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NEUBERGER BERMAN GENESIS INSTITUTIONAL AND GENESIS PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1999
AS AMENDED MAY 1, 2000
No-Load Mutual Fund
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
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Neuberger Berman GENESIS Institutional ("Fund"), a series of Neuberger
Berman Equity Series ("Trust"), is a no-load mutual fund that offers shares
pursuant to a Prospectus dated December 1, 1999. The Fund invests all of its net
investable assets in Neuberger Berman GENESIS Portfolio ("Portfolio").
SHARES OF THE FUND ARE AVAILABLE TO YOU FOR INVESTMENT THROUGH RETIREMENT
SAVINGS PROGRAMS SUCH AS PENSION AND PROFIT SHARING PLANS AND EMPLOYEE BENEFIT
TRUSTS. THE MINIMUM INITIAL INVESTMENT IS $5 MILLION.
The Fund's Prospectus provides basic information that an investor should
know before investing. A copy of the Prospectus may be obtained, without charge,
from Neuberger Berman Management Inc. ("NB Management"), Institutional Services,
605 Third Avenue, 2nd Floor, New York, NY 10158-0180, or by calling
800-877-9700.
This Statement of Additional Information ("SAI") is not a prospectus and
should be read in conjunction with the Prospectus.
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or in this SAI in connection
with the offering made by the Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus and this SAI do not constitute an
offering by the Fund or its distributor in any jurisdiction in which such
offering may not lawfully be made.
The "Neuberger Berman" name and logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the fund and portfolio names
in this SAI are either service marks or registered trademarks of Neuberger
Berman Management Inc.(C)2000 Neuberger Berman Management Inc.
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TABLE OF CONTENTS
PAGE
INVESTMENT INFORMATION.......................................................1
Investment Policies and Limitations....................................1
Investment Insight.....................................................4
Investment Program...............................................4
NEUBERGER BERMAN GENESIS INSTITUTIONAL...........................5
Additional Investment Information................................6
PERFORMANCE INFORMATION.....................................................19
Total Return Computations.............................................20
Comparative Information...............................................20
Other Performance Information.........................................21
CERTAIN RISK CONSIDERATIONS.................................................22
TRUSTEES AND OFFICERS.......................................................22
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES...........................27
Investment Manager and Administrator..................................27
Management and Administration Fees....................................28
Sub-Adviser...........................................................29
Investment Companies Managed..........................................29
Codes of Ethics.......................................................31
Management and Control of NB Management and Neuberger Berman..........32
DISTRIBUTION ARRANGEMENTS...................................................32
ADDITIONAL PURCHASE INFORMATION.............................................33
Share Prices and Net Asset Value......................................33
ADDITIONAL EXCHANGE INFORMATION.............................................33
ADDITIONAL REDEMPTION INFORMATION...........................................34
Suspension of Redemptions.............................................34
Redemptions in Kind...................................................34
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DIVIDENDS AND OTHER DISTRIBUTIONS...........................................34
ADDITIONAL TAX INFORMATION..................................................35
Taxation of the Fund..................................................35
Taxation of the Portfolio.............................................36
Taxation of the Fund's Shareholders...................................38
PORTFOLIO TRANSACTIONS......................................................38
Portfolio Turnover....................................................42
REPORTS TO SHAREHOLDERS.....................................................42
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS..............................42
CUSTODIAN AND TRANSFER AGENT................................................44
INDEPENDENT AUDITORS/ACCOUNTANTS............................................45
LEGAL COUNSEL...............................................................45
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.........................45
REGISTRATION STATEMENT......................................................45
FINANCIAL STATEMENTS........................................................46
Appendix A: RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER.................A-1
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INVESTMENT INFORMATION
The Fund is a separate operating series of the Trust, a Delaware business
trust that is registered with the Securities and Exchange Commission ("SEC") as
a diversified open-end management investment company. The Fund seeks its
investment objective by investing all of its net investable assets in the
Portfolio, a series of Equity Managers Trust that has an investment objective
identical to, and a name similar to, that of the Fund. The Portfolio, in turn,
invests in securities in accordance with an investment objective, policies, and
limitations identical to those of the Fund. Equity Managers Trust is an open-end
management investment company managed by NB Management.
The following information supplements the discussion in the Prospectus of
the investment objective, policies, and limitations of the Fund and Portfolio.
The investment objective and, unless otherwise specified, the investment
policies and limitations of the Fund and Portfolio are not fundamental. Any
investment objective, policy or limitation that is not fundamental may be
changed by the trustees of the Trust ("Fund Trustees") or of Equity Managers
Trust ("Portfolio Trustees") without shareholder approval. The fundamental
investment policies and limitations of the Fund or Portfolio may not be changed
without the approval of the lesser of:
(1) 67% of the total units of beneficial interest ("shares") of the Fund
or Portfolio represented at a meeting at which more than 50% of the outstanding
Fund or Portfolio shares are represented, or
(2) a majority of the outstanding shares of the Fund or Portfolio.
These percentages are required by the Investment Company Act of 1940
("1940 Act") and are referred to in this SAI as a "1940 Act majority vote."
Whenever the Fund is called upon to vote on a change in a fundamental investment
policy or limitation of the Portfolio, the Fund casts its votes in proportion to
the votes of its shareholders at a meeting thereof called for that purpose.
INVESTMENT POLICIES AND LIMITATIONS
The Fund has the following fundamental investment policy, to enable it to
invest in the Portfolio:
Notwithstanding any other investment policy of the Fund, the Fund may
invest all of its investable assets (cash, securities, and receivables
relating to securities) in an open-end management investment company
having substantially the same investment objective, policies, and
limitations as the Fund.
All other fundamental investment policies and limitations and the
non-fundamental investment policies and limitations of the Fund are identical to
those of the Portfolio. Therefore, although the following discusses the
investment policies and limitations of the Portfolio, it applies equally to the
Fund.
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Except for the limitation on borrowing, any investment policy or
limitation that involves a maximum percentage of securities or assets will not
be considered to be violated unless the percentage limitation is exceeded
immediately after, and because of, a transaction by the Portfolio.
The following investment policies and limitations are fundamental:
1. BORROWING. The Portfolio may not borrow money, except that the
Portfolio may (i) borrow money from banks for temporary or emergency purposes
and not for leveraging or investment and (ii) enter into reverse repurchase
agreements for any purpose; provided that (i) and (ii) in combination do not
exceed 33-1/3% of the value of its total assets (including the amount borrowed)
less liabilities (other than borrowings). If at any time borrowings exceed
33-1/3% of the value of the Portfolio's total assets, the Portfolio will reduce
its borrowings within three days (excluding Sundays and holidays) to the extent
necessary to comply with the 33-1/3% limitation.
2. COMMODITIES. The Portfolio may not purchase physical commodities or
contracts thereon, unless acquired as a result of the ownership of securities or
instruments, but this restriction shall not prohibit the Portfolio from
purchasing futures contracts or options (including options on futures contracts,
but excluding options or futures contracts on physical commodities) or from
investing in securities of any kind.
3. DIVERSIFICATION. The Portfolio may not, with respect to 75% of the
value of its total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, (i) more than 5% of the value of the
Portfolio's total assets would be invested in the securities of that issuer or
(ii) the Portfolio would hold more than 10% of the outstanding voting securities
of that issuer.
4. INDUSTRY CONCENTRATION. The Portfolio may not purchase any security
if, as a result, 25% or more of its total assets (taken at current value) would
be invested in the securities of issuers having their principal business
activities in the same industry. This limitation does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
5. LENDING. The Portfolio may not lend any security or make any other
loan if, as a result, more than 33-1/3% of its total assets (taken at current
value) would be lent to other parties, except, in accordance with its investment
objective, policies, and limitations, (i) through the purchase of a portion of
an issue of debt securities or (ii) by engaging in repurchase agreements.
6. REAL ESTATE. The Portfolio may not purchase real estate unless
acquired as a result of the ownership of securities or instruments, but this
restriction shall not prohibit the Portfolio from purchasing securities issued
by entities or investment vehicles that own or deal in real estate or interests
therein or instruments secured by real estate or interests therein.
7. SENIOR SECURITIES. The Portfolio may not issue senior securities,
except as permitted under the 1940 Act.
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8. UNDERWRITING. The Portfolio may not underwrite securities of other
issuers, except to the extent that the Portfolio, in disposing of portfolio
securities, may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 ("1933 Act").
For purposes of the limitation on commodities, the Portfolio does not
consider foreign currencies or forward contracts to be physical commodities.
The following investment policies and limitations are non-fundamental:
1. BORROWING. The Portfolio may not purchase securities if outstanding
borrowings, including any reverse repurchase agreements, exceed 5% of its total
assets.
2. LENDING. Except for the purchase of debt securities and engaging in
repurchase agreements, the Portfolio may not make any loans other than
securities loans.
3. MARGIN TRANSACTIONS. The Portfolio may not purchase securities on
margin from brokers or other lenders, except that the Portfolio may obtain such
short-term credits as are necessary for the clearance of securities
transactions. Margin payments in connection with transactions in futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
4. FOREIGN SECURITIES. The Portfolio may not invest more than 10% of
the value of its total assets in securities of foreign issuers, provided that
this limitation shall not apply to foreign securities denominated in U.S.
dollars, including American Depositary Receipts ("ADRs").
5. ILLIQUID SECURITIES. The Portfolio may not purchase any security if,
as a result, more than 15% of its net assets would be invested in illiquid
securities. Illiquid securities include securities that cannot be sold within
seven days in the ordinary course of business for approximately the amount at
which the Portfolio has valued the securities, such as repurchase agreements
maturing in more than seven days.
6. PLEDGING. The Portfolio may not pledge or hypothecate any of its
assets, except that (i) the Portfolio may pledge or hypothecate up to 15% of its
total assets to collateralize a borrowing permitted under fundamental policy 1
above or a letter of credit issued for a purpose set forth in that policy and
(ii) the Portfolio may pledge or hypothecate up to 5% of its total assets in
connection with its entry into any agreement or arrangement pursuant to which a
bank furnishes a letter of credit to collateralize a capital commitment made by
the Portfolio to a mutual insurance company of which the Portfolio is a member.
Although the Portfolio does not have policies limiting its investment in
warrants, it currently does not intend to invest in warrants unless acquired in
units or attached to securities.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes, the
Portfolio 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.
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INVESTMENT INSIGHT
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Neuberger Berman's commitment to its asset management approach is
reflected in the more than $125 million the organization's employees and their
families have invested in the Neuberger Berman mutual funds.
In advertisements, the Fund's allocation to a particular market sector(s)
may be discussed as a way to demonstrate how the portfolio managers uncover
stocks that they perceive to fit the Fund's investment parameters. These
discussions may include references to current or former holdings of the Fund.
NEUBERGER BERMAN GENESIS PORTFOLIO
INVESTMENT PROGRAM
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Invests mainly in common stocks of small-capitalization companies. Seeks
undervalued companies whose current product lines and balance sheets are strong.
The Portfolio regards companies with market capitalizations of up to $1.5
billion at the time of investment as small-cap companies.
A SMALL-CAP VALUE BIAS
The portfolio co-managers employ a value bias in their stock selection
process. They comb the universe of small-cap stocks specifically looking for
those they consider cheap compared to the market as a whole. Depending on
current market conditions, they sometimes find stocks that are cheap on an
absolute basis as well. They primarily choose from a universe of small-cap
companies whose total market valuation is less than $1.5 billion at the time of
initial investment. The characteristics they look for may include above average
returns, established market niches, high barriers to entry, strong capital
bases, and sound future business prospects.
A PHILOSOPHY THAT CONTRADICTS POPULAR INVESTMENT TRENDS
The portfolio co-managers focus on strong companies in industry niches
that are often overlooked by investors because they lack an exciting new product
or innovation. They aren't interested in buying experimental or cutting-edge
technology names that often trade on high future expectations but have no
established record of earnings. The rationale behind their approach is that
companies in what may be considered "unexciting" industries to some, such as
utilities and oil services, are a safer point of entry into the small-cap
universe because, as they put it, "if there's not a lot of expectation built
into a company, then it tends not to disappoint."
SMALL COMPANIES, POTENTIALLY BIG OPPORTUNITIES
The portfolio co-managers favor the small-cap arena because they think it
abounds with opportunities for the long-term investor, specifically small-caps'
potential ability to grow earnings dramatically over time. According to one
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portfolio co-manager, "Unlike large-cap stocks, small-cap companies are starting
from a very low base and therefore may have the ability to grow dramatically."
INVESTMENT PROCESS
(Qualitative Analysis
(Meetings with Company Executives One-on-One
o 300 Face-to-Face Meetings per Year
o Heavy Phone Contact
(Quantitative Characteristics
o Low Price-to-Earnings Ratio
o Low Price-to-Cash Flow Ratio
GENESIS INVESTORS CAN EXPECT:
o A small-cap value bias
o A philosophy that contradicts popular investment trends
o Small companies, potentially big opportunities
INVESTMENT INSIGHT
The portfolio co-managers seek out small companies that are not well known
and often found in unglamorous industries. Future growth is one area they focus
on, but equally important to them is evidence of solid performance and a proven
management team. As value investors, they look for stocks that are selling at
attractive prices.
NEUBERGER BERMAN GENESIS INSTITUTIONAL
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FUND SUMMARY
o Primary Investments: US small-cap stocks
o Benchmark: Russell 2000 Index
o Investing style: Value
DISCIPLINED INVESTMENT PROCESS
o Qualitative characteristics
o Low price-to-earnings
o Low price-to-cashflow
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o Strong balance sheet
o History of financial returns
o One-on-One Company Meetings
o 500 face-to-face meetings per year
o Phone contact with management
o Meet with company managers, their competitors, customers, and
suppliers
o Focus on
o Barriers to Entry
o Free cash flow
o Above-average, sustainable growth prospects
o Competent, prudent management
o Recurring revenue streams
o Best Ideas
o Small-cap
o Value
o Low volatility
o Superior performance
ADDITIONAL INVESTMENT INFORMATION
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The Portfolio may make the following investments, among others; some of
which are part of the Portfolio's principal investment strategies and some of
which are not. The principal risks of the Portfolio's principal investment
strategies are discussed in the Prospectus. It may not buy all of the types of
securities or use all of the investment techniques that are described.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
expected to be sold within seven days at approximately the price at which they
are valued. These may include unregistered or other restricted securities and
repurchase agreements maturing in greater than seven days. Illiquid securities
may also include commercial paper under section 4(2) of the 1933 Act, as
amended, and Rule 144A securities (restricted securities that may be traded
freely among qualified institutional buyers pursuant to an exemption from the
registration requirements of the securities laws); these securities are
considered illiquid unless NB Management, acting pursuant to guidelines
established by the trustees of Equity Managers Trust, determines they are
liquid. Generally, foreign securities freely tradable in their principal market
are not considered restricted or illiquid. Illiquid securities may be difficult
for the Portfolio to value or dispose of due to the absence of an active trading
market. The sale of some illiquid securities by the Portfolio may be subject to
legal restrictions which could be costly to the Portfolio.
POLICIES AND LIMITATIONS. The Portfolio may invest up to 15% of its net
assets in illiquid securities.
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REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases
securities from a bank that is a member of the Federal Reserve System or from a
securities dealer that agrees to repurchase the securities from the Portfolio at
a higher price on a designated future date. Repurchase agreements generally are
for a short period of time, usually less than a week. Costs, delays, or losses
could result if the selling party to a repurchase agreement becomes bankrupt or
otherwise defaults. NB Management monitors the creditworthiness of sellers.
POLICIES AND LIMITATIONS. Repurchase agreements with a maturity of more
than seven days are considered to be illiquid securities. The Portfolio may not
enter into a repurchase agreement with a maturity of more than seven days if, as
a result, more than 15% of the value of its net assets would then be invested in
such repurchase agreements and other illiquid securities. The Portfolio may
enter into a repurchase agreement only if (1) the underlying securities are of a
type that the Portfolio's investment policies and limitations would allow it to
purchase directly, (2) the market value of the underlying securities, including
accrued interest, at all times equals or exceeds the repurchase price, and (3)
payment for the underlying securities is made only upon satisfactory evidence
that the securities are being held for the Portfolio's account by its custodian
or a bank acting as the Portfolio's agent.
SECURITIES LOANS. The Portfolio may lend securities to banks, brokerage
firms, and other institutional investors judged creditworthy by NB Management,
provided that cash or equivalent collateral, equal to at least 100% of the
market value of the loaned securities, is continuously maintained by the
borrower with the Portfolio. The Portfolio may invest the cash collateral and
earn income, or it may receive an agreed upon amount of interest income from a
borrower who has delivered equivalent collateral. During the time securities are
on loan, the borrower will pay the Portfolio an amount equivalent to any
dividends or interest paid on such securities. These loans are subject to
termination at the option of the Portfolio or the borrower. The Portfolio may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Portfolio does not have the
right to vote securities on loan, but would terminate the loan and regain the
right to vote if that were considered important with respect to the investment.
NB Management believes the risk of loss on these transactions is slight because,
if a borrower were to default for any reason, the collateral should satisfy the
obligation. However, as with other extensions of secured credit, loans of
portfolio securities involve some risk of loss of rights in the collateral
should the borrower fail financially.
POLICIES AND LIMITATIONS. The Portfolio may lend portfolio securities with
a value not exceeding 33-1/3% of its total assets to banks, brokerage firms, or
other institutional investors judged creditworthy by NB Management. Borrowers
are required continuously to secure their obligations to return securities on
loan from the Portfolio by depositing collateral in a form determined to be
satisfactory by the Portfolio Trustees. The collateral, which must be marked to
market daily, must be equal to at least 100% of the market value of the loaned
securities, which will also be marked to market daily.
RESTRICTED SECURITIES AND RULE 144A SECURITIES. The Portfolio may invest
in restricted securities, which are securities that may not be sold to the
public without an effective registration statement under the 1933 Act. Before
they are registered, such securities may be sold only in a privately negotiated
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transaction or pursuant to an exemption from registration. In recognition of the
increased size and liquidity of the institutional market for unregistered
securities and the importance of institutional investors in the formation of
capital, the SEC has adopted Rule 144A under the 1933 Act. Rule 144A is designed
to facilitate efficient trading among institutional investors by permitting the
sale of certain unregistered securities to qualified institutional buyers. To
the extent privately placed securities held by the Portfolio qualify under Rule
144A and an institutional market develops for those securities, the Portfolio
likely will be able to dispose of the securities without registering them under
the 1933 Act. To the extent that institutional buyers become, for a time,
uninterested in purchasing these securities, investing in Rule 144A securities
could increase the level of the Portfolio's illiquidity. NB Management, acting
under guidelines established by the Portfolio Trustees, may determine that
certain securities qualified for trading under Rule 144A are liquid. Regulation
S under the 1933 Act permits the sale abroad of securities that are not
registered for sale in the United States.
Where registration is required, the Portfolio may be obligated to pay all
or part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
for which no market exists are priced by a method that the Portfolio Trustees
believe accurately reflects fair value.
POLICIES AND LIMITATIONS. To the extent restricted securities, including
Rule 144A securities, are illiquid, purchases thereof will be subject to the
Portfolio's 15% limit on investments in illiquid securities.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the
Portfolio sells portfolio securities subject to its agreement to repurchase the
securities at a later date for a fixed price reflecting a market rate of
interest. There is a risk that the counter-party to a reverse repurchase
agreement will be unable or unwilling to complete the transaction as scheduled,
which may result in losses to the Portfolio.
POLICIES AND LIMITATIONS. Reverse repurchase agreements are considered
borrowings for purposes of the Portfolio's investment policies and limitations
concerning borrowings. While a reverse repurchase agreement is outstanding, the
Portfolio will deposit in a segregated account with its custodian cash or
appropriate liquid securities, marked to market daily, in an amount at least
equal to the Portfolio's obligations under the agreement.
FOREIGN SECURITIES. The Portfolio may invest in U.S. dollar-denominated
securities of foreign issuers and foreign branches of U.S. banks, including
negotiable certificates of deposit ("CDs"), bankers' acceptances and commercial
paper. Foreign issuers are issuers organized and doing business principally
outside the U.S. and include banks, non-U.S. governments and quasi-governmental
organizations. While investments in foreign securities are intended to reduce
risk by providing further diversification, such investments involve sovereign
and other risks, in addition to the credit and market risks normally associated
with domestic securities. These additional risks include the possibility of
adverse political and economic developments (including political instability,
nationalization, expropriation, or confiscatory taxation) and the potentially
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adverse effects of unavailability of public information regarding issuers, less
governmental supervision and regulation of financial markets, reduced liquidity
of certain financial markets, and the lack of uniform accounting, auditing, and
financial reporting standards or the application of standards that are different
or less stringent than those applied in the United States.
The Portfolio also may invest in equity, debt, or other income-producing
securities that are denominated in or indexed to foreign currencies, including
(1) common and preferred stocks, (2) CDs, commercial paper, fixed time deposits,
and bankers' acceptances issued by foreign banks, (3) obligations of other
corporations, and (4) obligations of foreign governments and their subdivisions,
agencies, and instrumentalities, international agencies, and supranational
entities. Investing in foreign currency denominated securities involves the
special risks associated with investing in non-U.S. issuers, as described in the
preceding paragraph, and the additional risks of (1) adverse changes in foreign
exchange rates, and (2) adverse changes in investment or exchange control
regulations (which could prevent cash from being brought back to the United
States). Additionally, dividends and interest payable on foreign securities (and
gains realized on disposition thereof) may be subject to foreign taxes,
including taxes withheld from those payments. Commissions on foreign securities
exchanges are often at fixed rates and are generally higher than negotiated
commissions on U.S. exchanges, although the Portfolio endeavors to achieve the
most favorable net results on portfolio transactions.
Foreign securities often trade with less frequency and in less volume than
domestic securities and therefore may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custody arrangements and
transaction costs of foreign currency conversions.
Foreign markets also have different clearance and settlement procedures.
In certain markets, there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when a portion of the assets of the Portfolio are uninvested and no
return is earned thereon. The inability of the Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to the Portfolio
due to subsequent declines in value of the securities or, if the Portfolio has
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
Interest rates prevailing in other countries may affect the prices of
foreign securities and exchange rates for foreign currencies. Local factors,
including the strength of the local economy, the demand for borrowing, the
government's fiscal and monetary policies, and the international balance of
payments, often affect interest rates in other countries. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
The Portfolio may invest in ADRs, EDRs, GDRs, and IDRs. ADRs (sponsored or
unsponsored) are receipts typically issued by a U.S. bank or trust company
evidencing its ownership of the underlying foreign securities. Most ADRs are
denominated in U.S. dollars and are traded on a U.S. stock exchange. Issuers of
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the securities underlying sponsored ADRs, but not unsponsored ADRs, are
contractually obligated to disclose material information in the United States.
Therefore, the market value of unsponsored ADRs may not reflect the effect of
such information. EDRs and IDRs are receipts typically issued by a European bank
or trust company evidencing its ownership of the underlying foreign securities.
GDRs are receipts issued by either a U.S. or non-U.S. banking institution
evidencing its ownership of the underlying foreign securities and are often
denominated in U.S. dollars.
POLICIES AND LIMITATIONS. In order to limit the risks inherent in
investing in foreign currency denominated securities, the Portfolio may not
purchase any such security if, as a result, more than 10% of its total assets
(taken at market value) would be invested in foreign currency denominated
securities. Within those limitations, however, the Portfolio is not restricted
in the amount it may invest in securities denominated in any one foreign
currency.
Investments in securities of foreign issuers are subject to the
Portfolio's quality standards. The Portfolio may invest only in securities of
issuers in countries whose governments are considered stable by NB Management.
FUTURES, OPTIONS ON FUTURES, OPTIONS ON SECURITIES AND INDICES, FORWARD
CONTRACTS, AND OPTIONS ON FOREIGN CURRENCIES (COLLECTIVELY, "FINANCIAL
INSTRUMENTS")
STOCK INDEX FUTURES CONTRACTS AND OPTIONS THEREON. For purposes of
managing cash flow, the Portfolio may purchase and sell stock index futures
contracts, and may purchase and sell options thereon. The managers may use such
futures and options to increase the Portfolio's exposure to the performance of a
recognized securities index, such as the S&P 500 Index.
A "sale" of a futures contract (or a "short" futures position) entails the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) entails the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures, including stock and bond index futures, are settled on a net cash
payment basis rather than by the sale and delivery of the securities underlying
the futures.
U.S. futures contracts (except certain currency futures) are traded on
exchanges that have been designated as "contract markets" by the CFTC; futures
transactions must be executed through a futures commission merchant that is a
member of the relevant contract market. In both U.S. and foreign markets, an
exchange's affiliated clearing organization guarantees performance of the
contracts between the clearing members of the exchange.
Although futures contracts by their terms may require the actual delivery
or acquisition of the underlying securities or currency, in most cases the
contractual obligation is extinguished by being offset before the expiration of
the contract. A futures position is offset by buying (to offset an earlier sale)
or selling (to offset an earlier purchase) an identical futures contract calling
for delivery in the same month. This may result in a profit or loss. While
futures contracts entered into by the Portfolio will usually be liquidated in
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this manner, the Portfolio may instead make or take delivery of underlying
securities whenever it appears economically advantageous for it to do so.
"Margin" with respect to a futures contract is the amount of assets that
must be deposited by the Portfolio with, or for the benefit of, a futures
commission merchant in order to initiate and maintain the Portfolio's futures
positions. The margin deposit made by the Portfolio when it enters into a
futures contract ("initial margin") is intended to assure its performance of the
contract. If the price of the futures contract changes -- increases in the case
of a short (sale) position or decreases in the case of a long (purchase)
position -- so that the unrealized loss on the contract causes the margin
deposit not to satisfy margin requirements, the Portfolio will be required to
make an additional margin deposit ("variation margin"). However, if favorable
price changes in the futures contract cause the margin deposit to exceed the
required margin, the excess will be paid to the Portfolio. In computing their
NAVs, the Portfolios mark to market the value of their open futures positions.
The Portfolio also must make margin deposits with respect to options on futures
that it has written (but not with respect to options on futures that it has
purchased). If the futures commission merchant holding the margin deposit goes
bankrupt, the Portfolio could suffer a delay in recovering its funds and could
ultimately suffer a loss.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in the contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume a short futures position (if the
option is a call) or a long futures position (if the option is a put). Upon
exercise of the option, the accumulated cash balance in the writer's futures
margin account is delivered to the holder of the option. That balance represents
the amount by which the market price of the futures contract at exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option. Options on futures have characteristics and risks
similar to those of securities options, as discussed herein.
Although the Portfolio believes that the use of futures contracts will
benefit it, if NB Management's judgment about the general direction of the
markets or about interest rate or currency exchange rate trends is incorrect,
the Portfolio's overall return would be lower than if it had not entered into
any such contracts. The prices of futures contracts are volatile and are
influenced by, among other things, actual and anticipated changes in interest or
currency exchange rates, which in turn are affected by fiscal and monetary
policies and by national and international political and economic events. At
best, the correlation between changes in prices of futures contracts and of
securities being hedged can be only approximate due to differences between the
futures and securities markets or differences between the securities or
currencies underlying the Portfolio's futures position and the securities held
by or to be purchased for the Portfolio. The currency futures market may be
dominated by short-term traders seeking to profit from changes in exchange
rates. This would reduce the value of such contracts used for hedging purposes
over a short-term period. Such distortions are generally minor and would
diminish as the contract approaches maturity.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage; as a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, or
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gain, to the investor. Losses that may arise from certain futures transactions
are potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctuation in the price
of a futures contract or option thereon during a single trading day; once the
daily limit has been reached, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day, however; it thus does not limit potential losses. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable futures and options positions and
subjecting traders to substantial losses. If this were to happen with respect to
a position held by the Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
POLICIES AND LIMITATIONS. The Portfolio may purchase and sell stock index
futures contracts, and may purchase and sell options thereon. For purposes of
managing cash flow, the managers may use such futures and options to increase
the Portfolio's exposure to the performance of a recognized securities index,
such as the S&P 500 Index.
CALL OPTIONS ON SECURITIES. The Portfolio may write covered call options
and may purchase call options in related closing transactions. The purpose of
writing call options is to hedge (i.e., to reduce, at least in part, the effect
of price fluctuations of securities held by the Portfolio on the Portfolio's and
the Fund's NAVs) or to earn premium income. Portfolio securities on which call
options may be written and purchased by the Portfolio are purchased solely on
the basis of investment considerations consistent with the Portfolio's
investment objective.
When the Portfolio writes a call option, it is obligated to sell a
security to a purchaser at a specified price at any time until a certain date if
the purchaser decides to exercise the option. The Portfolio receives a premium
for writing the call option. So long as the obligation of the call option
continues, the Portfolio may be assigned an exercise notice, requiring it to
deliver the underlying security against payment of the exercise price. The
Portfolio may be obligated to deliver securities underlying an option at less
than the market price.
The writing of covered call options is a conservative investment technique
that is believed to involve relatively little risk but is capable of enhancing
the Portfolio's total return. When writing a covered call option, the Portfolio,
in return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but conversely
retains the risk of loss should the price of the security decline.
If a call option that the Portfolio has written expires unexercised, the
Portfolio will realize a gain in the amount of the premium; however, that gain
may be offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, the Portfolio will realize a
gain or loss from the sale of the underlying security.
When the Portfolio purchases a call option, it pays a premium for the
right to purchase a security from the writer at a specified price until a
specified date.
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POLICIES AND LIMITATIONS. The Portfolio may write covered call options and
may purchase call options in related closing transactions. The Portfolio writes
only "covered" call options on securities it owns (in contrast to the writing of
"naked" or uncovered call options, which the Portfolio will not do).
The Portfolio would purchase a call option to offset a previously written
call option.
PUT AND CALL OPTIONS ON SECURITIES INDICES. For purposes of managing cash
flow, the Portfolio may purchase put and call options on securities indices to
increase the Portfolio's exposure to the performance of a recognized securities
index, such as the S&P 500 Index.
Unlike a securities option, which gives the holder the right to purchase
or sell a specified security at a specified price, an option on a securities
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (1) the difference between the exercise price of the option and the
value of the underlying securities index on the exercise date (2) multiplied by
a fixed "index multiplier." A securities index fluctuates with changes in the
market values of the securities included in the index. Options on stock indices
are currently traded on the Chicago Board Options Exchange, the New York Stock
Exchange ("NYSE"), the American Stock Exchange, and other U.S. and foreign
exchanges.
Securities index options have characteristics and risks similar to those
of securities options, as discussed herein.
POLICIES AND LIMITATIONS. For purposes of managing cash flow, the
Portfolio may purchase put and call options on securities indices to increase
the Portfolio's exposure to the performance of a recognized securities index,
such as the S&P 500 Index. All securities index options purchased by the
Portfolio will be listed and traded on an exchange.
GENERAL INFORMATION ABOUT SECURITIES OPTIONS. The exercise price of an
option may be below, equal to, or above the market value of the underlying
security at the time the option is written. Options normally have expiration
dates between three and nine months from the date written. American-style
options are exercisable at any time prior to their expiration date. The
obligation under any option written by the Portfolio terminates upon expiration
of the option or, at an earlier time, when the Portfolio offsets the option by
entering into a "closing purchase transaction" to purchase an option of the same
series. If an option is purchased by the Portfolio and is never exercised or
closed out, the Portfolio will lose the entire amount of the premium paid.
Options are traded both on U.S. national securities exchanges and in the
over-the-counter ("OTC") market. Exchange-traded options are issued by a
clearing organization affiliated with the exchange on which the option is
listed; the clearing organization in effect guarantees completion of every
exchange-traded option. In contrast, OTC options are contracts between the
Portfolio and a counter-party, with no clearing organization guarantee. Thus,
when the Portfolio sells (or purchases) an OTC option, it generally will be able
to "close out" the option prior to its expiration only by entering into a
closing transaction with the dealer to whom (or from whom) the Portfolio
originally sold (or purchased) the option. There can be no assurance that the
Portfolio would be able to liquidate an OTC option at any time prior to
expiration. Unless the Portfolio is able to effect a closing purchase
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<PAGE>
transaction in a covered OTC call option it has written, it will not be able to
liquidate securities used as cover until the option expires or is exercised or
until different cover is substituted. In the event of the counter-party's
insolvency, the Portfolio may be unable to liquidate its options position and
the associated cover. NB Management monitors the creditworthiness of dealers
with which the Portfolio may engage in OTC options transactions.
The premium received (or paid) by the Portfolio when it writes (or
purchases) an option is the amount at which the option is currently traded on
the applicable market. The premium may reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to the market price, the historical price volatility of the underlying security,
the length of the option period, the general supply of and demand for credit,
and the interest rate environment. The premium received by the Portfolio for
writing an option is recorded as a liability on the Portfolio's statement of
assets and liabilities. This liability is adjusted daily to the option's current
market value.
Closing transactions are effected in order to realize a profit (or
minimize a loss) on an outstanding option, to prevent an underlying security
from being called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits the Portfolio to write
another call option on the underlying security with a different exercise price
or expiration date or both. There is, of course, no assurance that the Portfolio
will be able to effect closing transactions at favorable prices. If the
Portfolio cannot enter into such a transaction, it may be required to hold a
security that it might otherwise have sold (or purchase a security that it would
not have otherwise bought), in which case it would continue to be at market risk
on the security.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the call or put option. Because increases in the market
price of a call option generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset, in whole or in part, by appreciation of the underlying
security owned by the Portfolio; however, the Portfolio could be in a less
advantageous position than if it had not written the call option.
The Portfolio pays brokerage commissions or spreads in connection with
purchasing or writing options, including those used to close out existing
positions.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the options markets.
POLICIES AND LIMITATIONS. The Portfolio may use American-style options.
The assets used as cover (or held in a segregated account) for OTC options
written by the Portfolio will be considered illiquid unless the OTC options are
sold to qualified dealers who agree that the Portfolio may repurchase any OTC
option it writes at a maximum price to be calculated by a formula set forth in
the option agreement. The cover for an OTC call option written subject to this
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<PAGE>
procedure will be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
FOREIGN CURRENCY TRANSACTIONS. The Portfolio may enter into contracts for
the purchase or sale of a specific currency at a future date (usually less than
one year from the date of the contract) at a fixed price ("forward contracts").
The Portfolio also may engage in foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market.
The Portfolio enters into forward contracts in an attempt to hedge against
changes in prevailing currency exchange rates. The Portfolio does not engage in
transactions in forward contracts for speculation; it views investments in
forward contracts as a means of establishing more definitely the effective
return on, or the purchase price of, securities denominated in foreign
currencies. Forward contract transactions include forward sales or purchases of
foreign currencies for the purpose of protecting the U.S. dollar value of
securities held or to be acquired by the Portfolio or protecting the U.S. dollar
equivalent of dividends, interest, or other payments on those securities.
Forward contracts are traded in the interbank market directly between
dealers (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades; foreign exchange dealers realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies.
At the consummation of a forward contract to sell currency, the Portfolio
may either make delivery of the foreign currency or terminate its contractual
obligation to deliver by purchasing an offsetting contract. If the Portfolio
chooses to make delivery of the foreign currency, it may be required to obtain
such currency through the sale of portfolio securities denominated in such
currency or through conversion of other assets of the Portfolio into such
currency. If the Portfolio engages in an offsetting transaction, it will incur a
gain or a loss to the extent that there has been a change in forward contract
prices. Closing purchase transactions with respect to forward contracts are
usually made with the currency dealer who is a party to the original forward
contract.
NB Management believes that the use of foreign currency hedging
techniques, including "proxy-hedges," can provide significant protection of NAV
in the event of a general rise in the U.S. dollar against foreign currencies.
For example, the return available from securities denominated in a particular
foreign currency would diminish if the value of the U.S. dollar increased
against that currency. Such a decline could be partially or completely offset by
an increase in value of a hedge involving a forward contract to sell that
foreign currency or a proxy-hedge involving a forward contract to sell a
different foreign currency whose behavior is expected to resemble the currency
in which the securities being hedged are denominated but which is available on
more advantageous terms.
However, a hedge or proxy-hedge cannot protect against exchange rate risks
perfectly, and, if NB Management is incorrect in its judgment of future exchange
rate relationships, the Portfolio could be in a less advantageous position than
if such a hedge had not been established. If the Portfolio uses proxy-hedging,
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<PAGE>
it may experience losses on both the currency in which it has invested and the
currency used for hedging if the two currencies do not vary with the expected
degree of correlation. Using forward contracts to protect the value of the
Portfolio's securities against a decline in the value of a currency does not
eliminate fluctuations in the prices of the underlying securities. Because
forward contracts are not traded on an exchange, the assets used to cover such
contracts may be illiquid. The Portfolio may experience delays in the settlement
of its foreign currency transactions.
POLICIES AND LIMITATIONS. The Portfolio may enter into forward contracts
for the purpose of hedging and not for speculation.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write and purchase
covered call and put options on foreign currencies.
Currency options have characteristics and risks similar to those of
securities options, as discussed herein. Certain options on foreign currencies
are traded on the OTC market and involve liquidity and credit risks that may not
be present in the case of exchange-traded currency options.
POLICIES AND LIMITATIONS. The Portfolio would use options on foreign
currencies to protect against declines in the U.S. dollar value of portfolio
securities or increases in the U.S. dollar cost of securities to be acquired or
to protect the U.S. dollar equivalent of dividends, interest, or other payments
on those securities.
REGULATORY LIMITATIONS ON USING FINANCIAL INSTRUMENTS. To the extent the
Portfolio sells or purchases futures contracts or writes options thereon or
options on foreign currencies that are traded on an exchange regulated by the
CFTC other than for BONA FIDE hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums on those positions (excluding the amount
by which options are "in-the-money") may not exceed 5% of the Portfolio's net
assets.
COVER FOR FINANCIAL INSTRUMENTS. Securities held in a segregated account
cannot be sold while the futures, options, or forward strategy covered by those
securities is outstanding, unless they are replaced with other suitable assets.
As a result, segregation of a large percentage of the Portfolio's assets could
impede portfolio management or the Portfolio's ability to meet current
obligations. The Portfolio may be unable to promptly dispose of assets which
cover, or are segregated with respect to, an illiquid futures, options, or
forward position; this inability may result in a loss to the Portfolio.
POLICIES AND LIMITATIONS. The Portfolio will comply with SEC guidelines
regarding "cover" for Financial Instruments and, if the guidelines so require,
set aside in a segregated account with its custodian the prescribed amount of
cash or appropriate liquid securities.
GENERAL RISKS OF FINANCIAL INSTRUMENTS. The primary risks in using
Financial Instruments are (1) imperfect correlation or no correlation between
changes in market value of the securities or currencies held or to be acquired
by the Portfolio and the prices of Financial Instruments; (2) possible lack of a
liquid secondary market for Financial Instruments and the resulting inability to
close out Financial Instruments when desired; (3) the fact that the skills
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<PAGE>
needed to use Financial Instruments are different from those needed to select
the Portfolio's securities; (4) the fact that, although use of Financial
Instruments for hedging purposes can reduce the risk of loss, they also can
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments; and (5) the possible inability
of the Portfolio to purchase or sell a portfolio security at a time that would
otherwise be favorable for it to do so, or the possible need for the Portfolio
to sell a portfolio security at a disadvantageous time, due to its need to
maintain cover or to segregate securities in connection with its use of
Financial Instruments. There can be no assurance that the Portfolio's use of
Financial Instruments will be successful.
The Portfolio's use of Financial Instruments may be limited by the
provisions of the Internal Revenue Code of 1986, as amended ("Code"), with which
it must comply if the Fund is to qualify as a regulated investment company
("RIC"). See "Additional Tax Information." Financial Instruments may not be
available with respect to some currencies, especially those of so-called
emerging market countries.
POLICIES AND LIMITATIONS. NB Management intends to reduce the risk of
imperfect correlation by investing only in Financial Instruments whose behavior
is expected to resemble or offset that of the Portfolio's underlying securities
or currency. NB Management intends to reduce the risk that the Portfolio will be
unable to close out Financial Instruments by entering into such transactions
only if NB Management believes there will be an active and liquid secondary
market.
OTHER INVESTMENT COMPANIES. The Portfolio at times may invest in
instruments structured as investment companies to gain exposure to the
performance of a recognized securities index, such as the S&P 500 Index.
As a shareholder in an investment company, the Portfolio would bear its
pro rata share of that investment company's expenses. Investment in other funds
may involve the payment of substantial premiums above the value of such issuer's
portfolio securities. The Portfolio does not intend to invest in such funds
unless, in the judgment of NB Management, the potential benefits of such
investment justify the payment of any applicable premium or sales charge.
POLICIES AND LIMITATIONS. The Portfolio's investment in such securities is
limited to (i) 3% of the total voting stock of any one investment company, (ii)
5% of the Portfolio's total assets with respect to any one investment company
and (iii) 10% of the Portfolio's total assets in the aggregate.
FIXED INCOME SECURITIES. While the emphasis of the Portfolio's investment
program is on common stocks and other equity securities, the Portfolio may also
invest in money market instruments, U.S. Government and Agency Securities, and
other fixed income securities. The Portfolio may invest in investment grade
corporate bonds and debentures.
U.S. Government Securities are obligations of the U.S. Treasury backed by
the full faith and credit of the United States. U.S. Government Agency
Securities are issued or guaranteed by U.S. Government agencies or by
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, Fannie Mae (also known as Federal National Mortgage
Association), Freddie Mac (also known as Federal Home Loan Mortgage
Corporation), Student Loan Marketing Association (commonly known as "Sallie
Mae"), and the Tennessee Valley Authority. Some U.S. Government Agency
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Securities are supported by the full faith and credit of the United States,
while others may by supported by the issuer's ability to borrow from the U.S.
Treasury, subject to the Treasury's discretion in certain cases, or only by the
credit of the issuer. U.S. Government Agency Securities include U.S. Government
Agency mortgage-backed securities. The market prices of U.S. Government and
Agency Securities are not guaranteed by the Government.
"Investment grade" debt securities are those receiving one of the four
highest ratings from Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's ("S&P"), or another nationally recognized statistical rating organization
("NRSRO") or, if unrated by any NRSRO, deemed by NB Management to be comparable
to such rated securities ("Comparable Unrated Securities"). Securities rated by
Moody's in its fourth highest rating category (Baa) or Comparable Unrated
Securities may be deemed to have speculative characteristics.
The ratings of an NRSRO represent its opinion as to the quality of
securities it undertakes to rate. Ratings are not absolute standards of quality;
consequently, securities with the same maturity, coupon, and rating may have
different yields. Although the Portfolio may rely on the ratings of any NRSRO,
the Portfolio primarily refers to ratings assigned by S&P and Moody's, which are
described in Appendix A to this SAI.
Fixed income securities are subject to the risk of an issuer's inability
to meet principal and interest payments on its obligations ("credit risk") and
are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and market
liquidity ("market risk"). The value of fixed income securities in which the
Portfolio may invest is likely to decline in times of rising market interest
rates. Conversely, when rates fall, the value of the Portfolio's fixed income
investments is likely to rise. Foreign debt securities are subject to risks
similar to those of other foreign securities.
POLICIES AND LIMITATIONS. The Portfolio normally may invest up to 35% of
its total assets in investment grade debt securities.
Subsequent to its purchase by the Portfolio, an issue of debt securities
may cease to be rated or its rating may be reduced, so that the securities would
no longer be eligible for purchase by the Portfolio. In such a case, the
Portfolio will engage in an orderly disposition of the downgraded securities to
the extent necessary to ensure that the Portfolio's holdings of securities rated
below investment grade and Comparable Unrated Securities will not exceed 5% of
its net assets.
COMMERCIAL PAPER. Commercial paper is a short-term debt security issued by
a corporation or bank, usually for purposes such as financing current
operations. The Portfolio may invest in commercial paper that cannot be resold
to the public without an effective registration statement under the 1933 Act.
While restricted commercial paper normally is deemed illiquid, NB Management may
in certain cases determine that such paper is liquid, pursuant to guidelines
established by the Portfolio Trustees.
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POLICIES AND LIMITATIONS. The Portfolio may invest in commercial paper
only if it has received the highest rating from S&P (A-1) or Moody's (P-1) or is
deemed by NB Management to be of comparable quality.
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock,
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. Convertible securities generally
have features of both common stocks and debt securities. A convertible security
entitles the holder to receive the interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, such securities ordinarily
provide a stream of income with generally higher yields than common stocks of
the same or similar issuers, but lower than the yield on non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
non-convertible securities but rank senior to common stock in a corporation's
capital structure. The value of a convertible security is a function of (1) its
yield in comparison to the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth if converted
into the underlying common stock.
The price of a convertible security often reflects variations in the price
of the underlying common stock in a way that non-convertible debt may not.
Convertible securities are typically issued by smaller capitalization companies
whose stock prices may be volatile. A convertible security may be subject to
redemption at the option of the issuer at a price established in the security's
governing instrument. If a convertible security held by the Portfolio is called
for redemption, the Portfolio will be required to convert it into the underlying
common stock, sell it to a third party or permit the issuer to redeem the
security. Any of these actions could have an adverse effect on the Portfolio's
and the Fund's ability to achieve their investment objective.
POLICIES AND LIMITATIONS. Convertible debt securities are subject to the
Portfolio's investment policies and limitations concerning fixed income
securities.
PREFERRED STOCK. The Portfolio may invest in preferred stock. Unlike
interest payments on debt securities, dividends on preferred stock are generally
payable at the discretion of the issuer's board of directors. Preferred
shareholders may have certain rights if dividends are not paid but generally
have no legal recourse against the issuer. Shareholders may suffer a loss of
value if dividends are not paid. The market prices of preferred stocks are
generally more sensitive to changes in the issuer's creditworthiness than are
the prices of debt securities.
PERFORMANCE INFORMATION
The Fund's performance figures are based on historical results and are not
intended to indicate future performance. The share price and total return of the
Fund will vary, and an investment in the Fund, when redeemed, may be worth more
or less than an investor's original cost.
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TOTAL RETURN COMPUTATIONS
The Fund may advertise certain total return information. An average annual
compounded rate of return ("T") may be computed by using the redeemable value at
the end of a specified period ("ERV") of a hypothetical initial investment of
$1,000 ("P") over a period of time ("n") according to the formula:
P(1+T)n = ERV
Average annual total return smoothes out year-to-year variations in
performance and, in that respect, differs from actual year-to-year results. The
Fund commenced operations on June 28, 1999. However, the Fund's investment
objective, policies, and limitations are the same as those of another mutual
fund that is a series of Neuberger Berman Equity Funds and that has a name
similar to the Fund's and invests in the same Portfolio ("Sister Fund"). The
following total return data is for the Sister Fund for periods prior to the
Fund's inception. The total returns for periods prior to the Fund's inception
would have been lower had they reflected the higher fees of the Fund, as
compared to those of the Sister Fund.
Average Annual Total Returns
Fund Periods Ended 8/31/1999
ONE YEAR FIVE YEARS TEN YEARS PERIOD FROM INCEPTION
-------- ---------- --------- ---------------------
GENESIS +19.20% +15.19% +11.41% +13.10%
NB Management currently reimburses the Fund for a portion of its expenses.
Such action has the effect of increasing total return. Actual reimbursements and
waivers are described in the Prospectus and in "Investment Management and
Administration Services" below.
COMPARATIVE INFORMATION
From time to time the Fund's performance may be compared with:
(1) data (that may be expressed as rankings or ratings) published by
independent services or publications (including newspapers, newsletters,
and financial periodicals) that monitor the performance of mutual funds,
such as Lipper Analytical Services, Inc., C.D.A. Investment Technologies,
Inc., Wiesenberger Investment Companies Service, Investment Company Data
Inc., Morningstar, Inc., Micropal Incorporated, and quarterly mutual fund
rankings by Money, Fortune, Forbes, Business Week, Personal Investor, and
U.S. News & World Report magazines, The Wall Street Journal, The New York
Times, Kiplinger's Personal Finance, and Barron's Newspaper, or
(2) recognized stock and other indices, such as the S&P 500 Composite
Stock Price Index ("S&P 500 Index"), S&P Small Cap 600 Index ("S&P 600
Index"), S&P Mid Cap 400 Index ("S&P 400 Index"), Russell 2000 Stock
Index, Russell Midcap(TM) Index, Dow Jones Industrial Average ("DJIA"),
Wilshire 1750 Index, Nasdaq Composite Index, Montgomery Securities Growth
20
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Stock Index, Value Line Index, U.S. Department of Labor Consumer Price
Index ("Consumer Price Index"), College Board Annual Survey of Colleges,
Kanon Bloch's Family Performance Index, the Barra Growth Index, the Barra
Value Index, the EAFE(R) Index, the Financial Times World XUS Index, and
various other domestic, international, and global indices. The S&P 500
Index is a broad index of common stock prices, while the DJIA represents a
narrower segment of industrial companies. The S&P 600 Index includes
stocks that range in market value from $35 million to $6.1 billion, with
an average of $572 million. The S&P 400 Index measures mid-sized companies
that have an average market capitalization of $2.1 billion. The EAFE(R)
Index is an unmanaged index of common stock prices of more than 1,000
companies from Europe, Australasia, and the Far East translated into U.S.
dollars. The Financial Times World XUS Index is an index of 24
international markets, excluding the U.S. market. Each assumes
reinvestment of distributions and is calculated without regard to tax
consequences or the costs of investing. The Portfolio may invest in
different types of securities from those included in some of the above
indices.
Evaluations of the Fund's performance, its total return, and comparisons
may be used in advertisements and in information furnished to current and
prospective shareholders (collectively, "Advertisements"). The Fund may also be
compared to individual asset classes such as common stocks, small-cap stocks, or
Treasury bonds, based on information supplied by Ibbotson and Sinquefield.
OTHER PERFORMANCE INFORMATION
From time to time, information about the Portfolio's portfolio allocation
and holdings as of a particular date may be included in Advertisements. This
information may include the Portfolio's portfolio diversification by asset type.
Information used in Advertisements may include statements or illustrations
relating to the appropriateness of types of securities and/or mutual funds that
may be employed to meet specific financial goals, such as (1) funding
retirement, (2) paying for children's education, and (3) financially supporting
aging parents.
NB Management believes that many of its common stock funds may be
attractive investment vehicles for conservative investors who are interested in
long-term appreciation from stock investments, but who have a moderate tolerance
for risk. Such investors may include, for example, individuals (1) planning for
or facing retirement, (2) receiving or expecting to receive lump-sum
distributions from individual retirement accounts ("IRAs"), self-employed
individual retirement plans ("Keogh plans"), or other retirement plans, (3)
anticipating rollovers of CDs or IRAs, Keogh plans, or other retirement plans,
and (4) receiving a significant amount of money as a result of inheritance, sale
of a business, or termination of employment.
Information relating to inflation and its effects on the dollar also may
be included in Advertisements. For example, after ten years, the purchasing
power of $25,000 would shrink to $16,621, $14,968, $13,465, and $12,100,
respectively, if the annual rates of inflation during that period were 4%, 5%,
21
<PAGE>
6%, and 7%, respectively. (To calculate the purchasing power, the value at the
end of each year is reduced by the inflation rate for the ten-year period.)
Information regarding the effects of investing at market highs and/or
lows, and investing early versus late for retirement plans also may be included
in Advertisements, if appropriate.
CERTAIN RISK CONSIDERATIONS
Although the Portfolio seeks to reduce risk by investing in a diversified
portfolio of securities, diversification does not eliminate all risk. There can,
of course, be no assurance that the Portfolio will achieve its investment
objective.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the trustees and
officers of the Trust and Equity Managers Trust, including their addresses and
principal business experience during the past five years. Some persons named as
trustees and officers also serve in similar capacities for other funds and their
corresponding portfolios administered or managed by NB Management and Neuberger
Berman.
<TABLE>
<CAPTION>
THE TRUST AND EQUITY MANAGERS TRUST:
- -----------------------------------
Positions Held
With the Trust and
Name, Age, and Address (1) Equity Managers Trust Principal Occupation(s) (2)
- -------------------------- --------------------- ---------------------------
<S> <C> <C>
Claudia A. Brandon (43) Secretary of each Trust Employee of Neuberger Berman since 1999;
Vice President of NB Management from 1986 to
1999; Secretary of nine other mutual funds
for which NB Management acts as investment
manager or administrator.
Faith Colish (64) Trustee of each Trust Attorney at Law, Faith Colish, A
63 Wall Street Professional Corporation.
24th Floor
New York, NY 10005
Stacy Cooper-Shugrue (37) Assistant Secretary of each Employee of Neuberger Berman since 1999;
Trust Assistant Vice President of NB Management
from 1993 to 1999; Assistant Secretary of
nine other mutual funds for which NB
Management acts as investment manager or
administrator.
22
<PAGE>
Positions Held
With the Trust and
Name, Age, and Address (1) Equity Managers Trust Principal Occupation(s) (2)
- -------------------------- --------------------- ---------------------------
Barbara DiGiorgio (41) Assistant Treasurer of each Employee of NB Management; Assistant Vice
Trust President of NB Management from 1993 to
1999; Assistant Treasurer since 1996 of nine
other mutual funds for which NB Management
acts as investment manager or administrator.
Michael M. Kassen* (47) President and Trustee of each Executive Vice President, Chief Investment
Trust Officer and Director of Neuberger Berman,
Inc. (holding company); Executive Vice
President, Chief Investment Officer and
Director of NB Management; President and/or
Trustee of five other mutual funds for which
NB Management acts as investment manager or
administrator.
Howard A. Mileaf (63) Trustee of each Trust Vice President and Special Counsel to WHX
WHX Corporation Corporation (holding company) since 1992;
110 East 59th Street Director of Kevlin Corporation (manufacturer
30th Floor of microwave and other products).
New York, NY 10022
Edward I. O'Brien* (71) Trustee of each Trust Until 1993, President of the Securities
12 Woods Lane Industry Association ("SIA") (securities
Scarsdale, NY 10583 industry's representative in government
relations and regulatory matters at the
federal and state levels); until November
1993, employee of the SIA; Director of Legg
Mason, Inc.
John T. Patterson, Jr. (72) Trustee of each Trust Retired. Formerly, President of SOBRO
7082 Siena Court (South Bronx Overall Economic Development
Boca Raton, FL 33433 Corporation).
John P. Rosenthal (67) Trustee of each Trust Senior Vice President of Burnham Securities
Burnham Securities Inc. Inc. (a registered broker-dealer) since
Burnham Asset Management Corp. 1991; Director, Cancer Treatment Holdings,
1325 Avenue of the Americas Inc.
17th Floor
New York, NY 10019
23
<PAGE>
Positions Held
With the Trust and
Name, Age, and Address (1) Equity Managers Trust Principal Occupation(s) (2)
- -------------------------- --------------------- ---------------------------
Richard Russell (54) Treasurer and Principal Employee of NB Management since 1993;
Accounting Officer of each Treasurer and Principal Accounting Officer
Trust of nine other mutual funds for which NB
Management acts as investment manager or
administrator.
Cornelius T. Ryan (68) Trustee of each Trust General Partner of Oxford Partners and
Oxford Bioscience Partners Oxford Bioscience Partners (venture capital
315 Post Road West partnerships) and President of Oxford
Westport, CT 06880 Venture Corporation; Director of Capital
Cash Management Trust (money market fund)
and Prime Cash Fund.
Gustave H. Shubert (71) Trustee of each Trust Senior Fellow/Corporate Advisor and Advisory
13838 Sunset Boulevard Trustee of Rand (a non-profit public
Pacific Palisades, CA 90272 interest research institution) since 1989;
Honorary Member of the Board of Overseers of
the Institute for Civil Justice, the Policy
Advisory Committee of the Clinical Scholars
Program at the University of California, the
American Association for the Advancement of
Science, the Counsel on Foreign Relations,
and the Institute for Strategic Studies
(London); advisor to the Program Evaluation
and Methodology Division of the U.S. General
Accounting Office; formerly Senior Vice
President and Trustee of Rand.
Daniel J. Sullivan (60) Vice President of each Trust Senior Vice President of NB Management since
1992; Vice President of nine other mutual
funds for which NB Management acts as
investment manager or administrator.
24
<PAGE>
Positions Held
With the Trust and
Name, Age, and Address (1) Equity Managers Trust Principal Occupation(s) (2)
- -------------------------- --------------------- ---------------------------
Peter E. Sundman* (40) Chairman of the Board, Chief Executive Vice President and Director of
Executive Officer and Trustee Neuberger Berman, Inc. (holding company);
of each Trust President and Director of NB Management;
Principal of Neuberger Berman from 1997 to
1999; Chairman of the Board, Chief Executive
Officer and Trustee of five other mutual
funds for which NB Management acts as
investment manager or administrator;
President and Chief Executive Officer of
three other mutual funds for which NB
Management acts as investment manager or
administrator; President and Principal
Executive Officer of one other mutual fund
for which NB Management acts as investment
adviser or administrator.
Michael J. Weiner (53) Vice President and Principal Principal of Neuberger Berman from 1998-99;
Financial Officer of each Trust Senior Vice President of NB Management since
1992; Treasurer of NB Management from 1992
to 1996; Vice President and Principal
Financial Officer of nine other mutual funds
for which NB Management acts as investment
manager or administrator.
Celeste Wischerth (39) Assistant Treasurer of each Employee of NB Management; Assistant
Trust Treasurer since 1996 of nine other mutual
funds for which NB Management acts as
investment manager or administrator.
</TABLE>
(1) Unless otherwise indicated, the business address of each listed
person is 605 Third Avenue, New York, New York 10158.
(2) Except as otherwise indicated, each individual has held the
positions shown for at least the last five years.
25
<PAGE>
*Indicates a trustee who is an "interested person" of each Trust and
Managers Trust within the meaning of the 1940 Act. Messrs. Kassen and Sundman
are interested persons by virtue of the fact that they are officers and/or
directors of NB Management and Managing Directors of Neuberger Berman. Mr.
O'Brien is an interested person by virtue of the fact that he is a director of
Legg Mason, Inc., a wholly owned subsidiary of which, from time to time, serves
as a broker or dealer to the Portfolio and other funds for which NB Management
serves as investment manager.
The Trust's Trust Instruments and Equity Managers Trust's Declaration of
Trust provide that each such Trust will indemnify its trustees and officers
against liabilities and expenses reasonably incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, unless it is adjudicated that they (a) engaged in bad faith, willful
misfeasance, gross negligence, or reckless disregard of the duties involved in
the conduct of their offices, or (b) did not act in good faith in the reasonable
belief that their action was in the best interest of the Trust. In the case of
settlement, such indemnification will not be provided unless it has been
determined (by a court or other body approving the settlement or other
disposition, by a majority of disinterested trustees based upon a review of
readily available facts, or in a written opinion of independent counsel) that
such officers or trustees have not engaged in willful misfeasance, bad faith,
gross negligence, or reckless disregard of their duties.
The following table sets forth information concerning the compensation of
the trustees of each Trust. None of the Neuberger Berman Funds has any
retirement plan for its trustees.
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/99
-----------------------------
Aggregate Total Compensation from Investment
Compensation Companies in the Neuberger Berman
Name and Position With the Trust From the Trust* Fund Complex Paid to Trustees
- -------------------------------- -------------- -----------------------------
<S> <C> <C>
Faith Colish $97 $96,500
Trustee (5 other investment companies)
Stanley Egener** $ 0 $ 0
Chairman of the Board, Chief Executive (9 other investment companies)
Officer, and Trustee
Howard A. Mileaf $97 $64,250
Trustee (4 other investment companies)
Edward I. O'Brien $97 $61,750
Trustee (3 other investment companies)
John T. Patterson, Jr. $97 $66,500
Trustee (4 other investment companies)
John P. Rosenthal $97 $64,250
Trustee (4 other investment companies)
Cornelius T. Ryan $97 $52,750
Trustee (3 other investment companies)
26
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/99
-----------------------------
Aggregate Total Compensation from Investment
Compensation Companies in the Neuberger Berman
Name and Position With the Trust From the Trust* Fund Complex Paid to Trustees
- -------------------------------- -------------- -----------------------------
Gustave H. Shubert $97 $59,500
Trustee (3 other investment companies)
Lawrence Zicklin** $ 0 $ 0
President and Trustee (5 other investment companies)
</TABLE>
* For the period from 6/28/99 to 8/31/99 (commencement of operations until the
end of the first fiscal year).
** Retired, October 27, 1999.
At November 22, 1999 the trustees and officers of the Trust and Equity
Managers Trust, as a group, owned beneficially or of record less than 1% of the
outstanding shares of the Fund.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
INVESTMENT MANAGER AND ADMINISTRATOR
- ------------------------------------
Because all of the Fund's net investable assets are invested in the
Portfolio, the Fund does not need an investment manager. NB Management serves as
the investment manager to the Portfolio pursuant to a management agreement with
Equity Managers Trust, dated as of August 2, 1993 ("Management Agreement").
The Management Agreement was approved by the holders of the interests in
the Portfolio on August 2, 1993. The Management Agreement provides, in
substance, that NB Management will make and implement investment decisions for
the Portfolio in its discretion and will continuously develop an investment
program for the Portfolio's assets. The Management Agreement permits NB
Management to effect securities transactions on behalf of the Portfolio through
associated persons of NB Management. The Management Agreement also specifically
permits NB Management to compensate, through higher commissions, brokers and
dealers who provide investment research and analysis to the Portfolio, although
NB Management has no current plans to pay a material amount of such
compensation.
NB Management provides to the Portfolio, without separate cost, office
space, equipment, and facilities and the personnel necessary to perform
executive, administrative, and clerical functions. NB Management pays all
salaries, expenses, and fees of the officers, trustees, and employees of Equity
Managers Trust who are officers, directors, or employees of NB Management. Two
directors of NB Management (who also are employees of Neuberger Berman), one of
whom also serves as an officer of NB Management, presently serve as trustees and
27
<PAGE>
officers of the Trust and of Equity Managers Trust. See "Trustees and Officers."
The Portfolio pays NB Management a management fee based on the Portfolio's
average daily net assets, as described below.
NB Management provides facilities, services and personnel, as well as
accounting, recordkeeping, and other services, to the Fund pursuant to an
administration agreement with the Trust, dated June 28, 1999 ("Administration
Agreement"). The Fund was authorized to become subject to the Administration
Agreement by vote of the Fund trustees on April 28, 1999.
MANAGEMENT AND ADMINISTRATION FEES
- ----------------------------------
For investment management services, the Portfolio pays NB Management a fee
at the annual rate of 0.85% of the first $250 million of the Portfolio's average
daily net assets, 0.80% of the next $250 million, 0.75% of the next $250
million, 0.70% of the next $250 million and 0.65% of average daily net assets in
excess of $1 billion.
For administrative services, the Fund pays NB Management a fee at the
annual rate of 0.15% of that Fund's average daily net assets, plus out-of pocket
expenses for technology items used in shareholder servicing. In most years,
these out-of-pocket expenses are expected to be a fraction of a basis point.
During the fiscal year ended August 31, 1999, the Fund accrued management and
administration fees of $343,995.
NB Management has contractually undertaken to reimburse the Fund for its
total operating expenses (other than interest, taxes, brokerage commissions and
extraordinary expenses) which exceed, in the aggregate, 0.85% of the Fund's
average daily net assets. This undertaking lasts until December 31, 2002. During
the fiscal year ended August 31, 1999 the amount of total operating expenses
reimbursed by NB Management amounted to $118,939.
The Management Agreement continues until August 2, 2000. The Management
Agreement is renewable thereafter from year to year with respect to the
Portfolio, so long as its continuance is approved at least annually (1) by the
vote of a majority of the Portfolio Trustees who are not "interested persons" of
NB Management or Equity Managers Trust ("Independent Portfolio Trustees"), cast
in person at a meeting called for the purpose of voting on such approval, and
(2) by the vote of a majority of the Portfolio Trustees or by a 1940 Act
majority vote of the outstanding interests in that Portfolio. The Administration
Agreement continues until August 2, 2000. The Administration Agreement is
renewable from year to year with respect to the Fund, so long as its continuance
is approved at least annually (1) by the vote of a majority of the Fund Trustees
who are not "interested persons" of NB Management or the respective Trust
("Independent Fund Trustees"), cast in person at a meeting called for the
purpose of voting on such approval, and (2) by the vote of a majority of the
Fund Trustees or by a 1940 Act majority vote of the outstanding shares in that
Fund.
The Management Agreement is terminable, without penalty, with respect to
the Portfolio on 60 days' written notice either by Equity Managers Trust or by
NB Management. The Administration Agreement is terminable, without penalty, with
respect to the Fund on 60 days' written notice either by NB Management or by the
Trust. Each Agreement terminates automatically if it is assigned.
28
<PAGE>
SUB-ADVISER
NB Management retains Neuberger Berman, 605 Third Avenue, New York, NY
10158-3698, as sub-adviser with respect to the Portfolio pursuant to a
sub-advisory agreement dated August 2, 1993 ("Sub-Advisory Agreement").
The Sub-Advisory Agreement was approved by the holders of the interests in
the Portfolio on August 2, 1993.
The Sub-Advisory Agreement ("Sub-Advisory Agreement") provides in
substance that Neuberger Berman will furnish to NB Management, upon reasonable
request, the same type of investment recommendations and research that Neuberger
Berman, from time to time, provides to its principals and employees for use in
managing client accounts. In this manner, NB Management expects to have
available to it, in addition to research from other professional sources, the
capability of the research staff of Neuberger Berman. This staff consists of
numerous investment analysts, each of whom specializes in studying one or more
industries, under the supervision of the Director of Research, who is also
available for consultation with NB Management. The Sub-Advisory Agreement
provides that NB Management will pay for the services rendered by Neuberger
Berman based on the direct and indirect costs to Neuberger Berman in connection
with those services. Neuberger Berman also serves as sub-adviser for all of the
other mutual funds managed by NB Management.
The Sub-Advisory Agreement continues until August 2, 2000 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 Portfolio by the Portfolio Trustees or a
1940 Act majority vote of the outstanding interests in that Portfolio, by NB
Management, or by Neuberger Berman on not less than 30 nor more than 60 days'
written notice. The Sub-Advisory Agreement also terminates automatically with
respect to the Portfolio if it is assigned or if the Management Agreement
terminates with respect to the Portfolio.
Most money managers that come to the Neuberger Berman organization have at
least fifteen years experience. Neuberger Berman and NB Management employ
experienced professionals that work in a competitive environment.
INVESTMENT COMPANIES MANAGED
- ----------------------------
As of September 30, 1999, the investment companies managed by NB
Management had aggregate net assets of approximately $17.8 billion. NB
Management currently serves as investment manager of the following investment
companies:
<TABLE>
<CAPTION>
Approximate
Net Assets at
Name September 30, 1999
- ---- ------------------
<S> <C>
Neuberger Berman Cash Reserves Portfolio.............................................................$1,129,792,312
(investment portfolio for Neuberger Berman Cash Reserves)
29
<PAGE>
Neuberger Berman Government Money Portfolio............................................................$701,999,455
(investment portfolio for Neuberger Berman Government Money Fund)
Neuberger Berman High Yield Bond Portfolio..............................................................$25,041,449
(investment portfolio for Neuberger Berman High Yield Bond Fund)
Neuberger Berman Limited Maturity Bond Portfolio.......................................................$274,532,907
(investment portfolio for Neuberger Berman Limited Maturity Bond Fund and Neuberger Berman Limited
Maturity Bond Trust)
Neuberger Berman Municipal Money Portfolio.............................................................$275,065,503
(investment portfolio for Neuberger Berman Municipal Money Fund)
Neuberger Berman Municipal Securities Portfolio.........................................................$35,080,349
(investment portfolio for Neuberger Berman Municipal Securities Trust)
Neuberger Berman Focus Portfolio.....................................................................$1,463,580,020
(investment portfolio for Neuberger Berman Focus Fund, Neuberger Berman Focus Trust and Neuberger Berman
Focus Assets)
Neuberger Berman Genesis Portfolio...................................................................$1,647,532,448
(investment portfolio for Neuberger Berman Genesis Fund, Neuberger Berman Genesis Trust, Neuberger Berman
Genesis Assets and Neuberger Berman Genesis Institutional)
Neuberger Berman Guardian Portfolio................................................................ $4,423,729,801
(investment portfolio for Neuberger Berman Guardian Fund, Neuberger Berman Guardian Trust and Neuberger
Berman Guardian Assets)
Neuberger Berman International Portfolio...............................................................$117,925,499
(investment portfolio for Neuberger Berman International Fund and Neuberger Berman International Trust)
Neuberger Berman Manhattan Portfolio...................................................................$606,962,000
(investment portfolio for Neuberger Berman Manhattan Fund, Neuberger Berman Manhattan Trust and Neuberger
Berman Manhattan Assets)
Neuberger Berman Millennium Portfolio...................................................................$78,666,423
(investment portfolio for Neuberger Berman Millennium Fund, Neuberger Berman Millennium Trust and Neuberger
Berman Millennium Assets)
Neuberger Berman Partners Portfolio..................................................................$3,553,329,259
(investment portfolio for Neuberger Berman Partners Fund, Neuberger Berman Partners Trust and Neuberger
Berman Partners Assets)
Neuberger Berman Regency Portfolio......................................................................$30,848,996
(investment portfolio for Neuberger Berman Regency Fund and Neuberger Berman Regency Trust)
30
<PAGE>
Neuberger Berman Socially Responsive Portfolio.........................................................$376,629,789
(investment portfolio for Neuberger Berman Socially Responsive Fund, Neuberger Berman Socially
Responsive Trust, and Neuberger Berman Socially Responsive Assets)
Advisers Managers Trust..............................................................................$2,026,088,252
(eight series)
</TABLE>
The investment decisions concerning the Portfolio and the other mutual
funds managed by NB Management (collectively, "Other NB Funds") have been and
will continue to be made independently of one another. In terms of their
investment objectives, most of the Other NB Funds differ from the Portfolio.
Even where the investment objectives are similar, however, the methods used by
the Other NB Funds and the Portfolio to achieve their objectives may differ. The
investment results achieved by all of the mutual funds managed by NB Management
have varied from one another in the past and are likely to vary in the future.
There may be occasions when the Portfolio and one or more of the Other NB
Funds or other accounts managed by Neuberger Berman are contemporaneously
engaged in purchasing or selling the same securities from or to third parties.
When this occurs, the transactions are averaged as to price and allocated, in
terms of amount, in accordance with a formula considered to be equitable to the
funds involved. Although in some cases this arrangement may have a detrimental
effect on the price or volume of the securities as to the Portfolio, in other
cases it is believed that the Portfolio's ability to participate in volume
transactions may produce better executions for it. In any case, it is the
judgment of the Portfolio Trustees that the desirability of the Portfolio having
its advisory arrangements with NB Management outweighs any disadvantages that
may result from contemporaneous transactions.
The Portfolio is subject to certain limitations imposed on all advisory
clients of Neuberger Berman (including the Portfolio, the Other NB Funds, and
other managed accounts) and personnel of Neuberger Berman and its affiliates.
These include, for example, limits that may be imposed in certain industries or
by certain companies, and policies of Neuberger Berman that limit the aggregate
purchases, by all accounts under management, of the outstanding shares of public
companies.
CODES OF ETHICS
- ---------------
The Trusts, NB Management and Neuberger Berman have personal securities
trading policies that restrict the personal securities transactions of
employees, officers, and trustees. Their primary purpose is to ensure that
personal trading by these individuals does not disadvantage any fund managed by
NB Management. The portfolio managers and other investment personnel who comply
with the policies' preclearance and disclosure procedures may be permitted to
purchase, sell or hold certain types of securities which also may be or are held
in the funds they advise, but are restricted from trading in close conjunction
with the Portfolio or taking personal advantage of investment opportunities that
may belong to the Portfolio.
31
<PAGE>
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
Richard A. Cantor, Director; Robert Matza, Director; Theodore P. Giuliano,
Director and Vice President; Michael M. Kassen, Director and Chairman; Barbara
Katersky, Senior Vice President; Daniel J. Sullivan, Senior Vice President;
Philip Ambrosio, Senior Vice President and Chief Financial Officer; Peter E.
Sundman, Director and President; Michael J. Weiner, Senior Vice President; and
Lawrence Zicklin, Director.
The directors and officers 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 Administrative Officer; Michael M. Kassen, Executive
Vice President and Chief Investment Officer; Heidi L. Schneider, Executive Vice
President; Peter E. Sundman, Executive Vice President; Philip Ambrosio, Senior
Vice President and Chief Financial Officer; Kevin Handwerker, Senior Vice
President, General Counsel and Secretary; Robert Akeson, Senior Vice President;
Salvatore A. Buonocore, Senior Vice President; Seth J. Finkel, Senior Vice
President; Robert Firth, Senior Vice President; Brian Gaffney, Senior Vice
President; Brian E. Hahn, Senior Vice President; Lawrence J. Cohn, Senior Vice
President; Joseph K. Herlihy, Senior Vice President and Treasurer; Barbara R.
Katersky, Senior Vice President; Diane E. Lederman, Senior Vice President; Peter
B. Phelan, Senior Vice President; Robert H. Splan, Senior Vice President; Andrea
Trachtenberg, Senior Vice President; Michael J. Weiner, Senior Vice President;
Marvin C. Schwartz, Managing Director.
Mr. Sundman and Mr. Kassen are trustees and officers of the Trust and
Managers Trust. Messrs. Sullivan and Weiner are officers of each Trust.
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.
DISTRIBUTION ARRANGEMENTS
NB Management serves as the distributor ("Distributor") in connection with
the offering of the Fund's shares on a no-load basis to Institutions. In
connection with the sale of its shares, the Fund has authorized the Distributor
to give only the information, and to make only the statements and
representations, contained in the Prospectus and this SAI or that properly may
be included in sales literature and advertisements in accordance with the 1933
Act, the 1940 Act, and applicable rules of self-regulatory organizations. Sales
may be made only by the Prospectus, which may be delivered personally, through
the mails, or by electronic means. The Distributor is the Fund's "principal
underwriter" within the meaning of the 1940 Act and, as such, acts as agent in
arranging for the sale of the Fund's shares to Institutions without sales
commission or other compensation and bears all advertising and promotion
expenses incurred in the sale of the Fund's shares.
32
<PAGE>
From time to time, NB Management may enter into arrangements pursuant to
which it compensates a registered broker-dealer or other third party for
services in connection with the distribution of Fund shares.
The Trust, on behalf of the Fund, and the Distributor are parties to a
Distribution Agreement that continues until August 2, 2000. The Distribution
Agreement may be renewed annually if specifically approved by (1) the vote of a
majority of the Fund Trustees or a 1940 Act majority vote of the Fund's
outstanding shares and (2) the vote of a majority of the Independent Fund
Trustees, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated by either party and will
terminate automatically on its assignment, in the same manner as the Management
Agreement.
ADDITIONAL PURCHASE INFORMATION
SHARE PRICES AND NET ASSET VALUE
- --------------------------------
The Fund's shares are bought or sold at a price that is the Fund's NAV per
share. The NAVs for the Fund and the Portfolio are calculated by subtracting
total liabilities from total assets (in the case of the Portfolio, the market
value of the securities the Portfolio holds plus cash and other assets; in the
case of the Fund, its percentage interest in the Portfolio, multiplied by the
Portfolio's NAV, plus any other assets). The Fund's per share NAV is calculated
by dividing its NAV by the number of Fund shares outstanding and rounding the
result to the nearest full cent. The Fund and Portfolio calculate their NAVs as
of the close of regular trading on the NYSE, usually 4 p.m. Eastern time, on
each day the NYSE is open.
The Portfolio values securities (including options) listed on the NYSE,
the American Stock Exchange or other national securities exchanges or quoted on
The Nasdaq Stock Market, and other securities for which market quotations are
readily available, at the last reported sale price on the day the securities are
being valued. If there is no reported sale of such a security on that day, the
security is valued at the mean between its closing bid and asked prices on that
day. The Portfolio values all other securities and assets, including restricted
securities, by a method that the trustees of Equity Managers Trust believe
accurately reflects fair value.
If NB Management believes that the price of a security obtained under the
Portfolio's valuation procedures (as described above) does not represent the
amount that the Portfolio reasonably expects to receive on a current sale of the
security, the Portfolio will value the security based on a method that the
trustees of Equity Managers Trust believe accurately reflects fair value.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus entitled
"Maintaining Your Account," an Institution may exchange shares of the Fund for
shares of one or more of the other Neuberger Berman Funds, if made available
through that Institution. The Fund may terminate or modify its exchange
privilege in the future. Before effecting an exchange, Fund shareholders must
obtain and should review a currently effective prospectus of the fund into which
the exchange is to be made. An exchange is treated as a sale for federal income
tax purposes and, depending on the circumstances, a capital gain or loss may be
realized.
33
<PAGE>
ADDITIONAL REDEMPTION INFORMATION
SUSPENSION OF REDEMPTIONS
- -------------------------
The right to redeem the Fund's shares may be suspended or payment of the
redemption price postponed (1) when the NYSE is closed, (2) when trading on the
NYSE is restricted, (3) when an emergency exists as a result of which it is not
reasonably practicable for the Portfolio to dispose of securities it owns or
fairly to determine the value of its net assets, or (4) for such other period as
the SEC may by order permit for the protection of the Fund's shareholders.
Applicable SEC rules and regulations shall govern whether the conditions
prescribed in (2) or (3) exist. If the right of redemption is suspended,
shareholders may withdraw their offers of redemption, or they will receive
payment at the NAV per share in effect at the close of business on the first day
the NYSE is open ("Business Day") after termination of the suspension.
REDEMPTIONS IN KIND
- -------------------
The Fund reserves the right, under certain conditions, to honor any
request for redemption (or a combination of requests from the same shareholder
in any 90-day period) exceeding $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued as
described under "Share Prices and Net Asset Value" above. If payment is made in
securities, an Institution generally will incur brokerage expenses or other
transaction costs in converting those securities into cash and will be subject
to fluctuation in the market prices of those securities until they are sold. The
Fund does not redeem in kind under normal circumstances, but would do so when
the Fund Trustees determined that it was in the best interests of the Fund's
shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund distributes to its shareholders substantially all of its share of
any net investment income (after deducting expenses incurred directly by the
Fund), any net realized capital gains, and any net realized gains from foreign
currency transactions earned or realized by the Portfolio. The Portfolio's net
investment income consists of all income accrued on portfolio assets less
accrued expenses, but does not include capital and foreign currency gains and
losses. Net investment income and realized gains and losses are reflected in the
Portfolio's NAV (and, hence, the Fund's NAV) until they are distributed. The
Fund calculates its net investment income and NAV per share as of the close of
regular trading on the NYSE on each Business Day (usually 4:00 p.m. Eastern
time).
Dividends and other distributions are automatically reinvested in
additional shares of the distributing Fund, unless the Institution elects to
receive them in cash ("cash election"). To the extent dividends and other
distributions are subject to federal, state, or local income taxation, they are
taxable to the shareholders whether received in cash or reinvested in Fund
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shares. A cash election with respect to the Fund remains in effect until the
Institution notifies the Fund in writing to discontinue the election.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUND
- --------------------
To qualify for treatment as a RIC under the Code, the Fund must distribute
to its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain, and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements. With
respect to the Fund, these requirements include the following: (1) the Fund must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including gains from Financial Instruments) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
and(2) at the close of each quarter of the Fund's taxable year, (i) at least 50%
of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs, and other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities, and (ii) not more than 25% of the
value of its total assets may be invested in securities (other than U.S.
Government securities or securities of other RICs) of any one issuer. If the
Fund failed to qualify for treatment as a RIC for any taxable year, it would be
taxed on the full amount of its taxable income for that year without being able
to deduct the distributions it makes to its shareholders and the shareholders
would treat all those distributions, including distributions of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), as
dividends (that is, ordinary income) to the extent of the Fund's earnings and
profits.
Certain funds that invest in portfolios managed by NB Management,
including most of the Sister Funds have received rulings from the Internal
Revenue Service ("Service") that each such fund, as an investor in its
corresponding portfolio, will be deemed to own a proportionate share of the
portfolio's assets and income for purposes of determining whether the fund
satisfies all the requirements described above to qualify as a RIC. Although
these rulings may not be relied on as precedent by the Fund, NB Management
believes that the reasoning thereof and, hence, their conclusion apply to the
Fund as well.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ended on October 31 of that year, plus certain
other amounts.
See the next section for a discussion of the tax consequences to the Fund
of distributions to them from the Portfolio, investments by the Portfolio in
certain securities, and hedging transactions engaged in by the Portfolio.
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TAXATION OF THE PORTFOLIO
- -------------------------
Certain portfolios managed by NB Management, including the Portfolio, have
received rulings from the Service to the effect that, among other things, each
such portfolio will be treated as a separate partnership for federal income tax
purposes and will not be a "publicly traded partnership." As a result, the
Portfolio is not subject to federal income tax; instead, each investor in the
Portfolio, such as the Fund, is required to take into account in determining its
federal income tax liability its share of the Portfolio's income, gains, losses,
and deductions, without regard to whether it has received any cash distributions
from the Portfolio. The Portfolio also is not subject to Delaware or New York
income or franchise tax.
Because the Fund is deemed to own a proportionate share of the Portfolio's
assets and income for purposes of determining whether the Fund satisfies the
requirements to qualify as a RIC, the Portfolio intends to conduct its
operations so that the Fund will be able to satisfy all those requirements.
Distributions to the Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) will not result in the Fund's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds the
Fund's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, and (3) loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables. A Fund's basis for its interest in the Portfolio
generally equals the amount of cash the Fund invests in the Portfolio, increased
by the Fund's share of the Portfolio's net income and capital gains and
decreased by (1) the amount of cash and the basis of any property the Portfolio
distributes to the Fund and (2) the Fund's share of the Portfolio's losses.
Dividends and interest received by the Portfolio, and gains realized by
the Portfolio, may be subject to income, withholding, or other taxes imposed by
foreign countries and U.S. possessions ("foreign taxes") that would reduce the
total return on its securities. Tax treaties between certain countries and the
United States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors.
The Portfolio may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, if the Portfolio holds stock of a PFIC, the Fund (indirectly
through its interest in the Portfolio) will be subject to federal income tax on
its share of a portion of any "excess distribution" received by the Portfolio on
the stock or of any gain on the Portfolio's disposition of the stock
(collectively, "PFIC income"), plus interest thereon, even if the Fund
distributes its share of the PFIC income as a taxable dividend to its
shareholders. The balance of the Fund's share of the PFIC income will be
included in its investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
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<PAGE>
If the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the Fund's incurring the
foregoing tax and interest obligation, the Fund would be required to include in
income each year its share of the Portfolio's pro rata share of the QEF's annual
ordinary earnings and net capital gain -- which the Fund most likely would have
to distribute to satisfy the Distribution Requirement and avoid imposition of
the Excise Tax -- even if the Portfolio did not receive those earnings and gain
from the QEF. In most instances it will be very difficult, if not impossible, to
make this election because of certain requirements thereof.
A holder of stock in any PFIC may elect to include in ordinary income for
each taxable year the excess, if any, of the fair market value of the stock over
the adjusted basis therein as of the end of that year. Pursuant to the election,
a deduction (as an ordinary, not capital, loss) also would be allowed for the
excess, if any, of the holder's adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income for prior
taxable years under the election (and under regulations proposed in 1992 that
provided a similar election with respect to the stock of certain PFICS). The
adjusted basis in each PFIC's stock subject to the election would be adjusted to
reflect the amounts of income included and deductions taken thereunder.
The Portfolio's use of hedging strategies, such as writing (selling) and
purchasing options and futures contracts and entering into forward contracts,
involves complex rules that will determine for income tax purposes the amount,
character, and timing of recognition of the gains and losses the Portfolio
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from Financial Instruments derived by the Portfolio with respect to
its business of investing in securities or foreign currencies, will qualify as
permissible income for the Fund under the Income Requirement.
Exchange-traded futures contracts, and certain forward contracts subject
to section 1256 of the Code ("Section 1256 contracts") are required to be marked
to market (that is, treated as having been sold at market value) for federal
income tax purposes at the end of the Portfolio's taxable year. Sixty percent of
any net gain or loss recognized as a result of these "deemed sales," and 60% of
any net realized gain or loss from any actual sales, of Section 1256 contracts
are treated as long-term capital gain or loss; the remainder is treated as
short-term capital gain or loss. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax. These rules may operate to
increase the amount that the Fund must distribute to satisfy the Distribution
Requirement, which will be taxable to the shareholders as ordinary income, and
to increase the net capital gain recognized by the Fund, without in either case
increasing the cash available to the Fund. The Portfolio may elect to exclude
certain transactions from the operation of section 1256, although doing so may
have the effect of increasing the relative proportion of net short-term capital
gain (taxable to the Fund's shareholders as ordinary income when distributed to
them) and/or increasing the amount of dividends that Fund must distribute to
meet the Distribution Requirement and avoid imposition of the Excise Tax.
If the Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
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<PAGE>
adjusted basis -- and enters into a "constructive sale" of the position, the
Portfolio will be treated as having made an actual sale thereof, with the result
that gain will be recognized at that time. A constructive sale generally
consists of a short sale, an offsetting notional principal contract, or a
futures or forward contract entered into by the Portfolio or a related person
with respect to the same or substantially identical property. In addition, if
the appreciated financial position is itself a short sale or such a contract,
acquisition of the underlying property or substantially identical property will
be deemed a constructive sale. The foregoing will not apply, however, to any
transaction during any taxable year that otherwise would be treated as a
constructive sale if the transaction is closed within 30 days after the end of
that year and the Portfolio holds the appreciated financial position unhedged
for 60 days after that closing (i.e., at no time during that 60-day period is
the Portfolio's risk of loss regarding that position reduced by reason of
certain specified transactions with respect to substantially identical or
related property, such as having an option to sell, being contractually
obligated to sell, making a short sale, or granting an option to buy
substantially identical stock or securities).
TAXATION OF THE FUND'S SHAREHOLDERS
- -----------------------------------
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
PORTFOLIO TRANSACTIONS
Neuberger Berman acts as principal broker for the Portfolio in the
purchase and sale of its portfolio securities (other than certain securities
traded on the OTC market) and in connection with the purchase and sale of
options on its securities. A substantial portion of the portfolio transactions
of the Portfolio involves securities traded on the OTC market; that Portfolio
purchases and sells OTC securities in principal transactions with dealers who
are the principal market makers for such securities.
During the fiscal year ended August 31, 1997, the Portfolio paid brokerage
commissions of $860,097, of which $516,040 was paid to Neuberger Berman. During
the fiscal year ended August 31, 1998, the Portfolio paid brokerage commissions
of $2,419,159, of which $1,159,143 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, the Portfolio paid brokerage
commissions of $2,150,168, of which $1,034,712 was paid to Neuberger Berman.
Transactions in which the Portfolio used Neuberger Berman as broker comprised
49.53% of the aggregate dollar amount of transactions involving the payment of
commissions, and 48.12% of the aggregate brokerage commissions paid by the
Portfolio, during the fiscal year ended August 31, 1999. 94.48% of the
$1,053,905 paid to other brokers by the Portfolio during that fiscal year
(representing commissions on transactions involving approximately $425,499,870)
was directed to those brokers because of research services they provided. During
the fiscal year ended August 31, 1999, the Portfolio acquired securities of the
following of its Regular B/Ds: American Express Credit Corp., Ford Motor Credit
Corp., General Electric Capital Co., Merrill Lynch, Pierce, Fenner & Smith Inc.,
Morgan Stanley Dean Witter & Co., and State Street Bank and Trust Company; at
that date, the Portfolio held the securities of its Regular B/Ds with an
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<PAGE>
aggregate value as follows: American Express Credit Corp., $9,997,150; General
Electric Capital Corp., $9,989,831; and State Street Bank & Trust Company,
$26,740,000.
Portfolio securities are, from time to time, loaned by the Portfolio to
Neuberger Berman in accordance with the terms and conditions of an order issued
by the SEC. The order exempts such transactions from provisions of the 1940 Act
that would otherwise prohibit such transactions, subject to certain conditions.
In accordance with the order, securities loans made by the Portfolio to
Neuberger Berman are fully secured by cash collateral. The portion of the income
on the cash collateral which may be shared with Neuberger Berman is to be
determined by reference to concurrent arrangements between Neuberger Berman and
non-affiliated lenders with which it engages in similar transactions. In
addition, where Neuberger Berman borrows securities from the Portfolio in order
to re-lend them to others, Neuberger Berman may be required to pay that
Portfolio, on a quarterly basis, certain of the earnings that Neuberger Berman
otherwise has derived from the re-lending of the borrowed securities. When
Neuberger Berman desires to borrow a security that the Portfolio has indicated a
willingness to lend, Neuberger Berman must borrow such security from that
Portfolio, rather than from an unaffiliated lender, unless the unaffiliated
lender is willing to lend such security on more favorable terms (as specified in
the order) than that Portfolio. If, in any month, the Portfolio's expenses
exceed its income in any securities loan transaction with Neuberger Berman,
Neuberger Berman must reimburse that Portfolio for such loss.
A committee of Independent Portfolio Trustees from time to time reviews,
among other things, information relating to securities loans by the Portfolio.
The following information reflects interest income earned by the Portfolio from
the cash collateralization of securities loans during the fiscal years ended
1998 and 1997. As reflected below, Neuberger Berman received a portion of the
interest income from the cash collateral.
Interest Income
from
Collateralization Amount Paid to
Name of Portfolio Fiscal Year End of Securities Loans Neuberger Berman
- ----------------- --------------- ------------------- ----------------
- --------------------------------------------------------------------------------
Neuberger Berman 8/31/98 $ 285,737 $ 152,375
GENESIS Portfolio 8/31/97 $ 168,552 $ 69,948
- --------------------------------------------------------------------------------
In effecting securities transactions, the Portfolio generally seeks to
obtain the best price and execution of orders. Commission rates, being a
component of price, are considered along with other relevant factors. The
Portfolio plans to continue to use Neuberger Berman as its principal broker
where, in the judgment of NB Management, that firm is able to obtain a price and
execution at least as favorable as other qualified brokers. To the Portfolio's
knowledge, no affiliate of the Portfolio receives give-ups or reciprocal
business in connection with its securities transactions.
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<PAGE>
The use of Neuberger Berman as a broker for the Portfolio is subject to
the requirements of Section 11(a) of the Securities Exchange Act of 1934.
Section 11(a) prohibits members of national securities exchanges from retaining
compensation for executing exchange transactions for accounts which they or
their affiliates manage, except where they have the authorization of the persons
authorized to transact business for the account and comply with certain annual
reporting requirements. Managers Trust and NB Management have expressly
authorized Neuberger Berman to retain such compensation, and Neuberger Berman
has agreed to comply with the reporting requirements of Section 11(a).
Under the 1940 Act, commissions paid by the Portfolio to Neuberger Berman
in connection with a purchase or sale of securities on a securities exchange may
not exceed the usual and customary broker's commission. Accordingly, it is the
Portfolio's policy that the commissions paid to Neuberger Berman must, in NB
Management's judgment, be (1) at least as favorable as those charged by other
brokers having comparable execution capability and (2) at least as favorable as
commissions contemporaneously charged by Neuberger Berman on comparable
transactions for its most favored unaffiliated customers, except for accounts
for which Neuberger Berman acts as a clearing broker for another brokerage firm
and customers of Neuberger Berman considered by a majority of the Independent
Portfolio Trustees not to be comparable to the Portfolio. The Portfolio does not
deem it practicable and in its best interests to solicit competitive bids for
commissions on each transaction effected by Neuberger Berman. However,
consideration regularly is given to information concerning the prevailing level
of commissions charged by other brokers on comparable transactions during
comparable periods of time. The 1940 Act generally prohibits Neuberger Berman
from acting as principal in the purchase of portfolio securities from, or the
sale of portfolio securities to, the Portfolio unless an appropriate exemption
is available.
A committee of Independent Portfolio Trustees from time to time reviews,
among other things, information relating to the commissions charged by Neuberger
Berman to the Portfolio and to its other customers and information concerning
the prevailing level of commissions charged by other brokers having comparable
execution capability. In addition, the procedures pursuant to which Neuberger
Berman effects brokerage transactions for the Portfolio must be reviewed and
approved no less often than annually by a majority of the Independent Portfolio
Trustees.
To ensure that accounts of all investment clients, including the
Portfolio, are treated fairly in the event that Neuberger Berman receives
transaction instructions regarding a security for more than one investment
account at or about the same time, Neuberger Berman may combine orders placed on
behalf of clients, including advisory accounts in which affiliated persons have
an investment interest, for the purpose of negotiating brokerage commissions or
obtaining a more favorable price. Where appropriate, securities purchased or
sold may be allocated, in terms of amount, to a client according to the
proportion that the size of the order placed by that account bears to the
aggregate size of orders contemporaneously placed by the other accounts, subject
to de minimis exceptions. All participating accounts will pay or receive the
same price.
Under policies adopted by the Board of Trustees, Neuberger Berman may
enter into agency cross-trades on behalf of the Portfolio. An agency cross-trade
is a securities transaction in which the same broker acts as agent on both sides
of the trade and the broker or an affiliate has discretion over one of the
participating accounts. In this situation, Neuberger Berman would receive
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<PAGE>
brokerage commissions from both participants in the trade. The other account
participating in an agency cross-trade with the Portfolio cannot be an account
over which Neuberger Berman exercises investment discretion. A member of the
Board of Trustees who is not affiliated with Neuberger Berman reviews
confirmations of each agency cross-trade that the Portfolio participates in.
The Portfolio expects that it will continue to execute a portion of its
transactions through brokers other than Neuberger Berman. In selecting those
brokers, NB Management considers the quality and reliability of brokerage
services, including execution capability, performance, and financial
responsibility, and may consider research and other investment information
provided by, and sale of Fund shares effected through, those brokers.
A committee comprised of officers of NB Management and employees of
Neuberger Berman who are portfolio managers of some of the portfolios and Other
NB Funds (collectively, "NB Funds") and some of Neuberger Berman's managed
accounts ("Managed Accounts") evaluates semi-annually the nature and quality of
the brokerage and research services provided by other brokers. Based on this
evaluation, the committee establishes a list and projected rankings of preferred
brokers for use in determining the relative amounts of commissions to be
allocated to those brokers. Ordinarily, the brokers on the list effect a large
portion of the brokerage transactions for the NB Funds and the Managed Accounts
that are not effected by Neuberger Berman. However, in any semi-annual period,
brokers not on the list may be used, and the relative amounts of brokerage
commissions paid to the brokers on the list may vary substantially from the
projected rankings. These variations reflect the following factors, among
others: (1) brokers not on the list or ranking below other brokers on the list
may be selected for particular transactions because they provide better price
and/or execution, which is the primary consideration in allocating brokerage;
(2) adjustments may be required because of periodic changes in the execution
capabilities of or research provided by particular brokers or in the execution
or research needs of the NB Funds and/or the Managed Accounts; and (3) the
aggregate amount of brokerage commissions generated by transactions for the NB
Funds and the Managed Accounts may change substantially from one semi-annual
period to the next.
The commissions paid to a broker other than 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 Portfolio by
supplementing the information otherwise available to NB Management. That
research may be used by NB Management in servicing Other NB Funds and, in some
cases, by Neuberger Berman in servicing the Managed Accounts. On the other hand,
research received by NB Management from brokers effecting portfolio transactions
on behalf of the Other NB Funds and by Neuberger Berman from brokers effecting
portfolio transactions on behalf of the Managed Accounts may be used for the
Portfolio's benefit.
Judith M. Vale and Robert W. D'Alelio, each of whom is a Vice President of
NB Management and a Managing Director of Neuberger Berman, are the persons
primarily responsible for making decisions as to specific action to be taken
with respect to the investment portfolio of the Portfolio. Each of them has full
authority to take action with respect to portfolio transactions and may or may
not consult with other personnel of NB Management prior to taking such action.
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PORTFOLIO TURNOVER
- ------------------
The Portfolio's portfolio turnover rate is calculated by dividing (1) the
lesser of the cost of the securities purchased or the proceeds from the
securities sold by the Portfolio during the fiscal year (other than securities,
including options, whose maturity or expiration date at the time of acquisition
was one year or less) by (2) the month-end average of the value of such
securities owned by the Portfolio during the fiscal year.
REPORTS TO SHAREHOLDERS
Shareholders of the Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors for the Fund and the Portfolio. The Fund's statements show the
investments owned by the Portfolio and the market values thereof and provide
other information about the Fund and its operations, including the Fund's
beneficial interest in the Portfolio.
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS
THE FUND
- --------
The Fund is a separate ongoing series of Equity Series, a Delaware
business trust organized pursuant to a Trust Instrument dated as of September
22, 1998. The Trust is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company, commonly known as a mutual
fund. Equity Series has one series. The Fund invests all of net investable
assets in the Portfolio, in each case receiving a beneficial interest in the
Portfolio. The trustees of the Trust may establish additional series or classes
of shares without the approval of shareholders. The assets of each series belong
only to that series, and the liabilities of each series are borne solely by that
series and no other.
DESCRIPTION OF SHARES. The Fund is authorized to issue an unlimited
number of shares of beneficial interest (par value $0.001 per share). Shares of
the Fund represent equal proportionate interests in the assets of that Fund only
and have identical voting, dividend, redemption, liquidation, and other rights.
All shares issued are fully paid and non-assessable, and shareholders have no
preemptive or other rights to subscribe to any additional shares.
SHAREHOLDER MEETINGS. The trustees of the Trust do not intend to
hold annual meetings of shareholders of the Fund. The trustees will call special
meetings of shareholders of the Fund only if required under the 1940 Act or in
their discretion or upon the written request of holders of 10% or more of the
outstanding shares of that Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the
shareholders of the Fund will not be personally liable for the obligations of
the Fund; a shareholder is entitled to the same limitation of personal liability
extended to shareholders of a corporation. To guard against the risk that
Delaware law might not be applied in other states, the Trust Instrument requires
that every written obligation of the Trust or the Fund contain a statement that
such obligation may be enforced only against the assets of that Trust or Fund
and provides for indemnification out of Trust or Fund property of any
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<PAGE>
shareholder nevertheless held personally liable for Trust or Fund obligations,
respectively.
OTHER. Because Fund shares can be bought, owned and sold only
through an account with an Institution, a client of an Institution may be unable
to purchase additional shares and/or may be required to redeem shares (and
possibly incur a tax liability) if the client no longer has a relationship with
the Institution or if the Institution no longer has a contract with NB
Management to perform services. Depending on the policies of the Institution
involved, an investor may be able to transfer an account from one Institution to
another.
THE PORTFOLIO
- -------------
The Portfolio is a separate operating series of Equity Managers Trust, a
New York common law trust organized as of December 1, 1992. Equity Managers
Trust is registered under the 1940 Act as a diversified, open-end management
investment company and has eight separate portfolios. The assets of each
portfolio belong only to that portfolio, and the liabilities of a portfolio are
borne solely by that portfolio and no other.
Prior to November 9, 1998, the name of the Portfolio was "Neuberger&Berman
Genesis Portfolio"
FUND'S INVESTMENTS IN PORTFOLIO. The Fund is a "feeder fund" that seeks to
achieve its investment objective by investing all of its net investable assets
in the Portfolio, which is a "master fund." The Portfolio, which has the same
investment objective, policies, and limitations as the Fund, in turn invests in
securities; the Fund thus acquires an indirect interest in those securities.
The Fund's investment in the Portfolio is in the form of a
non-transferable beneficial interest. Members of the general public may not
purchase a direct interest in the Portfolio. The Sister Funds that are series of
Neuberger Berman Equity Funds(R) ("Equity Funds") and the other mutual funds
that are series of other trusts invest all of their respective net assets in
corresponding portfolios of Equity Managers Trust. The shares of each series of
Equity Funds are available for purchase by members of the general public. The
Trust does not sell its shares directly to members of the general public.
The Portfolio may also permit other investment companies and/or other
institutional investors to invest in the Portfolio. All investors will invest in
the Portfolio on the same terms and conditions as the Fund and will pay a
proportionate share of the Portfolio's expenses. Other investors in the
Portfolio are not required to sell their shares at the same public offering
price as the Fund, could have a different administration fee and expenses than
the Fund, and might charge a sales commission. Therefore, Fund shareholders may
have different returns than shareholders in another investment company that
invests exclusively in the Portfolio. Information regarding any fund that
invests in the Portfolio is available from NB Management by calling
800-877-9700.
The trustees of the Trust believe that investment in the Portfolio by a
series of Equity Funds, Equity Trust or Equity Assets by other potential
investors in addition to the Fund may enable the Portfolio to realize economies
of scale that could reduce its operating expenses, thereby producing higher
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returns and benefiting all shareholders. However, the Fund's investment in the
Portfolio may be affected by the actions of other large investors in the
Portfolio, if any. For example, if a large investor in the Portfolio (other than
the Fund) redeemed its interest in the Portfolio, the Portfolio's remaining
investors (including the Fund) might, as a result, experience higher pro rata
operating expenses, thereby producing lower returns.
The Fund may withdraw its entire investment from the Portfolio at any
time, if the trustees of the Trust determine that it is in the best interests of
the Fund and its shareholders to do so. The Fund might withdraw, for example, if
there were other investors in the Portfolio with power to, and who did by a vote
of all investors (including the Fund), change the investment objective,
policies, or limitations of the Portfolio in a manner not acceptable to the
trustees of the Trust. A withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Portfolio to the
Fund. That distribution could result in a less diversified portfolio of
investments for the Fund and could affect adversely the liquidity of the Fund's
investment portfolio. If the Fund decided to convert those securities to cash,
it usually would incur brokerage fees or other transaction costs. If the Fund
withdrew its investment from the Portfolio, the trustees of the Trust would
consider what actions might be taken, including the investment of all of the
Fund's net investable assets in another pooled investment entity having
substantially the same investment objective as the Fund or the retention by the
Fund of its own investment manager to manage its assets in accordance with its
investment objective, policies, and limitations. The inability of the Fund to
find a suitable replacement could have a significant impact on shareholders.
INVESTOR MEETINGS AND VOTING. The Portfolio normally will not hold
meetings of investors except as required by the 1940 Act. Each investor in the
Portfolio will be entitled to vote in proportion to its relative beneficial
interest in the Portfolio. On most issues subjected to a vote of investors, the
Fund will solicit proxies from its shareholders and will vote its interest in
the Portfolio in proportion to the votes cast by the Fund's shareholders. If
there are other investors in the Portfolio, there can be no assurance that any
issue that receives a majority of the votes cast by Fund shareholders will
receive a majority of votes cast by all Portfolio investors; indeed, if other
investors hold a majority interest in the Portfolio, they could have voting
control of the Portfolio.
CERTAIN PROVISIONS. Each investor in the Portfolio, including the Fund,
will be liable for all obligations of the Portfolio. However, the risk of an
investor in the Portfolio incurring financial loss beyond the amount of its
investment on account of such liability would be limited to circumstances in
which the Portfolio had inadequate insurance and was unable to meet its
obligations out of its assets. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors.
CUSTODIAN AND TRANSFER AGENT
The Fund and Portfolio have selected State Street Bank and Trust Company,
225 Franklin Street, Boston, MA 02110, as custodian for its securities and cash.
State Street also serves as the Fund's transfer agent, administering purchases,
redemptions, and transfers of Fund shares with respect to Institutions and the
payment of dividends and other distributions to Institutions. All correspondence
should be mailed to Neuberger Berman Funds, Institutional Services, 605 Third
44
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Avenue, 2nd Floor, New York, NY 10158-0180. In addition, State Street serves as
transfer agent for the Portfolio.
INDEPENDENT AUDITORS/ACCOUNTANTS
The Fund and Portfolio have selected Ernst & Young LLP, 200 Clarendon
Street, Boston, MA 02116, as the independent auditors who will audit their
financial statements.
LEGAL COUNSEL
The Fund and Portfolio have selected Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as their
legal counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and percentage of
ownership of each person who was known by the Fund to own beneficially or of
record 5% or more of the Fund's outstanding shares at October 30, 1999:
Percentage of
Ownership At
Name and Address October 30, 1999
---------------- ----------------
Neuberger Berman PricewaterhouseCoopers LLP 59.10%
GENESIS INSTITUTIONAL The Savings Plan for Employees
and Partners of Price Waterhouse
P.O. Box 30004
Tampa, FL 33630-3004
PricewaterhouseCoopers LLP 30.20%
PSP CF Partners of Price
WaterhouseCoopers LLP
P.O. Box 30004
Tampa, FL 33630-3004
PricewaterhouseCoopers LLP 10.68%
Retirement Benefits Accumulation
Plan for Employees
P.O. Box 30004
Tampa, FL 33630-3004
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in
the Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered by the Prospectus. The registration statement,
45
<PAGE>
including the exhibits filed therewith, may be examined at the SEC's offices in
Washington, D.C.
Statements contained in this SAI and in the Prospectus as to the contents
of any contract or other document referred to are not necessarily complete. In
each instance where reference is made to the copy of any contract or other
document filed as an exhibit to a registration statement, each such statement is
qualified in all respects by such reference.
FINANCIAL STATEMENTS
The following financial statements and related documents are incorporated
herein by reference from the Fund's Annual Report to shareholders for the fiscal
year ended August 31, 1999:
The audited financial statements of the Fund and Portfolio and notes
thereto for the fiscal year ended August 31, 1999, and the reports of Ernst &
Young LLP, independent auditors, with respect to such audited financial
statements.
46
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Appendix A
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
S&P CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-) - The ratings above may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
MOODY'S CORPORATE BOND RATINGS:
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or an exceptionally stable margin,
and principal is secure. Although the various protective elements are likely to
change, the changes that can be visualized are most unlikely to impair the
fundamentally strong position of the issuer.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as "high-grade
bonds." They are rated lower than the best bonds because margins of protection
A-1
<PAGE>
may not be as large as in Aaa-rated securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
that make the long-term risks appear somewhat larger than in Aaa-rated
securities.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. These bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations that are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
MODIFIERS--Moody's may apply numerical modifiers 1, 2, and 3 in each generic
rating classification described above. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issuer
ranks in the lower end of its generic rating.
S&P commercial paper ratings:
A-1 - This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+).
Moody's commercial paper ratings
A-2
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Issuers rated PRIME-1 (or related supporting institutions), also known as P-1,
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured
sources of alternate liquidity.
A-3
