the commencement of operations through
     October 31, 2007 (I.E., roughly the first 5 years of Fund operations), .20%
     of average daily Managed Assets in year 6, .15% in year 7, .10% in year 8
     and .05% in year 9. NB Management has not agreed to waive any portion of
     its fees and expenses beyond October 31, 2011. Without the fee waiver, "Net
     Annual Expenses" would be estimated to be 1.28% of net assets attributable
     to Common Shares (assuming the issuance of Preferred Shares) and .76% of
     net assets attributable to Common Shares (assuming no Preferred Shares are
     issued or outstanding).

                                       13
<Page>
    The purpose of the table above and the example below is to help you
understand all fees and expenses that you, as a Common Stockholder, would bear
directly or indirectly. The Other Expenses shown in the table and related
footnotes are based on estimated amounts for the Fund's first year of operations
and assume that the Fund issues approximately 10 million Common Shares. If the
Fund issues fewer Common Shares, all other things being equal, these expenses
would increase. See "Management of the Fund" and "Dividend Reinvestment Plan."

    The following example illustrates the expenses (including the sales load of
$45, estimated offering expenses of this offering of $2 and the estimated
Preferred Share offering costs assuming Preferred Shares are issued representing
38% of the Fund's capital (after issuance) of $8) that you would pay on a $1,000
investment in Common Shares, assuming (1) net annual expenses of .88% of net
assets attributable to Common Shares (assuming the issuance of Preferred Shares)
in years 1 through 5, increasing to .96% in year 6, 1.04% in year 7, 1.12% in
year 8 and 1.20% in year 9; and (2) a 5% annual return(1):

<Table>
<Caption>
                                1 YEAR  3 YEARS  5 YEARS  10 YEARS(2)
                                ------  -------  -------  -----------
<S>                             <C>     <C>      <C>      <C>
Total Expenses incurred.......   $64      $82     $102       $169
</Table>

-------------------

(1)  THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
     EXPENSES. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. The
     example assumes that the estimated "Other Expenses" set forth in the Annual
     Expenses table are accurate, that fees and expenses increase as described
     in note 2 below, and that all dividends and capital gain distributions are
     reinvested at net asset value. Actual expenses may be greater or less than
     those assumed. Moreover, the Fund's actual rate of return may be greater or
     less than the hypothetical 5% annual return shown in the example.
(2)  Assumes waiver of fees and expenses at an annual rate of .20% of the Fund's
     average daily Managed Assets in year 6, .15% in year 7, .10% in year 8 and
     .05% in year 9. NB Management has not agreed to waive any portion of the
     management fees it is entitled to receive from the Fund beyond October 31,
     2011. See "Management of the Fund--Management Agreement."

                                    THE FUND

    The Fund is a recently organized, diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder (the "1940 Act"). The Fund was
organized as a Maryland corporation on July 29, 2002. As a newly organized
entity, the Fund has no operating history. The Fund's principal office is
located at 605 Third Avenue, New York, New York 10158-0180, and its telephone
number is 877-461-1899.

                                USE OF PROCEEDS

    The net proceeds of the offering of Common Shares will be approximately
$       (or $       if the Underwriters exercise the over-allotment option in
full) after payment of the estimated organizational and offering costs. NB
Management has agreed to pay organizational expenses and offering costs of the
Fund (other than the sales load) that exceed $.03 per Common Share. The Fund
will invest the net proceeds of the offering in accordance with the Fund's
investment objective and policies as stated below. It is currently anticipated
that the Fund will be able to invest substantially all of the net proceeds in
municipal bonds that meet its investment objective and policies within three
months after the completion of the offering. Pending such investment, it is
anticipated that the proceeds will be invested in high quality, short-term,
tax-exempt securities, although the Fund may, if necessary, also invest in other
high quality, short-term securities, including mortgage-backed and corporate
debt securities, that may be either tax-exempt or taxable.

                                       14
<Page>
                             THE FUND'S INVESTMENTS

INVESTMENT OBJECTIVE AND POLICIES

    The Fund's investment objective is to provide Common Stockholders a high
level of current income exempt from federal income tax. This income, if any,
will be distributed to Common Stockholders after the satisfaction of the
obligation to pay dividends on Preferred Shares. The Fund may not achieve its
investment objective.


    The Fund normally invests primarily in investment grade municipal debt
securities issued by state and local governments, including U.S. territories and
possessions, political subdivisions, agencies and public authorities (municipal
bonds) with remaining maturities of less than 15 years. The Fund's policy is to
invest, under normal market conditions, at least 80% of its total assets in
municipal bonds with remaining maturities of less than 15 years. Under normal
market conditions, the Fund will invest at least 80% of its total assets in
municipal securities that pay interest that, in the opinion of bond counsel to
the issuer (or on the basis of other authority believed by Fund's investment
manager to be reliable), is exempt from federal income tax. The Fund seeks to
maintain a dollar-weighted average duration between three and eight years. Under
normal market conditions, the Fund will invest at least 80% of its total assets
in municipal bonds that are rated, at the time of investment, within the four
highest categories by an NRSRO or are unrated but judged to be of comparable
quality by NB Management. Investment grade debt securities are those rated "BBB"
or higher by S&P, "Baa" or higher by Moody's or within one of the four highest
rating categories by an NRSRO or are unrated but judged to be of comparable
quality by NB Management. As a fundamental policy, the Fund will invest at least
80% of its total assets in Municipal Bonds.



    Duration is a measure of a fixed income security's sensitivity to changes in
interest rates. Unlike final maturity, duration takes account of all payments
made over the life of the security. Typically, with a 1% change in interest
rates, an investment's value may be expected to move in the opposite direction
approximately 1% for each year of its duration.


    The Fund may invest up to 20% of its total assets in municipal bonds that at
the time of investment are rated Ba/BB or B by Moody's, S&P or Fitch or that are
unrated but judged to be of comparable quality by NB Management. Bonds of below
investment grade quality are regarded as having predominately speculative
characteristics with respect to the issuer's capacity to pay interest and repay
principal, and are commonly referred to as "junk bonds."

    Municipal bonds may have all types of interest rate payment and reset terms,
including fixed rate, floating and variable rate, zero coupon, payment in kind
and auction rate features.


    The Fund will not invest more than 25% of its total assets in any industry,
nor does the Fund normally invest more than 5% of its total assets in the
securities of any single issuer. Governmental issuers of municipal bonds are not
considered part of any "industry." However, municipal bonds backed only by the
assets and revenues of nongovernmental users may for this purpose be deemed to
be issued by such nongovernmental users, and the 25% limitation would apply to
the industries of such nongovernmental users. It is nonetheless possible that
the Fund may invest more than 25% of its total assets in a broader segment of
the municipal bond market, such as hospital and other health care facilities
obligations, housing agency revenue obligations, and airport revenue
obligations. The Fund will invest more than 25% of its assets in such types of
municipal bonds if NB Management determines that the yields available from such
obligations in a particular segment justify the additional risks associated with
a large investment in that segment. These obligations could be supported by the
credit of governmental users, or by the credit of nongovernmental users engaged
in a number of industries; however, economic, business, political and other
developments generally affecting the revenues of such users (for example,
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products)
may have a general adverse effect


                                       15
<Page>

on all such municipal bonds in such a market segment. The Fund may invest more
than 25% of its assets in industrial development bonds or in issuers located in
the same state. If the Fund were to invest more than 25% of its total assets in
issuers located in the same state, it would be more susceptible to adverse
economic, business, or regulatory conditions in that state.


    The Fund may purchase municipal bonds that are additionally secured by
insurance, bank credit agreements, or escrow accounts. The credit quality of
companies that provide such credit enhancements will affect the value of those
securities. Although the insurance feature reduces certain financial risks, the
premiums for insurance and the higher market price paid for insured obligations
may reduce the Fund's income. Insurance generally will be obtained from insurers
with a claims-paying ability rated Aaa by Moody's or AAA by S&P or Fitch. The
insurance feature does not guarantee the market value of the insured obligations
or the net asset value of the Common Shares.

    For temporary defensive purposes, and in order to keep cash on hand fully
invested, the Fund may temporarily invest to a substantial degree in
high-quality, short-term municipal bonds. If these high-quality, short-term
municipal bonds are not available or, in NB Management's judgment, do not afford
sufficient protection against adverse market conditions, the Fund may invest in
the following taxable securities: obligations of the U.S. Government, its
agencies or instrumentalities; other debt securities rated within the four
highest categories by an NRSRO; commercial paper rated in the highest category
by an NRSRO; certificates of deposit, time deposits and bankers' acceptances; or
repurchase agreements with respect to any of the foregoing investments or any
other fixed-income securities that NB Management considers consistent with such
strategy. To the extent the Fund invests in taxable securities, it will not be
able to achieve its investment objective of providing income exempt from federal
income tax.


    The Fund cannot accurately predict its portfolio turnover rate but
anticipates that its annual portfolio turnover rate will not exceed 100%. The
Fund generally will not trade securities for the purpose of realizing short-term
profits, but it will adjust its portfolio as it deems advisable in view of
prevailing or anticipated market conditions to accomplish its investment
objective. Other than for consideration of tax consequences, frequency of
portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities.



    The investment objective and, unless otherwise specified, the investment
policies and limitations of the Fund are not fundamental. Any investment
objective, policy or limitation that is not fundamental may be changed by the
Board of Directors of the Fund without stockholder approval. The fundamental
investment policies and limitations of the Fund may not be changed without the
approval of the holders of a majority of the outstanding Common Shares and, if
issued, Preferred Shares voting as a single class, as well as by the vote of a
majority of the outstanding Preferred Shares tabulated separately. A "majority
of the outstanding" shares means (i) 67% or more of the shares present at a
meeting, if the holders of more than 50% of the shares are present or
represented by proxy, or (ii) more than 50% of the shares, whichever of (i) or
(ii) is less. These percentages are required by the 1940 Act.


    If you are, or as a result of an investment in the Fund would become,
subject to the AMT, the Fund may not be a suitable investment for you. Special
AMT rules apply to corporate holders. In addition, distributions of any taxable
net investment income and any net short-term capital gain (I.E., dividends) will
be taxable to stockholders as ordinary income, and distributions of any net
capital gain will be subject to tax as long-term capital gain. See "Tax
Matters."

    The following provides additional information regarding the types of
securities and other instruments in which the Fund will ordinarily invest. A
more detailed discussion of these and other instruments and investment
techniques that may be used by the Fund is provided under "Investment Objective
and Policies" in the Statement of Additional Information.

                                       16
<Page>
MUNICIPAL BONDS

    Municipal bonds are obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which, in the opinion of bond counsel or other counsel to the issuer of such
securities is, at the time of issuance, not includable in gross income for
federal income tax purposes. Under normal market conditions, at least 80% of the
Fund's total assets will be invested in municipal bonds with remaining
maturities of less than 15 years.

    The Fund has not established any limit on the percentage of its portfolio
that may be invested in municipal bonds the interest on which is a Tax
Preference Item, and a substantial portion of the dividends paid on Common
Shares thus may be such an item. Common Shares may not be a suitable investment
for investors who are already subject to the AMT or who would become subject to
the AMT as a result of an investment in Common Shares. See "Tax Matters."

    The two principal classifications of municipal bonds are "general
obligation" bonds and "revenue" or "special obligation" bonds, which include
"private activity bonds." General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest, and, accordingly, the capacity of the issuer of a general obligation
bond as to the timely payment of interest and the repayment of principal when
due is affected by the issuer's maintenance of its tax base. Revenue or special
obligation bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special tax or other specific revenue source such as from the user of the
facility being financed; accordingly, the timely payment of interest and the
repayment of principal in accordance with the terms of the revenue or special
obligation bond is a function of the economic viability of such facility or such
revenue source. They are not supported by the general taxing authority of any
governmental agency. Although the ratings of NRSROs of the municipal bonds in
the Fund's portfolio are relative and subjective, and are not absolute standards
of quality, such ratings reflect the assessment of the NRSROs of the issuer's
ability, or the economic viability of the special revenue source, with respect
to the timely payment of interest and the repayment of principal in accordance
with the terms of the obligation. See Appendix A to the Statement of Additional
Information for a summary of ratings.

    Municipal bonds may have fixed or variable interest rates. The Fund may
purchase floating and variable rate demand notes, which are municipal bonds
normally having a stated maturity in excess of one year, but which permit the
holder to tender the notes for purchase at the principal amount thereof. The
interest rate on a floating rate demand note is based on a known lending rate,
such as a bank's prime rate, and is adjusted each time such rate is adjusted.
The interest rate on a variable rate demand note is adjusted at specified
intervals based on a specified benchmark. There generally is no secondary market
for these notes, although they may be tendered for redemption or remarketing at
face value and thus may be determined to be liquid. See "Investment Policies and
Techniques" in the Statement of Additional Information. Each such note purchased
by the Fund will meet the criteria established for the purchase of municipal
bonds.

    The Fund may invest in unrated "non-appropriation" lease obligations or
installment purchase contract obligations of municipal authorities or entities
believed by NB Management to be of comparable quality to securities that are
rated investment grade. There is no limitation on the percentage of the Fund's
assets that may be invested in these lease obligations. A lease obligation is
backed by the municipality's promise to make the payments due under the lease
obligation. Lease obligations containing "non-appropriation" clauses provide
that the municipality has no obligation to make lease installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis.

    The Fund may invest in zero coupon bonds. A zero coupon bond pays no
interest in cash to its holder during its life, although interest is accrued
during that period. Its value to an investor consists of

                                       17
<Page>
the difference between its face value at the time of maturity and the price at
which it was issued, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price).

    The Fund may also engage in interest rate and other hedging and risk
management transactions; purchase and sell options (including swaps, caps,
floors and collars) on municipal bonds and on indices based on municipal bonds;
and purchase and sell municipal bonds on a "when-issued" or "delayed delivery"
basis. In general, the Fund may purchase and sell (or write) options on up to
20% of its total assets. The Securities and Exchange Commission requires that
obligations of investment companies such as the Fund, in connection with options
sold, must comply with certain segregation or cover requirements, which are more
fully described in the Statement of Additional Information. The Fund may engage
in these transactions both for speculative purposes and as a means to hedge
risk. The Fund may also engage, to a limited extent, in financial futures
contracts and related options contracts for hedging purposes. The Fund may also
hold securities or use investment techniques that provide for payments based on
or "derived" from the performance of an underlying asset, index or other
economic benchmark. Although NB Management believes that these investment
practices may further the Fund's investment objective, no assurance can be given
that these investment practices will achieve this result. See the Statement of
Additional Information for a further description of these investment practices.

SELECTION OF INVESTMENTS

    NB Management selects securities for the Fund's portfolio which it believes
entail reasonable credit risk considered in relation to the particular
investment policies of the Fund. As a result, the Fund does not necessarily
invest in the highest yielding municipal bonds permitted by its investment
policies if NB Management determines that market risks or credit risks
associated with such investments would subject the Fund's portfolio to excessive
risk. The potential for realization of capital gains resulting from possible
changes in interest rates is not a major consideration. The Fund's policy is to
invest at least 80% of its total assets in municipal bonds with remaining
maturities of less than 15 years. The Fund seeks to maintain a dollar-weighted
average duration between three and eight years. For this purpose, any scheduled
principal prepayments on municipal bonds are reflected in the calculation of
dollar-weighted average duration. NB Management may adjust the average duration
of the Fund's portfolio from time to time, depending on its assessment of the
relative yields available on securities of different maturities and its
expectations of future changes in interest rates. Duration is a measure of a
security's sensitivity to changes in market interest rates that takes account of
all payments of principal and interest scheduled to occur over the life of the
security.

    From time to time, the Fund may invest in securities of a municipal issuer,
most or all of which is held by the Fund, by itself or together with other funds
or accounts managed by NB Management. If the other funds holding the securities
are open-end investment companies, they may need to liquidate their assets to
meet shareholder redemptions, which could adversely affect the value of the same
securities held by the Fund. Because there may be relatively few potential
purchasers for such investments and, in some cases, there may be contractual
restrictions on resales, the Fund may find it more difficult to sell such
securities at a time when NB Management believes it is advisable to do so.

WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS


    The Fund may purchase municipal bonds on a "when-issued" and "delayed
delivery" basis. No income accrues to the Fund on municipal bonds in connection
with such transactions prior to the date the Fund actually takes delivery of
such securities. These transactions are subject to market fluctuations; the
value of the municipal bonds at delivery may be more or less than their purchase
price, and yields generally available on municipal bonds when delivery occurs
may be higher than yields on the municipal bonds obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be


                                       18
<Page>

advantageous. When the Fund is the buyer in such a transaction, however, it will
maintain, in a segregated account, cash or liquid securities having a value
equal to or greater than the Fund's purchase commitments, that are marked to
market daily, pursuant to guidelines established by the Board of Directors. The
Fund will make commitments to purchase municipal bonds on such basis only with
the intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable.


    To the extent that the Fund engages in "when-issued" and "delayed delivery"
transactions, it will do so for the purpose of acquiring securities for the
Fund's portfolio consistent with the Fund's investment objective and policies.
However, purchases of securities on such basis may involve more risk than other
types of purchases. For example, if the Fund determines it is necessary to sell
the "when-issued" or "delayed delivery" securities before delivery, it may
realize a gain or incur a loss because of market fluctuations since the time the
commitment to purchase such securities was made. Subject to the requirement of
maintaining a segregated account, no specified limitation exists as to the
percentage of the Fund's assets which may be used to acquire securities on a
"when-issued" or "delayed delivery" basis. Use of these techniques has a
leverage-like effect on the Fund.

    For more information, see "Investment Policies and Techniques--Special
Considerations Relating to Municipal Securities" in the Statement of Additional
Information.

                     PREFERRED SHARES AND RELATED LEVERAGE


    Subject to market conditions, approximately one to three months after the
completion of the offering of the Common Shares, the Fund intends to offer
Preferred Shares representing approximately 38% of the Fund's capital
immediately after the issuance of the Preferred Shares. The Preferred Shares
will have complete priority upon distribution of assets over the Common Shares.
The issuance of Preferred Shares will leverage the Common Shares. Leverage
involves special risks and there is no assurance that the Fund's leveraging
strategies will be successful. The timing and other terms of the offering of the
Preferred Shares will be determined by the Fund's Board of Directors. If the
Fund issues Preferred Shares, costs of that offering will effectively be borne
by Common Stockholders and result in a reduction of the paid-in capital
attributable to the Common Shares. See "Summary of Fund Expenses," above. The
Fund expects to invest the net proceeds of the Preferred Shares principally in
intermediate-term municipal bonds. The Preferred Shares will pay dividends based
on short-term rates (which would be redetermined periodically by an auction
process). So long as the proceeds of the Preferred Shares (minus associated
expenses) are invested in securities that provide a higher rate of return than
the dividend rate of the Preferred Shares (after taking expenses into
consideration), the leverage will allow Common Stockholders to receive a higher
current rate of return than if the Fund were not leveraged. If, however,
short-term tax-exempt interest rates rise substantially after the issuance of
the Preferred Shares, the Preferred Share dividend rate could approach or exceed
the acquisition yield on intermediate-term bonds and other investments held by
the Fund that were acquired during periods of generally lower interest rates,
reducing distribution yields and returns to Common Stockholders.


    Changes in the value of the Fund's municipal bond portfolio (including
investments bought with the proceeds of the Preferred Shares offering) will be
borne entirely by the Common Stockholders. If there is a net decrease (or
increase) in the value of the Fund's investment portfolio, the leverage will
decrease (or increase) the net asset value per Common Share to a greater extent
than if the Fund were not leveraged. During periods in which the Fund is using
leverage, the fees paid to NB Management will be higher than if the Fund did not
use leverage because the fees paid will be calculated on the basis of the Fund's
Managed Assets, which include the proceeds from the issuance of Preferred
Shares.

                                       19
<Page>
    For tax purposes, the Fund is currently required to allocate net capital
gain and other taxable income, if any, between and among the Common Shares and
any series of Preferred Shares in proportion to total distributions paid to each
class for the taxable year in which the net capital gain or other taxable income
is realized. If net capital gain or other taxable income (instead of solely
tax-exempt income) is allocated to Preferred Shares, the Fund will have to pay
higher total dividends to Preferred Stockholders or make dividend payments
intended to compensate Preferred Stockholders for the unanticipated
characterization of a portion of their dividends as taxable ("Gross-up
Dividends"). This would reduce any advantage of the Fund's leveraged structure
to Common Stockholders.


    Under the 1940 Act, the Fund is not permitted to issue Preferred Shares
unless immediately after such issuance the value of the Fund's capital is at
least 200% of the liquidation value of the outstanding Preferred Shares plus the
aggregate amount of any senior securities of the Fund representing indebtedness
(I.E., such liquidation value plus the aggregate amount of senior securities
representing indebtedness may not exceed 50% of the Fund's capital). In
addition, the Fund is not permitted to declare any cash dividend or other
distribution on its Common Shares unless, at the time of such declaration, the
value of the Fund's capital satisfies the above-referenced 200% coverage
requirement. If Preferred Shares are issued, the Fund intends, to the extent
possible, to purchase or redeem Preferred Shares from time to time to the extent
necessary in order to maintain coverage of at least 200%. If the Fund has
Preferred Shares outstanding, two of the Fund's Directors will be elected by the
Preferred Stockholders, voting separately as a class. The remaining Directors of
the Fund will be elected by Common and Preferred Stockholders voting together as
a single class. In the event the Fund failed to pay dividends on Preferred
Shares for two consecutive years, Preferred Stockholders would be entitled to
elect a majority of the Directors of the Fund. For purposes of this prospectus,
the Fund's "capital" means the total assets of the Fund less all liabilities and
indebtedness not representing Preferred Shares or other senior securities. The
liquidation preference of the Preferred Shares is not a liability or permanent
equity.


    If the Fund issues Preferred Shares and one or more rating agencies issue
ratings for the Preferred Shares, the Fund would be subject to certain
restrictions imposed by guidelines of those agencies. These guidelines may
impose asset coverage or portfolio composition requirements that are more
stringent than those imposed on the Fund by the 1940 Act. It is not anticipated
that these covenants or guidelines will impede NB Management from managing the
Fund's portfolio in accordance with the Fund's investment objective and
policies.

EFFECTS OF LEVERAGE

    Assuming that the Preferred Shares will represent approximately 38% of the
Fund's capital and pay dividends at an annual average rate of 2%, the income
generated by the Fund's portfolio (net of expenses) would have to exceed .76% in
order to cover such dividend payments. Of course, these numbers are merely
estimates, used for illustration. Actual Preferred Share dividend rates will
vary frequently and may be significantly higher or lower than the rate
estimated.

    The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on Common Share total return, assuming investment portfolio total
returns (consisting of income and changes in the value of investments held in
the Fund's portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative of
the investment portfolio returns expected to be experienced by the Fund. The
table further assumes the issuance of Preferred Shares representing

                                       20
<Page>
approximately 38% of the Fund's total capital and the Fund's currently projected
annual Preferred Share dividend rate of 2%. See "Risks."

<Table>
<S>                        <C>     <C>    <C>    <C>   <C>
Assumed Portfolio Total
  Return (Net of
  Expenses)..............     (10)%    (5)%     0%    5%    10%
Common Share Total
  Return.................  (17.35)% (9.29)% (1.23)% 6.84% 14.90%
</Table>


    Common Share total return is composed of two elements: the Common Share
distributions paid by the Fund (the amount of which is largely determined by the
net investment income of the Fund after paying dividends on Preferred Shares and
Fund expenses) and gains or losses on the value of the securities the Fund owns.
As required by Securities and Exchange Commission rules, the table assumes that
the Fund is more likely to suffer capital losses than to enjoy capital
appreciation. For example, to assume a total return of 0%, the Fund must assume
that the tax-exempt interest it receives on its municipal bond investments is
entirely offset by losses in the value of those investments and Fund expenses.


OTHER FORMS OF LEVERAGE AND BORROWINGS

    In addition to the issuance of Preferred Shares, the Fund may use a variety
of additional strategies to add leverage to the portfolio. These include the use
of options, futures contracts, residual interest bonds and other derivative
instruments. By adding additional leverage, these strategies have the potential
to increase returns to Common Stockholders, but also involve additional risks.
Additional leverage will increase the volatility of the Fund's investment
portfolio and could result in larger losses than if the strategies were not
used.


    The Securities and Exchange Commission does not consider derivative
instruments used by the Fund to constitute senior securities (and they will not
be subject to the Fund's limitations on borrowings) to the extent that the Fund
segregates liquid assets at least equal in amount to its obligations under the
instruments, or enters into offsetting transactions or owns positions covering
its obligations. For instance, the Fund may cover its position in a forward
purchase commitment by segregating liquid assets in an amount sufficient to meet
the purchase price. The Fund has no current intention to use such instruments to
an extent that would put more than 5% of its net assets at risk.


    The Fund also may borrow money in order to repurchase its shares or as a
temporary measure for extraordinary or emergency purposes, including for the
payment of dividends or the settlement of securities transactions which
otherwise might require untimely dispositions of Fund securities.

                                     RISKS

    The net asset value of the Common Shares will fluctuate with and be affected
by, among other things, market discount risk, interest rate risk, credit risk,
municipal bond market risk, reinvestment risk, leverage risk, inflation risk,
liquidity risk, derivatives risk and management risk. An investment in Common
Shares will also be subject to the risk associated with the fact that the Fund
is newly organized. These risks are summarized below.

    NEWLY ORGANIZED. The Fund is a newly organized, diversified, closed-end
management investment company and has no operating history.

    MARKET DISCOUNT RISK. As with any stock, the price of the Fund's shares will
fluctuate with market conditions and other factors. If shares are sold, the
price received may be more or less than the original investment. Net asset value
will be reduced immediately following the initial offering by the amount of the
sales load and organizational and selling expenses paid by the Fund. Common
Shares are designed for long-term investors and should not be treated as trading
vehicles. Shares of closed-end

                                       21
<Page>
management investment companies like the Fund frequently trade at a discount
from their per-share net asset value. The Fund's shares may trade at a price
that is less than the initial offering price. This risk may be greater for
investors who sell their shares in a relatively short period of time after
completion of the initial offering.

    INTEREST RATE RISK. Interest rate risk is the risk that bonds (and the
Fund's net assets) will decline in value because of changes in market interest
rates. Generally, municipal bonds will decrease in value when interest rates
rise and increase in value when interest rates decline. This means that the net
asset value of the Common Shares will fluctuate with interest rate changes and
the corresponding changes in the value of the Fund's municipal bond holdings.
Because the Fund will invest primarily in intermediate-term bonds, the Common
Share net asset value and market price per share will fluctuate more in response
to changes in market interest rates than if the Fund invested primarily in
shorter-term bonds. The Fund's use of leverage, as described below, will tend to
increase Common Share interest rate risk.

    INCOME RISK. The Fund's income is based primarily on the interest it earns
from its investments, which can vary widely over the short term and long term.
If interest rates drop, the Fund's income available over time to make dividend
payments with respect to Preferred Shares could drop as well if the Fund
purchases securities with lower interest coupons.

    CALL RISK. If interest rates fall, it is possible that issuers of callable
bonds with higher interest coupons will "call" (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer during a period of
declining interest rates, the Fund is likely to replace such called security
with a lower yielding security.

    LIQUIDITY RISK. The market for municipal obligations may be less liquid than
for corporate bonds. The market for special obligation bonds, lease obligations,
participation certificates and variable rate instruments, which the Fund may
purchase, may be less liquid than for general obligation bonds. Liquid secondary
trading in unrated municipal obligations may not exist. The Fund may not be able
to sell these securities when NB Management determines it is appropriate. When
the Fund has a need to raise cash, NB Management may be forced to sell from the
portfolio some securities it would prefer to retain.


    Less liquid markets tend to be more volatile and react more negatively to
adverse publicity and investor perception than more liquid markets. If markets
are less liquid, the Fund may not be able to dispose of municipal obligations in
a timely manner and at the price at which the Fund is carrying it. There may be
no established trading markets for certain municipal obligations, and trading in
these securities may be relatively inactive. Some of the Fund's investments may
be restricted as to resale. Although restricted securities may be sold in
private transactions, a security's value may be less than the price originally
paid by the Fund. Valuing illiquid or restricted securities is difficult, and NB
Management's judgment may play a greater role in their valuation.


    CREDIT RISK. The Fund could lose money if the issuer of a municipal bond, or
the counterparty to a derivatives contract or other obligation, is unable or
unwilling to make timely principal and/or interest payments, or to otherwise
honor its obligations. In general, lower rated municipal bonds carry a greater
degree of risk that the issuer will lose its ability to make interest and
principal payments, which could have a negative impact on the Fund's net asset
value or distributions.

    Securities rated "BBB" by S&P are regarded by S&P as having an adequate
capacity to pay interest and repay principal; whereas such securities normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Securities rated "Baa" by Moody's are regarded by Moody's as being medium grade
obligations; they are neither

                                       22
<Page>
highly protected nor poorly secured. Although interest payments and principal
payments for these securities appear adequate for the present, they may lack
certain protective elements or may be characteristically unreliable over any
great length of time. They also may lack outstanding investment characteristics
and may have speculative characteristics. The Fund may be more dependent upon NB
Management's investment analysis of unrated municipal bonds than is the case
with rated municipal bonds.

    The Fund may invest up to 20% of its total assets in municipal bonds that at
the time of investment are rated Ba/BB or B by Moody's, S&P or Fitch or that are
unrated but judged to be of comparable quality by NB Management. These bonds,
which are below investment grade, are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal and are commonly referred to as "junk bonds." These securities are
subject to a greater risk of default. The prices of these lower grade bonds are
more sensitive to negative developments, such as a decline in the issuer's
revenues or a general economic downturn, than are the prices of higher grade
securities. Lower grade securities tend to be less liquid than investment grade
securities and the market values of lower grade securities tend to be more
volatile than investment grade securities.

    MUNICIPAL BOND MARKET RISK. Investing in the municipal bond market involves
certain risks. The amount of public information available about the municipal
bonds in the Fund's portfolio is generally less than that for corporate equities
or bonds, and the investment performance of the Fund may therefore be more
dependent on the analytical abilities of NB Management than would be a stock
fund or taxable bond fund. The secondary market for municipal bonds,
particularly the below investment grade bonds in which the Fund may invest, also
tends to be less well-developed or liquid than many other securities markets,
which may adversely affect the Fund's ability to sell its bonds at attractive
prices.

    The ability of municipal issuers to make timely payments of interest and
principal may be diminished during general economic downturns and as
governmental cost burdens are reallocated among federal, state and local
governments. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or
interest, or impose other constraints on enforcement of such obligations. Such
laws, or political considerations, might constrain the ability of municipal
issuers to levy taxes. Issuers of municipal securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, the
Fund could experience delays in collecting principal and interest and the Fund
may not, in all circumstances, be able to collect all principal and interest to
which it is entitled. To enforce its rights in the event of a default in the
payment of interest or repayment of principal, or both, the Fund may take
possession of, and manage, the assets securing the issuer's obligations on such
securities, which may increase the Fund's operating expenses. Any income derived
from the Fund's ownership or operation of such assets may not be tax-exempt.


    The recent economic downturn, which is of uncertain duration, has absorbed
the reserves that many states and municipalities had accumulated during the long
economic expansion of the 1990's and has unbalanced many state and municipal
budgets. Because the disclosure requirements for issuers of municipal securities
are more limited than those for issuers of other securities, it may be more
difficult to discern accurately the financial condition of a municipal issuer in
times of significant economic change. Furthermore, because this downturn follows
a long expansion, some municipal finance officers may have limited experience in
responding to such a situation. If the economy remains slow, it could also
impact many private enterprises whose revenues support private activity bonds or
form a critical part of the tax base of a state or municipality. Strife in the
Middle East could substantially increase the price of oil and thus gasoline,
which is an important expense for many municipalities.



    TERRORISM RISKS. Municipal securities are subject to a risk that terror
attacks could result in substantial loss of life, damage the local economy and
damage or destroy significant portions of the


                                       23
<Page>

municipal infrastructure. The impact of these events may extend beyond the
immediately affected area and beyond the time of the attack. Businesses that
leave an affected area in the wake of such an attack may not return, and
economic activity may slow if tourists and local consumers avoid the affected
city. These events could severely affect the tax base of a particular issuer of
municipal securities and could damage or destroy a facility whose revenues
support the payment of particular municipal securities. These attacks, and
measures taken to prevent them, may also impose substantial overtime costs on
municipal budgets. See "Recent Developments."


    HIGH YIELD RISK. Investing in high yield bonds involves additional risks,
including credit risk. The value of high yield, lower quality bonds is affected
by the creditworthiness of the issuers of the securities and by general economic
and specific industry conditions. Issuers of high yield bonds are not as strong
financially as those with higher credit ratings, so their bonds are usually
considered speculative investments. These issuers are more vulnerable to
financial setbacks and recession than more creditworthy issuers, which may
impair their ability to make interest and principal payments. Investments in
lower grade securities will expose the Fund to greater risks than if the Fund
owned only higher grade securities.

    REINVESTMENT RISK. Reinvestment risk is the risk that income from the Fund's
municipal bond portfolio will decline if and when the Fund invests the proceeds
from matured, traded or called bonds at market interest rates that are below the
portfolio's current earnings rate. A decline in income could affect the Common
Shares' market price or their overall return.

    LEVERAGE RISK. Leverage risk includes the risk associated with the issuance
of the Preferred Shares, if any, in order to leverage the Fund's portfolio.
There can be no assurance that the Fund's leveraging strategies involving
Preferred Shares or derivatives will be successful. Once the Preferred Shares
are issued or other forms of leverage are used, the net asset value and market
value of Common Shares will be more volatile, and the yield and total return to
Common Stockholders will tend to fluctuate more in response to changes in
interest rates and with changes in the short-term dividend rates on the
Preferred Shares. The Fund anticipates that the Preferred Shares, at least
initially, would likely pay cumulative dividends at rates determined over
relatively short-term periods (such as seven days), by providing for the
periodic redetermination of the dividend rate through an auction or remarketing
procedures. See "Description of Shares--Preferred Shares." The rates of return
on long-term municipal bonds are typically, although not always, higher than the
rates of return on short-term municipal bonds. If the dividend rate on the
Preferred Shares, plus associated expenses, approaches the net rate of return on
the portfolio securities the Fund purchases with the proceeds of selling the
Preferred Shares, the benefit of leverage to Common Stockholders would be
reduced. If the dividend rate on the Preferred Shares, plus associated expenses,
exceeds the net rate of return on the portfolio securities the Fund purchases
with the proceeds of selling the Preferred Shares, the leverage will result in a
lower rate of return to Common Stockholders than if the Fund were not leveraged.
Because the longer-term bonds included in the Fund's portfolio will typically
pay fixed rates of interest while the dividend rate on the Preferred Shares will
be adjusted periodically, this could occur even when both long-term and
short-term interest rates rise. In addition, the Fund will pay (and Common
Stockholders will bear) any costs and expenses relating to the issuance and
ongoing maintenance of the Preferred Shares. Furthermore, if the Fund realizes
or earns net capital gain or other taxable income (instead of solely tax-exempt
income) that is allocated to Preferred Shares, the Fund may have to pay Gross-up
Dividends to Preferred Stockholders, which would reduce any advantage of the
Fund's leveraged structure to Common Stockholders without reducing the
associated risk. See "Preferred Shares and Related Leverage." The Fund cannot
assure Common Stockholders that it will issue Preferred Shares or use other
forms of leverage or, if used, that these strategies will result in a higher
yield or return to Common Stockholders.

                                       24
<Page>
    Similarly, any decline in the net asset value of the Fund's investments will
be borne entirely by Common Stockholders. Therefore, if the market value of the
Fund's portfolio declines, any leverage will result in a greater decrease in net
asset value to Common Stockholders than if the Fund were not leveraged. Such
greater net asset value decrease will also tend to cause a greater decline in
the market price for the Common Shares. The Fund might be in danger of failing
to maintain the required 200% asset coverage or of losing its expected AAA/Aaa
ratings on the Preferred Shares or, in an extreme case, the Fund's current
investment income might not be sufficient to meet the dividend requirements on
the Preferred Shares. In order to counteract such an event, the Fund might need
to liquidate investments in order to fund a redemption of some or all of the
Preferred Shares. Liquidation at times of low municipal bond prices may result
in capital loss and may reduce returns to Common Stockholders.

    While the Fund may from time to time consider reducing leverage in response
to actual or anticipated changes in interest rates in an effort to mitigate the
increased volatility of current income and net asset value associated with
leverage, there can be no assurance that the Fund will actually reduce leverage
in the future or that any reduction, if undertaken, will benefit the Common
Stockholders. Changes in the future direction of interest rates are very
difficult to predict accurately. If the Fund were to reduce leverage based on a
prediction about future changes to interest rates, and that prediction turned
out to be incorrect, the reduction in leverage would likely operate to reduce
the income and/or total returns to Common Stockholders relative to the
circumstance if the Fund had not reduced leverage. The Fund may decide that this
risk outweighs the likelihood of achieving the desired reduction to volatility
in income and Common Share price if the prediction were to turn out to be
correct, and determine not to reduce leverage as described above.


    The Fund may invest in the securities of other investment companies. Such
securities may also be leveraged and will therefore be subject to the leverage
risks described above. Such additional leverage may in certain market conditions
serve to reduce the net asset value of the Fund's Common Shares and the returns
to Common Stockholders. The shares of other investment companies are subject to
the management fees and other expenses of those funds. Therefore, investments in
other investment companies will cause the Fund to bear proportionately the costs
incurred by the other investment companies' operations. If these other
investment companies engage in leverage, the Fund, as a shareholder, would bear
its proportionate share of the cost of such leveraging. The Fund may also invest
in investment companies whose income distributions are not exempt from federal
income tax, and if it does, some of the Fund's income distributions may be
taxable.


    INFLATION RISK. Inflation risk is the risk that the value of assets or
income from the Fund's investments will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real, or
inflation-adjusted, value of the Common Shares and distributions can decline,
and the dividend payments on the Fund's Preferred Shares, if any, or interest
payments on Fund borrowings, if any, may increase.

    MANAGEMENT RISK. The Fund is subject to management risk because it has an
actively managed investment portfolio. NB Management and the portfolio managers
will apply investment techniques and risk analyses in making investment
decisions for the Fund, but there can be no guarantee that these will produce
the desired results.

    ECONOMIC SECTOR AND GEOGRAPHIC RISK. The Fund may invest 25% or more of its
total assets in municipal obligations of issuers in the same state (or U.S.
territory) or in municipal obligations in the same economic sector, including
without limitation the following: lease rental obligations of state and local
authorities; obligations dependent on annual appropriations by a state's
legislature for payment; obligations of state and local housing finance
authorities; municipal utilities systems or public housing

                                       25
<Page>
authorities; obligations of hospitals or life care facilities; and industrial
development or pollution control bonds issued for electrical utility systems,
steel companies, paper companies or other purposes. This may make the Fund more
susceptible to adverse economic, political or regulatory occurrences affecting a
particular state or economic sector. For example, health care related issuers
are susceptible to Medicare, Medicaid and other third party payor reimbursement
policies, and national and state health care legislation. As concentration
increases, so does the potential for fluctuation in the net asset value of the
Common Shares.

    RISKS OF CERTAIN INVESTMENTS OF THE FUND. In addition to the risks described
above, the Fund's investments are subject to certain other kinds of risk, such
as:

    -  NB Management's judgment about the attractiveness, value or income
       potential of a particular municipal obligation may prove to be incorrect;

    -  municipal obligations may fall out of favor with investors;

    -  a rise in interest rates could cause the value of the Fund's portfolio
       generally to decline;

    -  unfavorable legislation may affect the tax-exempt status of municipal
       obligations; and

    -  unfavorable regulatory action could affect the tax-exempt status of a
       particular security or type of security held by the Fund.

    The Fund may invest more than 25% of its assets in municipal obligations
that finance the same or similar types of facilities or issuers located in the
same state. If the Fund invests more than 25% of its assets in such segments, it
will be more susceptible to economic, business, political, regulatory and other
developments generally affecting issuers in those segments of the municipal
market.

    The Fund may invest in unrated "non-appropriation" lease obligations or
installment purchase contract obligations of municipal authorities or entities
believed by NB Management to be of comparable quality to securities that are
rated investment grade. Regardless of the issuer's creditworthiness, it is
possible that a municipality will fail to appropriate money in the future
because of political changes, changes in the economic viability of a project or
general economic changes. While these lease obligations generally are secured by
a lien on the leased property, disposing of foreclosed property could be costly
and time-consuming, and the Fund may not recoup its original investment.

    The Fund may invest in zero coupon bonds. Because these securities usually
trade at a deep discount, they will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities which make periodic distributions of interest. On the other hand,
because there are no periodic interest payments to be reinvested prior to
maturity, zero coupon securities eliminate the reinvestment risk and lock in a
rate of return to maturity.

    Some of the Fund's income may be subject to federal taxation. The Fund may
realize taxable gain on some of its securities, and some of the Fund's income
may be a Tax Preference Item.

    The Fund may acquire securities on a "when-issued" or "delayed delivery"
basis. Subject to the requirement of maintaining a segregated account, no
specified limitation exists as to the percentage of the Fund's assets which may
be used to acquire securities on a "when-issued" or "delayed delivery" basis. If
a significant percentage of the Fund's assets are committed to the purchase of
securities on a "when-issued" and/or "delayed delivery" basis, the volatility of
the Fund's net asset value may increase and the flexibility to manage the Fund's
investments may be limited. Engaging in "when-issued" and "delayed delivery"
transactions has a leverage-like effect on the Fund.


    The Fund may invest in derivatives. A derivative contract will obligate or
entitle the Fund to deliver or receive an asset or cash payment that is based on
the change in value of one or more


                                       26
<Page>

securities or indices. Even a small investment in derivative contracts can have
a big impact on the Fund's interest-rate exposure. Therefore, using derivatives
can disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The Fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the Fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of
fixed-income securities. Derivatives can also make the Fund less liquid and
harder to value, especially in declining markets. The use of derivatives may
produce taxable income.


    RECENT DEVELOPMENTS. As a result of the terrorist attacks on the World Trade
Center and the Pentagon on September 11, 2001, some of the U.S. securities
markets were closed for a four-day period. These terrorist attacks and related
events have led to increased short-term market volatility and may have long-term
effects on U.S. and world economies and markets. A similar disruption of the
financial markets could impact interest rates, auctions, secondary trading,
ratings, credit risk, inflation and other factors relating to the securities.

    Please see "Investment Objective and Policies" in the Statement of
Additional Information for additional information regarding the investments of
the Fund and their related risks.

                           HOW THE FUND MANAGES RISK
INVESTMENT LIMITATIONS


    The Fund has adopted certain investment limitations designed to limit
investment risk and maintain portfolio diversification. These limitations are
fundamental and may not be changed without the approval of the holders of a
majority of the outstanding Common Shares and, if issued, Preferred Shares
voting as a single class, as well as by the vote of a majority of the
outstanding Preferred Shares tabulated separately. A "majority of the
outstanding" shares means (i) 67% or more of the shares present at a meeting, if
the holders of more than 50% of the shares are present or represented by proxy,
or (ii) more than 50% of the shares, whichever of (i) or (ii) is less. The Fund
may not invest more than 25% of total Fund assets in securities of issuers
having their principal business activities in any one industry. However, the
Fund may from time to time invest more than 25% of its total assets in a
particular segment of the municipal obligations market or in obligations of
issuers located in the same state. Municipalities are not considered to be in
any industry; however, where a municipal security is supported only by the
income from a particular enterprise or the assets of a particular private
company, the Fund will treat that enterprise or company as the issuer for
purposes of this limitation. The Fund also may not invest more than 5% of total
Fund assets in securities of any one issuer, except that this limitation does
not apply to bonds issued by the U.S. Government, its agencies and
instrumentalities or to the investment of 25% of the Fund's total assets in
shares of other registered investment companies. The Fund may become subject to
guidelines which are more limiting than the investment restrictions set forth
above in order to obtain and maintain ratings from Moody's or Fitch on Preferred
Shares. See the Statement of Additional Information for a complete list of the
fundamental and non-fundamental investment policies of the Fund.


    The Fund may use various investment strategies designed to limit the risk of
bond price fluctuations. These hedging strategies include purchasing put and
call options and using financial futures contracts and related options
contracts. See "Investment Policies and Techniques" in the Statement of
Additional Information.

QUALITY OF INVESTMENTS


    The Fund will invest at least 80% of its total assets in municipal bonds of
investment grade at the time of investment. Investment grade means that such
bonds are rated by national rating agencies


                                       27
<Page>

within the four highest grades (rated Baa or BBB or better by Moody's, S&P &
Fitch) or are unrated but judged to be of comparable quality by NB Management.


LIMITED ISSUANCE OF PREFERRED SHARES

    Under the 1940 Act, the Fund could issue Preferred Shares having a total
liquidation value (original purchase price of the shares being liquidated plus
any accrued and unpaid dividends) of up to one-half of the value of the net
assets of the Fund. To the extent that the Fund has outstanding any senior
securities representing indebtedness (such as through the use of derivative
instruments that constitute senior securities), the aggregate amount of such
senior securities will be added to the total liquidation value of any
outstanding Preferred Shares for purposes of this asset coverage requirement. If
the total liquidation value of the Preferred Shares plus the aggregate amount of
such other senior securities were ever more than one-half of the value of the
Fund's total net assets, the Fund would not be able to declare distributions on
the Common Shares until such liquidation value and/or aggregate amount of other
senior securities, as a percentage of the Fund's total assets, were reduced. The
Fund intends to issue Preferred Shares representing approximately 38% of the
Fund's total capital immediately after their issuance approximately one to three
months after the completion of the offering of the Common Shares. This higher
than required margin of net asset value provides a cushion against later
fluctuations in the value of the Fund's portfolio and will subject Common
Stockholders to less income and net asset value volatility than if the Fund were
more highly leveraged through Preferred Shares. It also gives the Fund
flexibility to utilize other forms of leverage in addition to Preferred Shares
from time to time in accordance with the 1940 Act asset coverage requirements
(such as derivatives) that may be more efficient or cost effective sources of
leverage than Preferred Shares under the circumstances. The Fund intends to
purchase or redeem Preferred Shares, if necessary, to keep the liquidation value
of the Preferred Shares plus the aggregate amount of other senior securities
representing indebtedness below one-half of the value of the Fund's net assets.

MANAGEMENT OF INVESTMENT PORTFOLIO AND CAPITAL STRUCTURE TO LIMIT LEVERAGE RISK

    The Fund may take certain actions if short-term interest rates increase or
market conditions otherwise change (or the Fund anticipates such an increase or
change) and the Fund's leverage begins (or is expected) to adversely affect
Common Stockholders. In order to attempt to offset such a negative impact of
leverage on Common Stockholders, the Fund may shorten the average duration of
its investment portfolio (by investing in short-term securities or implementing
certain hedging strategies) or may extend the maturity of outstanding Preferred
Shares. The Fund also may attempt to reduce leverage by redeeming or otherwise
purchasing Preferred Shares or by reducing any holdings in instruments that
create leverage. As explained above under "Risks--Leverage Risk," the success of
any such attempt to limit leverage risk depends on NB Management's ability to
accurately predict interest rate or other market changes. Because of the
difficulty of making such predictions, the Fund may not be successful in
managing its interest rate exposure in the manner described above.

    If market conditions suggest that additional leverage would be beneficial,
the Fund may sell previously unissued Preferred Shares or Preferred Shares that
the Fund previously issued but later repurchased, or utilize other forms of
leverage, such as derivative instruments.

HEDGING AND RELATED STRATEGIES

    The Fund may use various investment strategies designed to limit the risk of
price fluctuations of its portfolio securities and to preserve capital. Hedging
strategies that the Fund may use include: financial futures contracts; short
sales; swap agreements or options thereon; options on financial futures; and
options based on either an index of municipal securities or taxable debt
securities whose prices, NB Management believes, correlate with the prices of
the Fund's investments. Income earned by the Fund from many hedging activities
will be treated as capital gain and, if not offset by net realized capital loss,
will be distributed to stockholders in taxable distributions. If effectively
used, hedging

                                       28
<Page>
strategies will offset in varying percentages losses incurred on the Fund's
investments due to adverse interest rate changes. There is no assurance that
these hedging strategies will be available at any time or that NB Management
will determine to use them for the Fund or, if used, that the strategies will be
successful.

                             MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS

    The Board of Directors is broadly responsible for the management of the
Fund, including general supervision of the duties performed by NB Management and
Neuberger Berman. The names and business addresses of the Directors and officers
of the Fund and their principal occupations and other affiliations during the
past five years are set forth under "Management of the Fund" in the Statement of
Additional Information.

INVESTMENT MANAGER

    NB Management serves as the investment manager of the Fund. Subject to the
general supervision of the Board of Directors, NB Management is responsible for
managing the investment activities of the Fund and the Fund's business affairs
and other administrative matters. NB Management is located at 605 Third Avenue,
New York, New York 10158-0180.

    Continuing an asset management history that began in 1939, NB Management
provides investment management and advisory services to several open-end
investment company clients and to individuals investing in mutual funds. As of
June 30, 2002, NB Management and its affiliates had approximately $58.7 billion
in assets under management.

    NB Management has retained Neuberger Berman to serve as sub-adviser to the
Fund. See "Sub-Adviser" below. Neuberger Berman and NB Management are wholly
owned subsidiaries of Neuberger Berman Inc., a publicly owned holding company,
located at 605 Third Avenue, New York, New York 10158-3698.

    Theodore P. Giuliano, Thomas J. Brophy and Lori Canell have primary
responsibility for the day-to-day portfolio management of the Fund.
Mr. Giuliano, a Vice President and Director of NB Management and a Managing
Director of Neuberger Berman, is the manager of the Fixed Income Group of
Neuberger Berman, which he helped establish in 1984. Mr. Brophy and Ms. Canell
are Vice Presidents of NB Management. Mr. Brophy and Ms. Canell are also
Managing Directors of Neuberger Berman. Mr. Brophy has been a portfolio manager
and a credit analyst for Neuberger Berman since 1998. From 1987 to 1998, he was
employed by another investment firm. Ms. Canell joined Neuberger Berman in 1995.
From 1983 to 1995, she was employed by another investment firm.

SUB-ADVISER

    NB Management retains Neuberger Berman 605 Third Avenue, New York, New York
10158-3698, to serve as the Fund's sub-adviser, responsible for providing
investment recommendations and research.

    NB Management (and not the Fund) will pay for the services rendered by
Neuberger Berman based on the direct and indirect costs to Neuberger Berman in
connection with those services. Neuberger Berman also serves as sub-adviser for
all of the open-end investment companies and the other closed-end investment
companies managed by NB Management. Neuberger Berman and NB Management employ
experienced professionals that work in a competitive environment.

                                       29
<Page>
MANAGEMENT AGREEMENT

    Pursuant to an investment management agreement between NB Management and the
Fund (the "Management Agreement"), the Fund has agreed to pay NB Management a
management fee payable on a monthly basis at the annual rate of .25% of the
Fund's average daily total assets minus liabilities other than the aggregate
indebtedness entered into for purposes of leverage ("Managed Assets") for the
services and facilities it provides. The liquidation preference of the Preferred
Shares is not a liability. Pursuant to an administration agreement between NB
Management and the Fund, the Fund has agreed to pay NB Management an
administration fee payable on a monthly basis at the annual rate of .30% of the
Fund's average daily Managed Assets.

    In addition to the fees of NB Management, the Fund pays all other costs and
expenses of its operations, including compensation of its Directors (other than
those affiliated with NB Management), custodial expenses, transfer agency and
dividend disbursing expenses, legal fees, expenses of independent auditors,
expenses of repurchasing shares, expenses of issuing any Preferred Shares,
expenses of preparing, printing and distributing prospectuses, stockholder
reports, notices, proxy statements and reports to governmental agencies, and
taxes, if any.

    NB Management has contractually agreed to waive a portion of the management
fees it is entitled to receive from the Fund in the amounts, and for the time
periods, set forth below (covering commencement of the Fund's operations through
October 31, 2011):

<Table>
<Caption>
                                              PERCENTAGE WAIVED (ANNUAL RATE AS A        PERCENTAGE WAIVED (ANNUAL RATE AS A
                                           PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO    PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO
FISCAL PERIOD                                     COMMON SHARES--ASSUMING NO                 COMMON SHARES--ASSUMING THE
ENDING OCTOBER 31,                        PREFERRED SHARES ARE ISSUED OR OUTSTANDING)      ISSUANCE OF PREFERRED SHARES(2))
------------------                        -------------------------------------------  ----------------------------------------
<S>                                       <C>                                          <C>
2002(1).................................                                .25%                                       .40%
2003....................................                                .25%                                       .40%
2004....................................                                .25%                                       .40%
2005....................................                                .25%                                       .40%
2006....................................                                .25%                                       .40%
2007....................................                                .25%                                       .40%
2008....................................                                .20%                                       .32%
2009....................................                                .15%                                       .24%
2010....................................                                .10%                                       .16%
2011....................................                                .05%                                       .08%
</Table>

-------------------

(1)  From the commencement of the Fund's operations.
(2)  Assumes the issuance of Preferred Shares in an amount equal to 38% of the
     Fund's capital (after issuance).

    NB Management has not agreed to waive any portion of its fees beyond
October 31, 2011.

    Because the fees received by NB Management are based on the Managed Assets
of the Fund (including assets represented by Preferred Shares and any leverage
created thereby), NB Management has a financial incentive for the Fund to issue
Preferred Shares, which may create a conflict of interest between NB Management
and the holders of the Fund's Common Shares.

                                NET ASSET VALUE

    The net asset value is calculated by subtracting the Fund's total
liabilities and the liquidation preference of any outstanding Preferred Shares
from total assets (the market value of the securities the Fund holds plus cash
and other assets). The per share net asset value is calculated by dividing its
net asset value by the number of Common Shares outstanding and rounding the
result to the nearest full cent. The Fund calculates its net asset value as of
the close of regular trading on the New York Stock

                                       30
<Page>
Exchange, usually 4 p.m. Eastern time, every day on which the New York Stock
Exchange is open. Information that becomes known to the Fund or its agent after
the Fund's net asset value has been calculated on a particular day will not be
used to retroactively adjust the price of a security or the Fund's net asset
value determined earlier that day.

    The Fund values its securities on the basis of bid quotations from
independent pricing services or principal market makers, or, if quotations are
not available, by a method that the Board of Directors believes accurately
reflects fair value. The Fund periodically verifies valuations provided by the
pricing services. Short-term securities with remaining maturities of less than
60 days may be valued at cost which, when combined with interest earned,
approximates market value.

    If NB Management believes that the price of a security obtained under the
Fund's valuation procedures (as described above) does not represent the amount
that the Fund reasonably expects to receive on a current sale of the security,
the Fund will value the security based on a method that the Directors of the
Fund believe accurately reflects fair value.

                                 DISTRIBUTIONS

    Commencing with the first dividend, the Fund intends to pay regular monthly
cash dividends to Common Stockholders at a rate based upon its projected
performance. Dividends can be made only from net investment income after paying
any accrued dividends to Preferred Stockholders. The dividend rate that the Fund
pays will depend on a number of factors, including dividends payable on the
Preferred Shares. The Fund's net income will consist of all interest income
accrued on portfolio assets less all expenses of the Fund, which will be accrued
each day. Over time, substantially all the Fund's net investment income will be
distributed. The Fund also intends to distribute to each Common Stockholder at
least annually his or her pro rata share of any available net capital gains.
Initial dividends to Common Stockholders are expected to be declared
approximately 45 days, and paid approximately 60 to 90 days, from the completion
of this offering, depending on market conditions. Although it does not now
intend to do so, the Fund's Board of Directors may change its dividend policy
and the amount or timing of the distributions, based on a number of factors,
including the amount of the Fund's undistributed net investment income and
historical and projected investment income and the amount of the expenses and
dividend rates on any outstanding Preferred Shares.

    To permit the Fund to maintain more stable monthly dividends, it will
initially distribute less than the entire amount of net investment income earned
in a particular period. The undistributed net investment income would be
available to supplement future dividends. As a result, the dividends the Fund
pays for any particular monthly period may be more or less than the amount of
net investment income it actually earned during the period. Undistributed net
investment income will be added to the Fund's net asset value and,
correspondingly, dividends from undistributed net investment income will be
deducted from that net asset value.

                           DIVIDEND REINVESTMENT PLAN


    Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Stockholders whose shares are registered in their own names will have all
dividends and any capital gain distributions (referred to collectively in this
section as "dividends") reinvested automatically in additional Common Shares by
The Bank of New York, as agent for the Common Stockholders (the "Plan Agent"),
unless the stockholder elects to receive cash. An election to receive cash may
be revoked or reinstated at a stockholder's option. In the case of record
stockholders such as banks, brokers or other nominees that hold Common Shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of Common Shares certified from time to time by
the record stockholder as representing the total amount registered in such
stockholder's name and held for the account of beneficial owners who participate
in the Plan. Stockholders whose shares are held in the name of a bank, broker or
other nominee should contact the nominee for details. Such stockholders may not
be


                                       31
<Page>

able to transfer their shares to another nominee and continue to participate in
the Plan. All dividends to investors who elect not to participate in the Plan
(or whose bank, broker or other nominee elects not to participate on the
investor's behalf), will be paid in cash by check mailed, in the case of direct
stockholders, to the record holder by The Bank of New York, as the Fund's
dividend disbursement agent.


    Unless you (or your bank, broker or other nominee) elect not to participate
in the Plan, the number of Common Shares you will receive as a result of a Fund
dividend will be determined as follows:

    (1)  If Common Shares are trading at or above their net asset value on the
    payment date, the Fund will issue new Common Shares at the greater of
    (i) the net asset value per Common Share on the payment date or (ii) 95% of
    the market price per Common Share on the payment date. Because Common Shares
    may be issued at less than their market price, Plan participants may get a
    benefit that non-participants do not.

    (2)  If Common Shares are trading below their net asset value (minus
    estimated brokerage commissions that would be incurred upon the purchase of
    Common Shares on the open market) on the payment date, the Plan Agent will
    receive the dividend in cash and will purchase Common Shares in the open
    market, on the American Stock Exchange or elsewhere, for the participants'
    accounts. It is possible that the market price for the Common Shares may
    increase before the Plan Agent has completed its purchases. Therefore, the
    average purchase price per Common Share paid by the Plan Agent may exceed
    the market price thereof on the payment date, resulting in the purchase of
    fewer Common Shares than if the dividend had been paid in Common Shares
    issued by the Fund. The Plan Agent will use all dividends received in cash
    to purchase Common Shares in the open market on or shortly after the payment
    date, but in no event later than the ex-dividend date for the next dividend.
    Interest will not be paid on any uninvested cash payments.

    If you own Common Shares directly, you may withdraw from the Plan at any
time by giving written notice to the Plan Agent; please be sure to include your
name and account number. You may also rejoin the Plan later. Contact the Plan
Agent at the address below for information on how to do so. If you wish, the
Plan Agent will sell the Common Shares and send you the proceeds, minus
brokerage commissions.

    The Plan Agent maintains all stockholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
stockholders may need for tax records. The Plan Agent will also furnish each
Common Stockholder with written instructions detailing the procedures for
electing not to participate in the Plan and to instead receive dividends in
cash. Common Shares in your account will be held by the Plan Agent in
non-certificated form. Any proxy you receive will include all Common Shares held
for you under the Plan.

    There is no brokerage charge for reinvestment of your dividends in Common
Shares. However, all participants will pay a pro rata share of brokerage
commissions incurred by the Plan Agent when it makes open market purchases.

    Automatically reinvested dividends are taxed in the same manner as cash
dividends.


    The Fund and the Plan Agent reserve the right to amend or terminate the
Plan. There is no direct service charge to participants in the Plan; however,
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants. Additional information about the Plan may be
obtained from your broker. To change your dividend option from the Plan to cash
distributions, or vice versa, call The Bank of New York at 1-800-524-4458.


                                       32
<Page>
                             DESCRIPTION OF SHARES
COMMON SHARES


    The Articles authorize the issuance of one billion (1,000,000,000) shares of
capital stock. The Common Shares will be issued with a par value of $.0001 per
share. All Common Shares have equal rights to the payment of dividends and the
distribution of assets upon liquidation. Common Shares will, when issued, be
fully paid and non-assessable, and will have no pre-emptive or conversion rights
or rights to cumulative voting. Whenever Preferred Shares are outstanding,
Common Stockholders will not be entitled to receive any distributions from the
Fund unless all accrued dividends on Preferred Shares have been paid, and unless
asset coverage (as defined in the 1940 Act) with respect to Preferred Shares
would be at least 200% after giving effect to the distributions. See "Preferred
Shares" below.

    The Common  Shares have been  approved for  listing,  subject to issuance of
notice, on the American Stock Exchange. The Fund intends to hold annual meetings
of stockholders so long as the Common Shares are listed on a national securities
exchange and such meetings are required as a condition to such listing.


    The Fund's net asset value per share generally increases when interest rates
decline, and decreases when interest rates rise, and these changes are likely to
be greater because the Fund intends to have a leveraged capital structure. Net
asset value will be reduced immediately following the offering by the amount of
the sales load and organization and offering expenses paid by the Fund. NB
Management has agreed to pay organizational expenses and offering costs of the
Fund (other than the sales load) that exceed $.03 per Common Share.


    Unlike open-end funds, closed-end funds like the Fund do not continuously
offer shares and do not provide daily redemptions. Rather, if a stockholder
determines to buy additional Common Shares or sell shares already held, the
stockholder may do so by trading on the exchange through a broker or otherwise.
Shares of closed-end investment companies may frequently trade on an exchange at
prices lower than net asset value. The Fund's Articles limit the ability of the
Fund to convert to open-end status. See "Anti-takeover and Other Provisions in
the Articles of Incorporation."


    Because the market value of the Common Shares may be influenced by such
factors as dividend levels (which are in turn affected by expenses), call
protection, dividend stability, portfolio credit quality, net asset value,
relative demand for and supply of such shares in the market, general market and
economic conditions, and other factors beyond the control of the Fund, the Fund
cannot assure you that the Common Shares will trade at a price equal to or
higher than net asset value in the future. The Common Shares are designed
primarily for long-term investors, and investors in the Common Shares should not
view the Fund as a vehicle for trading purposes. See "Preferred Shares and
Related Leverage" and the Statement of Additional Information under "Repurchase
of Common Shares; Conversion to Open-End Fund."

PREFERRED SHARES

    The Articles authorize the Board to create additional classes of stock, and
it is currently contemplated that the Fund will issue one or more classes of
preferred stock ("Preferred Shares"). The Preferred Shares may be issued in one
or more classes or series, with such par value and rights as determined by the
Board of Directors, by action of the Board of Directors without the approval of
the Common Stockholders.

    The Fund's Board of Directors has indicated its intention to authorize an
offering of Preferred Shares (representing approximately 38% of the Fund's
capital immediately after the time the Preferred Shares are issued)
approximately one to three months after completion of the offering of Common
Shares. Any such decision is subject to market conditions and to the Board's
continuing belief that leveraging the Fund's capital structure through the
issuance of Preferred Shares is likely to achieve the benefits to the Common
Stockholders described in this prospectus. Although the terms of the Preferred

                                       33
<Page>
Shares will be determined by the Board of Directors (subject to applicable law
and the Fund's Articles) if and when it authorizes a Preferred Shares offering,
the Board has determined that the Preferred Shares, at least initially, would
likely pay cumulative dividends at rates determined over relatively short-term
periods (such as seven days), by providing for the periodic redetermination of
the dividend rate through an auction or remarketing procedure. The Board of
Directors has indicated that the preference on distribution, liquidation
preference, voting rights and redemption provisions of the Preferred Shares will
likely be as stated below.

    As used in this prospectus, unless otherwise noted, the Fund's "net assets"
include assets of the Fund attributable to any outstanding Preferred Shares,
with no deduction for the liquidation preference of the Preferred Shares. Solely
for financial reporting purposes, however, the Fund is required to exclude the
liquidation preference of Preferred Shares from "net assets," so long as the
Preferred Shares have redemption features that are not solely within the control
of the Fund. For all regulatory and tax purposes, the Fund's Preferred Shares
will be treated as stock (rather than indebtedness).

    LIMITED ISSUANCE OF PREFERRED SHARES. Under the 1940 Act, the Fund could
issue Preferred Shares with an aggregate liquidation value of up to one-half of
the value of the Fund's net assets, measured immediately after issuance of the
Preferred Shares. "Liquidation value" means the original purchase price of the
shares being liquidated plus any accrued and unpaid dividends. In addition, the
Fund is not permitted to declare any cash dividend or other distribution on its
Common Shares unless the liquidation value of the Preferred Shares is less than
one-half of the value of the Fund's capital (determined after deducting the
amount of such dividend or other distribution) immediately after the
distribution. The liquidation preference of the Preferred Shares is not a
liability. The liquidation value of the Preferred Shares is expected to be
approximately 38% of the value of the Fund's capital. The Fund intends to
purchase or redeem Preferred Shares, if necessary, to keep that percentage below
50%.

    DISTRIBUTION PREFERENCE. The Preferred Shares have complete priority over
the Common Shares as to distribution of assets.

    LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, Preferred
Stockholders will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus accumulated and
unpaid dividends thereon, whether or not earned or declared) before any
distribution of assets is made to Common Stockholders.

    VOTING RIGHTS. Preferred Shares are required to be voting shares. Except as
otherwise provided in the Articles or the Fund's Bylaws or otherwise required by
applicable law, Preferred Stockholders will vote together with Common
Stockholders as a single class. Each Common Share and each Preferred Share is
entitled to one vote, and fractional shares are entitled to proportional
fractions of a vote.

    Preferred Stockholders, voting as a separate class, will also be entitled to
elect two of the Fund's Directors. The remaining Directors will be elected by
Common and Preferred Stockholders, voting together as a single class. In the
unlikely event that two full years of accrued dividends are unpaid on the
Preferred Shares, the holders of all outstanding Preferred Shares, voting as a
separate class, will be entitled to elect a majority of the Fund's Directors
until all Preferred Share dividends in arrears have been paid or declared and
set apart for payment.


    REDEMPTION, PURCHASE AND SALE OF PREFERRED SHARES BY THE FUND. The terms of
the Preferred Shares may provide that they are redeemable by the Fund at certain
times, in whole or in part, at the original purchase price per share plus
accumulated dividends. The terms also may state that the Fund may tender for or
purchase Preferred Shares and resell any shares so tendered. Any redemption or
purchase of Preferred Shares by the Fund will reduce the leverage applicable to
Common Shares, while any resale of Preferred Shares by the Fund will increase
such leverage. See "Preferred Shares and Related Leverage."


                                       34
<Page>
    The discussion above describes the Board of Directors' current intention
with respect to a possible offering of Preferred Shares. If the Board of
Directors determines to authorize such an offering, the terms of the Preferred
Shares may be the same as, or different from, the terms described above, subject
to applicable law and the Fund's Articles and Bylaws.

      ANTI-TAKEOVER AND OTHER PROVISIONS IN THE ARTICLES OF INCORPORATION

    The Articles and the Fund's Bylaws include provisions that could limit the
ability of other entities or persons to acquire control of the Fund, to cause it
to engage in certain transactions or to modify its structure.


    The Articles require a vote by holders of at least 75% of the Fund's Board
and at least 75% of the shares the Fund's capital stock outstanding and entitled
to vote, except as described below, to authorize (1) the Fund's conversion from
a closed-end to an open-end investment company; (2) any merger or consolidation
or share exchange of the Fund with or into any other company; (3) the
dissolution or liquidation of the Fund; (4) any sale, lease, or exchange of all
or substantially all of the Fund's assets to any Principal Stockholder (as
defined below); (5) a change in the nature of the business of the Fund so that
it would cease to be an investment company registered under the 1940 Act;
(6) with certain exceptions, the issuance of any securities of the Fund to any
Principal Stockholder for cash; or (7) any transfer by the Fund of any
securities of the Fund to any Principal Stockholder in exchange for cash,
securities or other property having an aggregate fair market value of $1,000,000
or more; provided, with respect to (1) through (5), if such action has been
authorized by the affirmative vote of a majority of the entire Board, including
a majority of the directors who are not "interested persons," of the Fund, as
defined in the 1940 Act ("Independent Directors"), then the affirmative vote of
the holders of only a majority of the Fund's shares of capital stock outstanding
and entitled to vote at the time is required; and provided, further, with
respect to (6) and (7), if such transaction has been authorized by the
affirmative vote of a majority of the entire Board, including a majority of the
Independent Directors, no stockholder vote is required to authorize such action.
The term "Principal Stockholder" means any person, entity or group that holds,
directly or indirectly, more than 5% of the outstanding shares of the Fund, and
includes any associates or affiliates of such person or entity or of any member
of the group. None of the foregoing provisions may be amended except by the vote
of at least 75% of the outstanding shares of capital stock of the Fund
outstanding and entitled to vote thereon. The percentage vote required under
these provisions is higher than that required under Maryland law or by the 1940
Act. The Board believes that the provisions of the Articles relating to such a
higher vote are in the best interest of the Fund and its stockholders. Even if
agreed to by the Fund, certain of the transactions described above may be
prohibited by the 1940 Act.


    The Board is classified into three classes, each with a term of three years
with only one class of Directors standing for election in any year. Such
classification may prevent replacement of a majority of the Directors for up to
a two-year period. Directors may be removed from office only for cause and only
by vote of at least 75% of the shares entitled to be voted for such Director in
an election of directors.

    Reference should be made to the Articles on file with the Securities and
Exchange Commission for the full text of these provisions. See the Statement of
Additional Information under "Certain Provisions in the Articles of
Incorporation" for a discussion of the voting requirements applicable to certain
other transactions.

    REPURCHASE OF COMMON SHARES; TENDER OFFERS; CONVERSION TO OPEN-END FUND


    The Fund is a closed-end investment company and as such its stockholders
will not have the right to cause the Fund to redeem or repurchase their shares.
Instead, the Common Shares will trade in the open market at a price that will be
a function of several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, dividend stability,
portfolio credit quality,


                                       35
<Page>

relative demand for and supply of such shares in the market, general market and
economic conditions and other factors. Shares of a closed-end investment company
may frequently trade at prices lower than net asset value. The Fund's Board of
Directors regularly monitors the relationship between the market price and net
asset value of the Common Shares. If the Common Shares were to trade at a
substantial discount to net asset value for an extended period of time, the
Board may consider the repurchase of its Common Shares on the open market or in
private transactions, the making of a tender offer for such shares, or the
conversion of the Fund to an open-end investment company. The Fund cannot assure
you that its Board of Directors will decide to take or propose any of these
actions, or that share repurchases or tender offers will actually reduce market
discount.


    If the Fund converted to an open-end company, it would be required to redeem
all Preferred Shares then outstanding (requiring in turn that it liquidate a
portion of its investment portfolio), and the Common Shares would no longer be
listed on the American Stock Exchange. In contrast to a closed-end investment
company, stockholders of an open-end investment company may require the company
to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value, less any
redemption charge that is in effect at the time of redemption.

    Before deciding whether to take any action to convert the Fund to an
open-end investment company, the Board would consider all relevant factors,
including the extent and duration of the discount, the liquidity of the Fund's
portfolio, the impact of any action that might be taken on the Fund or its
stockholders, and market considerations. Based on these considerations, even if
the Fund's shares should trade at a discount, the Board of Directors may
determine that, in the interest of the Fund and its stockholders, no action
should be taken. See the Statement of Additional Information under "Repurchase
of Common Shares; Conversion to Open-End Fund" for a further discussion of
possible action to reduce or eliminate such discount to net asset value.

                                  TAX MATTERS
GENERAL; TAXATION OF THE FUND

    The following federal income tax discussion reflects provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing Treasury
regulations, rulings published by the Internal Revenue Service (the "Service"),
and other applicable authority, as of the date of this prospectus. These
authorities are subject to change by legislative or administrative action,
possibly with retroactive effect. The following discussion is only a summary of
some of the important tax considerations generally applicable to investments in
the Fund. For more detailed information regarding tax considerations, see the
Statement of Additional Information. There may be other tax considerations
applicable to particular investors. In addition, income earned through an
investment in the Fund may be subject to state and local taxes.

    The Fund intends to qualify each year for treatment as a regulated
investment company under Subchapter M of the Code (a "RIC"), which involves
satisfying certain distribution and other requirements. If the Fund so
qualifies, it will not be subject to federal income tax on taxable income it
distributes in a timely manner to its stockholders in the form of dividends or
capital gain distributions.

    To satisfy the distribution requirement applicable to RICs, the Fund must
generally distribute as dividends to its stockholders, including holders of its
Preferred Shares, at least 90% of its taxable net investment income, net
tax-exempt income and net short-term capital gain. These distributed amounts
must qualify for the dividends-paid deduction. In certain circumstances, the
Service could take the position that dividends paid on the Preferred Shares
constitute preferential dividends under section 562(c) of the Code and thus do
not qualify for the dividends-paid deduction.

    If at any time when Preferred Shares are outstanding the Fund does not meet
applicable asset coverage requirements, it will be required to suspend
distributions to Common Stockholders until the

                                       36
<Page>
requisite asset coverage is restored. Any such suspension may cause the Fund to
pay a 4% federal excise tax (imposed on RICs that fail to distribute for a given
calendar year, generally, at least 98% of their taxable net investment income
and capital gain net income) and income tax on any undistributed income or gains
and may, in certain circumstances, prevent the Fund from continuing to qualify
for treatment as a RIC. Pursuant to any such suspension, the Fund may redeem
Preferred Shares in an effort to comply with the distribution requirement
applicable to RICs and to avoid income and excise taxes.

TAXATION OF THE FUND'S STOCKHOLDERS

    The Fund primarily invests in municipal bonds issued by states, cities and
local authorities and certain possessions and territories of the United States
(such as Puerto Rico or Guam) the income on which is, in the opinion of bond
counsel to the issuer (or on the basis of other authority believed by NB
Management to be reliable), exempt from federal income tax. Thus, substantially
all of the Fund's dividends to you will qualify as "exempt-interest dividends,"
which are not subject to federal income tax.

    All or a portion of the interest paid on the municipal bonds the Fund holds
may be a "Tax Preference Item" for purposes of the alternate minimum tax
("AMT"), with the result that all or a portion of the dividends paid on Common
Shares also would be such an item. Accordingly, if you are, or as a result of an
investment in the Fund would become, subject to the AMT, the Fund may not be a
suitable investment for you.

    The Fund may at times buy tax-exempt investments at a discount from the
price at which they were originally issued, especially during periods of rising
interest rates. For federal income tax purposes, some or all of any market
discount that is other than DE MINIMIS will be included in the Fund's taxable
income and generally will be taxable to its stockholders when it distributes
that income to them.

    The Fund's investments in certain debt obligations, such as zero coupon
municipal instruments, may cause it to recognize taxable income in excess of the
cash generated by those obligations. Thus, the Fund could be required at times
to liquidate those or other investments in order to satisfy its distribution
requirements.

    For federal income tax purposes, distributions of investment income other
than exempt-interest dividends are taxable as ordinary income to the extent of
the Fund's current or accumulated earnings and profits. Generally, a
distribution of gains the Fund realizes on the sale or exchange of investments
will be taxable to its stockholders, even though the interest income from those
investments generally will be tax-exempt. Whether distributions of net capital
gains are taxed as ordinary income or long-term capital gains is determined by
how long the Fund owned the investments that generated those capital gains,
rather than how long a stockholder has owned his or her Common Shares.
Distributions of gains from the sale of investments that the Fund owned for more
than one year will be taxable as long-term capital gains (provided the Fund
designates those distributions as capital gain dividends), whereas distributions
of gains from the sale of investments that the Fund owned for one year or less
will be taxable as ordinary income. Distributions are taxable to a stockholder
even if they are paid from income or gains the Fund earned before the
stockholder's investment (and thus were included in the price the stockholder
paid for the Common Shares), whether the stockholder receives them in cash or
reinvests them in additional Common Shares through the Dividend Reinvestment
Plan.

    Any gain resulting from a stockholder's sale or exchange of Fund shares will
also be subject to tax. In addition, the exemption from federal income tax for
exempt-interest dividends does not necessarily result in exemption for those
dividends under the income or other tax laws of any state or local taxing
authority.

    The Fund will apply backup withholding at the rate of 30% for amounts paid
during 2002 and 2003 where it is required to apply that withholding. Please see
"Tax Matters" in the Statement of

                                       37
<Page>
Additional Information for additional information about the backup withholding
tax rates for subsequent years.

    This section relates only to federal income tax consequences of investing in
the Fund; the consequences under other tax laws may differ. You should consult
your tax advisor as to the possible application of state and local income tax
laws to Fund dividends and capital gain distributions. Please see "Tax Matters"
in the Statement of Additional Information for additional information regarding
the tax aspects of investing in the Fund.

                                       38
<Page>
                                  UNDERWRITING

    Subject to the terms and conditions of a purchase agreement dated
          , 2002, each underwriter named below has severally agreed to purchase,
and the Fund has agreed to sell to such underwriter, the number of Common Shares
set forth opposite the name of such underwriter.

<Table>
<Caption>
                                                      NUMBER OF
UNDERWRITER                                         COMMON SHARES
-----------                                         -------------
<S>                                                 <C>
Merrill Lynch, Pierce, Fenner & Smith
          Incorporated............................
A.G. Edwards & Sons, Inc..........................
Legg Mason Wood Walker, Incorporated..............
Quick & Reilly, Inc...............................
RBC Dain Rauscher Inc.............................
Wells Fargo Securities, LLC.......................
Advest, Inc.......................................
Robert W. Baird & Co. Incorporated................
H&R Block Financial Advisors, Inc.................
Fahnestock & Co. Inc..............................
Ferris, Baker Watts, Incorporated.................
Janney Montgomery Scott LLC.......................
J.J.B. Hilliard, W.L. Lyons, Inc..................
McDonald Investments Inc..........................
Morgan Keegan & Company, Inc......................
                                                     ----------
          Total...................................
                                                     ==========
</Table>

    The purchase agreement provides that the obligations of the underwriters to
purchase the shares included in this offering are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
underwriters are obligated to purchase all the Common Shares sold under the
purchase agreement if any of the Common Shares are purchased. In the purchase
agreement, the Fund and NB Management have agreed to indemnify the underwriters
against certain liabilities, including certain liabilities arising under the
Securities Act of 1933, or to contribute payments the underwriters may be
required to make for any of those liabilities.

    The underwriters propose to initially offer some of the Common Shares
directly to the public at the public offering price set forth on the cover
page of this prospectus and some of the Common Shares to certain dealers at the
public offering price less a concession not in excess of $    per share. The
sales load the Fund will pay of $.675 per share is equal to 4.5% of the initial
offering price. The underwriters may allow, and the dealers may allow, a
discount not in excess of $    per share on sales to other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.

    The following table shows the public offering price, sales load and proceeds
before expenses to the Fund. The information assumes either no exercise or full
exercise by the underwriters of their over-allotment option.

<Table>
<Caption>
                                     PER SHARE  WITHOUT OPTION   WITH OPTION
                                     ---------  ---------------  ------------
<S>                                  <C>        <C>              <C>
Public offering price..............    $15.00   $                $
Sales load.........................     $.675   $                $
Proceeds, before expenses, to the
  Fund.............................   $14.325   $                $
</Table>

                                       39
<Page>

    The Fund's expenses of the offering are estimated at $      and are payable
by the Fund. The Fund has agreed to pay the underwriters $.005 per Common Share
as a partial reimbursement of expenses incurred in connection with the offering.
NB Management has agreed to pay organizational expenses and offering costs of
the Fund (other than sales load) that exceed $.03 per Common Share.


    The Fund has granted the underwriters an option to purchase up to
additional Common Shares at the public offering price, less the sale load,
within 45 days from the date of this prospectus solely to cover any
over-allotments. If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase agreement, to
purchase a number of additional shares proportionate to that underwriter's
initial amount reflected in the above table.

    Until the distribution of the Common Shares is complete, Securities and
Exchange Commission rules may limit underwriters and selling group members from
bidding for and purchasing the Fund's Common Shares. However, the
representatives may engage in transactions that stabilize the price of the
Common Shares, such as bids or purchases to peg, fix or maintain that price.

    If the underwriters create a short position in the Common Shares in
connection with the offering, I.E., if they sell more Common Shares than are
listed on the cover of this prospectus, the representatives may reduce that
short position by purchasing Common Shares in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. Purchases of the Common
Shares to stabilize the price or to reduce a short position may cause the price
of the Common Shares to be higher than it might be in the absence of such
purchases.

    Neither the Fund nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition, neither
the Fund nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.

    The Fund has agreed not to offer or sell any additional Common Shares for a
period of 180 days after the date of the purchase agreement without the prior
written consent of the underwriters, except for the sale of the Common Shares to
the underwriters pursuant to the purchase agreement and certain transactions
relating to the Fund's Dividend Reinvestment Plan.

    The Fund anticipates that the underwriters may from time-to-time act as
brokers or dealers in executing the Fund's portfolio transactions after they
have ceased to be underwriters. The underwriters are active underwriters of, and
dealers in, securities, and therefore can be expected to engage in portfolio
transactions with the Fund.


    The addresses of the principal underwriters are: MERRILL LYNCH & CO., World
Financial Center, North Tower, 250 Vesey Street, New York NY 10281; A.G. EDWARDS
& SONS, INC., One North Jefferson Ave., St. Louis, MO 63103; LEGG MASON WOOD
WALKER, INC., 100 Light Street, Baltimore, MD 21202; QUICK & REILLY, INC.,
26 Broadway, New York, NY 10004; RBC CAPITAL MARKETS, One Liberty Plaza, New
York, NY 10006; WELLS FARGO SECURITIES, LLC, 420 Montgomery Street, San
Francisco, CA 94104; ADVEST, INC., 90 State House Square, Hartford, CT 06103;
ROBERT W. BAIRD & CO., 777 E. Wisconsin Ave., Milwaukee, WI 53202; H&R BLOCK
FINANCIAL ADVISORS, INC., 751 Griswold Street, Detroit, MI 48226; FAHNESTOCK &
CO., INC., 125 Broad Street, New York, NY 10004; FERRIS, BAKER WATTS, INC.,
1700 Pennsylvania Ave., N.W., Washington, D.C. 20006; JANNEY MONTGOMERY SCOTT
LLC, 1801 Market Street, Philadelphia, PA 19103; J.J.B. HILLIARD, W.L. LYONS,
INC., Hilliard Lyons Center, Louisville, KY 40202-2517; MCDONALD INVESTMENTS
INC., 800 Superior Ave., Cleveland, OH 44114; MORGAN KEEGAN & COMPANY, INC.,
50 Front Street, Morgan Keegan Tower, Memphis, TN 38103.


                                       40
<Page>
    One or more of the underwriters of Common Shares may also act as an
underwriter of the Preferred Shares.

    NB Management has also agreed to pay a fee to Merrill Lynch payable
quarterly at the annual rate of .10% of the Fund's Managed Assets during the
continuance of the Management Agreement. The maximum amount of this fee will not
exceed 4.5% of the aggregate initial offering price of the Common Shares offered
hereby; provided, that in determining when the maximum amount has been paid the
value of each of the quarterly payments shall be discounted at the annual rate
of 10% to the closing date of this offering. Merrill Lynch has agreed to provide
certain after-market services to NB Management designed to maintain the
visibility of the Fund on an ongoing basis and to provide relevant information,
studies or reports regarding the Fund and the closed-end investment company
industry.

                          CUSTODIAN AND TRANSFER AGENT

    The custodian of the assets of the Fund is State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110. The custodian
performs custodial and fund accounting services.


    The Bank of New York, ATTN: Stock Transfer Administration, 101 Barclay
Street, 11-E, New York, New York 10286, serves as the Fund's transfer agent,
registrar and dividend disbursement agent, as well as agent for the Fund's
Dividend Reinvestment Plan.


                                 LEGAL MATTERS


    Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Kirkpatrick & Lockhart LLP, Washington, D.C., and for the
Underwriters by Clifford Chance US LLP, New York, New York.


                                       41
<Page>
           TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION


<Table>
<S>                                                 <C>
Use of Proceeds...................................
Investment Objective and Policies.................
Investment Restrictions...........................
Further Investment Policies and
  Investment Techniques...........................
Further Investment Techniques.....................
Portfolio Trading and Turnover Rate...............
Management of the Fund............................
Investment Management and Administration
  Services........................................
Portfolio Transactions............................
Distributions.....................................
Description of Shares.............................
Certain Provisions in the Articles of
  Incorporation...................................
Repurchase of Common Shares; Tender Offers;
  Conversion to Open-End Fund.....................
Tax Matters.......................................
Marketing, Performance-Related and Comparative
  Information.....................................
Custodian, Transfer Agent and Dividend
  Disbursement Agent..............................
Independent Auditors..............................
Counsel...........................................
Registration Statement............................
Financial Highlights..............................
APPENDIX A Description of Securities Ratings

</Table>


                                       42
<Page>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                           SHARES

                                NEUBERGER BERMAN
                        INTERMEDIATE MUNICIPAL FUND INC.

                                 COMMON SHARES

                                ---------------
                                   PROSPECTUS
                               ------------------

                              MERRILL LYNCH & CO.
                           A.G. EDWARDS & SONS, INC.
                             LEGG MASON WOOD WALKER
                                  INCORPORATED
                              QUICK & REILLY, INC.
                              RBC CAPITAL MARKETS
                          WELLS FARGO SECURITIES, LLC
                                  ADVEST, INC.
                             ROBERT W. BAIRD & CO.
                       H&R BLOCK FINANCIAL ADVISORS, INC.
                             FAHNESTOCK & CO. INC.
                       FERRIS, BAKER WATTS, INCORPORATED
                          JANNEY MONTGOMERY SCOTT LLC
                       J.J.B. HILLIARD, W.L. LYONS, INC.
                           MCDONALD INVESTMENTS INC.
                         MORGAN KEEGAN & COMPANY, INC.


                               SEPTEMBER 24, 2002

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
C0308 08/02

<PAGE>



              NEUBERGER BERMAN INTERMEDIATE MUNICIPAL FUND INC.
                       STATEMENT OF ADDITIONAL INFORMATION



      Neuberger Berman Intermediate Municipal Fund Inc. (the "Fund") is a
newly organized, diversified closed-end management investment company.


      This Statement of Additional Information relating to shares of common
stock of the Fund ("Common Shares") is not a prospectus, and should be read in
conjunction with the Fund's prospectus relating to Common Shares dated September
24, 2002. This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing Common
Shares, and investors should obtain and read the prospectus prior to purchasing
such shares. You can get a free copy of the prospectus from Neuberger Berman
Management Inc. ("NB Management"), 605 Third Avenue, 2nd Floor, New York, New
York 10158-0180 or by calling 877-461-1899. You may also obtain a copy of the
prospectus on the web site (http://www.sec.gov) of the Securities and Exchange
Commission. Capitalized terms used but not defined in this Statement of
Additional Information have the meanings ascribed to them in the prospectus.

      No person has been authorized to give any information or to make any
representations not contained in the prospectus or in this Statement of
Additional Information in connection with the offering made by the prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Fund. The prospectus and this SAI do not
constitute an offering by the Fund in any jurisdiction in which such offering
may not lawfully be made.


      The "Neuberger Berman" name and logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the name of the Fund are
either service marks or registered trademarks of Neuberger Berman Management
Inc.(C)2002 Neuberger Berman Management Inc. All rights reserved.


    This Statement of Additional Information is dated September 24, 2002.


<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE



USE OF PROCEEDS..............................................................1

INVESTMENT OBJECTIVE AND POLICIES............................................1

INVESTMENT RESTRICTIONS......................................................2

FURTHER INVESTMENT POLICIES AND INVESTMENT TECHNIQUES........................4

FURTHER INVESTMENT TECHNIQUES...............................................12

PORTFOLIO TRADING AND TURNOVER RATE.........................................24

CERTAIN RISK CONSIDERATIONS.................................................24

MANAGEMENT OF THE FUND......................................................24

INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES...........................35

PORTFOLIO TRANSACTIONS......................................................40

DISTRIBUTIONS...............................................................42

DESCRIPTION OF SHARES.......................................................42

CERTAIN PROVISIONS IN THE ARTICLES OF INCORPORATION.........................45

REPURCHASE OF COMMON SHARES; TENDER OFFERS;  CONVERSION TO OPEN-END FUND....46

TAX MATTERS.................................................................48

MARKETING, PERFORMANCE-RELATED AND COMPARATIVE INFORMATION..................55

CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSEMENT AGENT...................57

INDEPENDENT AUDITORS........................................................57

COUNSEL.....................................................................57

REGISTRATION STATEMENT......................................................57

FINANCIAL HIGHLIGHTS........................................................59

APPENDIX A DESCRIPTION OF SECURITIES RATINGS...............................A-1



                                       i

<PAGE>

                                 USE OF PROCEEDS

      The net proceeds of the offering of Common Shares of the Fund will be
approximately $_________ (or $_________ if the Underwriters exercise the
over-allotment option in full) after payment of organization and offering costs.

      On behalf of the Fund, NB Management, the Fund's investment manager, has
agreed to pay the amount by which the aggregate of all of the Fund's
organizational expenses and all offering costs (other than the sales load)
exceeds $.03 per Common Share.

      Pending investment in municipal bonds (as described below) that meet the
Fund's investment objective and policies, it is anticipated that the net
proceeds of the offering will be invested in high quality, short-term,
tax-exempt securities. If necessary to invest fully the net proceeds of the
offering immediately, the Fund may also purchase high quality, short-term
securities, including mortgage-backed and corporate debt securities, the income
on which is subject to federal income tax.

                        INVESTMENT OBJECTIVE AND POLICIES

      The investment objective and general investment policies of the Fund are
described in the prospectus. Additional information concerning the
characteristics of certain of the Fund's investments is set forth below.

      The Fund's investment objective is to provide holders of common stock
("Common Stockholders") a high level of current income exempt from federal
income tax. The investment objective and, unless otherwise specified, the
investment policies and limitations of the Fund are not fundamental. Any
investment objective, policy or limitation that is not fundamental may be
changed by the Board of Directors of the Fund (the "Board") without stockholder
approval. The fundamental investment policies and limitations of the Fund may
not be changed without the approval of the holders of a majority of the
outstanding Common Shares and, if issued, Fund Preferred Shares voting as a
single class, as well as by the vote of a majority of the outstanding Fund
Preferred Shares tabulated separately. A "majority of the outstanding" shares
means (i) 67% or more of the shares present at a meeting, if the holders of more
than 50% of the shares are present or represented by proxy, or (ii) more than
50% of the shares, whichever of (i) or (ii) is less.

      All or a portion of the interest paid on the municipal obligations the
Fund holds may be an item of tax preference for purposes of the federal
alternative minimum tax ("AMT") ("Tax Preference Item"), with the result that
all or a portion of the dividends paid to Fund stockholders also would be such
an item. Common Shares thus may not be a suitable investment for investors who
are subject to the AMT or would become subject thereto by investing in Common
Shares. The suitability of an investment in Common Shares will depend upon a
comparison of the after-tax yield likely to be provided from the Fund with that
from comparable tax-exempt investments not subject to the AMT, and from
comparable fully taxable investments, in light of each such investor's tax
position. Special considerations apply to corporate investors. See "Tax
Matters."

      Under normal market conditions, the Fund will invest at least 80% of its
total assets in municipal bonds (as described below) rated, at the time of
investment, within the four highest categories by a nationally recognized


                                       1
<PAGE>

statistical rating organization ("NRSRO") (or, if unrated, judged by NB
Management to be of comparable quality). The Fund's policies on the credit
quality of its investments apply only at the time of the purchase of a security,
and the Fund is not required to dispose of securities if Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's Invetor Services,
Inc. ("Moody's") or any other NRSRO downgrades its assessment of the credit
characteristics of a particular issuer or if NB Management reassesses its view
with respect to the credit quality of the issuer thereof.

      The Fund may invest up to 20% of its total assets in municipal bonds that,
at the time of investment, are rated Ba/BB or B by Moody's, S&P or Fitch, Inc.
("Fitch") or are unrated but judged to be of comparable quality by NB
Management. Bonds of below investment grade quality (Ba/BB or below) are
commonly referred to as "junk bonds." For a description of the risks associated
with lower quality securities, see "High Yield Securities (`Junk Bonds')" below.

                             INVESTMENT RESTRICTIONS


      The following investment restrictions of the Fund are fundamental and
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the 1940 Act. The Fund may
not:


      1. DIVERSIFICATION. Purchase securities (other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or
securities of other investment companies) of any issuer if as a result of the
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to this 5% limitation.

      2. CONCENTRATION. Invest 25% or more of its total assets in issuers having
their principal business activities in the same industry.

      3. SENIOR SECURITIES. Issue senior securities if such issuance is
specifically prohibited by the 1940 Act or the rules or regulations thereunder.

      4. BORROWING. Borrow money in excess of 33 1/3% of its total assets
(including the amount of money borrowed) minus liabilities (other than the
amount borrowed), except that the Fund may borrow up to an additional 5% of its
total assets for temporary purposes.

      5. LENDING. Make loans of money or property to any person, except to the
extent that the securities in which the Fund may invest are considered to be
loans and except that the Fund may lend money or property in connection with the
maintenance of the value of or the Fund's interest with respect to the municipal
securities it owns and may lend portfolio securities.

      6. UNDERWRITING. Engage in the business of underwriting the securities of
other issuers, except to the extent that the Fund may be deemed an underwriter
in connection with the sale of securities in its portfolio.

      7. REAL ESTATE. Purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments. This policy does not prevent
the Fund from investing in issuers that invest, deal, or otherwise engage in


                                       2
<PAGE>

transactions in or hold real estate or interests therein, investing in
instruments that are secured by real estate or interests therein, or exercising
rights under agreements relating to such securities, including the right to
enforce security interests.

      8. COMMODITIES. Purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments. This policy does not
prevent the Fund from engaging in transactions involving futures contracts and
options, forward contracts, swaps, caps, floors, collars, securities purchased
or sold on a forward-commitment or delayed-delivery basis or other financial
instruments, or investing in securities or other instruments that are secured by
physical commodities.


      As a fundamental policy, the Fund will invest at least 80% of its total
assets in Municipal Bonds. If because of market action, the Fund falls out of
compliance with this policy, it will make future investments in such a manner as
to bring the Fund back into compliance with the policy.


      The following investment policies and limitations of the Fund are
non-fundamental. The Fund may not:

      1. MARGIN TRANSACTIONS. Buy any securities on "margin." Neither the
deposit of initial or variation margin in connection with hedging and risk
management transactions nor short-term credits as may be necessary for the
clearance of transactions is considered the purchase of a security on margin.

      2. SHORT SALES, PUTS AND CALLS. Sell securities short (unless it owns or
has the right to obtain securities equivalent in kind and amount to the
securities sold short). This policy does not prevent the Fund from entering into
short positions in futures contracts, options, forward contracts, swaps, caps,
floors, collars, securities purchased or sold on a forward-commitment or delayed
delivery basis or other financial instruments.




      Unless otherwise indicated, all limitations applicable to the Fund's
investments (as stated above and elsewhere in this Statement of Additional
Information) are applied only at the time a transaction is entered into. If
because of changes in the value of the Fund's portfolio, the asset coverage for
any borrowings were to fall below 300%, this would limit the Fund's ability to
pay dividends and therefore, the Fund intends to restore the 300% asset coverage
as soon as practical in light of the circumstances. Any subsequent change in a
rating assigned by any NRSRO to a security (or, if unrated, any change in the
judgment of NB Management as to comparable quality), or change in the percentage
of the Fund's total assets invested in certain securities or other instruments,
or change in the average duration of the Fund's investment portfolio, resulting
from market fluctuations or other changes in the Fund's total assets, will not
require the Fund to dispose of an investment unless and until NB Management
determines that it is appropriate and practicable to sell or close out the
investment without undue market or tax consequences to the Fund. If rating
agencies assign different ratings to the same security, NB Management will
determine which rating it believes best reflects the security's quality and risk
at that time, which may be the higher of the several assigned ratings.




                                       3
<PAGE>

      Under the 1940 Act, a "senior security" does not include any promissory
note or evidence of indebtedness where such loan is for temporary purposes only
and in an amount not exceeding 5% of the value of the total assets of the issuer
at the time the loan is made. A loan is presumed to be for temporary purposes if
it is repaid within sixty days and is not extended or renewed.

      The Fund would be deemed to "concentrate" in a particular industry if it
invested 25% or more of its total assets in that industry. The Fund's industry
concentration policy does not preclude it from focusing investments in issuers
in a group of related industrial sectors (such as different types of utilities).

      To the extent the Fund covers its commitment under a derivative instrument
by the segregation of assets determined by NB Management to be liquid in
accordance with procedures adopted by the Board, and/or by holding instruments
representing offsetting commitments, such instrument will not be considered a
"senior security" for purposes of the asset coverage requirements otherwise
applicable to borrowings by the Fund or the Fund's issuance of Preferred Shares.

      The Fund interprets its policies with respect to borrowing and lending to
permit such activities as may be lawful for the Fund, to the full extent
permitted by the 1940 Act or by exemption from the provisions therefrom pursuant
to exemptive order of the SEC.

      The Fund intends to apply for ratings for its Preferred Shares from
Moody's and Fitch. In order to obtain and maintain the required ratings, the
Fund may be required to comply with investment quality, diversification and
other guidelines established by Moody's and Fitch. Such guidelines will likely
be more restrictive than the restrictions set forth above. The Fund does not
anticipate that such guidelines would have a material adverse effect on Common
Stockholders or its ability to achieve its investment objective. The Fund
currently anticipates that any Preferred Shares that it intends to issue would
be initially given the highest ratings by Moody's ("Aaa"), S&P ("AAA") and/or
Fitch ("AAA"), but no assurance can be given that such ratings will be obtained.
No minimum rating is required for the issuance of Preferred Shares by the Fund.
Moody's, S&P and Fitch receive fees in connection with their ratings issuances.


      CASH MANAGEMENT AND TEMPORARY DEFENSIVE POSITIONS. For temporary defensive
purposes, or to manage cash pending investment or payout, the Fund may invest up
to 100% of its total assets in cash and cash equivalents, U.S. Government and
Agency Securities, commercial paper and certain other money market instruments,
as well as repurchase agreements collateralized by the foregoing.

            FURTHER INVESTMENT POLICIES AND INVESTMENT TECHNIQUES


      The following information supplements the discussion of the Fund's
investment objective, policies, and techniques that are described in the
prospectus.

      The Fund's policy is to invest, under normal conditions, at least 80% of
its total assets in municipal bonds with remaining maturities of less than 15
years and to maintain a dollar-weighted average duration of the entire portfolio
between 3 and 8 years. For this purpose, any scheduled principal prepayments


                                       4
<PAGE>

will be reflected in the calculation of dollar-weighted average duration. The
Fund may invest up to 20% of its total assets in municipal bonds that, at the
time of investment, are rated Ba/BB or B by Moody's, S&P or Fitch or unrated but
judged to be of comparable quality by NB Management.

INVESTMENT IN MUNICIPAL BONDS


      Municipal bonds are issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest on which,
in the opinion of special bond counsel or other counsel to the issuer of such
securities is, at the time of issuance, not includable in gross income for
federal income tax purposes. Under normal market conditions, at least 80% of the
Fund's total assets will be invested in municipal bonds with remaining
maturities of less than 15 years.


      The "issuer" of municipal bonds is generally deemed to be the governmental
agency, authority, instrumentality or other political subdivision, or the
non-governmental user of a revenue bond-financed facility, the assets and
revenues of which will be used to meet the payment obligations, or the guarantee
of such payment obligations, of the municipal bonds.

      Municipal bonds may have fixed or variable interest rates. The Fund may
purchase floating and variable rate demand notes, which are municipal
obligations normally having a stated maturity in excess of one year, but which
permit the holder to tender the notes for purchase at the principal amount
thereof at shorter intervals. The interest rate on a floating rate demand note
is based on a known lending rate, such as a bank's prime rate, and is adjusted
each time such rate is adjusted. The interest rate on a variable rate demand
note is adjusted at known intervals, on the basis of a specific benchmark. There
generally is no secondary market for these notes, although they may be tendered
for redemption or remarketing at face value and thus may be determined to be
liquid. Each such note purchased by the Fund will meet the criteria established
for the purchase of municipal bonds.

      Municipal bonds that have fixed rates of interest are sensitive to changes
in market interest rates. Generally, when interest rates are rising, the value
of the Fund's municipal bond holdings can be expected to decrease. When interest
rates are declining, the value of the Fund's municipal bond holdings can be
expected to increase. The Fund's net asset value may fluctuate in response to
the increasing or decreasing value of its municipal bond holdings. Generally,
the longer the maturity of a fixed-rate instrument, the greater the change in
value in response to a given change in market interest rates.

      The issuer of a municipal obligation might declare bankruptcy, which could
cause the Fund to experience delays collecting interest and principal. To
enforce its rights, the Fund might be required to take possession of and manage
the assets securing the issuer's obligation, which may increase the Fund's
expenses and reduce its net asset value. If the Fund took possession of a
bankrupt issuer's assets, income derived from the Fund's ownership and
management of the assets might not be tax exempt and more of the Fund's total
distributions to its stockholders thus would be taxable. The Fund might not be
able to take possession of the assets of a bankrupt issuer because of laws
protecting state and local institutions, limits on the investments the Fund is


                                       5
<PAGE>

permitted to make and limits on the nature of the income the Fund is permitted
to receive imposed on it by the Internal Revenue Code of 1986, as amended (the
"Code"). If the Fund cannot take possession of a bankrupt issuer's assets and
enforce its rights, the value of the issuer's security may be greatly
diminished. This could reduce the Fund's net asset value.

      The U.S. Government has enacted laws that have restricted or diminished
the income tax exemption on some municipal bonds, and it may do so again in the
future. If this were to happen, more of the Fund's distributions to its
stockholders would be taxable. The issuer of a municipal bond may be obligated
to redeem the bond at face value, but if the Fund paid more than face value for
the bond, it may lose money when it sells the bond. Market rates of interest may
be lower for municipal bonds than for taxable securities, but this may be offset
by the federal income tax on income derived from taxable securities. There may
be less extensive information available about the financial condition of issuers
of municipal bonds than for corporate issuers with publicly traded securities.

      The Fund's investments in municipal bonds are subject to certain risks. In
addition to those discussed in the prospectus, they include the following:

      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 OR SPECIAL OBLIGATION 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 commitment" of a related
governmental unit (subject, however, to appropriations). 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 private activity bonds 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 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


                                       6
<PAGE>

the viability of the project itself, tax incentives for the project, and
changing environmental regulations or interpretations thereof.

       TENDER OPTION BONDS. Tender option bonds are created by coupling an
intermediate- or long-term fixed rate tax-exempt bond (generally held pursuant
to a custodial arrangement) with a tender agreement that gives the holder the
option to tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other financial
institution) receives periodic fees equal to the difference between the bond's
fixed coupon rate and the rate (determined by a remarketing or similar agent)
that would cause the bond, coupled with the tender option, to trade at par on
the date of such determination. After payment of the tender option fee, the Fund
effectively holds a demand obligation that bears interest at the prevailing
short-term tax-exempt rate. NB Management considers the creditworthiness of the
issuer of the underlying bond, the custodian, and the third party provider of
the tender option. In certain instances, a sponsor may terminate a tender option
if, for example, the issuer of the underlying bond defaults on interest payments
or the bond's rating falls below investment grade. The tax treatment of tender
option bonds is unclear, and the Fund will not invest in them unless NB
Management has assurances that the interest thereon will be exempt from federal
income tax.

      LEASE OBLIGATIONS. Also included within the general category of municipal
bonds are participations in lease obligations or installment purchase contract
obligations (collectively "lease obligations") of municipal authorities or
entities. Although lease obligations do not constitute general obligations of
the municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. Although "non
appropriation" lease obligations are often secured by the underlying property,
disposition of the property in the event of foreclosure might prove difficult.
The Fund may invest up to 100% of its assets in "non-appropriation" lease
obligations and in unrated "non-appropriation" lease obligations that, at the
time of investment, are judged by NB Management to have credit characteristics
equivalent to, and to be of comparable quality to, securities that are rated
investment grade.

      The 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.

      In evaluating such unrated lease obligations, NB Management will consider
such factors as it deems appropriate, including:



                                       7
<PAGE>

      o  whether the lease can be cancelled;

      o  the ability of the lease obligee to direct the sale of the underlying
         assets;

      o  the general creditworthiness of the lease obligor;

      o  the likelihood that the municipality will discontinue appropriating
         funding for the leased property if such property is no longer
         considered essential by the municipality;

      o  the legal recourse of the lease obligee in the event of such a failure
         to appropriate funding; and

      o  any limitations which are imposed on the lease obligor's ability to
         utilize substitute property or services other than those covered by the
         lease obligations.

HIGH YIELD SECURITIES ("JUNK BONDS")

      The Fund may invest up to 20% of its total assets in municipal bonds that,
at the time of investment, are rated Ba/BB or B by Moody's, S&P or Fitch or are
unrated but judged to be of comparable quality by NB Management. Bonds of below
investment grade quality (Ba/BB or below) are commonly referred to as "high
yield securities" or "junk bonds." Issuers of bonds rated Ba/BB or B are
regarded as having current capacity to make principal and interest payments but
are subject to business, financial or economic conditions that could adversely
affect such payment capacity. Municipal bonds rated Baa or BBB are considered
"investment grade" securities, although such bonds may be considered to possess
some speculative characteristics. Municipal bonds rated AAA may have been so
rated on the basis of the existence of insurance guaranteeing the timely
payment, when due, of all principal and interest.

      High yield securities are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments and, therefore, carry greater price volatility and principal and income
risk, including the possibility of issuer default and bankruptcy and increased
market price volatility.


      High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield security prices because the advent
of a recession could lessen the ability of an issuer to make principal and
interest payments on its debt securities. If an issuer of high yield securities
defaults, in addition to risking payment of all or a portion of interest and
principal, the Fund may incur additional expenses to seek recovery. In the case
of high yield securities structured as zero coupon securities (see "Zero Coupon
Bonds," below), their market prices are affected to a greater extent by interest
rate changes, and therefore tend to be more volatile, than securities that pay
interest periodically and in cash. NB Management seeks to reduce these risks
through diversification, credit analysis and attention to current developments
and trends in both the economy and financial markets.




                                       8
<PAGE>

      The secondary market on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Fund
could sell a high yield security, and could adversely affect the net asset value
of the shares. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of high yield
securities, especially in a thinly traded market. When secondary markets for
high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
During periods of thin trading in these markets, the spread between bid and
asked prices is likely to increase significantly and the Fund may have greater
difficulty selling its portfolio securities. The Fund will be more dependent on
NB Management's research and analysis when investing in high yield securities.
NB Management seeks to minimize the risks of investing in all securities through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions.

      A general description of Moody's, S&P's and Fitch's ratings of municipal
bonds is set forth in Appendix A hereto. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the municipal bonds they rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, municipal bonds with the same maturity,
coupon and rating may have different yields while obligations with the same
maturity and coupon with different ratings may have the same yield. For these
reasons, the use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. NB
Management does not rely solely on credit ratings when selecting securities for
the Fund, and develops its own independent analysis of issuer credit quality.

      The Fund's credit quality policies apply only at the time a security is
purchased, and the Fund is not required to dispose of a security if a rating
agency or NB Management downgrades its assessment of the credit characteristics
of a particular issue. In determining whether to retain or sell such a security,
NB Management may consider such factors as NB Management's assessment of the
credit quality of the issuer of such security, the price at which such security
could be sold and the rating, if any, assigned to such security by any rating
agency. However, analysis of the creditworthiness of issuers of high yield
securities may be more complex than for issuers of higher quality debt
securities.

PARTICIPATION CERTIFICATES

      Participation certificates are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may represent participations in a lease, an installment
purchase contract, or a conditional sales contract. Some municipal leases and
participation certificates may not be readily marketable.



                                       9
<PAGE>

ZERO COUPON BONDS

      The Fund may invest in zero coupon bonds. These securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or that specify a future date when the securities begin to pay
current interest. Zero coupon bonds are issued and traded at a significant
discount from their face amount or par value. This discount varies depending on
prevailing interest rates, the time remaining until cash payments begin, the
liquidity of the security, and the perceived credit quality of the issuer. Zero
coupon bonds are redeemed at face value when they mature. The Fund must take
discount on zero coupon bonds ("original issue discount" or "OID") into account
ratably for federal income tax purposes prior to the receipt of any actual
payments. Because the Fund must distribute substantially all of its net income
(including non-cash income attributable to zero coupon bonds and regardless of
whether the income is taxable or tax-exempt) to its stockholders each year for
federal income and excise tax purposes, it may have to dispose of portfolio
securities under disadvantageous circumstances to generate cash, or may be
required to borrow, to satisfy its distribution requirements. See "Tax Matters."

      The market prices of zero coupon bonds generally are more volatile than
the prices of securities that pay interest periodically. Zero coupon bonds 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. Because
these securities usually trade at a deep discount, they will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities that make periodic distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, zero coupon securities eliminate the
reinvestment risk and lock in a rate of return to maturity.

ILLIQUID SECURITIES

      The Fund may invest up to 20% of its net assets in securities that are
illiquid at the time of investment. The term "illiquid securities" for this
purpose means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities. Illiquid securities are considered to include, among
other things, written over-the-counter options, securities or other liquid
assets being used as cover for such options, repurchase agreements with
maturities in excess of seven days, certain loan participation interests, fixed
time deposits that are not subject to prepayment or provide for withdrawal
penalties upon prepayment (other than overnight deposits), and other securities
whose disposition is restricted under the federal securities laws.

MUNICIPAL NOTES

      Municipal notes in which the Fund may invest include the following:

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 the primary obligations of the


                                       10
<PAGE>

local issuing agency, the HUD agreement provides the full faith and credit of
the United States as additional security.

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 income, sales, use, and business taxes, and are payable
from these future revenues.

REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other types
of revenue, such as that available under federal revenue-sharing programs.
Because of proposed measures to reform the federal budget and alter the relative
obligations of federal, state, and local governments, many revenue-sharing
programs are in a state of uncertainty.

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.

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 or GNMA).

TAX-EXEMPT COMMERCIAL PAPER is a short-term obligation issued by state or local
governments or their agencies to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term financing.

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 (as defined below). The Fund can also purchase bonds issued to refund
earlier issues. The proceeds of these refunding bonds are often used for escrow
to support refunding.

TAXABLE INVESTMENTS

      From time to time, for temporary defensive purposes, or when suitable
municipal securities are not available, the Fund may invest in instruments the
income from which is taxable. These include:

U.S. GOVERNMENT AND AGENCY SECURITIES. U.S. Government Securities are
obligations of the U.S. Treasury backed by the full faith and credit of the
United States. U.S. Government Agency Securities are issued or guaranteed by
U.S. Government agencies, or instrumentalities of the U.S. Government, such as
GNMA, Fannie Mae, Freddie Mac (also known as the Federal Home Loan Mortgage
Corporation), Sallie Mae (formerly known as the Student Loan Marketing
Association), 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 U.S.
Treasury, subject to the Treasury's discretion in certain cases, or only by the
credit of the issuer. U.S. Government Agency Securities include U.S. Government


                                       11
<PAGE>

Agency mortgage-backed securities. The market prices of U.S. Government Agency
Securities are not guaranteed by the Government and generally fluctuate
inversely with changing interest rates.

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. The Fund may invest in commercial paper that
cannot be resold to the public without an effective registration statement under
the Securities Act of 1933 ("1933 Act"). While restricted commercial paper
normally is deemed illiquid, NB Management may in certain cases determine that
such paper is liquid, pursuant to guidelines established by the Fund Directors.

BANKING AND SAVINGS INSTITUTION SECURITIES. These include certificates of
deposit ("CDs"), time deposits, bankers' acceptances, and other short-term and
long-term debt obligations issued by commercial banks and savings institutions.
CDs are receipts for funds deposited for a specified period of time at a
specified rate of return; time deposits generally are similar to CDs, but are
uncertificated. Bankers' acceptances are time drafts drawn on commercial banks
by borrowers, usually in connection with international commercial transactions.
The CDs, time deposits, and bankers' acceptances in which the Fund may invest
typically are not covered by deposit insurance.

                          FURTHER INVESTMENT TECHNIQUES

      The Fund may employ, among others, the investment techniques described
below, which may give rise to taxable income.

      In connection with the investment objective and policies described in this
Statement of Additional Information and in the prospectus, the Fund may:
purchase and sell options (including swaps, caps, floors and collars) on
municipal securities and on indices based on municipal securities; borrow funds
and issue senior securities to the extent permitted under the 1940 Act; engage
in interest rate and other hedging and risk management transactions; and
purchase and sell municipal securities on a "when-issued" or "delayed delivery"
basis. These investment practices entail risks. NB Management may use some or
all of the following hedging and risk management practices when their use
appears appropriate. Although NB Management believes that these investment
practices may further the Fund's investment objective, no assurance can be given
that these investment practices will achieve this result. NB Management may also
decide not to engage in any of these investment practices.

OPTIONS AND FUTURES GENERALLY

      The Fund may engage in futures and options transactions in accordance with
its investment objective and policies. The Fund may engage in such transactions
if it appears advantageous to NB Management to do so in order to pursue its
investment objective, to hedge (i.e., protect) against the effects of market
conditions and to stabilize the value of its assets. NB Management may also
decide not to engage in any of these investment practices. The use of futures
and options, and the possible benefits and attendant risks are discussed below,
along with information concerning certain other investment policies and
techniques.



                                       12
<PAGE>

      There are risks associated with futures and options transactions. Because
it is not possible to perfectly correlate the price of the securities being
hedged with the price movement in a futures contract, it is not possible to
provide a perfect offset on losses on the futures contract or the option on the
contract.

      Because there is imperfect correlation between the Fund's securities that
are hedged and the futures contract, the hedge may not be fully effective.
Losses on the Fund's security may be greater than gains on the futures contract,
or losses on the futures contract may be greater than gains on the securities
subject to the hedge. In an effort to compensate for imperfect correlation, the
Fund may over-hedge or under-hedge by entering into futures contracts or options
on futures contracts in dollar amounts greater or less than the dollar amounts
of the securities being hedged. If market movements are not as anticipated, the
Fund could lose money from these positions.

      If the Fund hedges against an increase in interest rates, and rates
decline instead, the Fund will lose all or part of the benefit of the increase
in value of the securities it hedged because it will have offsetting losses in
its futures or options positions. Also, in order to meet margin requirements,
the Fund may have to sell securities at a time it would not normally choose.

SECURITIES OPTIONS TRANSACTIONS

      The Fund may invest in options on municipal securities, traded
over-the-counter and, if applicable, traded on a national securities exchange.
In general, the Fund may purchase and sell (or write) options on up to 20% of
its total assets. The SEC requires that obligations of investment companies such
as the Fund, in connection with options sold, must comply with certain
segregation or cover requirements that are more fully described below. There is
no limitation on the amount of the Fund's assets that can be used to comply with
such segregation or cover requirements.

      A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the agreed-upon exercise (or
"strike") price during the period specified in the terms of the option ("option
period"). A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying security at the strike price during the option
period. Purchasers of options pay an amount, known as a premium, to the option
writer in exchange for the right under the option contract. Option contracts may
be written with terms that would permit the holder of the option to purchase or
sell the underlying security only upon the expiration date of the option.

      The Fund may purchase put and call options in hedging transactions to
protect against a decline in the market value of municipal securities in the
Fund's portfolio (e.g., by the purchase of a put option) and to protect against
an increase in the cost of fixed-income securities that the Fund may seek to
purchase in the future (e.g., by the purchase of a call option). If the Fund
purchases put and call options, paying premiums therefor, and price movements in
the underlying securities are such that exercise of the options would not be
profitable for the Fund, to the extent such underlying securities correlate in
value to the Fund's portfolio securities, losses of the premiums paid may be
offset by an increase in the value of the Fund's portfolio securities (in the


                                       13
<PAGE>

case of a purchase of put options) or by a decrease in the cost of acquisition
of securities by the Fund (in the case of a purchase of call options).

      The Fund may also sell put and call options as a means of increasing the
yield on its portfolio and also as a means of providing limited protection
against decreases in market value of the portfolio. When the Fund sells an
option, if the underlying securities do not increase (in the case of a call
option) or decrease (in the case of a put option) to a price level that would
make the exercise of the option profitable to the holder of the option, the
option generally will expire without being exercised and the Fund will realize
as profit the premium received for such option. When a call option written by
the Fund is exercised, the option holder purchases the underlying security at
the strike price and the Fund does not participate in any increase in the price
of such securities above the strike price. When a put option written by the Fund
is exercised, the Fund will be required to purchase the underlying securities at
the strike price, which may be in excess of the market value of such securities.


      OPTIONS ON SECURITIES. The Fund may write covered call options so long as
it owns securities that are acceptable for escrow purposes and may write secured
put options, which means that so long as the Fund is obligated as a writer of a
put option, it will invest an amount, not less than the exercise price of the
put option, in securities consistent with its investment objective and policies
and restrictions on investment. See "Investment Objective and Policies" and
"Investment Restrictions." The premium received for writing an option will
reflect, among other things, the relationship of the exercise price to the
market price, the price volatility of the underlying security, the option
period, supply and demand and interest rates. The Fund may write or purchase
spread options, which are options for which the exercise price may be a fixed
dollar spread or yield spread between the security underlying the option and
another security that is used as a benchmark. The exercise price of an option
may be below, equal to or above the current market value of the underlying
security at the time the option is written. The buyer of a put who also owns the
related security is protected by ownership of a put option against any decline
in that security's price below the exercise price, less the amount paid for the
option. At times the Fund may wish to establish a position in a security upon
which call options are available. By purchasing a call option on such security
the Fund would be able to fix the cost of acquiring the security, which is the
cost of the call plus the exercise price of the option. This procedure also
provides some protection from an unexpected downturn in the market, because the
Fund is only at risk for the amount of the premium paid for the call option that
it can, if it chooses, permit to expire.


      OPTIONS ON SECURITIES INDICES. The Fund also may purchase and write call
and put options on securities indices. Through the writing or purchase of index
options, the Fund can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive upon exercise of the option, an amount of
cash, if the closing level of the securities index upon which the option is
based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike options on securities (which


                                       14
<PAGE>

require, upon exercise, delivery of the underlying security), settlements of or
loss of an option on an index depends on price movements in the market generally
(or in a particular industry or segment of the market on which the underlying
index is based) rather than price movements in individual securities, as is the
case with respect to options on securities.

      When the Fund writes an option on a securities index, it will be required
to deposit with its custodian eligible securities equal in value to 100% of the
exercise price in the case of a put, or the contract's value in the case of a
call. In addition, where the Fund writes a call option on a securities index at
a time when the contract value exceeds the exercise price, the Fund will
segregate, until the option expires or is closed out, cash or cash equivalents
equal in value to such excess.

      Options on securities and index options involve risks similar to those
risks relating to transactions in financial futures described below. Also, an
option purchased by the Fund may expire worthless, in which case the Fund would
lose the premium paid therefor.

      OTC OPTIONS. Over-the-counter options ("OTC options") differ from
exchange-traded options in several respects. They are transacted directly with
dealers and not with a clearing corporation, and there is a risk of
non-performance by the dealer. OTC options are available for a greater variety
of securities and for a wider range of expiration dates and exercise prices than
are exchange-traded options. Because OTC options are not traded on an exchange,
pricing is normally done by reference to information from a market maker, which
information is carefully monitored by NB Management and verified in appropriate
cases. The Fund may be required to treat certain of its OTC options transactions
as illiquid securities.

      It will generally be the Fund's policy, in order to avoid the exercise of
an option sold by it, to cancel its obligation under the option by entering into
a closing purchase transaction, if available, unless it is determined to be in
the Fund's interest to sell (in the case of a call option) or to purchase (in
the case of a put option) the underlying securities. A closing purchase
transaction consists of the Fund's purchasing an option having the same terms as
the option it sold and has the effect of canceling its position as a seller. The
premium that the Fund will pay when executing a closing purchase transaction may
be higher than the premium it received when it sold the option, depending in
large part upon the relative price of the underlying security at the time of
each transaction. To the extent options sold by the Fund are exercised and it
either delivers portfolio securities to the holder of a call option or
liquidates securities in its portfolio as a source of funds to purchase
securities put to it, its portfolio turnover rate will increase, which would
cause it to incur additional brokerage expenses.

      During the option period, the Fund, as a covered call writer, gives up the
potential appreciation above the exercise price should the underlying security
rise in value, or the Fund, as a secured put writer, retains the risk of loss
should the underlying security decline in value. For the covered call writer,
substantial appreciation in the value of the underlying security would result in
the security being "called away" at the strike price of the option that may be
substantially below the fair market value of such security. For the secured put
writer, substantial depreciation in the value of the underlying security would
result in the security being "put to" the writer at the strike price of the


                                       15
<PAGE>

option which may be substantially in excess of the fair market value of such
security. If a covered call option or a secured put option expires unexercised,
the writer realizes a gain, and the buyer a loss, in the amount of the premium.


      To the extent that an active market exists or develops, whether on a
national securities exchange or over-the-counter, in options on indices based
upon municipal securities, the Fund may purchase and sell options on such
indices, subject to the limitation that the Fund may purchase and sell options
on up to 20% of its total assets. Through the writing or purchase of index
options, the Fund can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
strike price of the option.


      Price movements in securities, which the Fund owns or intends to purchase,
will not correlate perfectly with movements in the level of an index and,
therefore, the Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities.

      The Fund and NB Management have found the dealers with which they engage
in OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Fund has adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse impact of such
transactions upon the liquidity of the Fund's portfolio.

      As part of these procedures the Fund will only engage in OTC options
transactions with respect to U.S. Government securities with primary dealers
that have been specifically approved by the Board. The Fund will engage in OTC
options transactions with respect to municipal securities only with dealers that
have been specifically approved by the Board. The Fund and NB Management believe
that the approved dealers should be agreeable and able to enter into closing
transactions as necessary and, therefore, present minimal credit risk to the
Fund. The Fund anticipates entering into written agreements with those dealers
to whom the Fund may sell OTC options, pursuant to which the Fund would have the
absolute right to repurchase the OTC options from such dealers at any time at a
price with respect to U.S. Government securities set forth in such agreement.
The amount invested by the Fund in OTC options on securities other than U.S.
Government securities, including options on municipal securities, will be
treated as illiquid and subject to the Fund's 20% limitation on its net assets
that may be invested in illiquid securities.

      Gains, if any, the Fund recognizes or is deemed to recognize from
transactions in securities options will be taxable income. See "Tax Matters" for
information relating to the allocation of taxable income, if any, between the
Common Shares and Preferred Shares.



                                       16
<PAGE>

BORROWING AND LEVERAGE

      The Fund is authorized to borrow amounts up to 33 1/3% of its total assets
(including the amount borrowed) minus liabilities (other than the amount
borrowed). The use of borrowed funds involves the speculative factor known as
"leverage." The Articles of Incorporation authorize the Board to create
additional classes of stock, and it is currently contemplated that the Fund will
issue one or more classes of preferred stock. Preferred stock would permit the
Fund to assume leverage in an amount up to 50% of its total assets. Preferred
stock, including, when issued, the Preferred Shares, would have a priority on
the income and assets of the Fund over the Common Shares and would have certain
other rights with respect to voting and the election of Directors. In certain
circumstances, the net asset value of and dividends payable on shares of Common
Shares could be adversely affected by such preferences. The use of leverage
creates an opportunity for increased returns to holders of the Common Shares
but, at the same time, creates special risks. The Fund will utilize leverage
only when there is an expectation that it will benefit the Fund. To the extent
the income or other gain derived from securities purchased with the proceeds of
borrowings or preferred stock issuances exceeds the interest or dividends the
Fund would have to pay thereon, the Fund's net income or other gain would be
greater than if leverage had not been used. Conversely, if the income or other
gain from the securities purchased through leverage is not sufficient to cover
the cost of such leverage, the Fund's total return would be less than if
leverage had not been used. If leverage is used, in certain circumstances, the
Fund could be required to liquidate securities it would not otherwise sell in
order to satisfy dividend or interest obligations. The Fund may also borrow up
to an additional 5% of its total assets for temporary purposes without regard to
the foregoing limitations. See "Investment Restrictions." This could include,
for example, borrowing on a short-term basis in order to facilitate the
settlement of portfolio securities transactions.

INTEREST RATE AND OTHER HEDGING TRANSACTIONS

      In order to seek to protect the value of its portfolio securities against
declines resulting from changes in interest rates or other market changes, the
Fund may enter into the following hedging transactions: financial futures
contracts and related options contracts.

      The Fund may enter into various interest rate hedging transactions using
financial instruments with a high degree of correlation to the municipal
securities which the Fund may purchase for its portfolio, including interest
rate futures contracts (e.g., futures contracts on U.S. Treasury securities) and
futures contracts on interest rate related indices (e.g., municipal bond
indices). The Fund may also purchase and write put and call options on such
futures contracts and on the underlying instruments. The Fund may enter into
these transactions in an attempt to "lock in" a return or spread on a particular
investment or portion of its portfolio, to protect against any increase in the
price of securities it anticipates purchasing at a later date, or for other risk
management strategies such as managing the effective dollar-weighted average
duration of its portfolio. Financial futures and options contracts and the risk
attendant to the Fund's use thereof, are more completely described below. The
successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of the Fund's portfolio
securities.



                                       17
<PAGE>

      The Fund will not engage in the foregoing transactions for speculative
purposes, but only in limited circumstances as a means to hedge risks associated
with management of its portfolio. Typically, investments in futures contracts
and sales of futures options contracts require the Fund to deposit in a
custodial account a good faith deposit, known as "initial margin," in connection
with its obligations in an amount of cash or specified debt securities which
generally is equal to 1%-15% of the face amount of the contract, which initial
margin requirement may be revised periodically by the applicable exchange as the
volatility of the contract fluctuates. Thereafter, the Fund must make additional
deposits with the applicable financial intermediary equal to any net losses due
to unfavorable price movements of the contract, and will be credited with an
amount equal to any net gains due to favorable price movements. These additional
deposits or credits are calculated and required daily and are known as
"variation margin."

      The Securities and Exchange Commission generally requires that when
investment companies, such as the Fund, effect transactions of the foregoing
nature, such companies must either segregate cash or liquid securities in the
amount of their obligations under the foregoing transactions or cover such
obligations by maintaining positions in portfolio securities, futures contracts
or options that would serve to satisfy or offset the risk of such obligations.
When effecting transactions of the foregoing nature, the Fund will comply with
such segregation or cover requirements. There is no limitation on the percentage
of the Fund's assets that may be segregated with respect to such transactions.

      FINANCIAL FUTURES CONTRACTS. The Fund may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security,
or the cash value of a securities index. This investment technique is designed
primarily to hedge against anticipated future changes in market conditions that
otherwise might adversely affect the value of securities the Fund holds or
intends to purchase. A "sale" of a futures contract means the undertaking of a
contractual obligation to deliver the securities, or the cash value of an index,
called for by the contract at a specified price during a specified delivery
period. At the time of delivery, in the case of fixed-income securities pursuant
to the contract, adjustments are made to recognize differences in value arising
from the delivery of securities with a different interest rate than that
specified in the contract. In some cases, securities called for by a futures
contract may not have been issued at the time the contract was written.

      Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contract calls
for a payment of the net value of the securities. The offsetting of a
contractual obligation is accomplished by purchasing (or selling, as the case
may be) on a commodities exchange an identical futures contract calling for
delivery in the same period. Such a transaction cancels the obligation to make
or take delivery of the securities. All transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded. The Fund will incur brokerage fees when it
purchases or sells contracts, and will be required to maintain margin deposits.
Futures contracts entail risk. If NB Management's judgment about the general
direction of securities markets or interest rates is wrong, the Fund's overall
performance may be poorer than if it had not entered into such contracts.



                                       18
<PAGE>

      There may be an imperfect correlation between movements in prices of
futures contracts and portfolio securities being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the securities and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, because from the point of view of speculators, the margin
requirements in the futures market may be less onerous than margin requirements
in the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities and movements in the prices of
futures contracts, a correct forecast of market trends by NB Management may
still not result in a successful hedging transaction. If this should occur, the
Fund could lose money on the financial futures contracts and also on the value
of its portfolio securities.

      OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may purchase and write
call and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period specified in the terms of the option. Upon exercise, the
writer of the option delivers the futures contract to the holder at the exercise
price. The Fund would be required to deposit with its custodian initial margin
and maintenance margin with respect to put and call options on futures contracts
written by it. Options on futures contracts involve risks similar to the risks
on options purchased by the Fund, i.e., that they may expire worthless, in which
case the Fund would lose the premium paid therefor.

      REGULATORY RESTRICTIONS. The Fund will comply with SEC guidelines
regarding "cover" for hedging transactions and, if the guidelines so require,
set aside in a segregated account with its custodian the prescribed amount of
cash or appropriate liquid securities. Securities held in a segregated account
cannot be sold while the futures contract or option covered by those securities
is outstanding, unless they are replaced with other suitable assets. As a
result, segregation of a large percentage of the Fund's assets could impede
portfolio management or its ability to meet current obligations. The Fund may be
unable to promptly dispose of assets that cover, or are segregated with respect
to, an illiquid future contract or option position; this inability may result in
a loss to the Fund.

      To the extent the Fund sells or purchases futures contracts or writes
options thereon that are traded on an exchange regulated by the Commodity
Futures Trading Commission ("CFTC") other than for BONA FIDE hedging purposes
(as defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are
"in-the-money") may not exceed 5% of the Fund's net assets.

      ACCOUNTING AND TAX CONSIDERATIONS. When the Fund writes an option, an
amount equal to the premium it receives is included in its Statement of Assets
and Liabilities as a liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option written. When


                                       19
<PAGE>

the Fund purchases an option, the premium the Fund pays is recorded as an asset
in that statement and is subsequently adjusted to the current market value of
the option.

      In the case of a regulated futures contract the Fund purchases or sells,
an amount equal to the initial margin deposit is recorded as an asset in its
Statement of Assets and Liabilities. The amount of the asset is subsequently
adjusted to reflect changes in the amount of the deposit as well as changes in
the value of the contract.

      For a summary of the tax consequences of the Fund's investments in options
and futures contracts, see "Tax Matters - Hedging Transactions."

      All of the foregoing transactions present certain risks. In particular,
the variable degree of correlation between price movements of futures contracts
and price movements in the securities being hedged creates the possibility that
losses on the hedge may be greater than gains in the value of the Fund's
securities. In addition, these instruments may not be liquid in all
circumstances and generally are closed out by entering into offsetting
transactions rather than by delivery or cash settlement at maturity. As a
result, in volatile markets, the Fund may not be able to close out a transaction
on favorable terms or at all. Although the contemplated use of those contracts
should tend to reduce the risk of loss due to a decline in the value of the
hedged security, at the same time the use of these contracts could tend to limit
any potential gain that might result from an increase in the value of such
security. Finally, the daily deposit requirements for futures contracts and
sales of futures options contracts create an ongoing greater potential financial
risk than do option purchase transactions, where the exposure is limited to the
cost of the premium for the option.

      Successful use of futures contracts and options thereon by the Fund is
subject to the ability of NB Management to predict correctly movements in the
direction of interest rates and other factors affecting securities markets. If
NB Management's expectations were not met, the Fund would be in a worse position
than if a hedging strategy had not been pursued. For example, if the Fund has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of securities in its portfolio and the price of such
securities increases instead, the Fund will lose part or all of the benefit of
the increased value of its securities because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash to meet daily variation margin requirements, it may have to
sell securities to meet such requirements. Such sales of securities may be, but
will not necessarily be, at increased prices, which reflect the rising market.
The Fund may have to sell securities at a time when it is disadvantageous to do
so.

      In addition to engaging in transactions utilizing options on futures
contracts, the Fund may purchase put and call options on securities and, as
developed from time to time, on interest indices and other instruments.
Purchasing options may increase investment flexibility and improve total return
but also risks loss of the option premium if an asset the Fund has the option to
buy declines in value or if an asset the Fund has the option to sell increases
in value.

      New options and futures contracts and other financial products may be
developed from time to time. The Fund may invest in any such options, contracts


                                       20
<PAGE>

and products as may be developed to the extent consistent with its investment
objective and the regulatory requirements applicable to investment companies.

      Gains, if any, the Fund recognizes or is deemed to recognize from
transactions in hedging activities will be taxable income. See "Tax Matters" for
information relating to the allocation of taxable income, if any, between the
Common Shares and Preferred Shares.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

      The Fund may purchase municipal securities on a "when-issued" and "delayed
delivery" basis. No income accrues to the Fund on municipal securities in
connection with such transactions prior to the date it actually takes delivery
of such securities. These transactions are subject to market fluctuation; the
value of the municipal securities at delivery may be more or less than their
purchase price, and yields generally available on municipal securities when
delivery occurs may be higher than yields on the municipal securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund's missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account,
cash, or liquid securities, having a value equal to or greater than its purchase
commitments, provided such securities have been determined by NB Management to
be liquid and unencumbered, and are marked to market daily, pursuant to
guidelines established by the Board. The Fund will make commitments to purchase
municipal securities on such basis only with the intention of actually acquiring
these securities, but it may sell such securities prior to the settlement date
if such sale is considered to be advisable.

      To the extent that the Fund engages in "when-issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for its portfolio consistent with its investment objective and policies.
However, although the Fund does not intend to engage in such transactions for
speculative purposes, purchases of securities on such basis may involve more
risk than other types of purchases. For example, if the Fund determines it is
necessary to sell the "when-issued" or "delayed delivery" securities before
delivery, it may realize a gain or incur a loss because of market fluctuations
since the time the commitment to purchase such securities was made. Subject to
the requirement of maintaining a segregated account, no specified limitation
exists as to the percentage of the Fund's assets that may be used to acquire
securities on a "when-issued" or "delayed delivery" basis. "When issued" and
"delayed delivery" purchases have a leveraging effect on the Fund, because it is
subject to fluctuations in the value of securities for which it has not yet
paid. A significant percentage of the Fund's assets committed to the purchase of
securities on a "when-issued" or "delayed delivery" basis may increase the
volatility of its net asset value and may limit the flexibility to manage its
investments.

REPURCHASE AGREEMENTS

      The Fund may use repurchase agreements to manage its cash position. A
repurchase agreement is a contractual agreement whereby the seller of securities
(U.S. Government Securities or municipal obligations) agrees to repurchase the
same security at a specified price on a future date agreed upon by the parties.


                                       21
<PAGE>

The agreed-upon repurchase price determines the yield during the Fund's holding
period. Repurchase agreements are considered to be loans collateralized by the
underlying security that is the subject of the repurchase contract. Income, if
any, generated from transactions in repurchase agreements will be taxable. See
"Tax Matters" for information relating to the allocation of taxable income, if
any, between the Common Shares and Preferred Shares. If the other party to a
repurchase agreement defaults, the Fund may not be able to sell the underlying
securities. If the Fund must assert its rights against the other party to
recover the securities, the Fund will incur unexpected expenses, risk losing the
income on the security and bear the risk of loss in the value of the security.

INVESTMENT IN OTHER INVESTMENT COMPANIES

      The Fund does not currently invest in other investment companies and does
not currently intend to invest in them, but it may, consistent with the
provisions of the 1940 Act and the Fund's investment restrictions, determine to
do so in the future in appropriate circumstances. Currently, under the 1940 Act,
the Fund may hold securities of another registered investment company in amounts
that (i) do not exceed 3% of the total outstanding voting stock of such company,
(ii) do not exceed 5% of the value of the Fund's total assets, and (iii) when
added to all other investment company securities held by the Fund, do not exceed
10% of the value of the Fund's total assets.

      In the event of such an investment, as a shareholder in an investment
company the Fund would bear its ratable share of the investment company's
expenses, including management fees, and would remain subject to payment of the
Fund's administration fees and other expenses with respect to assets so
invested.


RESIDUAL INTEREST MUNICIPAL BONDS ("RIBS")


      The Fund may also invest up to 5% of its total assets in residual interest
municipal bonds ("RIBS"); the interest rate on a RIB bears an inverse
relationship to the interest rate on another security or the value of an index.
RIBS are created by dividing the income stream provided by the underlying bonds
to create two securities, one short-term and one long-term. The interest rate on
the short-term component is reset by an index or auction process normally every
seven to 35 days. After income is paid on the short-term securities at current
rates, the residual income from the underlying bond(s) goes to the long-term
securities. Therefore, rising short-term interest rates result in lower income
for the longer-term portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipal bonds of comparable
maturity.

      An investment in RIBS typically will involve greater risk than an
investment in a fixed rate bond. Because increases in the interest rate on the
other security or index reduce the residual interest paid on a RIB, the value of
a RIB is generally more volatile than that of a fixed rate bond. RIBS have
interest rate adjustment formulas that generally reduce or, in the extreme,
eliminate the interest paid to the Fund when short-term interest rates rise, and
increase the interest paid to the Fund when short-term interest rates fall. RIBS
have varying degrees of liquidity that approximate the liquidity of the
underlying bond(s), and the market price for these securities is volatile. These


                                       22
<PAGE>

securities generally will underperform the market of fixed rate bonds in a
rising interest rate environment, but tend to outperform the market of fixed
rate bonds when interest rates decline or remain relatively stable.

      Although volatile, RIBS typically offer the potential for yields exceeding
the yields available on fixed rate bonds with comparable credit quality, coupon,
call provisions and maturity. The Fund may also invest in RIBS for the purpose
of increasing the Fund's leverage as a more flexible alternative to the issuance
of Preferred Shares. Should short-term and long-term interest rates rise, the
combination of the Fund's investment in RIBS and its use of other forms of
leverage (including through the issuance of Preferred Shares or the use of other
derivative instruments) likely will adversely affect the Fund's net asset value
per share and income, distributions and total return to Common Stockholders.
Trusts in which RIBS may be held could be terminated, in which case the residual
bond holder would take possession of the underlying bond(s) on an unleveraged
basis.

STRUCTURED NOTES AND OTHER HYBRID INSTRUMENTS

      The Fund may invest in "structured" notes, which are privately negotiated
debt obligations where the principal and/or interest is determined by reference
to the performance of a benchmark asset, market or interest rate, such as
selected securities, an index of securities or specified interest rates, or the
differential performance of two assets or markets, such as indices reflecting
taxable and tax-exempt bonds. Depending on the terms of the note, the Fund may
forgo all or part of the interest and principal that would be payable on a
comparable conventional note. The rate of return on structured notes may be
determined by applying a multiplier to the performance or differential
performance of the referenced index(es) or other asset(s). Application of a
multiplier involves leverage that will serve to magnify the potential for gain
and the risk of loss. The Fund currently intends that any use of structured
notes will be for the purpose of reducing the interest rate sensitivity of its
portfolio (and, thereby, decreasing its exposure to interest rate risk) and, in
any event, that the interest income on the notes will normally be exempt from
federal income tax. Like other sophisticated strategies, the Fund's use of
structured notes may not work as intended; for example, the change in the value
of the structured notes may not match very closely the change in the value of
bonds that the structured notes were purchased to hedge.

      The Fund may invest in other types of "hybrid" instruments that combine
the characteristics of securities, futures, and options. For example, the
principal amount or interest rate of a hybrid could be tied (positively or
negatively) to the price of some securities index or another interest rate (each
a "benchmark"). The interest rate or (unlike most debt obligations) the
principal amount payable at maturity of a hybrid security may be increased or
decreased, depending on changes in the value of the benchmark. Hybrids can be
used as an efficient means of pursuing a variety of investment goals, including
duration management and increased total return. Hybrids may not bear interest or
pay dividends. The value of a hybrid or its interest rate may be a multiple of a
benchmark and, as a result, may be leveraged and move (up or down) more steeply
and rapidly than the benchmark. These benchmarks may be sensitive to economic
and political events that cannot be readily foreseen by the purchaser of a
hybrid. Under certain conditions, the redemption value of a hybrid could be
zero. Thus, an investment in a hybrid may entail significant market risks that


                                       23
<PAGE>

are not associated with a similar investment in a traditional, U.S.
dollar-denominated bond that has a fixed principal amount and pays a fixed rate
or floating rate of interest. The purchase of hybrids also exposes the Fund to
the credit risk of the issuer of the hybrids. These risks may cause significant
fluctuations in the net asset value of the Fund.

      Certain issuers of structured products, such as hybrid instruments, may be
deemed to be investment companies as defined in the 1940 Act. As a result, the
Fund's investments in these products may be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act. See "Investments in Other Investment Companies."

                       PORTFOLIO TRADING AND TURNOVER RATE

      The Fund cannot accurately predict its turnover rate but anticipates that
its annual turnover rate will not exceed 100%. The Fund's turnover rate is
calculated by dividing the lesser of its sales or purchases of securities during
a year (excluding any security the maturity of which at the time of acquisition
is one year or less) by the average monthly value of its securities for the
year. The Fund generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish its investment objective. For example, the Fund may sell portfolio
securities in anticipation of a movement in interest rates. Higher turnover
rates can result in corresponding increases in the Fund's transaction costs,
which must be borne by the Fund and its stockholders. High portfolio turnover
may also result in the realization of substantial net short-term capital gains,
and any distributions attributable to those gains will be taxable at ordinary
income rates for federal income tax purposes. Other than for consideration of
tax consequences, frequency of portfolio turnover will not be a limiting factor
if the Fund considers it advantageous to purchase or sell securities.

                           CERTAIN RISK CONSIDERATIONS

      Although the Fund seeks to reduce risk by investing in a diversified
portfolio of securities, diversification does not eliminate all risk. There can,
of course, be no assurance the Fund will achieve its investment objective. The
Fund's ability to achieve its investment objective is dependent on the
continuing ability of the issuers of municipal obligations in which the Fund
invests (and, in certain circumstances, of banks issuing letters of credit or
insurers issuing insurance backing those obligations) to pay interest and
principal when due.

                             MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

      The Board is broadly responsible for overseeing the management of the
business and affairs of the Fund, including general supervision of the duties
performed by NB Management and Neuberger Berman. Subject to the provisions of
the Fund's Articles of Incorporation (the "Articles"), its Bylaws and Maryland
law, the Board has all powers necessary and convenient to carry out this
responsibility, including the election and removal of the Fund's officers. Among


                                       24
<PAGE>

other things, the Board generally oversees the portfolio management of the Fund
and reviews and approves the Fund's management and sub-advisory agreements and
other principal agreements.

      The following tables set forth information concerning the Directors and
officers of the Fund. All persons named as Directors and officers also serve in
similar capacities for other funds administered or managed by NB Management and
Neuberger Berman.


THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                               Number of
                                               Portfolios
                                               in Fund      Other Directorships
Name, Age, and                                 Complex      Held Outside Fund
Address (1)        Principal Occupation(s) (2) Overseen by  Complex by Director
                                               Director
-----------------------------------------------------------------------------------
<S>                <C>                         <C>          <C>
                                     CLASS I

-----------------------------------------------------------------------------------
Independent Fund Directors
-----------------------------------------------------------------------------------
Faith Colish (66)  Attorney at Law and         31
                   President, Faith Colish, A
                   Professional Corporation;
                   1980 to present.
-----------------------------------------------------------------------------------
C. Anne Harvey     Consultant, C. A. Harvey    31
(65)               Associates, June 2001 to
                   present; Member,
                   Individual Investors
                   Advisory Committee to the
                   New York Stock Exchange
                   Board of Directors, 1998
                   to present; Secretary,
                   Board of Associates to The
                   National Rehabilitation
                   Hospital's Board of
                   Directors; Director of
                   American Association of
                   Retired Persons (AARP),
                   1978 to December 2000;
                   Member, American Savings
                   Education Council's Policy
                   Board (ASEC), 1998-2000;
                   Member, Executive
                   Committee, Crime
                   Prevention Coalition of
                   America, 1997 - 2000.
-----------------------------------------------------------------------------------
Cornelius T. Ryan  General Partner of Oxford   31           Formerly, Director of
(70)               Partners and Oxford                      Capital Cash
                   Bioscience Partners                      Management Trust
                   (venture capital                         (money market fund)
                   partnerships) and                        and Prime Cash Fund.
                   President of Oxford
                   Venture Corporation.
-----------------------------------------------------------------------------------
Peter P. Trapp     Regional Manager for        31
(57)               Atlanta Region, Ford Motor
                   Credit Company since
                   August, 1997; prior
                   thereto, President, Ford
                   Life Insurance Company,
                   April 1995 until August
                   1997.
-----------------------------------------------------------------------------------


                                       25
<PAGE>

-----------------------------------------------------------------------------------
                                               Number of
                                               Portfolios
                                               in Fund      Other Directorships
Name, Age, and                                 Complex      Held Outside Fund
Address (1)        Principal Occupation(s) (2) Overseen by  Complex by Director
                                               Director
-----------------------------------------------------------------------------------
Director who is an "Interested Person"
-----------------------------------------------------------------------------------
Peter E. Sundman*  Executive Vice President    31           Executive Vice
(43)               of Neuberger Berman since                President and
                   1999; Principal of                       Director of Neuberger
                   Neuberger Berman from 1997               Berman Inc. (holding
                   until 1999; Senior Vice                  company) since 1999;
                   President of NB Management               President and
                   from 1996 until 1999;                    Director of NB
                   Director of Institutional                Management since
                   Services of NB Management                1999; Director and
                   from 1988 until 1996.                    Vice President of
                                                            Neuberger & Berman
                                                            Agency, Inc. since
                                                            2000.
-----------------------------------------------------------------------------------

                                     CLASS II

-----------------------------------------------------------------------------------
Independent Fund Directors
-----------------------------------------------------------------------------------
John Cannon (72)   Retired. Formerly,          31           Independent Trustee
                   Chairman and Chief                       or Director of three
                   Investment Officer of CDC                series of
                   Capital Management                       OppenheimerFunds:
                   (registered investment                   Limited Term New York
                   adviser) (1993-Jan. 1999).               Municipal Fund,
                                                            Rochester Fund
                                                            Municipals, and
                                                            Oppenheimer
                                                            Convertible
                                                            Securities Fund, 1992
                                                            to present.
-----------------------------------------------------------------------------------
Barry Hirsch (68)  Senior Vice President and   31
                   Senior General Counsel of
                   Loews Corporation
                   (diversified financial
                   corporation).
-----------------------------------------------------------------------------------
John P. Rosenthal  Senior Vice President of    31           Director, 92nd Street
(69)               Burnham Securities Inc. (a               Y (non-profit), 1967
                   registered broker-dealer)                to present; Formerly,
                   since 1991.                              Director, Cancer
                                                            Treatment Holdings,
                                                            Inc.
-----------------------------------------------------------------------------------
Director who is an "Interested Person"
-----------------------------------------------------------------------------------
Michael M.         Executive Vice President    31           Executive Vice
Kassen* (49)       and Chief Investment                     President, Chief
                   Officer of Neuberger                     Investment Officer
                   Berman since 1999;                       and Director of
                   Executive Vice President                 Neuberger Berman Inc.
                   and Chief Investment                     (holding company)
                   Officer of NB Management                 since 1999; Chairman
                   from November 1999 to May                since May 2000 and
                   2000; Vice President of NB               Director of NB
                   Management from 1990 until               Management since
                   1999; Partner or Principal               April 1996.
                   of Neuberger Berman from
                   1993.
-----------------------------------------------------------------------------------


                                       26
<PAGE>

-----------------------------------------------------------------------------------
                                               Number of
                                               Portfolios
                                               in Fund      Other Directorships
Name, Age, and                                 Complex      Held Outside Fund
Address (1)        Principal Occupation(s) (2) Overseen by  Complex by Director
                                               Director
-----------------------------------------------------------------------------------
Tom Decker Seip*   General Partner of Seip     31           Director, H&R Block,
(52)               Investments LP (a private                Inc. (financial
                   investment partnership);                 services company)
                   President and CEO of                     (the parent company
                   Westaff, Inc., May 2001 to               of one of the Fund's
                   January 2002 (temporary                  underwriters), May
                   staffing); Senior                        2001 to present;
                   Executive at the Charles                 Director, General
                   Schwab Corporation from                  Magic (voice
                   1983 to 1999, including                  recognition
                   Chief Executive Officer of               software), November
                   Charles Schwab Investment                2001 to present;
                   Management, Inc. and                     Director, Forward
                   Trustee of Schwab Family                 Management, Inc.
                   of Funds and Schwab                      (asset management),
                   Investments from 1997 to                 2001 to present;
                   1998 and Executive Vice                  Member of the Board
                   President-Retail Brokerage               of Directors of
                   for Charles Schwab                       E-Finance Corporation
                   Investment Management from               (credit decisioning
                   1994 to 1997.                            services), 1999 to
                                                            present; Director,
                                                            Save-Daily.com (micro
                                                            investing services),
                                                            1999 to present;
                                                            Formerly, Director of
                                                            Offroad Capital Inc.
                                                            (pre-public internet
                                                            commerce company).
-----------------------------------------------------------------------------------

                                    CLASS III

-----------------------------------------------------------------------------------
Independent Fund Directors
-----------------------------------------------------------------------------------
Walter G. Ehlers   Consultant; Retired         31
(69)               President and Director of
                   Teachers Insurance &
                   Annuity (TIAA) and College
                   Retirement Equities Fund
                   (CREF).
-----------------------------------------------------------------------------------
Robert A. Kavesh   Professor of Finance and    31           Director, Delaware
(74)               Economics at Stern School                Labs (cosmetics),
                   of Business, New York                    1978 to present.
                   University.
-----------------------------------------------------------------------------------
Howard A. Mileaf   Retired.  Formerly, Vice    31           Director, State
(65)               President and Special                    Theatre of New Jersey
                   Counsel to WHX Corporation               (not-for-profit
                   (holding company); 1993 -                theater), 2000 to
                   2001.                                    present; Formerly,
                                                            Director of Kevlin
                                                            Corporation
                                                            (manufacturer of
                                                            microwave and other
                                                            products).
-----------------------------------------------------------------------------------
William E. Rulon   Retired. Senior Vice        31           Director, Pro-Kids
(69)               President of Foodmaker.                  Golf and Learning
                   Inc. (operator and                       Academy (teach golf
                   franchiser of restaurants)               and computer usage to
                   until January 1997;                      "at risk" children),
                   Secretary of Foodmaker,                  1998 to present;
                   Inc. until July 1996.                    Director of Prandium,
                                                            Inc. (restaurants)
                                                            since March 2001.
-----------------------------------------------------------------------------------
Candace L.         Private investor and        31           Director, Providence
Straight (54)      consultant specializing in               Washington (property
                   the insurance industry;                  and casualty
                   Advisory Director of                     insurance company),
                   Securities Capital LLC (a                December 1998 to
                   global private equity                    present; Director,
                   investment firm dedicated                Summit Global
                   to making investments in                 Partners (insurance
                   the insurance sector).                   brokerage firm),
                                                            October 2000 to
                                                            present.
-----------------------------------------------------------------------------------
Director who is an "Interested Person"
-----------------------------------------------------------------------------------


                                       27
<PAGE>

-----------------------------------------------------------------------------------
                                               Number of
                                               Portfolios
                                               in Fund      Other Directorships
Name, Age, and                                 Complex      Held Outside Fund
Address (1)        Principal Occupation(s) (2) Overseen by  Complex by Director
                                               Director
-----------------------------------------------------------------------------------
Edward I.          Member, Investment Policy   31           Director of Legg
O'Brien* (73)      Committee, Edward Jones,                 Mason, Inc.
                   1993 - 2001; President of                (financial services
                   the Securities Industry                  holding company) (the
                   Association ("SIA")                      parent company of one
                   (securities industry's                   of the Fund's
                   representative in                        underwriters), 1993
                   government relations and                 to present; Director,
                   regulatory matters at the                Boston Financial
                   federal and state levels)                Group (real estate
                   from 1974 - 1992; Adviser                and tax shelters),
                   to SIA from November 1992                1993-1999.
                   -November 1993.
-----------------------------------------------------------------------------------

</TABLE>


* Indicates a director who is an "interested person" within the meaning of the
1940 Act. Mr. Sundman and Mr. Kassen are interested persons of the Fund by
virtue of the fact that each is an officer and/or director of NB Management and
Executive Vice President of Neuberger Berman. Mr. O'Brien is an interested
person of the Fund by virtue of the fact that he is a director of Legg Mason,
Inc., a wholly owned subsidiary of which is an one of the Fund's underwriters
that, from time to time, serves as a broker or dealer to the Fund and other
funds or accounts for which NB Management serves as investment manager. Mr.
Rulon is an interest person of the Fund by virtue of a pre-existing investment
in the securities of one of the Fund's underwriters. Mr. Seip is an interested
person of the Fund by virtue of the fact that he is a director of H&R Block,
Inc., the parent company of one of the Fund's underwriters.


(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.


(2) Except as otherwise indicated, each person has held the positions shown for
at least the last five years. The Board of Directors shall at all times be
divided as equally as possible into three classes of Directors designated Class
I, Class II, and Class III. The terms of office of Class I, Class II, and Class
III Directors shall expire at the annual meetings of shareholders held in 2003,
2004, and 2005 respectively, and at each third annual meeting of shareholders
thereafter.


INFORMATION ABOUT THE OFFICERS OF THE FUND
<TABLE>

<CAPTION>
-------------------------------------------------------------------------------------
                             Position and Length of
Name, Age, and Address (1)        Time Served            Principal Occupation(s)(2)
--------------------------      ---------------        ---------------------------
-------------------------------------------------------------------------------------
<S>                          <C>                     <C>
Claudia A. Brandon (45)      Secretary since 2002    Vice President-Mutual Fund
                                                     Board Relations of
                                                     NB Management since 2000; Vice
                                                     President of Neuberger Berman
                                                     since 2002 and employee since
                                                     1999; Vice President of NB
                                                     Management from 1986 to 1999;
                                                     Secretary of five other
                                                     registered investment
                                                     companies for which NB
                                                     Management acts as investment
                                                     manager and administrator.
-------------------------------------------------------------------------------------
Robert Conti (46)          Vice President since 2002 Vice President of Neuberger
                                                     Berman since 1999; Senior Vice
                                                     President of NB Management
                                                     since 2000; Controller of NB
                                                     Management until 1996;
                                                     Treasurer of NB Management
                                                     from 1996 until 1999; Vice
                                                     President of five other
                                                     registered investment
                                                     companies for which NB
                                                     Management acts as investment
                                                     manager and administrator
                                                     since 2000.
-------------------------------------------------------------------------------------


                                       28
<PAGE>

-------------------------------------------------------------------------------------
                             Position and Length of
Name, Age, and Address (1)        Time Served          Principal Occupation(s)(2)
--------------------------      ---------------        ---------------------------
-------------------------------------------------------------------------------------
Stacy Cooper-Shugrue (39)     Assistant Secretary    Vice President-Mutual Fund
                                  since 2002         Board Relations of NB
                                                     Management since 2002;
                                                     Employee of Neuberger
                                                     Berman since 1999;
                                                     Assistant Vice President of
                                                     NB Management from 1993 to
                                                     1999; Assistant Secretary
                                                     of five other registered
                                                     investment companies for
                                                     which NB Management acts as
                                                     investment manager and
                                                     administrator.
-------------------------------------------------------------------------------------
Brian J. Gaffney (48)      Vice President since 2002 Managing Director of Neuberger
                                                     Berman since 1999; Senior Vice
                                                     President of NB Management
                                                     since 2000; Vice President of
                                                     NB Management from 1997 until
                                                     1999; Vice President of five
                                                     other registered investment
                                                     companies for which NB
                                                     Management acts as investment
                                                     manager and administrator
                                                     since 2000.
-------------------------------------------------------------------------------------
Sheila R. James (37)          Assistant Secretary    Employee of Neuberger Berman
                                  since 2002         since 1999; Employee of NB
                                                     Management from 1991 to
                                                     1999; Assistant Secretary
                                                     of five other registered
                                                     investment companies for
                                                     which NB Management acts as
                                                     investment manager and
                                                     administrator since 2002.
-------------------------------------------------------------------------------------
John McGovern (32)            Assistant Treasurer    Employee of NB Management
                                  since 2002         since 1993; Assistant
                                                     Treasurer of five other
                                                     registered investment
                                                     companies for which NB
                                                     Management acts as
                                                     investment manager and
                                                     administrator since 2002.
-------------------------------------------------------------------------------------
Barbara Muinos (43)         Treasurer and Principal  Vice President of Neuberger
                           Financial and Accounting  Berman since 1999; Assistant
                              Officer since 2002     Vice President of NB
                                                     Management from 1993 to 1999;
                                                     Treasurer and Principal
                                                     Financial and Accounting
                                                     Officer of five other
                                                     registered investment
                                                     companies for which NB
                                                     Management acts as investment
                                                     manager and administrator;
                                                     Assistant Treasurer from 1996
                                                     to 2002 of two other mutual
                                                     funds for which NB Management
                                                     acts as investment manager and
                                                     administrator.
-------------------------------------------------------------------------------------
Frederic B. Soule (56)     Vice President since 2002 Vice President of Neuberger
                                                     Berman since 1999; Vice
                                                     President of NB Management
                                                     from 1995 until 1999; Vice
                                                     President of five other
                                                     registered investment
                                                     companies for which NB
                                                     Management acts as investment
                                                     manager and administrator
                                                     since 2000.
-------------------------------------------------------------------------------------
Trani Wyman (32)              Assistant Treasurer    Employee of NB Management
                                  since 2002         since 1991.  Assistant
                                                     Treasurer of five other
                                                     registered investment
                                                     companies for which NB
                                                     Management acts as
                                                     investment manager and
                                                     administrator since 2002.
-------------------------------------------------------------------------------------

</TABLE>


                                       29
<PAGE>

--------------------

(1) The business address of each listed person is 605 Third Avenue, New York,
New York 10158.


(2) Except as otherwise indicated, each individual has held the positions shown
for at least the last five years.

COMMITTEES

The Board has established several standing committees to oversee particular
aspects of the Fund's management. The standing committees of the Board are
described below.

AUDIT COMMITTEE. The Audit Committee's purposes are (a) to oversee generally the
Fund's accounting and financial reporting policies and practices, its internal
controls and, as appropriate, the internal controls of certain service
providers; (b) to oversee generally the quality and objectivity of the Fund's
financial statements and the independent audit thereof; and (c) to act as a
liaison between the Fund's independent auditors and the full Board. The Audit
Committee is composed entirely of Independent Fund Directors; its members are
John Cannon, Walter G. Ehlers, Cornelius T. Ryan (Chairman), and Peter P. Trapp.

CODE OF ETHICS COMMITTEE.  The Code of Ethics Committee oversees the
administration of the Fund's Code of Ethics, which restricts the personal
securities transactions of employees, officers, and Directors.  Its members
are John Cannon, Faith Colish, Robert A. Kavesh (Chairman), and Edward I.
O'Brien. All members except for Mr. O'Brien are Independent Fund Directors.


CONTRACT REVIEW COMMITTEE.  The Contract Review Committee is responsible for
review and oversight of the Fund's principal contractual arrangements.  Its
members are Faith Colish (Chairwoman), Barry Hirsch, Howard A. Mileaf,
William E. Rulon and Tom D. Seip.  All members except for Mr. Seip are
Independent Fund Directors.

EXECUTIVE COMMITTEE. The Executive Committee has all the powers of the Directors
when the Directors are not in session. Its members are John Cannon, Faith
Colish, John P. Rosenthal, William E. Rulon, Cornelius T. Ryan and Peter E.
Sundman (Chairman). All members except for Mr. Rulon and Mr. Sundman are
Independent Fund Directors.

NOMINATING COMMITTEE.  The Nominating Committee is responsible for nominating
individuals to serve as Directors, including as Independent Fund Directors,
as members of committees, and as officers of the Fund.  Its members are
C. Anne Harvey, Barry Hirsch, Howard A. Mileaf (Chairman), Cornelius T. Ryan
and Tom D. Seip.  All members except for Mr. Seip are Independent Fund
Directors.  The Committee will consider nominees recommended by stockholders;
stockholders may send resumes of recommended persons to the attention of
Claudia Brandon, Secretary, Neuberger Berman Intermediate Municipal Fund
Inc., 605 Third Avenue, 2nd Floor, New York, New York, 10158-0180.




                                       30
<PAGE>

PORTFOLIO TRANSACTIONS COMMITTEE. The Portfolio Transactions Committee from time
to time reviews, among other things, quality of execution of portfolio trades,
actual and potential uses of portfolio brokerage commissions, agency
cross-transactions, information relating to the commissions charged by Neuberger
Berman to the Fund and to its other customers, and information concerning the
prevailing level of commissions charged by other brokers having comparable
execution capability. The Committee is composed entirely of Independent Fund
Directors; its members are Faith Colish, Walter G. Ehlers, C. Anne Harvey,
Candace L. Straight (Chairwoman) and Peter P. Trapp.


PRICING COMMITTEE.  The Pricing Committee oversees the procedures for pricing
the Fund's portfolio securities, and from time to time may be called upon to
establish or ratify the fair value of portfolio securities for which market
prices are not readily available. Its members are Michael M. Kassen,
Robert A. Kavesh, Edward I. O'Brien, John P. Rosenthal (Chairman), Tom D.
Seip and Peter P. Trapp.  All members except for Mr. Kassen, Mr. O'Brien and
Mr. Seip are Independent Fund Directors.

      The Fund's Articles provide that the Fund will indemnify its Directors and
officers against liabilities and expenses to the extent permitted by Maryland
law and the 1940 Act. This means that the Fund will indemnify its officers and
Directors against liabilities and expenses reasonably incurred in connection
with litigation in which they may be involved because of their offices with the
Fund, 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 Fund. 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 Directors based upon a review of
readily available facts, or in a written opinion of independent counsel) that
such officers or Directors have not engaged in willful misfeasance, bad faith,
gross negligence, or reckless disregard of their duties.


      The following table sets forth information concerning the compensation of
the Directors of the Fund. The Fund does not have any retirement plan for its
Directors.

COMPENSATION

      The Directors' compensation and other costs of their joint meetings are
allocated pro rata based on the assets of each investment company in the
Neuberger Berman Fund Complex. It is estimated that the Directors will receive
the amounts set forth in the following table from the Fund for the fiscal year
ending October 31, 2002. For the calendar year ended December 31, 2001, the
Directors received the compensation set forth in the following table for serving
as Trustees of other investment companies in the "Fund Complex." Each officer
and Director who is a Director, officer, partner or employee of NB Management,
Neuberger Berman or any entity controlling, controlled by or under common
control with NB Management or Neuberger Berman serves without any compensation
from the Fund.




                                       31
<PAGE>


TABLE OF COMPENSATION

                                                   Total Compensation from 3
                                                     Registered Investment
                                  Estimated       Companies in the Neuberger
                                  Aggregate       Berman Fund Complex Paid to
Name and Position With the       Compensation    Directors for Calendar Year
Fund                            From the Fund*          Ended 12/31/01
-----                           --------------          --------------

Independent Fund Directors

John Cannon                           $200                  $70,000
Director

Faith Colish                          $200                  $70,000
Director

Walter G. Ehlers                      $200                  $70,000
Director

C. Anne Harvey                        $200                  $62,500
Director

Barry Hirsch                          $200                  $70,000
Director

Robert A. Kavesh                      $200                  $70,000
Director

Howard A. Mileaf                      $200                  $70,000
Director

John P. Rosenthal                     $200                  $70,000
Director

Cornelius T. Ryan                     $200                  $70,000
Director

Candace L. Straight                   $200                  $62,500
Director

Peter P. Trapp                        $200                  $62,500
Director

Directors who are "Interested Persons"

Michael M. Kassen                     $0                      $0
Director

Edward I. O'Brien                     $200                  $70,000
Director

Tom Decker Seip                       $200                  $70,200
Director

William E. Rulon                      $200                  $70,000
Director


                                       32
<PAGE>

                                                   Total Compensation from 3
                                                     Registered Investment
                                  Estimated       Companies in the Neuberger
                                  Aggregate       Berman Fund Complex Paid to
Name and Position With the       Compensation    Directors for Calendar Year
Fund                            From the Fund*          Ended 12/31/01
-----                           --------------          --------------

Peter E. Sundman                      $0                      $0
Director


      *Since the Fund has not completed its first fiscal year, compensation is
estimated based upon payments to be made by the Fund during the current fiscal
year and upon relative net assets of the NB Management Fund Complex. The
estimate is for the fiscal year ending October 31, 2002.

OWNERSHIP OF SECURITIES


      At September 23, 2002, the Directors and officers of the Fund, as a group,
owned beneficially or of record less than 1% of the outstanding shares of the
Fund.


      Set forth below is the dollar range of equity securities owned by each
Director as of 12/31/01.

      Since the Fund has not yet commenced operations, none of the Directors own
Fund shares as of the date of this SAI.


----------------------------------------------------------
                        Aggregate Dollar Range of Equity
                          Securities in all Registered
Name of Director        Investment Companies Overseen by
                        Director in Family of Investment
                                   Companies*
----------------------------------------------------------
Independent Fund Directors
----------------------------------------------------------
John Cannon             $50,001 - $100,000
----------------------------------------------------------
Faith Colish            Over $100,000
----------------------------------------------------------
Walter G. Ehlers        Over $100,000
----------------------------------------------------------
C. Anne Harvey          None
----------------------------------------------------------
Barry Hirsch            Over $100,000
----------------------------------------------------------
Robert A. Kavesh        $10,001 - $50,000
----------------------------------------------------------
Howard A. Mileaf        Over $100,000
----------------------------------------------------------
John P. Rosenthal       Over $100,000
----------------------------------------------------------
Cornelius T. Ryan       Over $100,000
----------------------------------------------------------
Candace L. Straight     Over $100,000
----------------------------------------------------------
Peter P. Trapp          $10,001 - $50,000
----------------------------------------------------------
Directors who are "Interested Persons"
----------------------------------------------------------
Michael M. Kassen       Over $100,000
----------------------------------------------------------
Edward I. O'Brien       Over $100,000
----------------------------------------------------------
William E. Rulon        Over $100,000
----------------------------------------------------------
Tom Decker Seip         None
----------------------------------------------------------
Peter E. Sundman        Over $100,000
----------------------------------------------------------

*As of December 31, 2001


                                       33
<PAGE>

INDEPENDENT FUND DIRECTORS OWNERSHIP OF SECURITIES

      Set forth in the table below is information regarding each Independent
Fund Director's (and his/her immediate family members) share ownership in
securities of Neuberger Berman and the ownership of securities in an entity
controlling, controlled by or under common control with Neuberger Berman (not
including registered investment companies) as of 12/31/01.


--------------------------------------------------------------------------------
                      NAME OF
                    OWNERS AND
                   RELATIONSHIP   COMPANY     TITLE OF     VALUE OF   PERCENTAGE
 NAME OF DIRECTOR  TO DIRECTOR                  CLASS     SECURITIES*  OF CLASS
--------------------------------------------------------------------------------
John Cannon            N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Faith Colish           N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Walter G. Ehlers       N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
C. Anne Harvey         N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Barry Hirsch           N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Robert A. Kavesh       N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Howard A. Mileaf       N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
John P. Rosenthal      N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Cornelius T. Ryan      N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Candace L. Straight    N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
Peter P. Trapp         N/A          N/A          N/A          $0         N/A
--------------------------------------------------------------------------------
*As of December 31, 2001



CODES OF ETHICS


      The Fund, NB Management and Neuberger Berman have personal securities
trading policies that restrict the personal securities transactions of
employees, officers, and Directors. Their primary purpose is to ensure that
personal trading by these individuals does not disadvantage any fund managed by
NB Management. The Fund 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 Fund. 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. You may also review and copy those documents by visiting the SEC's
Public Reference Room in Washington, DC. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at 202-942-8090. In
addition, copies of the codes of ethics may be obtained, after mailing the
appropriate duplicating fee, by writing to the SEC's Public Reference Section,
450 5th Street, N.W., Washington, DC 20549-0102 or by e-mail request at
publicinfo@sec.gov.




                                       34
<PAGE>

              INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES

INVESTMENT MANAGER AND ADMINISTRATOR


      NB Management serves as the investment manager to the Fund pursuant to a
management agreement with the Fund, dated September 24, 2002 ("Management
Agreement"). NB Management provides investment management and advisory services
to private accounts of institutional and individual clients and to mutual funds.
As of June 30, 2002, NB Management and its affiliates had approximately $58.7
billion in assets under management. NB Management is located at 605 Third
Avenue, New York, New York 10158-0180.


      The Management Agreement provides, in substance, that NB Management will
make and implement investment decisions for the Fund in its discretion and will
continuously develop an investment program for the Fund's assets. The Management
Agreement permits NB Management to effect securities transactions on behalf of
the Fund through associated persons of NB Management. The Management Agreement
also specifically permits NB Management to compensate, through higher
commissions, brokers and dealers who provide investment research and analysis to
the Fund, although NB Management has no current plans to pay a material amount
of such compensation.

Under the Management Agreement,  NB Management is not liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with any matter to which the Agreement  relates;  provided,  that nothing in the
Agreement shall be construed (i) to protect NB Management  against any liability
to the Fund or its  Stockholders  to  which NB  Management  would  otherwise  be
subject by reason of NB Management's misfeasance, bad faith, or gross negligence
in the performance of its duties, or by reason of its reckless  disregard of its
obligations and duties under the Agreement ("disabling conduct").  The Fund will
indemnify NB Management against, and hold it harmless from, any and all expenses
(including  reasonable  counsel fees and  expenses)  incurred  investigating  or
defending against claims for losses or liabilities described above not resulting
from NB Management's  negligence,  disregard of its obligations and duties under
the Agreement or disabling conduct.

      NB Management provides to the Fund, without separate cost, office space,
equipment, and facilities and the personnel necessary to perform executive,
administrative, and clerical functions. NB Management pays all salaries,
expenses, and fees of the officers, Directors, and employees of the Fund who are
officers, Directors, or employees of NB Management. Two Directors of NB
Management (who are also officers of Neuberger Berman), who also serve as
officers of NB Management, currently serve as Directors and/or officers of the
Fund. See "Directors and Officers." The Fund pays NB Management a management fee
as described below.

      NB Management provides facilities, services, and personnel to the Fund
pursuant to an administration agreement with the Fund, dated September 24, 2002
("Administration Agreement"). For such administrative services, the Fund pays NB
Management a fee based on the Fund's average daily total assets minus
liabilities other than the aggregate indebtedness entered into for purposes of
leverage ("Managed Assets").

      Under the Administration Agreement, NB Management also provides certain
stockholder, stockholder-related, and other services that are not furnished by
the Fund's stockholder servicing agent. NB Management provides the direct
stockholder services specified in the Administration Agreement and assists the
stockholder servicing agent in the development and implementation of specified


                                       35
<PAGE>

programs and systems to enhance overall stockholder servicing capabilities. NB
Management solicits and gathers stockholder proxies, performs services connected
with the qualification of the 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 Agreement. The Administration Agreement contains
provisions on liability and indemnification substantially identical to those in
the Management Agreement, described above.

      For administrative services, the Fund pays NB Management at the annual
rate of .30% of average daily Managed Assets. With the Fund's consent, NB
Management may subcontract to third parties some of its responsibilities to the
Fund under the administration agreement. In addition, the Fund may compensate
such third parties for accounting and other services.

      Pursuant to the Management Agreement, the Fund has agreed to pay NB
Management an annual management fee, payable on a monthly basis, at the annual
rate of .25% of the Fund's average daily Managed Assets. The liquidation
preference of the Preferred Shares is not a liability. All fees and expenses are
accrued daily and deducted before payment of dividends to investors.

      From the commencement of the Fund's operations through October 31, 2011,
NB Management has contractually agreed to waive a portion of the management fees
it is entitled to receive from the Fund in the amounts, and for the time
periods, set forth below:


--------------------------------------------------------------------------------
                     Percentage Waived (annual rate Percentage Waived (annual as
                     a percentage of net assets rate as a percentage of
                     attributable to Common Shares net assets attributable to
Fiscal Period        - assuming no Preferred Shares  Common Shares - assuming
Ending October 31,   are issued or outstanding)      the issuance Preferred
                                                     Shares (2))
--------------------------------------------------------------------------------
2002 (1)              .25%                            .40%
--------------------------------------------------------------------------------
2003                  .25%                            .40%
--------------------------------------------------------------------------------
2004                  .25%                            .40%
--------------------------------------------------------------------------------
2005                  .25%                            .40%
--------------------------------------------------------------------------------
2006                  .25%                            .40%
--------------------------------------------------------------------------------
2007                  .25%                            .40%
--------------------------------------------------------------------------------
2008                  .20%                            .32%
--------------------------------------------------------------------------------
2009                  .15%                            .24%
--------------------------------------------------------------------------------
2010                  .10%                            .16%
--------------------------------------------------------------------------------
2011                  .05%                            .08%
--------------------------------------------------------------------------------


(1)   From the commencement of the Fund's operations.

(2)   Assumes the issuance of Preferred Shares in an amount equal to 38% of
      the Fund's net assets (after issuance).

NB Management has not agreed to waive any portion of its fees beyond October 31,
2011.

      The Management Agreement continues until June 30, 2004. The Management
Agreement is renewable thereafter from year to year with respect to the Fund, so
long as its continuance is approved at least annually (1) by the vote of a


                                       36
<PAGE>

majority of the Fund Directors who are not "interested persons" of NB Management
or the Fund ("Independent Fund Directors"), cast in person at a meeting called
for the purpose of voting on such approval, and (2) by the vote of a majority of
the Fund Directors or by a 1940 Act majority vote of the outstanding stock in
the Fund. The Administration Agreement continues for a period of two years after
the date the Fund became subject thereto. The Administration Agreement is
renewable from year to year, so long as its continuance is approved at least
annually (1) by the vote of a majority of the Independent Fund Directors, cast
in person at a meeting called for the purpose of voting on such approval and (2)
by the vote of a majority of the Fund Directors or by a 1940 Act majority vote
of the outstanding stock in the Fund.

      The Management Agreement is terminable, without penalty, on 60 days'
written notice either by the Fund or by NB Management. The Administration
Agreement is terminable, without penalty, on 60 days' written notice either by
NB Management or by the Fund. Each Agreement terminates automatically if it is
assigned.

      Except as otherwise described in the prospectus, the Fund pays, in
addition to the investment management fee described above, all expenses not
assumed by NB Management, including, without limitation, fees and expenses of
Directors who are not "interested persons" of NB Management or the Fund,
interest charges, taxes, brokerage commissions, expenses of issue of shares,
fees and expenses of registering and qualifying the Fund and its classes of
shares for distribution under federal and state laws and regulations, charges of
custodians, auditing and legal expenses, expenses of determining net asset value
of the Fund, reports to stockholders, expenses of meetings of stockholders,
expenses of printing and mailing prospectuses, proxy statements and proxies to
existing stockholders, and its proportionate share of insurance premiums and
professional association dues or assessments. The Fund is also responsible for
such nonrecurring expenses as may arise, including litigation in which the Fund
may be a party, and other expenses as determined by the Board. The Fund may have
an obligation to indemnify its officers and Directors with respect to such
litigation.

SUB-ADVISER


      NB Management retains Neuberger Berman, 605 Third Avenue, New York, New
York 10158-3698, as sub-adviser with respect to the Fund pursuant to a
sub-advisory agreement dated September 24, 2002 ("Sub-Advisory Agreement").


      The Sub-Advisory Agreement provides in substance that Neuberger Berman
will furnish to NB Management, upon reasonable request, the same type of
investment recommendations and research that Neuberger Berman, from time to
time, provides to its officers and employees for use in managing client
accounts. In this manner, NB Management expects to have available to it, in
addition to research from other professional sources, the capability of the
research staff of Neuberger Berman. This staff consists of numerous investment
analysts, each of whom specializes in studying one or more industries, under the
supervision of the Director of Research, who is also available for consultation
with NB Management. The Sub-Advisory Agreement provides that NB Management will
pay for the services rendered by Neuberger Berman based on the direct and
indirect costs to Neuberger Berman in connection with those services. Neuberger


                                       37
<PAGE>

Berman also serves as sub-adviser for all of the other investment companies
managed by NB Management.

      The Sub-Advisory Agreement continues until June 30, 2004 and is renewable
from year to year, subject to approval of its continuance in the same manner as
the Management Agreement. The Sub-Advisory Agreement is subject to termination,
without penalty, with respect to the Fund by the Directors or a 1940 Act
majority vote of the outstanding stock in the Fund, by NB Management, or by
Neuberger Berman on not less than 30 nor more than 60 days' prior written
notice. 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. Neuberger Berman and NB Management employ experienced
professionals that work in a competitive environment.

     The Management Agreement and the Sub-Advisory Agreement each provide that
NB Management or Neuberger Berman, as applicable, shall not be subject to any
liability in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.

BOARD CONSIDERATION OF THE MANAGEMENT AND SUB-ADVISORY AGREEMENTS

      In approving the Management and Sub-Advisory Agreements for the Fund, the
Board primarily considered the nature and quality of the services to be provided
under the Agreements and the overall fairness of the Agreements to the Fund.


      With respect to the nature and quality of the services provided, the Board
considered, among other things, the resources that NB Management plans to devote
to managing the Fund and the firm's fixed-income research and trading
capabilities. They discussed the recent and long-term performance of the other
fixed-income funds managed by NB Management and Neuberger Berman. They also
considered NB Management's and Neuberger Berman's positive compliance history,
as the firms have been free of significant compliance problems.
With respect to the overall fairness of the Management and Sub-Advisory
Agreements, the Board primarily considered the fee structure of the Agreements
and the proposed indemnity provision in the Management Agreement. The Board
reviewed information from an independent data service about the rates of
compensation paid to investment advisers, and the overall expense ratios, for
funds pursuing a comparable investment strategy to the Fund. The Board also
considered the contractual limits on the Fund's expenses undertaken by NB
Management.

      The Board concluded that the fees and other benefits likely to accrue to
NB Management and its affiliates by virtue of their relationship to the Fund are
reasonable in comparison with the benefits likely to accrue to the Fund. In
considering the fees, the Board took note of the likelihood that the Fund would
issue preferred stock and considered the effect of such issuance on the Fund's
net assets and, therefore, the fees. The Board also took note of the Additional
Compensation Agreement between NB Management and Merrill Lynch concerning the
aftermarket for Fund shares and whether there are steps the Fund should consider
taking to alleviate any discount. The Board also concluded that approval of the
Management and Sub-Advisory Agreements was in the best interests of the Fund's
stockholders. These matters were considered by the Independent Fund Directors


                                       38
<PAGE>

working with experienced 1940 Act counsel that is independent of Neuberger
Berman and NB Management.


MANAGEMENT AND CONTROL OF NB MANAGEMENT AND NEUBERGER BERMAN


      The Directors and officers of NB Management who are deemed "control
persons," all of whom have offices at the same address as NB Management, are:
Jeffrey B. Lane, Director; Robert Matza, Director; Michael M. Kassen,
Director and Chairman; Barbara R. Katersky, Senior Vice President; Robert
Conti, Senior Vice President; Brian Gaffney, Treasurer; Thomas J. Gengler,
Jr., Senior Vice President; Joseph K. Herlihy, Senior Vice President and
Treasurer; Matthew S. Stadler, Senior Vice President and Chief Financial
Officer; Peter E. Sundman, Director and President; and Heidi S. Steiger,
Director.

      The officers and employees of Neuberger Berman, who are deemed "control
persons," all of whom have offices at the same address as Neuberger Berman,
are: Jeffrey B. Lane, President and Chief Executive Officer; Robert Matza,
Executive Vice President and Chief Operating Officer; Michael M. Kassen,
Executive Vice President and Chief Investment Officer; Heidi S. Steiger,
Executive Vice President; Peter E. Sundman, Executive Vice President;
Matthew S. Stadler, Senior Vice President and Chief Financial Officer; Kevin
Handwerker, Senior Vice President, General Counsel and Secretary; Jack L.
Rivkin, Executive Vice President; Joseph K. Herlihy, Senior Vice President
and Treasurer; Robert Akeson, Senior Vice President; Steven April, Senior
Vice President; Irene Ashkenazy, Senior Vice President; Philip Callahan,
Senior Vice President; Lawrence J. Cohn, Senior Vice President; Joseph F.
Collins III, Senior Vice President; Thomas E. Gengler Jr., Senior Vice
President; Amy Gilfenbaum, Senior Vice President; Brian E. Hahn, Senior Vice
President; Barbara R. Katersky, Senior Vice President; Judith Ann Kenney,
Senior Vice President; Diane E. Lederman, Senior Vice President; Domenick
Migliorato, Senior Vice President; Jane Ringel, Senior Vice President; David
Root, Senior Vice President; Mark Shone, Senior Vice President; Robert H.
Splan, Senior Vice President; Thomas Tapen, Senior Vice President; Andrea
Trachtenberg, Senior Vice President; Robert Traversa, Senior Vice President;
Frank J. Tripodi, Senior Vice President; and Marvin C. Schwartz, Managing
Director.

      Mr. Sundman and Mr. Kassen are Directors and officers of the Fund.  Mr.
Gaffney and Mr. Conti are officers of the Fund.


      Neuberger Berman and NB Management are wholly owned subsidiaries of
Neuberger Berman Inc., a publicly owned holding company owned primarily by
the employees of Neuberger Berman.  The inside Directors and officers of
Neuberger Berman Inc. are:  Jeffrey B. Lane, Director, Chief Executive
Officer and President; Peter E. Sundman, Director and Executive Vice
President; Heidi S. Steiger, Director and Executive Vice President;
Michael M. Kassen, Director, Chief Investment Officer and Executive Vice
President; Robert Matza, Director, Chief Operating Officer and Executive Vice
President; Marvin C. Schwartz, Director and Vice Chairman; Kevin Handwerker,
Senior Vice President, General Counsel and Secretary; Jack L. Rivkin,
Executive Vice President; Matthew S. Stadler, Senior Vice President and Chief
Financial Officer; Richard Cantor, Vice Chairman and Director; Lawrence


                                       39
<PAGE>

Zicklin, Vice Chairman and Director; Joseph K. Herlihy, Treasurer; Maxine L.
Gerson, Assistant Secretary; and Ellen Metzger, Assistant Secretary.

                             PORTFOLIO TRANSACTIONS

INVESTMENT DECISIONS AND PORTFOLIO TRANSACTIONS

      Investment decisions for the Fund and for the other investment advisory
clients of NB Management are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved (including the
Fund). Some securities considered for investments by the Fund may also be
appropriate for other clients served by NB Management. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. If a purchase or sale of
securities consistent with the investment policies of the Fund and one or more
of these clients served by NB Management is considered at or about the same
time, transactions in such securities will be allocated among the Fund and
clients in a manner deemed fair and reasonable by NB Management. NB Management
may aggregate orders for the Fund with simultaneous transactions entered into on
behalf of its other clients so long as price and transaction expenses are
averaged either for that transaction or for the day. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged as to price and
allocated between such clients in a manner which NB Management believes is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients.


      The Fund has applied with the Securities and Exchange Commission for an
order to permit the Fund to pay Neuberger Berman, and Neuberger Berman to
receive, compensation for services as a securities lending intermediary, subject
to certain conditions. These services would be provided by a separate operating
unit of Neuberger Berman under the supervision of NB Management who are not
involved in the securities lending intermediary's lending agency operations.
Neuberger Berman would receive as compensation a reasonable fee based on
revenues earned by the Fund through the securities lending program. The order
requested by the Fund would also permit Neuberger Berman and other affiliated
broker-dealers of the Fund to borrow portfolio securities from the Fund, subject
to certain conditions. There is no guarantee that the Fund will receive the
requested order.


BROKERAGE AND RESEARCH SERVICES

      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 Fund typically does not pay
brokerage commissions for such purchases and sales. Instead, the price paid for
newly issued securities usually includes a concession or discount paid by the


                                       40
<PAGE>

issuer to the underwriter, and the prices quoted by market-makers reflect a
spread between the bid and the asked prices from which the dealer derives a
profit.

      In purchasing and selling portfolio securities other than as described
above (for example, in the secondary market), the 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, NB Management considers such
factors as the price of the security, the rate of commission, the size and
difficulty of the order, and the reliability, integrity, financial condition,
and general execution and operational capabilities of competing broker-dealers.
NB Management also may consider the brokerage and research services that
broker-dealers provide to the Fund or NB Management. Under certain conditions,
the Fund may pay higher brokerage commissions in return for brokerage and
research services. In any case, the Fund may effect principal transactions with
a dealer who furnishes research services, may designate any dealer to receive
selling concessions, discounts, or other allowances, or otherwise may deal with
any dealer in connection with the acquisition of securities in underwritings.

      In certain instances NB Management specifically allocates brokerage for
research services (including research reports on issuers and industries as well
as economic and financial data). Such research may sometimes be available for
cash purchase. While the receipt of such services has not reduced NB
Management's normal internal research activities, NB Management'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, NB
Management is relieved of expenses it may otherwise incur. In some cases
research services are generated by third parties but provided to NB Management
by or through broker dealers. Research obtained in return for brokerage may be
used in servicing any or all clients of NB Management and may be used in
connection with clients other than those client's whose brokerage commissions
are used to acquire the research services described herein. With regard to
allocation of brokerage to acquire research services, NB Management always
considers its best execution obligation.

      The commissions paid to a broker other than Neuberger Berman may be higher
than the amount another firm might charge if NB Management 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. NB
Management believes that those research services benefit the Fund by
supplementing the information otherwise available to NB Management. That
research may be used by NB Management in servicing other funds managed by it
and, in some cases, by Neuberger Berman in servicing managed accounts. On the
other hand, research received by NB Management from brokers effecting portfolio
transactions on behalf of the other funds it manages and by Neuberger Berman
from brokers effecting portfolio transactions on behalf of managed accounts may
be used for the Fund's benefit.

      No affiliate of the Fund receives give-ups or reciprocal business in
connection with its portfolio transactions. The Fund does not effect
transactions with or through broker-dealers in accordance with any formula or
for selling shares of the Fund. However, broker-dealers who execute portfolio
transactions may from time to time effect purchases of Fund shares for their
customers. The 1940 Act generally prohibits NB Management and Neuberger Berman
from acting as principal in the purchase of portfolio securities from, or the


                                       41
<PAGE>

sale of portfolio securities to, the Fund unless an appropriate exemption is
available.

                                  DISTRIBUTIONS

      As described in the prospectus, initial dividends to Common Stockholders
are expected to be declared approximately 45 days, and paid approximately 60 to
90 days, from the completion of the offering of the Common Shares, depending on
market conditions. To permit the Fund to maintain more stable monthly dividends,
it will initially (prior to its first dividend), and may from time to time
thereafter, distribute less than the entire amount of net investment income it
earns in a particular period. Such undistributed net investment income would be
available to supplement future dividends, including dividends that might
otherwise have been reduced by a decrease in the Fund's monthly net income due
to fluctuations in investment income or expenses or due to an increase in the
dividend rate on the Fund's outstanding Preferred Shares. As a result, the
dividends the Fund pays for any particular period may be more or less than the
amount of net investment income it actually earns during such period.
Undistributed net investment income will be added to the Fund's net asset value
and, correspondingly, dividends from undistributed net investment income will be
deducted from that net asset value.

      For information relating to the impact of the issuance of Preferred Shares
on the distributions made by the Fund to Common Stockholders, see the prospectus
under "Preferred Shares and Related Leverage."

      While any Preferred Shares are outstanding, the Fund may not declare any
cash dividend or other distribution on its Common Shares unless at the time of
such declaration (1) all accumulated dividends on the Preferred Shares have been
paid and (2) the net asset value of the Fund's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of
the liquidation value of any outstanding Preferred Shares. This latter
limitation on the Fund's ability to make distributions on its Common Shares
could cause it to incur federal income and/or excise tax and, under certain
circumstances, impair its ability to maintain its qualification for taxation as
a regulated investment company.
See "Tax Matters."

                              DESCRIPTION OF SHARES

COMMON SHARES


      The Fund's Articles authorize the issuance of one billion (1,000,000,000)
shares. The Common Shares will be issued with a par value of $.0001 per share.
All Common Shares have equal rights as to the payment of dividends and the
distribution of assets upon liquidation. Common Shares will, when issued, be
fully paid and non-assessable, and will have no pre-emptive or conversion
rights or rights to cumulative voting. Whenever Preferred Shares are
outstanding, Common Stockholders will not be entitled to receive any
distributions from the Fund unless all accrued dividends on Preferred Shares
have been paid, and unless asset coverage (as defined in the 1940 Act) with
respect to Preferred Shares would be at least 200% after giving effect to such
distributions. See "Preferred Shares" below.




                                       42
<PAGE>


      The Common Shares have been authorized for listing on the American Stock
Exchange, subject to notice of issuance. The Fund intends to hold annual
meetings of stockholders so long as the Common Shares are listed on a national
securities exchange and such meetings are required as a condition to such
listing.


      Shares of closed-end investment companies may frequently trade at prices
lower than net asset value. Shares of closed-end investment companies like the
Fund that invest predominantly in investment grade municipal bonds have during
some periods traded at prices higher than net asset value and during other
periods traded at prices lower than net asset value. There can be no assurance
that Common Shares or shares of other municipal funds will trade at a price
higher than net asset value in the future. Net asset value will be reduced
immediately following the offering of Common Shares as a result of payment of
the sales load and organization and offering expenses. Net asset value generally
increases when interest rates decline, and decreases when interest rates rise,
and these changes are likely to be greater in the case of a fund, such as the
Fund, having a leveraged capital structure. Whether investors will realize gains
or losses upon the sale of Common Shares will not depend upon the Fund's net
asset value but will depend entirely upon whether the market price of the Common
Shares at the time of sale is above or below the original purchase price for the
shares. Since the market price of the Fund's Common Shares will be determined by
factors beyond the control of the Fund, the Fund cannot predict whether the
Common Shares will trade at, below, or above net asset value or at, below or
above the initial public offering price. Accordingly, the Common Shares are
designed primarily for long-term investors, and investors in the Common Shares
should not view the Fund as a vehicle for trading purposes. See "Repurchase of
Common Shares; Conversion to Open-End Fund" and the Fund's prospectus under
"Preferred Shares and Related Leverage" and "Municipal Bonds."

PREFERRED SHARES

      The Articles authorize the Board to create additional classes of stock,
and it is currently contemplated that the Fund will issue one or more classes of
preferred stock ("Preferred Shares"). The Preferred Shares may be issued in one
or more classes or series, with such rights as determined by action of the Board
without the approval of the Common Stockholders.

      The Board has indicated its intention to authorize an offering of
Preferred Shares (representing approximately 38% of the Fund's capital
immediately after the time the Preferred Shares are issued) within approximately
one to three months after completion of the offering of Common Shares, subject
to market conditions and to the Board's continuing belief that leveraging the
Fund's capital structure through the issuance of Preferred Shares is likely to
achieve the benefits to the Common Stockholders described in the prospectus and
this Statement of Additional Information. Although the terms of the Preferred
Shares, including their dividend rate, voting rights, liquidation preference and
redemption provisions, will be determined by the Board (subject to applicable
law and the Articles) if and when it authorizes a Preferred Shares offering, the
Board has indicated that the initial series of Preferred Shares would likely pay
cumulative dividends at relatively short-term periods (such as 7 days); by
providing for the periodic redetermination of the dividend rate through an
auction process or remarketing procedure. The liquidation preference, preference


                                       43
<PAGE>

on distribution, voting rights and redemption provisions of the Preferred Shares
are expected to be as stated below.

      As used in this Statement of Additional Information, unless otherwise
noted, the Fund's "net assets" include assets of the Fund attributable to any
outstanding Preferred Shares, with no deduction for the liquidation preference
of the Preferred Shares. Solely for financial reporting purposes, however, the
Fund is required to exclude the liquidation preference of Preferred Shares from
"net assets," so long as the Preferred Shares have redemption features that are
not solely within the control of the Fund. For all regulatory and tax purposes,
the Fund's Preferred Shares will be treated as stock (rather than indebtedness).

      LIMITED ISSUANCE OF PREFERRED SHARES. Under the 1940 Act, the Fund could
issue Preferred Shares with an aggregate liquidation value of up to one-half of
the value of the Fund's net assets, measured immediately after issuance of the
Preferred Shares. "Liquidation value" means the original purchase price of the
shares being liquidated plus any accrued and unpaid dividends. In addition, the
Fund is not permitted to declare any cash dividend or other distribution on its
Common Shares unless the liquidation value of the Preferred Shares is less than
one-half of the value of the Fund's net assets (determined after deducting the
amount of such dividend or distribution) immediately after the distribution. To
the extent that the Fund has outstanding any senior securities representing
indebtedness (such as through the use of derivative instruments that constitute
senior securities), the aggregate amount of such senior securities will be added
to the total liquidation value of any outstanding Preferred Shares for purposes
of these asset coverage requirements. The liquidation value of the Preferred
Shares is expected to be approximately 38% of the value of the Fund's net
assets. The Fund intends to purchase or redeem Preferred Shares, if necessary,
to keep the liquidation value of the Preferred Shares plus the aggregate amount
of other senior securities representing indebtedness at or below one-half of the
value of the Fund's net assets.

      DISTRIBUTION PREFERENCE. The Preferred Shares will have complete priority
over the Common Shares as to distribution of assets.

      LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, holders of
Preferred Shares ("Preferred Stockholders") will be entitled to receive a
preferential liquidating distribution (expected to equal the original purchase
price per share plus accumulated and unpaid dividends thereon, whether or not
earned or declared) before any distribution of assets is made to holders of
Common Shares. After payment of the full amount of the liquidating distribution
to which they are entitled, Preferred Stockholders will not be entitled to any
further participation in any distribution of assets by the Fund. A consolidation
or merger of the Fund with or into any business trust or corporation or a sale
of all or substantially all of the assets of the Fund shall not be deemed to be
a liquidation, dissolution or winding up of the Fund.

      VOTING RIGHTS. In connection with any issuance of Preferred Shares, the
Fund must comply with Section 18(i) of the 1940 Act, which requires, among other
things, that Preferred Shares be voting shares. Except as otherwise provided in
the Articles or the Fund's Bylaws or otherwise required by applicable law,


                                       44
<PAGE>

Preferred Stockholders will vote together with Common Stockholders as a single
class.

      In connection with the election of the Fund's Directors, Preferred
Stockholders, voting as a separate class, will also be entitled to elect two of
the Fund's Directors, and the remaining Directors shall be elected by Common
Stockholders and Preferred Stockholders, voting together as a single class. In
addition, if at any time dividends on the Fund's outstanding Preferred Shares
shall be unpaid in an amount equal to two full years' dividends thereon, the
holders of all outstanding Preferred Shares, voting as a separate class, will be
entitled to elect a majority of the Fund's Directors until all dividends in
arrears have been paid or declared and set apart for payment.

      The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a separate class, shall be required to approve any
action requiring a vote of security holders under Section 13(a) of the 1940 Act
including, among other things, changes in the Fund's investment objective, the
conversion of the Fund from a closed-end to an open-end company, or changes in
the investment restrictions described as fundamental policies under "Investment
Restrictions." The class or series vote of Preferred Stockholders described
above shall in each case be in addition to any separate vote of the requisite
percentage of Common Shares and Preferred Shares necessary to authorize the
action in question.

      The foregoing voting provisions will not apply with respect to the Fund's
Preferred Shares if, at or prior to the time when a vote is required, such
shares shall have been (1) redeemed or (2) called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.

      REDEMPTION, PURCHASE AND SALE OF PREFERRED SHARES BY THE FUND. The terms
of the Preferred Shares may provide that they are redeemable at certain times,
in whole or in part, at the original purchase price per share plus accumulated
dividends, that the Fund may tender for or purchase Preferred Shares and that
the Fund may subsequently resell any shares so tendered for or purchased. Any
redemption or purchase of Preferred Shares by the Fund will reduce the leverage
applicable to Common Shares, while any resale of shares by the Fund will
increase such leverage.

      The discussion above describes the Board's current intention with respect
to a possible offering of Preferred Shares. If the Board determines to authorize
such an offering, the terms of the Preferred Shares may be the same as, or
different from, the terms described above, subject to applicable law and the
Articles of Incorporation and Bylaws.

             CERTAIN PROVISIONS IN THE ARTICLES OF INCORPORATION


      The Articles include provisions that could limit the ability of other
entities or persons to acquire control of the Fund, to cause it to engage in
certain transactions or to modify its structure.




                                       45
<PAGE>


      The Articles require a vote by holders of at least 75% of the Directors
and 75% of the shares of capital stock of the Fund outstanding and entitled to
vote, except as described below, to authorize (1) the Fund's conversion from a
closed-end to an open-end investment company; (2) any merger or consolidation or
share exchange of the Fund with or into any other company; (3) the dissolution
or liquidation of the Fund; (4) any sale, lease, or exchange of all or
substantially all of the Fund's assets to any Principal Stockholder (as defined
below); (5) a change in the nature of the business of the Fund so that it would
cease to be an investment company registered under the 1940 Act; (6) with
certain exceptions, the issuance of any securities of the Corporation to any
Principal Stockholder for cash; or (7) any transfer by the Fund of any
securities of the Fund to any Principal Stockholder in exchange for cash,
securities or other property having an aggregate fair market value of $1,000,000
or more; provided, with respect to (1) through (5), if such action has been
authorized by the affirmative vote of a majority of the entire Board, including
a majority of the Directors who are not "interested persons," of the Fund, as
defined in the 1940 Act ("Independent Directors"), then the affirmative vote of
the holders of only a majority of the Fund's shares of capital stock outstanding
and entitled to vote at the time is required; and provided, further, with
respect to (6) and (7), if such transaction has been authorized by the
affirmative vote of a majority of the entire Board, including a majority of the
Independent Directors, no stockholder vote is required to authorize such action.
The term "Principal Stockholder" means any person, entity or group that holds,
directly or indirectly, more than 5% of the outstanding shares of the Fund, and
includes any associates or affiliates of such person or entity or of any member
of the group. None of the foregoing provisions may be amended except by the vote
of at least 75% of the outstanding shares of capital stock of the Fund
outstanding and entitled to vote thereon. Certain of the transactions described
above, even if approved by stockholders, may be prohibited by the 1940 Act.


      The percentage votes required under these provisions, which are greater
than the minimum requirements under Maryland law or the 1940 Act, will make more
difficult a change in the Fund's business or management and may have the effect
of depriving Common Stockholders of an opportunity to sell shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. The Board
believes that the provisions of the Articles relating to such higher votes are
in the best interest of the Fund and its stockholders.

      Reference should be made to the Articles on file with the Securities and
Exchange Commission for the full text of these provisions.

                 REPURCHASE OF COMMON SHARES; TENDER OFFERS;
                           CONVERSION TO OPEN-END FUND

      The Fund is a closed-end investment company and as such its stockholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Fund's Common Shares will trade in the open market at a price that will be a
function of several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, price, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic conditions and other factors. Shares of a closed-end
investment company may frequently trade at prices lower than net asset value.
The Board regularly monitors the relationship between the market price and net


                                       46
<PAGE>

asset value of the Common Shares. If the Common Shares were to trade at a
substantial discount to net asset value for an extended period of time, the
Board may consider the repurchase of its Common Shares on the open market or in
private transactions, or the making of a tender offer for such shares, or the
conversion of the Fund to an open-end investment company. There can be no
assurance, however, that the Board will decide to take or propose any of these
actions, or that share repurchases or tender offers, if undertaken, will
actually reduce market discount. The Fund has no present intention to repurchase
its Common Shares and would do so only in the circumstances described in this
section.

      Notwithstanding the foregoing, at any time when the Fund's Preferred
Shares are outstanding, the Fund may not purchase, redeem or otherwise acquire
any of its Common Shares unless (1) all accrued dividends on Preferred Shares
have been paid and (2) at the time of such purchase, redemption or acquisition,
the net asset value of the Fund's portfolio (determined after deducting the
acquisition price of the Common Shares) is at least 200% of the liquidation
value of the outstanding Preferred Shares (expected to equal the original
purchase price per share plus any accrued and unpaid dividends thereon).

      Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer. Interest on any borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will reduce the Fund's net income.
Any share repurchase, tender offer or borrowing that might be approved by the
Board would have to comply with the Securities Exchange Act of 1934, as amended,
and the 1940 Act and the rules and regulations thereunder.

      The Board may also from time to time consider submitting to the holders of
the shares of stock of the Fund a proposal to convert the Fund to an open-end
investment company. In determining whether to exercise its sole discretion to
submit this issue to stockholders, the Board would consider all factors then
relevant, including the relationship of the market price of the Common Shares to
net asset value, the extent to which the Fund's capital structure is leveraged
and the possibility of re-leveraging, the spread, if any, between the yields on
securities in the Fund's portfolio and interest and dividend charges on
Preferred Shares issued by the Fund and general market and economic conditions.

      See "Certain Provisions in the Articles of Incorporation" in the
prospectus and "Certain Provisions in the Articles of Incorporation" in this
Statement of Additional Information for a discussion of voting requirements
applicable to conversion of the Fund to an open-end company. If the Fund
converted to an open-end company, it would be required to redeem all Preferred
Shares then outstanding, and the Fund's Common Shares would no longer be listed
on the American Stock Exchange. Holders of common stock of an open-end
investment company may require the company to redeem their shares on any
business day (except in certain circumstances as authorized by or under the 1940
Act) at their net asset value, less such redemption charge, if any, as might be
in effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
companies typically engage in a continuous offering of their common stock.
Open-end companies are thus subject to periodic asset in-flows and out-flows
that can complicate portfolio management.



                                       47
<PAGE>

      The repurchase by the Fund of its shares at prices below net asset value
will result in an increase in the net asset value of those shares that remain
outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value will result in the Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that the Fund's
shares may be the subject of repurchase or tender offers at net asset value from
time to time, or that the Fund may be converted to an open-end company, may
reduce any spread between market price and net asset value that might otherwise
exist.

      In addition, a purchase by the Fund of its Common Shares will decrease the
Fund's total assets. This would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its Common Shares at a time when
Preferred Shares are outstanding will increase the leverage applicable to the
outstanding Common Shares then remaining. See the Fund's prospectus under "Risks
- Leverage Risk."

      Before deciding whether to take any action if the Fund's Common Shares
trade below net asset value, the Board would consider all relevant factors,
including the extent and duration of the discount, the liquidity of the Fund's
portfolio, the impact of any action that might be taken on the Fund or its
stockholders and market considerations. Based on these considerations, even if
the Fund's shares should trade at a discount, the Board may determine that, in
the interest of the Fund and its stockholders, no action should be taken.

                                   TAX MATTERS

      TAXATION OF THE FUND. The Fund intends to qualify each year for treatment
as a regulated investment company under Subchapter M of the Code ("RIC"). To
qualify for that treatment, the Fund must, among other things:


            (a) derive at least 90% of its gross income each taxable year from
      dividends, interest, payments with respect to certain securities loans,
      and gains from the sale or other disposition of securities, or other
      income (including gains from options or futures contracts) derived with
      respect to its business of investing in securities;


            (b) distribute with respect to each taxable year at least 90% of the
      sum of its net tax-exempt income, taxable ordinary income, and the excess,
      if any, of net short-term capital gains over net long-term capital losses
      for that year; and


            (c) diversify its holdings so that, at the end of each quarter of
      its taxable year, (1) at least 50% of the value of its total assets is
      represented by cash and cash items, U.S. Government securities, securities
      of other RICs, and other securities limited in respect of any one issuer
      to a value not greater than 5% of the value of the Fund's total assets and
      not more than 10% of the issuer's outstanding voting securities, and (2)
      not more than 25% of the value of the Fund's total assets is invested in
      the securities (other than those of the U.S. Government or other RICs) of
      any one issuer or of two or more issuers the Fund controls and that are
      engaged in the same, similar, or related trades or businesses.



                                       48
<PAGE>

      If the Fund qualifies for treatment as a RIC, it will not be subject to
federal income tax on income and gains it timely distributes to its stockholders
(including Capital Gain Dividends, as defined below). If the Fund failed to
qualify for treatment as a RIC for any taxable year, it would be subject to tax
on its taxable income at corporate rates, and all distributions from its
earnings and profits, including any distributions of its net tax-exempt income
and net capital gains, would be taxable to its stockholders as ordinary
(taxable) income. Those distributions would be eligible for the
dividends-received deduction in the case of corporate stockholders under certain
circumstances. In addition, the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest, and make substantial distributions
before requalifying for treatment as a RIC.


      The Fund intends to distribute at least annually to its stockholders all
or substantially all of its net tax-exempt interest and any investment company
taxable income (consisting generally of taxable net investment income and net
short-term capital gain, determined without regard to any deduction for
dividends paid). The Fund also may annually distribute its net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss) or may retain all or a portion of its net capital gain for investment. If
the Fund retains any investment company taxable income or any net capital gain,
it will be subject to tax at regular corporate rates on the retained amount. If
the Fund retains any net capital gain, the Fund may designate all or a portion
of the retained amount as undistributed capital gains in a notice to its
stockholders who (1) would be required to include in income for federal income
tax purposes, as long-term capital gain, their shares of the undistributed
amount and (2) would be entitled to credit their proportionate shares of the tax
the Fund paid on the undistributed amount against their federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds those
liabilities. For federal income tax purposes, the tax basis in shares owned by a
Fund stockholder would be increased by an amount equal to the difference between
the undistributed capital gains included in the stockholder's gross income and
the tax deemed paid by the stockholder under clause (2) of the preceding
sentence.

      To the extent the Fund fails to distribute in a calendar year at least an
amount equal to 98% of the sum of (1) its ordinary (taxable) income for that
year plus (2) its capital gain net income for the one-year period ending October
31 of that year, plus any retained amount from the prior year, the Fund will be
subject to a nondeductible 4% excise tax. For these purposes, the Fund will be
treated as having distributed any amount with respect to which it pays income
tax. A dividend the Fund pays to stockholders in January of any year generally
will be deemed to have been paid on December 31 of the preceding year if the
dividend is declared and payable to stockholders of record on a date in October,
November, or December of that preceding year. The Fund intends generally to make
distributions sufficient to avoid imposition of the excise tax.

      TAXATION OF THE STOCKHOLDERS

      EXEMPT-INTEREST DIVIDENDS. The Fund will qualify to pay exempt-interest
dividends to its stockholders only if, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of
obligations the interest on which is exempt from federal income tax under Code
section 103(a). Distributions that the Fund properly designates as
exempt-interest dividends will be treated as interest excludable from
stockholders' gross income for federal income tax purposes but may be a Tax
Preference Item and may be taxable for state and local purposes. Because the


                                       49
<PAGE>

Fund intends to qualify to pay exempt-interest dividends, it may be limited in
its ability to enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on financial
futures, tax-exempt bond indices, and other assets.

      The receipt of exempt-interest dividends may affect the portion, if any,
of a person's Social Security and Railroad Retirement benefits (collectively
"Benefits") that will be includable in gross income subject to federal income
tax. Up to 85% of Benefits may be included in gross income where the recipient's
combined income, consisting of adjusted gross income (with certain adjustments),
tax-exempt interest income, and one-half of any Benefits, exceeds an adjusted
base amount. Stockholders receiving Benefits should consult their tax advisers.

      The Code imposes the AMT with respect to individuals, corporations (except
certain small corporations), trusts, and estates. The interest on certain
"private activity bonds" (e.g., municipal bonds issued to make loans for housing
purposes or to private entities, but not certain tax-exempt organizations such
as universities and non-profit hospitals) is treated as a Tax Preference Item
and, after reduction by applicable expenses, is included in federal alternative
minimum taxable income. The Fund will furnish to stockholders annually a report
indicating the percentage of Fund income treated as a Tax Preference Item. In
addition, interest on all tax-exempt obligations is included in "adjusted
current earnings" of corporations for purposes of the AMT. Accordingly, a
portion of the Fund's dividends that would otherwise be tax-exempt to its
stockholders may cause certain stockholders to become subject to the AMT or may
increase the tax liability of stockholders who already are subject to that tax.

      The Fund will inform investors within 60 days after each taxable year-end
of the percentage of its income dividends that qualify as exempt-interest
dividends. The percentage will be applied uniformly to all dividends paid during
the year. Thus, the percentage of any particular dividend designated as an
exempt-interest dividend may be substantially different from the percentage of
the Fund's income that was tax-exempt during the period covered by the dividend.


      OTHER FUND DISTRIBUTIONS. As long as the Fund qualifies for treatment as a
RIC, distributions from it (other than exempt-interest dividends) will be
taxable to its stockholders as ordinary income to the extent the distributions
are derived from taxable net investment income and net short-term capital gains,
and generally will not be eligible for the dividends received deduction
available to corporations. Distributions of net capital gain (after applying any
available capital loss carryovers) that are properly designated as capital gain
dividends ("Capital Gain Dividends") will be taxable to each stockholder as
long-term gain, regardless of how long the stockholder has held the shares in
the Fund.

      The Fund's expenses attributable to earning tax-exempt income do not
reduce its current earnings and profits; therefore, distributions in excess of
the sum of its net tax-exempt and taxable income may be treated as taxable
dividends to the extent of its remaining earnings and profits. Distributions in
excess of the sum of the Fund's net tax-exempt and taxable income could occur,
for example, if its book income exceeded that sum, which could arise as a result
of certain of its hedging and investment activities. See "--Tax Consequences of
Certain Investments" below.




                                       50
<PAGE>

      For federal income tax purposes, the Fund is required to allocate its
tax-exempt income, net capital gain, and other taxable income, if any, between
the Common Shares and preferred stock, including the Preferred Shares, it issues
on a PRO RATA basis in proportion to the total distributions paid to each such
class of stock for the taxable year.

      Dividends (including Capital Gain Dividends) will be taxable as described
above whether received in cash or reinvested in additional Common Shares through
the Dividend Reinvestment Plan. A Common Stockholder whose distributions are so
reinvested will be treated as having received a dividend equal to either (1) the
fair market value of the newly issued shares or (2) if the Common Shares are
trading below their net asset value, the amount of cash allocated to the
stockholder for the purchase of shares on its behalf in the open market.

      Dividends on the Fund's shares (other than exempt-interest dividends) are
generally subject to federal income tax as described herein to the extent they
do not exceed its realized income and gains, even though those dividends may
economically represent a return of a particular stockholder's investment. Those
distributions are likely to occur in respect of shares purchased when the Fund's
net asset value reflects gains that are either unrealized or realized but not
distributed, or income that is not distributed. Those realized gains may be
required to be distributed even when the Fund's net asset value also reflects
unrealized losses. Distributions are taxable to a stockholder even if they are
paid from income or gains the Fund earned before the stockholder's investment
(and thus included in the price paid by the stockholder).

      If the Fund makes a distribution to a stockholder in excess of its current
and accumulated earnings and profits, the excess distribution will be treated as
a return of capital to the extent of the stockholder's tax basis in its shares
and thereafter as capital gain. A return of capital is not taxable, but it
reduces a stockholder's tax basis in its shares, thus reducing any loss or
increasing any gain on a subsequent taxable disposition by the stockholder of
its shares. If one or more such distributions occur in any taxable year, the
available earnings and profits first will be allocated to the distributions made
to the Preferred Stockholders and only thereafter to distributions made to
Common Stockholders. As a result, the Preferred Stockholders will receive a
disproportionate share of the distributions treated as dividends, and the Common
Stockholders will receive a disproportionate share of the distributions treated
as a return of capital.


      OTHER. Part or all of the interest on indebtedness, if any, incurred or
continued by a stockholder to purchase or carry Fund shares is not deductible
for federal income tax purposes. The non-deductible part is equal to the total
interest paid or accrued on the indebtedness, multiplied by the percentage of
the Fund's total distributions (not including Capital Gain Dividends) paid to
the stockholder that are exempt-interest dividends. Under rules the Internal
Revenue Service (the "Service") uses to determine when borrowed funds are
considered used for the purpose of purchasing or carrying particular assets, the
purchase of Fund shares may be considered to have been made with borrowed funds
even though those funds are not directly traceable to the purchase of the
shares. Under a published position of the Service, a stockholder's interest
deduction generally will not be disallowed to the extent the average adjusted
basis of the stockholder's tax-exempt obligations (including shares of preferred
stock) does not exceed two percent of the average adjusted basis of the
stockholder's trade or business assets (in the case of most corporations) or
portfolio investments (in the case of individuals). Legislation has been


                                       51
<PAGE>

introduced in recent years that would limit or repeal this two percent de
minimis exception, which if enacted would reduce the total after-tax yield of a
stockholder.


      In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity bonds will not be tax-exempt to any
stockholders who are "substantial users" (or persons related to "substantial
users") of facilities financed by those bonds. 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 those bonds.

      SALE OR REDEMPTION OF SHARES. The sale, exchange, or redemption of Fund
shares may give rise to a taxable gain or loss. In general, any gain or loss
realized on a taxable disposition of shares will be treated as long-term capital
gain or loss if the shares have been held for more than 12 months; otherwise,
any such gain or loss will be treated as short-term capital gain or loss.
However, if a stockholder sells shares at a loss within six months of their
purchase, (1) any loss will be disallowed for federal income tax purposes to the
extent of any exempt-interest dividends received on the shares and (2) any such
loss not so disallowed will be treated as long-term, rather than short-term, to
the extent of any Capital Gain Dividends the stockholder received with respect
to the shares. All or a portion of any loss realized on a taxable disposition of
Fund shares will be disallowed if other Fund shares are purchased within 30 days
before or after the disposition. In that case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.

      From time to time the Fund may make a tender offer for its Common Shares.
It is expected that the terms of any such offer will require a tendering
stockholder to tender all Common Shares and dispose of all Preferred Shares
held, or considered under certain attribution rules of the Code to be held, by
the stockholder. Stockholders who tender all Common Shares and dispose of all
Preferred Shares held, or considered to be held, by them will be treated as
having sold their shares and generally will realize a capital gain or loss. If a
stockholder tenders fewer than all of its Common Shares, or retains a
substantial portion of its Preferred Shares, the stockholder may be treated as
having received a taxable dividend (instead of capital gain or loss) on the
tender of its Common Shares. In that case, there is a remote risk that
non-tendering stockholders will be treated as having received taxable
distributions from the Fund. Likewise, if the Fund redeems some but not all of a
Preferred Stockholder's Preferred Shares and the stockholder is treated as
having received a taxable dividend on the redemption, there is a remote risk
that Common Stockholders and non-redeeming Preferred Stockholders will be
treated as having received taxable distributions from the Fund. To the extent
the Fund recognizes net gains on the liquidation of portfolio securities to meet
tenders of Common Shares, it will be required to make taxable distributions to
its stockholders, which may in turn require it to make additional distributions
to the Preferred Stockholders, if any.

      WITHHOLDING. The Fund generally is required to withhold and remit to the
U.S. Treasury a percentage of the taxable dividends (including Capital Gain
Dividends) paid to any individual or certain other non-corporate stockholder who
fails to properly furnish the Fund with a correct taxpayer identification
number, who has under-reported dividend or interest income, or who fails to
certify to the Fund that he or she is not otherwise subject to that withholding
("backup withholding"). The backup withholding rates are (1) 30% for amounts
paid during 2002 and 2003, (2) 29% for amounts paid during 2004 and 2005, and
(3) 28% for amounts paid during 2006 through 2010. The backup withholding rate


                                       52
<PAGE>

will increase to 31% for amounts paid after December 31, 2010, unless Congress
enacts tax legislation providing otherwise.

      For a foreign investor to qualify for exemption from withholding under an
income tax treaty, the investor must comply with special certification and
filing requirements. Foreign investors in the Fund should consult their tax
advisers in this regard.

      TAX CONSEQUENCES OF CERTAIN INVESTMENTS

      HEDGING TRANSACTIONS. If the Fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and straddles, or
other similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to increase its taxable income, accelerate income,
defer losses, cause adjustments in the holding periods of its securities,
convert long-term capital gains to short-term capital gains, and/or convert
short-term capital losses to long-term capital losses. These rules could
therefore affect the amount, timing, and character of distributions to
stockholders. Distributions to stockholders of income earned from the Fund's
hedging activities will not be eligible to be treated as exempt-interest
dividends. The Fund will endeavor to make any available elections pertaining to
such transactions in a manner believed to be in the stockholders' best
interests.


      Certain of the Fund's hedging activities are likely to produce a
difference between its book income and the sum of its net tax-exempt and taxable
income. If the Fund's book income exceeds that sum, the distribution of the
excess would be treated as (1) a taxable dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income), (2) thereafter as a return of capital to the extent of the
recipient's basis in the shares, and (3) thereafter as gain from the sale or
exchange of a capital asset. If the Fund's book income is less than the sum of
its net tax-exempt and taxable income, it could be required to make
distributions exceeding book income to continue to qualify for treatment as a
RIC.

      Certain listed options and futures contracts are considered "Section 1256
contracts" for federal income tax purposes. In general, gain or loss the Fund
realizes on Section 1256 contracts will be considered 60% long-term and 40%
short-term capital gain or loss. Also, Section 1256 contracts the Fund holds at
the end of each taxable year (and at October 31 for purposes of calculating the
excise tax) will be "marked to market," that is, treated for federal income tax
purposes as though sold for fair market value on the last business day of the
taxable year (or on October 31 for purposes of the excise tax). The Fund can
elect to exempt its Section 1256 contracts that are part of a "mixed straddle"
(as described below) from the application of section 1256.


      Gain or loss the Fund realizes on the expiration or sale of certain OTC
options it holds will be either long-term or short-term capital gain or loss
depending on its holding period for the options. However, gain or loss realized
on the expiration or closing out of options the Fund wrote will be treated as
short-term capital gain or loss. In general, if the Fund exercises an option, or
an option the Fund wrote is exercised, gain or loss on the option will not be
separately recognized, but the premium received or paid will be included in the
calculation of gain or loss on disposition of the property underlying the
option.



                                       53
<PAGE>

      Any security, option, or futures contract, delayed delivery transaction,
or other position the Fund enters into or holds in conjunction with any other
position it holds may constitute a "straddle" for federal income tax purposes. A
straddle of which at least one, but not all, the positions are Section 1256
contracts will constitute a "mixed straddle." In general, straddles are subject
to certain rules that may affect the character and timing of the Fund's gains
and losses with respect to straddle positions by requiring, among other things,
that loss realized on disposition of one position of a straddle be deferred to
the extent of any unrealized gain in an offsetting position until that position
is disposed of; that the Fund's holding period in certain straddle positions be
suspended until the straddle is terminated (possibly resulting in gain being
treated as short-term capital gain rather than long-term capital gain); and that
losses recognized with respect to certain straddle positions, that otherwise
constitute short-term capital losses, be treated as long-term capital losses.
Different elections are available to the Fund that may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles.

      SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund may acquire zero
coupon or other municipal securities issued with OID. As a holder of those
securities, the Fund must take into account the OID that accrues on them during
the taxable year, even if it receives no corresponding payment on them during
the year. Because the Fund annually must distribute substantially all of its
investment company taxable income and net tax-exempt income, including any
tax-exempt OID, to satisfy the distribution requirement applicable to RICs, it
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 the Fund's cash assets or from the proceeds of
sales of its portfolio securities, if necessary. The 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.

      The Fund may invest in municipal bonds that are purchased, generally not
on their original issue, with market discount (that is, at a price less than the
principal amount of the bond or, in the case of a bond that was issued with OID,
a price less than the amount of the issue price plus accrued OID, ("municipal
market discount bonds"). If a bond's market discount is less that the product of
(1) .25% of the redemption price at maturity times (2) the number of complete
years to maturity after the Fund acquired the bond, then no market discount is
considered to exist. Gain on the disposition of a municipal 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.
Market discount on such a bond generally is accrued ratably, on a daily basis,
over the period from the acquisition date to the date of maturity. In lieu of
treating the disposition gain as above, the Fund may elect to include market
discount in its gross income currently, for each taxable year to which it is
attributable.

                                    * * *

      The foregoing is a general summary of the provisions of the Code and
regulations thereunder currently in effect as they directly govern the taxation
of the Fund and its stockholders. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive.
Moreover, the foregoing does not address many of the factors that may be
determinative of whether an investor will be liable for the AMT. Stockholders
are advised to consult their own tax advisers for more detailed information


                                       54
<PAGE>

concerning the federal income tax consequences of purchasing, holding, and
disposing of Fund shares.


          MARKETING, PERFORMANCE-RELATED AND COMPARATIVE INFORMATION


      The Fund may be a suitable investment for a stockholder who is thinking of
adding bond investments to his or her portfolio to balance the appreciated
stocks that the stockholder is holding. Therefore, Common Shares may not be a
suitable investment for investors who are subject to the federal alternative
minimum tax or who would become subject to such tax by purchasing Common Shares.
The suitability of an investment in Common Shares will depend upon a comparison
of the after-tax yield likely to be provided from the Fund with that from
comparable tax-exempt investments (including those not subject to the
alternative minimum tax), and from comparable fully taxable investments, in
light of each such investor's tax position.

      The Fund may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds as categorized by Lipper, Inc. ("Lipper"), Morningstar Inc. or
other independent services. Comparison of the Fund to an alternative investment
should be made with consideration of differences in features and expected
performance. The Fund may obtain data from sources or reporting services, such
as Bloomberg Financial ("Bloomberg") and Lipper, that the Fund believes to be
generally accurate.

      The Fund, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time in
the future, yields and total return may be higher or lower than past yields and
there can be no assurance that any historical results will continue.

      Because they enjoy special tax advantages, municipal bonds usually pay
lower interest rates than similar bonds issued by corporations or the federal
government. However, after taxes they may provide a stockholder with more
disposable income than many taxable alternatives.


      For example, if a stockholder falls into the 35.0% federal tax bracket, he
or she would need to earn 7.69% on a taxable security to match a 5.00% yield
from a tax-exempt security. If you live in the higher tax states of California
and New York, tax-free municipal bond yields are even more attractive.


COMPARE TAX-FREE YIELDS TO THE TAXABLE ALTERNATIVES:


                IF YOUR        TO EQUAL A
                COMBINED       TAX- FREE
                FEDERAL/STATE  YIELD OF:
                TAX BRACKET
                IS:            5.0%           5.5%           6.0%

                               A TAXABLE INVESTMENT WOULD HAVE TO PAY:

                27.0%          6.85%          7.53%          8.22%
                30.0%          7.14%          7.86%          8.57%


                                       55
<PAGE>

                35.0%          7.69%          8.46%          9.23%
                38.6%          8.14%          8.96%          9.77%


THIS EXAMPLE IS FOR ILLUSTRATIVE PURPOSES AND DOES NOT REFLECT THE PERFORMANCE
OF ANY SPECIFIC INVESTMENT. ACTUAL YIELDS WILL VARY WITH MARKET CONDITIONS. THE
EQUIVALENT TAXABLE YIELDS ARE BASED UPON 2002 FEDERAL INCOME TAX RATES. INCOME
FROM MUNICIPAL INVESTMENTS MAY BE SUBJECT TO STATE, LOCAL AND/OR THE ALTERNATIVE
MINIMUM TAX.

OTHER BENEFITS OF INTERMEDIATE MUNICIPAL BONDS:

o   COMPETITIVE RETURNS WITH LOWER VOLATILITY


   From January 1, 1990 until June 30, 2002, intermediate municipal bonds
   captured 99% of the return on longer-term municipal bonds, while incurring
   only 74% of the VOLATILITY, as measured by standard deviation. (SEE TABLE
   BELOW). Of course, the past performance of any market sector is no assurance
   of its future performance.


---------------------------------------------------------
INDEXES             ANNUALIZED RETURN STANDARD DEVIATION*
---------------------------------------------------------
MERRILL LYNCH 7-12  7.1%              4.3%
YEAR MUNICIPAL BOND
INDEXI
---------------------------------------------------------
MERRILL LYNCH 22+   7.2%              5.8%
YEARS MUNICIPAL
BOND INDEX(i)
---------------------------------------------------------

       *Standard deviation is a measurement of volatility: the higher
       the standard deviation, the greater the volatility.

o   ATTRACTIVE RELATIVE VALUE

      Typically, the tax-exempt yields of municipal bonds are compared to the
taxable yields of similar-maturity Treasury yields to determine their relative
value.(ii) As of June 30, 2002, intermediate municipal bond yields were trading
at nearly 86% of the yield on comparable U.S. Treasuries, an indication of
attractive relative value.

      EXCHANGE-TRADED LIQUIDITY. Common Shares have been approved for listing,
subject to issuance of notice, on the American Stock Exchange, which will
provide investors with liquidity, convenience, and daily price visibility
through electronic services and newspaper stock tables. Share prices will
fluctuate with market conditions.

--------
(i) The Merrill Lynch Municipal Bond Indexes (7-12 Year) and (22+ Years) track
the performance of the investment grade U.S. tax-exempt bond market. Bonds
included in the 7-12 year index are within a 7-12 year maturity band, while
bonds included in the 22+ years index have maturities of 22 years or greater.

(ii) Intermediate municipal bond yields are represented by the 10-Year AAA Muni
GO. Intermediate Treasury bond yields are represented by the 10-year U.S.
Treasury Bond. Source: Bloomberg.


                                       56
<PAGE>

      ABOUT NEUBERGER BERMAN. Neuberger Berman has more than 60 years experience
managing clients' assets. The firm and its affiliates manage $58.7 billion in
total assets as of June 30, 2002, including $19.9 billion in fixed-income
securities. Firm-wide, Neuberger Berman's portfolio managers have an average of
26 years industry experience, so they're experienced at navigating a wide range
of market conditions. The firm has a tradition of independent, fundamental
research.

      NEUBERGER BERMAN'S APPROACH TO FIXED-INCOME INVESTING. Neuberger Berman
has an experienced portfolio management staff that includes more than 30
fixed-income professionals. They look for strong municipal sectors and
securities with high relative values and high credit ratings. They select
securities based on geographic and state-specific guidelines. They actively
manage duration and volatility, without major interest rate "bets." They focus
largely on general obligation, essential service revenue bonds and pre-refunded
issues with solid revenue streams and healthy debt coverage.


          CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSEMENT AGENT


      State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110, serves as custodian for assets of the Fund. The custodian performs
custodial and fund accounting services. The Bank of New York, 1 Wall Street, New
York, New York 10286, serves as the transfer agent, registrar and dividend
disbursement agent for the Common Shares, as well as agent for the Dividend
Reinvestment Plan relating to the Common Shares.

                              INDEPENDENT AUDITORS

      Ernst & Young, LLP, 200 Clarendon Street, Boston, MA 02116 serves as
independent auditors for the Fund. Ernst & Young, LLP provides audit services,
tax return preparation and assistance and consultation in connection with review
of the Fund's filings with the Securities and Exchange Commission.


                                     COUNSEL

      Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington
D.C. 20036, passes upon certain legal matters in connection with shares offered
by the Fund, and also acts as counsel to the Fund.

                             REGISTRATION STATEMENT

      A Registration Statement on Form N-2, including any amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the SEC, Washington, D.C. The Fund's prospectus and this Statement of
Additional Information do not contain all of the information set forth in the
Registration Statement, including any exhibits and schedules thereto. For
further information with respect to the Fund and the shares offered or to be
offered hereby, reference is made to the Fund's Registration Statement.
Statements contained in the Fund's prospectus and this Statement of Additional



                                       57
<PAGE>

Information as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement may be inspected without charge
at the SEC's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the SEC upon the payment of certain fees prescribed
by the SEC.




























                                       58
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS


To the Shareholder and
Board of Directors of
Neuberger Berman Intermediate Municipal Fund Inc.

We have audited the accompanying statement of assets and liabilities of
Neuberger Berman Intermediate Municipal Fund Inc., (the "Fund") as of September
19, 2002. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Neuberger Berman Intermediate
Municipal Fund Inc., at September 19, 2002, in conformity with accounting
principles generally accepted in the United States.


                                       ERNST & YOUNG LLP


Boston, Massachusetts
September 20, 2002





                                       59
<PAGE>

NEUBERGER BERMAN INTERMEDIATE MUNICIPAL FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 19, 2002

ASSETS
Cash                                                         $ 100,005
Deferred offering costs                                        300,000
                                                             ------------
Total assets                                                   400,005
                                                             ------------

LIABILITIES
Payable for offering costs                                     300,000
                                                             ------------

NET ASSETS AT VALUE                                          $ 100,005
                                                             ------------

NET ASSETS CONSIST OF:
Paid-in capital                                              $ 100,005
                                                             ============

SHARES OUTSTANDING ($.0001 PAR VALUE;
  1,000,000,000 SHARES AUTHORIZED)                               6,981
                                                             ============
NET ASSET VALUE, PER SHARE                                     $14.325
                                                             ============

MAXIMUM OFFERING PRICE PER SHARE ($14.325/95.5%)                $15.00
                                                             ============

See Notes to Financial Statement.





                                       60
<PAGE>

NEUBERGER BERMAN INTERMEDIATE MUNICIPAL FUND INC.
NOTES TO FINANCIAL STATEMENT
SEPTEMBER 19, 2002


NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. ORGANIZATION:

Neuberger Berman Intermediate Municipal Fund Inc. (the "Fund") was organized as
a Maryland corporation on July 29, 2002. The Fund is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Fund has had no operations to date, other
than the sale to Neuberger Berman LLC ("Neuberger"), the Fund's sub-adviser, on
September 19, 2002 of 6,981 shares of common stock for $100,005 ($14.325 per
share).

2. ACCOUNTING POLICIES

The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities. Actual results may differ from those estimates.

3. CONCENTRATION OF RISK

The ability of the issuers of the debt securities held by the Fund to meet their
obligations may be affected by economic developments, including those particular
to a specific industry or region.


NOTE B  -- INVESTMENT MANAGEMENT AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS WITH AFFILIATES

Under the terms of an Investment Management Agreement, the Fund pays Neuberger
Berman Management Inc. ("Management") a monthly fee at an annualized rate of
0.25% of the Fund's average daily Managed Assets. Managed Assets means the total
assets of the Fund less liabilities other than the aggregate indebtedness
entered into for purposes of leverage. For purposes of calculating Managed
Assets, the liquidation preference of any preferred shares outstanding is not
considered a liability.

Management has contractually agreed to waive a portion of the management fees it
is entitled to receive from the Fund at the following annual rates:


     Fiscal Period or Year Ended   % of Average
             October 31,           Daily Managed
                                     Assets
    -----------------------------------------------

                 2002                   0.25%
             2003 - 2007                0.25
                 2008                   0.20
                 2009                   0.15
                 2010                   0.10
                 2011                   0.05

Management has not agreed to waive any portion of its fees and expenses beyond
October 31, 2011.



                                       61
<PAGE>

Pursuant to an administration agreement between Management and the Fund, the
Fund has agreed to pay Management an administration fee payable on a monthly
basis at the annual rate of 0.30% of the Fund's average daily Managed Assets.
Additionally, Management retains State Street Corporation ("State Street") as
its sub-administrator under a Sub Administration Agreement. Management pays
State Street a fee for all services received under the agreement.

Management and Neuberger, a member firm of The New York Stock Exchange and
sub-adviser to the Fund, are wholly owned subsidiaries of Neuberger Berman Inc.,
a publicly held company. Neuberger is retained by Management to furnish it with
investment recommendations and research information without added cost to each
Fund. Several individuals who are officers and/or trustees of the Fund are also
employees of Neuberger and/or Management.

NOTE C -- ORGANIZATION EXPENSES AND OFFERING COSTS:

Based on an estimated Fund offering of 10,000,000 shares, organization and
offering costs are estimated to be $35,000 and $811,100, respectively.
Management has agreed to pay all organizational expenses and the amount by which
the aggregate of all of the Fund's offering costs (other than sales load) exceed
$0.03 per share. Such amount to be paid by Management is estimated to be
$511,100. The Fund will pay offering costs estimated at $300,000 from the
proceeds of the offering. Offering costs paid by the Fund will be charged as a
reduction of paid-in capital at the completion of the Fund offering.

NOTE D - FEDERAL INCOME TAXES

The Fund intends to qualify as a "regulated investment company" and to comply
with the applicable provisions of the Internal Revenue Code of 1986, as amended,
such that it will not be subject to Federal income tax.






                                       62
<PAGE>


                                                                      APPENDIX A

                       DESCRIPTION OF SECURITIES RATINGS+

MOODY'S INVESTORS SERVICE, INC.
-------------------------------

MUNICIPAL BONDS

Aaa: Bonds which are rated Aaa are judged to be of the best quality.  They carry
the smallest  degree of investment  risk and are generally  referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change,  such changes as can be  visualized  are most  unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all  standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as in Aaa securities or  fluctuation of protective  elements
may be of greater  amplitude or there may be other  elements  present which make
the long term risk appear somewhat larger than the Aaa securities.

A: Bonds which are rated A possess many favorable investment  attributes and are
to be considered as upper-medium-grade  obligations.  Factors giving security to
principal  and interest  are  considered  adequate,  but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations (I.E.,
they are neither highly  protected nor poorly  secured).  Interest  payments and
principal  security  appear  adequate  for the present  but  certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

Ba:  Bonds  which are rated Ba are judged to have  speculative  elements;  their
future cannot be considered as  well-assured.  Often the  protection of interest
and  principal  payments may be very  moderate and thereby not well  safeguarded
during  other  good and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

B: Bonds  which are rated B  generally  lack  characteristics  of the  desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

Caa:  Bonds  which are rated Caa are of poor  standing.  Such issues may be in
default or there may be present  elements of danger with  respect to principal
or interest.

Ca: Bonds which are rated Ca represent  obligations which are speculative in a
high  degree.   Such  issues  are  often  in  default  or  have  other  marked
shortcomings.

<PAGE>

C: Bonds which are rated C are the lowest  rated  class of bonds,  and issues so
rated can be regarded as having  extremely  poor prospects of ever attaining any
real investment standing.
----------
+     The ratings  indicated  herein are  believed to be the most recent
      ratings  available  at the  date  of this  SAI for the  securities
      listed.  Ratings are generally  given to securities at the time of
      issuance.  While the rating  agencies may from time to time revise
      such  ratings,  they  undertake  no  obligation  to do so, and the
      ratings  indicated  do not  necessarily  represent  ratings  which
      would  be  given to  these  securities  on the date of the  Fund's
      fiscal year end.

ABSENCE OF RATING:  Where no rating has been assigned or where a rating has been
suspended or  withdrawn,  it may be for reasons  unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

         1. An application for rating was not received or accepted.
         2. The issue or issuer  belongs to a group of securities or companies
         that are not rated as a matter of policy.
         3. There  is a lack of  essential  data  pertaining  to the  issue or
         issuer.
         4. The issue was  privately  placed,  in which case the rating is not
         published in Moody's publications.

Suspension or withdrawal may occur if new and material  circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable  up-to-date  data to permit a  judgment  to be  formed;  if a bond is
called for redemption; or for other reasons.

NOTE:  Moody's applies numerical  modifiers,  1, 2, and 3 in each generic rating
classification  from Aa  through B in its  municipal  bond  rating  system.  The
modifier 1 indicates  that the  security  ranks in the higher end of its generic
rating category;  the modifier 2 indicates a mid-range ranking; and the modifier
3  indicates  that  the  issue  ranks in the  lower  end of its  generic  rating
category.


MUNICIPAL SHORT-TERM OBLIGATIONS

MIG/VMIG RATINGS U.S. SHORT-TERM RATINGS: In municipal debt issuance,  there are
three  rating   categories  for  short-term   obligations  that  are  considered
investment grade. These ratings are designated as Moody's Investment Grade (MIG)
and are divided into three levels -- MIG 1 through MIG 3.

In addition,  those short-term  obligations that are of speculative  quality are
designated SG, or speculative grade.

In the case of variable rate demand obligations  (VRDOs), a two-component rating
is assigned.  The first element  represents  Moody's evaluation of the degree of
risk  associated  with  scheduled  principal and interest  payments.  The second
element  represents Moody's evaluation of the degree of risk associated with the
demand feature, using the MIG rating scale.

<PAGE>

The short-term  rating  assigned to the demand feature of VRDOs is designated as
VMIG.  When either the long- or short- term aspect of a VRDO is not rated,  that
piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.

MIG ratings expire at note maturity.  By contrast,  VMIG rating expirations will
be a function of each issue's specific structural or credit features.

MIG  1/VMIG 1: This  designation  denotes  superior  credit  quality.  Excellent
protection is afforded by  established  cash flows,  highly  reliable  liquidity
support, or demonstrated broad-based access to the market for refinancing.

MIG  2/VMIG 2: This  designation  denotes  strong  credit  quality.  Margins  of
protection are ample, although not as large as in the preceding group.

MIG 3/VMIG 3: This designation denotes acceptable credit quality.  Liquidity and
cash-flow  protection may be narrow, and market access for refinancing is likely
to be less well-established.

SG:  This  designation   denotes   speculative-grade   credit  quality.   Debt
instruments in this category in this category may lack  sufficient  margins of
protection.

STANDARD & POOR'S RATINGS GROUP
-------------------------------

INVESTMENT GRADE

AAA: Debt rated AAA has the highest  rating  assigned by S&P.  Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.

A: Debt  rated A has a strong  capacity  to pay  interest  and  repay  principal
although it is somewhat more  susceptible  to the adverse  effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB:  Debt rated BBB is regarded as having an adequate  capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a  weakened  capacity  to pay  interest  and  repay  principal  for debt in this
category than in higher rated categories.

SPECULATIVE GRADE

Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates  the least degree of  speculation  and C the highest.  While such debt
will  likely  have  some  quality  and  protective  characteristics,  these  are
outweighed by large uncertainties or major exposures to adverse conditions.

BB:  Debt  rated BB has less  near-term  vulnerability  to  default  than  other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,  financial,  or  economic  conditions  which  could  lead  to
inadequate  capacity to meet timely  interest  and  principal  payments.  The BB
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied BBB- rating.

B: Debt rated B has a greater  vulnerability  to default but  currently  has the
capacity to meet interest payments and principal  repayments.  Adverse business,
financial,  or economic conditions will likely impair capacity or willingness to
pay interest and repay  principal.  The B rating  category is also used for debt
subordinated  to senior  debt that is  assigned  an actual or  implied BB or BB-
rating.

CCC: Debt rated CCC has a currently  identifiable  vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely  payment of interest and repayment of principal.  In the event of adverse
business,  financial,  or  economic  conditions,  it is not  likely  to have the
capacity to pay interest and repay  principal.  The CCC rating  category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC: The rating CC is  typically  applied to debt  subordinated  to senior debt
which is assigned an actual or implied CCC debt rating.

C: The rating C is typically  applied to debt  subordinated to senior debt which
is assigned an actual or implied CCC- debt  rating.  The C rating may be used to
cover a situation where a bankruptcy  petition has been filed,  but debt service
payments are continued.

C1: The Rating C1 is reserved  for income  bonds on which no interest is being
paid.

D:  Debt  rated D is in  payment  default.  The D rating  category  is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired,  unless S&P believes that such payments
will be made during such grace  period.  The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS  (+) OR  MINUS  (-):  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.

P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the  successful  completion  of the project  being  financed by the debt
being rated and indicates that payment of debt service  requirements  is largely
or entirely  dependent upon the successful and timely completion of the project.
This rating,  however,  while addressing credit quality subsequent to completion
of the project,  makes no comment on the  likelihood  of, or the risk of default
upon failure of such  completion.  The investor should exercise his own judgment
with respect to such likelihood and risk.

<PAGE>

L: The letter "L" indicates that the rating pertains to the principal  amount of
those bonds to the extent that the underlying  deposit  collateral is insured by
the Federal Deposit  Insurance Corp. and interest is adequately  collateralized.
In the case of  certificates  of  deposit,  the  letter "L"  indicates  that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured  institution or, in
the event that the deposit is assumed by a successor insured  institution,  upon
maturity.

NR: NR  indicates  no rating  has been  requested,  that  there is  insufficient
information  on which to base a rating,  or that S&P does not rate a  particular
type of obligation as a matter of policy.

MUNICIPAL NOTES
S&P note ratings  reflect the liquidity  concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.  Notes
maturing  beyond 3 years will most likely receive a long-term  debt rating.  The
following criteria will be used in making that assessment:

           -- Amortization  schedule (the larger the final maturity  relative to
            other maturities the more likely it will be treated as a note).

           -- Sources of payment (the more  dependent the issue is on the market
            for its refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

      SP-1:  Strong  capacity to pay  principal  and  interest.  Those  issues
      determined  to  possess  very  strong  characteristics  will be  given a
      plus(+) designation.

      SP-2:  Satisfactory  capacity to pay principal  and interest,  with some
      vulnerability  to adverse  financial and economic  changes over the term
      of the notes.

      SP-3: Speculative capacity to pay principal and interest.

FITCH RATINGS
-------------

INVESTMENT GRADE BOND RATINGS

AAA: Bonds  considered to be investment grade and of the highest credit quality.
The  obligor  has an  exceptionally  strong  ability to pay  interest  and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's  ability to pay interest and repay principal is very strong,  although
not quite as strong as bonds rated `AAA'.  Because  bonds rated in the `AAA' and
`AA'  categories  are  not  significantly   vulnerable  to  foreseeable   future
developments, short-term debt of these issuers is generally rated `F-1+'.

<PAGE>

A: Bonds  considered  to be  investment  grade and of high credit  quality.  The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more  vulnerable  to  adverse  changes  in  economic  conditions  and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The  obligor's  ability to pay interest and repay  principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore,  impair timely
payment.  The  likelihood  that the  ratings  of these  bonds  will  fall  below
investment grade is higher than for bonds with higher ratings.

HIGH YIELD BOND RATINGS

BB: Bonds are considered speculative.  The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.  However,
business and  financial  alternatives  can be  identified  that could assist the
obligor in satisfying its debt service requirements.

B:  Bonds are  considered  highly  speculative.  While  bonds in this  class are
currently meeting debt service requirements, the probability of continued timely
payment of principal  and  interest  reflects the  obligor's  limited  margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable  characteristics  which, if not remedied,
may  lead  to   default.   The  ability  to  meet   obligations   requires  an
advantageous business and economic environment.

CC:  Bonds are  minimally  protected.  Default in payment of  interest  and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds  are  extremely  speculative  and  should  be valued on the basis of their
ultimate recovery value in liquidation or  reorganization of the obligor.  `DDD'
represents the highest potential for recovery on these bonds, and `D' represents
the lowest potential for recovery.

PLUS (+) OR MINUS (-):  The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.

NR: Indicates that Fitch does not rate the specific issue.

CONDITIONAL:  A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.

<PAGE>

INVESTMENT GRADE SHORT-TERM RATINGS

Fitch's  short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit,  medium-term notes, and municipal and investment
notes.

F-1+:  Exceptionally  Strong Credit  Quality.  Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1:  Very Strong  Credit  Quality.  Issues  assigned  this rating  reflect an
assurance  of timely  payment only  slightly  less in degree than issues rated
`F-1+'.

F-2: Good Credit  Quality.  Issues  carrying  this rating have a  satisfactory
degree of  assurance  for timely  payment,  but the margin of safety is not as
great as the `F-1+' and `F-1' categories.

F-3: Fair Credit  Quality.  Issues  carrying this rating have  characteristics
suggesting  that the  degree of  assurance  for timely  payment  is  adequate,
however,  near-term  adverse  change could cause these  securities to be rated
below investment grade.

* * * * * * * *

NOTES:  Bonds which are  unrated  expose the  investor to risks with  respect to
capacity to pay  interest or repay  principal  which are similar to the risks of
lower-rated speculative bonds. The Fund is dependent on the Investment Adviser's
judgment, analysis and experience in the evaluation of such bonds.

Investors  should  note  that the  assignment  of a rating to a bond by a rating
service  may not  reflect  the  effect of recent  developments  on the  issuer's
ability to make interest and principal payments.






<PAGE>

                           PART C -- OTHER INFORMATION


ITEM 24.  FINANCIAL STATEMENTS AND EXHIBITS

      1.    Financial Statements:

            Report of Independent Auditors.

            Statement of Assets and Liabilities.

      2.    Exhibits:

            a.    Articles of  Incorporation.  (Incorporated by reference to the
                  Registrant's  Registration Statement,  File Nos. 333-97283 and
                  811-21168, filed on July 29, 2002.)

            b.    Amended and Restated By-Laws. (filed herewith)

            c.    None.

            d.    Articles Sixth, Ninth,  Tenth,  Eleventh and Thirteenth of the
                  Articles of  Incorporation  and  Articles  II, VI and X of the
                  By-Laws.

            e.    Dividend Reinvestment Plan. (filed herewith)

            f.    None.

            g.    (1)   Form of Management Agreement. (filed herewith)

                  (2)   Form of Sub-Advisory Agreement. (filed herewith)

            h.    (1)   Form of Underwriting Agreement. (filed herewith)

                  (2)   Form of  Master  Agreement  Among  Underwriters.  (filed
                        herewith)

                  (3)   Form  of  Master  Selected  Dealer   Agreement.   (filed
                        herewith)

            i.    None

            j.    Form of Custodian Contract. (filed herewith)

            k.    (1)   Form of Transfer  Agency and Service  Agreement.  (filed
                        herewith)

                  (2)   Form of Administration Agreement. (filed herewith)

                  (3)   Form of Fee Waiver Agreement. (filed herewith)

                  (4)   Form of Fee Compensation Agreement. (filed herewith)

            l.    Opinion and Consent of Counsel. (filed herewith)

            m.    None.

            n.    Consent of Independent Auditors. (filed herewith)

            o.    None.

            p.    Letter of Investment Intent. (filed herewith)

            q.    None.

            r.    Code of Ethics for Registrant,  its Investment Adviser and its
                  Sub-Adviser. (filed herewith)


ITEM 25.  MARKETING ARRANGEMENTS

      See form of Underwriting Agreement to be filed as Exhibit 2.h.(1) to this
Registration Statement.

<PAGE>

ITEM 26.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

      The following table sets forth the expenses to be incurred in connection
with the offering described in this Registration Statement:


      Securities and Exchange Commission Fees...............      $ 13,800
      American Stock Exchange LLC Listing Fees..............         5,000
      National Association of Securities Dealers, Inc. Fees.         7,400
      Federal Taxes     ....................................           --
      State Taxes and Fees..................................           --
      Printing and Engraving Expenses.......................       268,200
      Legal Fees        ....................................       296,700
      Director Fees     ....................................           --
      Accounting Expenses...................................        20,000
      Miscellaneous Expenses................................       200,000
                                                                   -------

            Total       ....................................      $811,100
                                                                  ========


ITEM 27.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

      None.(1)

ITEM 28.  NUMBER OF HOLDERS OF SECURITIES


<TABLE>
<CAPTION>
                                               Number of Record Shareholders as of
            Title of Class                                  September 23, 2002
            --------------                                  ------------------
<S>   <C>                                                            <C>

      Shares of Common Stock, par value $0.0001 per share            1
</TABLE>


ITEM 29.  INDEMNIFICATION

      Article Twelfth of the Registrant's  Articles of  Incorporation,  filed as
Exhibit 2.a. to this Registration Statement,  and Article IX of the Registrant's
By-Laws,  filed as  Exhibit  2.b.,  provide  that the Fund shall  indemnify  its
present and past directors,  officers, employees and agents, and persons who are
serving or have served at the Fund's  request in similar  capacities  for, other
entities to the maximum extent  permitted by applicable law (including  Maryland
law and the 1940 Act), provided,  however, that a transfer agent is not entitled
to such  indemnification  unless  specifically  approved by the Fund's  Board of
Directors.  Section 2-418(b) of the Maryland General  Corporation Law ("Maryland
Code")  permits the  Registrant to indemnify  its directors  unless it is proved
that the act or omission  of the  director  was  material to the cause of action
adjudicated in the proceeding,  and (a) the act or omission was committed in bad
faith or was the result of active or  deliberate  dishonesty or (b) the director
actually received an improper personal benefit in money, property or services or
(c) in the case of a criminal  proceeding,  the director had reasonable cause to
believe the act or omission was  unlawful.  Indemnification  may be made against
judgments,  penalties,  fines,  settlements and reasonable  expenses incurred in
connection with a proceeding,  in accordance with the Maryland Code. Pursuant to
Section 2-418(j)(1) and Section 4-418(j)(2) of the Maryland Code, the Registrant
is permitted to indemnify its officers, employees and agents to the same extent.
The provisions set forth above apply insofar as consistent with Section 17(h) of
the  Investment  Company Act of 1940, as amended ("1940 Act"),  which  prohibits
indemnification  of any  director  or  officer  of the  Registrant  against  any
liability  to the  Registrant  or its  shareholders  to which such  director  or
officer otherwise would be subject by reason of willful misfeasance,  bad faith,
gross negligence or reckless  disregard of the duties involved in the conduct of
his office.

--------
(1) Until  such time as the  Registrant  completes  the public  offering  of its
Common Stock,  Neuberger Berman, LLC will be a control person of the Registrant.
Neuberger  Berman,  LLC is a wholly owned subsidiary of Neuberger Berman Inc., a
publicly  held  holding  company  that  has a  number  of  direct  and  indirect
subsidiaries.

                                       C-2
<PAGE>

            Sections 9.1 and 9.2 of the Management  Agreement  between Neuberger
Berman Management Inc. ("NB Management") and the Registrant provide that neither
NB Management nor any director,  officer or employee of NB Management performing
services for the  Registrant  at the  direction or request of NB  Management  in
connection  with  NB  Management's   discharge  of  its  obligations  under  the
Management Agreement shall be liable for any error of judgment or mistake of law
or for any loss  suffered by the  Registrant  in  connection  with any matter to
which the Management Agreement relates;  provided, that nothing herein contained
shall be construed  (i) to protect NB  Management  against any  liability to the
Registrant or its Stockholders to which NB Management would otherwise be subject
by reason of NB Management's misfeasance,  bad faith, or gross negligence in the
performance of NB Management's duties, or by reason of NB Management's  reckless
disregard  of  its  obligations  and  duties  under  the  Management   Agreement
("disabling conduct"),  or (ii) to protect any director,  officer or employee of
NB Management who is or was a Director or officer of the Registrant  against any
liability  to the  Registrant  or its  Stockholders  to which such person  would
otherwise  be  subject  by reason  of  willful  misfeasance,  bad  faith,  gross
negligence or reckless  disregard of the duties  involved in the conduct of such
person's office with the Registrant. The Registrant will indemnify NB Management
against,  and hold it harmless from, any and all expenses (including  reasonable
counsel fees and expenses)  incurred  investigating or defending  against claims
for  losses  or  liabilities   described  in  Section  9.1  not  resulting  from
negligence,  disregard  of its  obligations  and  duties  under  the  Management
Agreement or disabling conduct by NB Management.  Indemnification  shall be made
only  following:  (i) a final  decision  on the  merits by a court or other body
before whom the  proceeding  was brought  that NB  Management  was not liable by
reason  of  negligence,  disregard  of its  obligations  and  duties  under  the
Management  Agreement  or  disabling  conduct  or (ii) in the  absence of such a
decision, a reasonable determination,  based upon a review of the facts, that NB
Management was not liable by reason of negligence,  disregard of its obligations
and duties under the Management  Agreement or disabling  conduct by (a) the vote
of a  majority  of a quorum  of  directors  of the  Registrant  who are  neither
"interested   persons"  of  the   Registrant   nor  parties  to  the  proceeding
("disinterested  non-party  directors") or (b) an independent legal counsel in a
written opinion. NB Management shall be entitled to advances from the Registrant
for payment of the  reasonable  expenses  incurred by it in connection  with the
matter as to which it is seeking indemnification  hereunder in the manner and to
the fullest extent  permissible  under the Maryland General  Corporation Law. NB
Management  shall provide to the  Registrant a written  affirmation  of its good
faith belief that the standard of conduct necessary for  indemnification  by the
Registrant  has been met and a written  undertaking to repay any such advance if
it should  ultimately  be  determined  that the standard of conduct has not been
met. In addition,  at least one of the following additional  conditions shall be
met: (a) NB Management shall provide  security in form and amount  acceptable to
the Registrant for its undertaking; (b) the Registrant is insured against losses
arising  by reason of the  advance;  or (c) a  majority  of a quorum of the full
Board  of  Directors  of the  Registrant,  the  members  of which  majority  are
disinterested  non-party  directors,  or independent legal counsel, in a written
opinion, shall have determined,  based on a review of facts readily available to
the  Registrant  at the time the advance is  proposed to be made,  that there is
reason to believe that NB Management  will ultimately be found to be entitled to
indemnification under the Management Agreement.

      Section  1  of  the  Sub-Advisory  Agreement  between  NB  Management  and
Neuberger  Berman,  LLC  ("Neuberger  Berman")  with  respect to the  Registrant
provides  that,  in the  absence  of  willful  misfeasance,  bad  faith or gross
negligence in the  performance  of its duties,  or of reckless  disregard of its
duties and obligations under the Sub-Advisory  Agreement,  Neuberger Berman will
not be subject to liability  for any act or omission or any loss suffered by the
Registrant or its security  holders in connection  with the matters to which the
Sub-Advisory Agreement relates.

      Sections  11.1  and  11.2  of the  Administration  Agreement  between  the
Registrant  and NB  Management  provide  that  neither  NB  Management  nor  any
director,  officer or  employee of NB  Management  performing  services  for the
Registrant at the  direction or request of NB  Management in connection  with NB
Management's  discharge of its obligations  under the  Administration  Agreement
shall be liable  for any error of  judgment  or  mistake  of law or for any loss
suffered  by  the  Registrant  in  connection  with  any  matter  to  which  the
Administration Agreement relates;  provided, that nothing herein contained shall
be  construed  (i)  to  protect  NB  Management  against  any  liability  to the
Registrant or its Stockholders to which NB Management would otherwise be subject
by reason of NB Management's misfeasance,  bad faith, or gross negligence in the
performance of NB Management's duties, or by reason of NB Management's  reckless
disregard  of its  obligations  and duties  under the  Administration  Agreement

                                       C-3
<PAGE>

("disabling conduct"),  or (ii) to protect any director,  officer or employee of
NB Management who is or was a Director or officer of the Registrant  against any
liability  to the  Registrant  or its  Stockholders  to which such person  would
otherwise  be  subject  by reason  of  willful  misfeasance,  bad  faith,  gross
negligence or reckless  disregard of the duties  involved in the conduct of such
person's office with the Registrant. The Registrant will indemnify NB Management
against,  and  hold it  harmless  from,  any and all  losses,  claims,  damages,
liabilities  or  expenses  (including  reasonable  counsel  fees  and  expenses)
incurred  investigating  or defending  against  claims for losses or liabilities
described  in Section  11.1 not  resulting  from  negligence,  disregard  of its
obligations and duties under the  Administration  Agreement or disabling conduct
by NB  Management.  Indemnification  shall be made only  following:  (i) a final
decision on the merits by a court or other body before whom the  proceeding  was
brought that NB Management was not liable by reason of negligence,  disregard of
its  obligations  and duties  under the  Administration  Agreement  or disabling
conduct or (ii) in the absence of such a decision,  a reasonable  determination,
based upon a review of the facts, that NB Management was not liable by reason of
negligence,  disregard of its  obligations  and duties under the  Administration
Agreement  or  disabling  conduct by (a) the vote of a  majority  of a quorum of
directors  of  the  Registrant  who  are  neither  "interested  persons"  of the
Registrant nor parties to the proceeding  ("disinterested  non-party directors")
or (b) an independent legal counsel in a written opinion. NB Management shall be
entitled to advances from the Registrant for payment of the reasonable  expenses
incurred  by it  in  connection  with  the  matter  as to  which  it is  seeking
indemnification  hereunder in the manner and to the fullest  extent  permissible
under the Maryland  General  Corporation Law. NB Management shall provide to the
Registrant a written  affirmation  of its good faith belief that the standard of
conduct  necessary  for  indemnification  by the  Registrant  has been met and a
written  undertaking  to repay  any such  advance  if it  should  ultimately  be
determined that the standard of conduct has not been met. In addition,  at least
one of the following additional conditions shall be met: (a) NB Management shall
provide  security  in form  and  amount  acceptable  to the  Registrant  for its
undertaking;  (b) the Registrant is insured  against losses arising by reason of
the advance; or (c) a majority of a quorum of the full Board of Directors of the
Registrant, the members of which majority are disinterested non-party directors,
or independent legal counsel, in a written opinion, shall have determined, based
on a review of facts readily available to the Registrant at the time the advance
is proposed to be made,  that there is reason to believe that NB Management will
ultimately  be  found  to  be  entitled  to  indemnification  hereunder.  Before
confessing any claim against it which may be subject to  indemnification  by the
Registrant  hereunder,  NB  Management  shall  give  the  Registrant  reasonable
opportunity  to defend  against  such claim in its own name or in the name of NB
Management.

      Section 6(a) of the  Underwriting  Agreement  between the  Registrant,  NB
Management,  Neuberger  Berman,  Merrill Lynch & Co. and Merrill Lynch,  Pierce,
Fenner & Smith  Incorporated  provides  that the  Registrant  and the  Advisers,
jointly and severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter  within the meaning of Section
15 of the 1933 Act or Section  20 of the 1934 Act,  and any  director,  officer,
employee  or  affiliate  thereof  as  follows:  (i)  against  any and all  loss,
liability, claim, damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained in the
Registration  Statement  (or any  amendment  thereto),  including  the Rule 430A
Information  and the Rule 434  Information,  if  applicable,  or the omission or
alleged  omission  therefrom of a material fact required to be stated therein or
necessary to make the  statements  therein not  misleading or arising out of any
untrue  statement or alleged untrue statement of a material fact included in any
preliminary  prospectus or the final  Prospectus (or any amendment or supplement
thereto),  or the  omission or alleged  omission  therefrom  of a material  fact
necessary  in  order  to  make  the  statements  therein,  in the  light  of the
circumstances  under which they were made, not misleading;  (ii) against any and
all loss, liability,  claim, damage and expense whatsoever,  as incurred, to the
extent of the  aggregate  amount paid in settlement  of any  litigation,  or any
investigation  or proceeding by any  governmental  agency or body,  commenced or
threatened,  or of any claim  whatsoever based upon any such untrue statement or
omission,  or any such  alleged  untrue  statement or  omission;  provided  that
(subject to Section 6(e) below) any such  settlement  is effected with the prior
written  consent of the Registrant  and the Advisers;  and (iii) against any and
all expense  whatsoever,  as incurred  (including the fees and  disbursements of
counsel  chosen  by  Merrill  Lynch),   reasonably  incurred  in  investigating,
preparing  or  defending  against  any  litigation,   or  any  investigation  or
proceeding by any governmental agency or body,  commenced or threatened,  or any
claim whatsoever  based upon any such untrue statement or omission,  or any such
alleged untrue statement or omission, to the extent that any such expense is not
paid under (i) or (ii) above;  provided,  however, that this indemnity agreement
shall not apply to any loss,  liability,  claim, damage or expense to the extent
arising out of any untrue  statement or omission or alleged untrue  statement or
omission  made in  reliance  upon and in  conformity  with  written  information
furnished to the Registrant or the Advisers by any  Underwriter  through Merrill
Lynch  expressly  for  use in  the  Registration  Statement  (or  any  amendment
thereto),  including the Rule 430A Information and the Rule 434 Information,  if
applicable,  or any  preliminary  prospectus  or the  final  Prospectus  (or any
amendment or supplement  thereto);  and provided  further that the Registrant or
the  Advisers  will  not  be  liable  to any  Underwriter  with  respect  to any
Prospectus to the extent that the  Registrant or the Advisers  shall sustain the
burden of  proving  that any such  loss,  liability,  claim,  damage or  expense
resulted from the fact that such Underwriter,  in contravention of a requirement
of the Underwriting  Agreement or applicable law, sold Securities to a person to
whom such Underwriter failed to send or give, at or prior to the Closing Time, a
copy of the final  Prospectus,  as then  amended  or  supplemented  if:  (i) the


                                      C-4
<PAGE>
Company has previously furnished copies thereof  (sufficiently in advance of the
Closing Time to allow for  distribution  by the Closing Time) to the Underwriter
and the loss,  liability,  claim, damage or expense of such Underwriter resulted
from an untrue  statement or omission of a material fact contained in or omitted
from the preliminary  Prospectus which was corrected in the final Prospectus as,
if applicable,  amended or supplemented prior to the Closing Time and such final
Prospectus  was  required  by law to be  delivered  at or prior  to the  written
confirmation  of sale to such person and (ii) such  failure to give or send such
final  Prospectus  by the Closing  Time to the party or parties  asserting  such
loss,  liability,  claim,  damage or expense would have constituted a defense to
the claim asserted by such person.

      Section 6(c) of the Underwriting  Agreement provides that the Fund and the
Advisers,  jointly and  severally,  agree to indemnify  and hold  harmless  each
Underwriter  and each person,  if any, who controls any  Underwriter  within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all loss,  liability,  claim,  damage and expense described in the indemnity
contained in Section  6(a),  as limited by the proviso set forth  therein,  with
respect to any sales  material in the form approved by the Fund and the Advisers
or its affiliates for use by the  Underwriters  and securities firms to whom the
Fund or the Advisers shall have  disseminated  materials in connection  with the
public offering of the Securities.

      Section  7  of  the   Underwriting   Agreement   provides   that,  if  the
indemnification  provided for in Section 6 thereof is for any reason unavailable
to or  insufficient  to hold  harmless  an  indemnified  party in respect of any
losses, liabilities,  claims, damages or expenses referred to therein, then each
indemnifying  party shall  contribute  to the  aggregate  amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred,  (i) in such  proportion  as is  appropriate  to reflect the  relative
benefits  received  by the  Fund  and  the  Advisers  on the  one  hand  and the
Underwriters  on the other hand from the offering of the Securities  pursuant to
the Underwriting  Agreement or (ii) if the allocation  provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the  relative  benefits  referred  to in clause  (i) above but also the
relative  fault  of the  Fund  and  the  Advisers  on the  one  hand  and of the
Underwriters  on the other hand in connection  with the  statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.

      The  relative  benefits  received by the Fund and the  Advisers on the one
hand and the  Underwriters  on the other hand in connection with the offering of
the Securities  pursuant to the Underwriting  Agreement shall be deemed to be in
the same  respective  proportions as the total net proceeds from the offering of
the  Securities  pursuant  to  the  Underwriting   Agreement  (before  deducting
expenses) received by the Fund and the total  underwriting  discount received by
the Underwriters (whether from the Fund or otherwise), in each case as set forth
on the  cover of the  Prospectus,  or,  if Rule 434 is used,  the  corresponding
location on the Term Sheet,  bear to the aggregate initial public offering price
of the Securities as set forth on such cover.

      The  relative  fault of the Fund and the  Advisers on the one hand and the
Underwriters  on the other hand shall be determined by reference to, among other
things,  whether any such untrue or alleged untrue  statement of a material fact
or omission or alleged  omission to state a material fact relates to information
supplied by the Fund or the  Advisers or by the  Underwriters  and the  parties'
relative intent, knowledge,  access to information and opportunity to correct or
prevent such statement or omission. However, no Underwriter shall be required to
contribute  any amount in excess of the amount by which the total price at which
the Securities  underwritten by it and distributed to the public were offered to
the  public  exceeds  the  amount of any  damages  which  such  Underwriter  has
otherwise  been  required to pay by reason of any such untrue or alleged  untrue
statement  or  omission  or alleged  omission.  No person  guilty of  fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to  contribution  from any person who was not guilty of such fraudulent
misrepresentation.

      Under Section 7 of the Underwriting  Agreement,  each person,  if any, who
controls  an  Underwriter  within  the  meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same  rights to  contribution  as such
Underwriter,  and each  director of the Fund and each  director of the Advisers,
respectively,  each officer of the Fund who signed the  Registration  Statement,
and each  person,  if any, who  controls  the Fund or the  Advisers,  within the
meaning  of  Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Fund and the Advisers,  respectively. The
Underwriters'  respective  obligations  to contribute  pursuant to Section 7 are
several in proportion to the number of Initial  Securities  allotted to them and
not joint.

                                      C-5
<PAGE>
      Section   6(f)  of  the   Underwriting   Agreement   provides   that   any
indemnification or contribution by the Fund shall be subject to the requirements
and limitations of Section 17(i) of the 1940 Act.

      Insofar as  indemnification  for liabilities  arising under the Securities
Act of 1933, as amended ("1933 Act"), may be provided to directors, officers and
controlling persons of the Registrant,  pursuant to the foregoing  provisions or
otherwise,  the  Registrant has been advised that in the opinion of the SEC such
indemnification  is against  public  policy as expressed in the 1933 Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Registrant of expenses incurred
or paid by a  director,  officer  or  controlling  person of the  Registrant  in
connection  with the  successful  defense of any action,  suit or  proceeding or
payment pursuant to any insurance  policy) is asserted against the Registrant by
such director,  officer or controlling  person in connection with the securities
being registered,  the Registrant will, unless in the opinion of its counsel the
matter  has  been  settled  by  controlling  precedent,  submit  to a  court  of
appropriate  jurisdiction  the question  whether such  indemnification  by it is
against  public  policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue. The Fund also maintains Directors and Officers
Insurance.


ITEM 30.  BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND SUB-ADVISER

There is set  forth  below  information  as to any other  business,  profession,
vocation or employment of a substantial nature in which each director or officer
of NB  Management  and each  principal  of  Neuberger  Berman is, or at any time
during the past two years has been, engaged for his or her own account or in the
capacity of director, officer, employee, partner or trustee.

NAME                             BUSINESS AND OTHER CONNECTIONS
----                             ------------------------------

Claudia Brandon                  Secretary, Neuberger Berman Advisers
Vice President/Mutual Fund       Management Trust; Secretary, Neuberger Berman
Board Relations, NB Management   Equity Funds; Secretary, Neuberger Berman
Inc. since May 2000; Vice        Income Funds.
President, NB Management from
1986-1999; Employee, Neuberger
Berman since 1999.

Thomas J. Brophy                 None.
Vice President, Neuberger
Berman; Vice President, NB
Management Inc. since March
2000.

Lori Canell                      None.
Managing Director, Neuberger
Berman; Vice President, NB
Management Inc.

Valerie Chang                    None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Brooke A. Cobb                   None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Robert Conti                     Vice President, Neuberger Berman Income
Vice President, Neuberger        Funds; Vice President, Neuberger Berman
Berman; Senior Vice President,   Equity Funds; Vice President, Neuberger
NB Management Inc. since         Berman Advisers Management Trust
November 2000; Treasurer, NB
Management Inc. until May 2000.

                                      C-6
<PAGE>
NAME                             BUSINESS AND OTHER CONNECTIONS
----                             ------------------------------

Robert W. D'Alelio               None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Stanley G. Deutsch               None.
Managing Director, Neuberger
Berman; Vice President, NB
Management Inc. since September
2000.

Ingrid Dyott                     None.
Vice President, Neuberger
Berman; Vice President,
NB Management Inc.

Michael F. Fasciano              President, Fasciano Company Inc. until March
Managing Director, Neuberger     2001; Portfolio Manager, Fasciano Fund Inc.
Berman since March 2001; Vice    until March 2001.
President, NB Management Inc.
since March 2001.

Robert S. Franklin               None.
Vice President, Neuberger
Berman; Vice President,
NB Management Inc.

Brian P. Gaffney                 Vice President, Neuberger Berman Income Funds;
Managing Director, Neuberger     Vice President, Neuberger Equity Funds;
Berman since April 2000,         Vice President, Neuberger Berman Advisers
Senior Vice President,           Management Trust.
NB Managemetn Inc. since
November 2000; Vice President,
NB Management from April 1997
through November 1999.

Robert I. Gendelman              None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Thomas E. Gengler, Jr.           None.
Senior Vice President,
Neuberger Berman since February
2001, prior thereto, Vice
President, Neuberger Berman
since 1999; Senior Vice
President, NB Management Inc.
since March 2001 prior thereto,
Vice President, NB Management
Inc.

Theodore P. Giuliano             None.
Vice President (and Director
until February 2001),
NB Management Inc.; Managing
Director, Neuberger Berman

Joseph K. Herlihy                Treasurer, Neuberger Berman Inc.
Senior Vice President,
Treasurer, Neuberger Berman;
Treasurer, NB Management Inc.


                                      C-7
<PAGE>

NAME                             BUSINESS AND OTHER CONNECTIONS
----                             ------------------------------

Michael M. Kassen                Executive Vice President, Chief Investment
Executive Vice President and     Officer and Director, Neuberger Berman Inc.
Chief Investment Officer,
Neuberger Berman; Chairman and
Director, NB Management
Inc. since May 2000, prior
thereto, Executive Vice
President, Chief Investment
Officer and Director, NB
Management Inc. from November
1999 until May 2000; Vice
President from June 1990 until
November 1999.

Barbara R. Katersky              None.
Senior Vice President,
Neuberger Berman; Senior Vice
President, NB Management Inc.

Robert B. Ladd                   None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Kelly M. Landron                 None.
Vice President, NB Management
Inc. since March 2000.

Jeffrey B. Lane                  Director, Chief Executive Officer and
Chief Executive Officer and      President, Neuberger Berman Inc.; Director,
President, Neuberger Berman;     Neuberger Berman Trust Company from June 1999
Director, NB Management Inc.     until November 2000.
since February 2001.

Michael F. Malouf                None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Robert Matza                     Executive Vice President, Chief Operating
Executive Vice President and     Officer and Director, Neuberger Berman Inc.
Chief Operating Officer,         since January 2001, prior thereto, Executive
Neuberger Berman since January   Vice President, Chief Administrative Officer
2001, prior thereto, Executive   and Director, Neuberger Berman, Inc.
Vice President and Chief
Administrative Officer,
Neuberger Berman; Director,
NB Management Inc. since April
2000.

Ellen Metzger                    Assistant Secretary, Neuberger Berman Inc.
Vice President, Neuberger        since 2000.
Berman; Secretary,
NB Management Inc.

Arthur Moretti                   Managing Director, Eagle Capital from January
Managing Director, Neuberger     1999 until June 2001.
Berman since June 2001; Vice
President, NB Management Inc.
since June 2001.

                                      C-8
<PAGE>

NAME                             BUSINESS AND OTHER CONNECTIONS
----                             ------------------------------

S. Basu Mullick                  None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Janet W. Prindle                 Director, Neuberger Berman National Trust
Managing Director, Neuberger     Company since January 2001; Director
Berman; Vice President,          Neuberger Berman Trust Company of Delaware
NB Management Inc.               since April 2001.

Kevin L. Risen                   None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Benjamin E. Segal                None.
Managing Director, Neuberger
Berman since November 2000,
prior thereto, Vice President,
Neuberger Berman; Vice
President, NB Management Inc.

Heidi S. Steiger                 Executive Vice President and Director,
Executive Vice President,        Neuberger Berman Inc.; Chair and Director,
Neuberger Berman; Director, NB   Neuberger Berman National Trust Company since
Management Inc. since February   January 2001; Director, Neuberger Berman
2001.                            Trust Company of Delaware since February 2000
                                 (and Chair until January 2001); Director,
                                 Neuberger Berman Trust Company until September
                                 2001 (and Chair from September 1999 until
                                 January 2001).

Jennifer Silver                  None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Kent C. Simons                   None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

Matthew S. Stadler               Senior Vice President and Chief Financial
Senior Vice President and        Officer, Neuberger Berman Inc. since August
Chief Financial Officer,         2000; Senior Vice President and Chief
Neuberger Berman since August    Financial Officer, National Discount Brokers
2000, prior thereto,             Group from May 1999 until October 1999.
Controller, Neuberger Berman
from November 1999 to August
2000; Senior Vice President and
Chief Financial Officer, NB
Management Inc. since August
2000.

Peter E. Sundman                 Executive Vice President and Director,
President and Director,          Neuberger Berman Inc.; President and Chief
NB Management Inc.; Executive    Executive Officer, Neuberger Berman Income
Vice President, Neuberger        Funds, President and Chief Executive Officer,
Berman.                          Neuberger Berman Advisers Management Trust;
                                 President and Chief Executive Officer,
                                 Neuberger Berman Equity Funds.

Judith M. Vale                   None.
Managing Director, Neuberger
Berman; Vice President,
NB Management Inc.

                                      C-9
<PAGE>
NAME                             BUSINESS AND OTHER CONNECTIONS
----                             -----------------------------

Catherine Waterworth             None.
Vice President, Neuberger
Berman; Vice President,
NB Management Inc.

Allan R. White, III              None.
Managing Director, Neuberger
Berman; Vice President, NB
Management.

ITEM 31.  LOCATION OF ACCOUNTS AND RECORDS


      All  accounts,  books and other  documents  required to be  maintained  by
Section 31(a) of the  Investment  Company Act of 1940, as amended  ("1940 Act"),
and  the  rules  promulgated  thereunder  with  respect  to the  Registrant  are
maintained at the offices of its custodian and  accounting  agent,  State Street
Bank and Trust Company,  225 Franklin Street,  Boston,  Massachusetts 02110, and
its transfer agent,  Bank of New York, 1 Wall Street,  New York, New York 10286,
except for the Registrant's  Articles of Incorporation  and By-Laws,  minutes of
meetings of the  Registrant's  Directors and  shareholders  and the Registrant's
policies and contracts,  which are maintained at the offices of the  Registrant,
605 Third Avenue, New York, New York 10158-0180.

ITEM 32.  MANAGEMENT SERVICES

      None.

ITEM 33.  UNDERTAKINGS

      1.    The  Registrant  hereby  undertakes  to suspend the  offering of its
      shares until it amends its Prospectus if:

            (1) subsequent to the effective date of this Registration Statement,
      the net asset  value per share  declines  more than 10% from its net asset
      value per share as of the effective date of the Registration Statement; or

            (2) the net asset value  increases to an amount greater than its net
      proceeds as stated in the Prospectus.

      2.    N/A

      3.    N/A

      4.    N/A

      5.    The Registrant hereby undertakes:

            (1) For purposes of  determining  any liability  under the 1933 Act,
      the information  omitted from the form of prospectus filed as part of this
      Registration  Statement in reliance upon Rule 430A and contained in a form
      of prospectus filed by the Registrant under Rule 497(h) under the 1933 Act
      shall be deemed to be part of this  Registration  Statement as of the time
      it was declared effective; and

            (2) For the purposes of  determining  any  liability  under the 1933
      Act,  each  post-effective  amendment  that  contains a form of prospectus
      shall  be  deemed  to be a new  Registration  Statement  relating  to  the
      securities  offered  therein,  and the offering of such securities at that
      time shall be deemed to be the initial bona fide offering thereof.

      6.    The  Registrant  hereby  undertakes  to send by first  class mail or
      other  means  designed  to ensure  equally  prompt  delivery,  within  two


                                      C-10
<PAGE>

      business  days of receipt of a written or oral  request,  any Statement of
      Additional Information.



                                      C-11
<PAGE>
                                   SIGNATURES

      Pursuant to the  requirements  of the  Securities Act of 1933, as amended,
and the  Investment  Company Act of 1940, as amended,  the  Registrant  has duly
caused this Registration Statement on Form N-2 to be signed on its behalf by the
undersigned,  thereunto duly authorized,  in the City of New York, and the State
of New York, on the 24th day of September 2002.

                                          NEUBERGER BERMAN INTERMEDIATE
                                          MUNICIPAL FUND INC.


                                          By:  /s/ Michael M. Kassen
                                               -------------------------------
                                                Name:  Michael M. Kassen*
                                                Title: President and Director

Pursuant to the  requirements  of the Securities  Act of 1933, as amended,  this
Pre-Effective  Amendment  No. 2 to the  Registration  Statement  has been signed
below by the following persons in the capacities and on the dates indicated.

Signature                             Title                      Date
---------                             -----                      ----
                              Chairman of the Board,      September 24, 2002
                             Chief Executive Officer
/s/ Peter E. Sundman               and Director
----------------------------
Peter E. Sundman*

/s/ Michael M. Kassen         President and Director      September 24, 2002
----------------------------
Michael M. Kassen*

/s/ Barbara Muinos           Treasurer and Principal      September 24, 2002
---------------------------- Financial and Accounting
Barbara Muinos                       Officer

/s/ John Cannon                      Director             September 24, 2002
----------------------------
John Cannon*

/s/ Faith Colish                     Director             September 24, 2002
----------------------------
Faith Colish*

/s/ Walter G. Ehlers                 Director             September 24, 2002
----------------------------
Walter G. Ehlers*

/s/ C. Anne Harvey                   Director             September 24, 2002
----------------------------
C. Anne Harvey*

/s/ Barry Hirsch                     Director             September 24, 2002
----------------------------
Barry Hirsch*

/s/ Robert A. Kavesh                 Director             September 24, 2002
----------------------------
Robert A. Kavesh*

/s/ Howard A. Mileaf                 Director             September 24, 2002
----------------------------
Howard A. Mileaf*

/s/ Edward I. O'Brien                Director             September 24, 2002
----------------------------
Edward I. O'Brien*

                                      C-12
<PAGE>

Signature                             Title                      Date
---------                             -----                      ----

/s/ John P. Rosenthal                Director             September 24, 2002
----------------------------
John P. Rosenthal*

/s/ William E. Rulon                 Director             September 24, 2002
----------------------------
William E. Rulon*

/s/ Cornelius T. Ryan                Director             September 24, 2002
----------------------------
Cornelius T. Ryan*

/s/ Tom Decker Seip                  Director             September 24, 2002
----------------------------
Tom Decker Seip*

/s/ Candace L. Straight              Director             September 24, 2002
----------------------------
Candace L. Straight*

/s/ Peter P. Trapp                   Director             September 24, 2002
----------------------------
Peter P. Trapp*



*Signatures  affixed by Arthur C.  Delibert on  September  24, 2002  pursuant to
power of attorney  dated  August 19,  2002,  which was filed with  Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement on September 3, 2002.


<PAGE>




                NEUBERGER BERMAN INTERMEDIATE MUNICIPAL FUND INC.

                                  EXHIBIT INDEX


   Exhibit        Document Description
   -------        --------------------

      a.    Articles  of  Incorporation.   (Incorporated  by  reference  to  the
            Registrant's   Registration  Statement,   File  Nos.  333-97283  and
            811-21168, filed on July 29, 2002.)

      b.    Amended and Restated By-Laws. (filed herewith)

      c.    None.

      d.    Articles  Sixth,  Ninth,  Tenth,  Eleventh  and  Thirteenth  of  the
            Articles of Incorporation and Articles II, VI and X of the By-Laws.

      e.    Dividend Reinvestment Plan. (filed herewith)

      f.    None.

      g.    (1)   Form of Management Agreement. (filed herewith)

            (2)   Form of Sub-Advisory Agreement. (filed herewith)

      h.    (1)   Form of Underwriting Agreement. (filed herewith)

            (2)   Form of Master Agreement Among Underwriters. (filed herewith)

            (3)   Form of Master Selected Dealer Agreement. (filed herewith)

      i.    None

      j.    Form of Custodian Contract. (filed herewith)

      k.    (1)   Form of Transfer Agency and Service Agreement.(filed herewith)

            (2)   Form of Administration Agreement. (filed herewith)

            (3)   Form of Fee Waiver Agreement. (filed herewith)

            (4)   Form of Compensation Agreement. (filed herewith)

      l.    Opinion and Consent of Counsel. (filed herewith)

      m.    None.

      n.    Consent of Independent Auditors. (filed herewith)

      o.    None.

      p.    Letter of Investment Intent. (filed herewith)

      q.    None.

      r.    Code of  Ethics  for  Registrant,  its  Investment  Adviser  and its
            Sub-Adviser. (filed herewith)

</TEXT>
</DOCUMENT>
