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Neuberger & Berman Equity Funds
Supplement to the Statement of Additional Information
Dated December 15, 1995
Neuberger & Berman Socially Responsive Fund
Effective April 8, 1996, the following supplements information
about the above-mentioned series appearing in the Statement of Additional
Information of Neuberger & Berman Equity Funds. Except as otherwise
provided herein, all capitalized terms have the meanings set forth in the
Statement of Additional Information.
INVESTMENT INFORMATION
Janet W. Prindle, Portfolio Manager of Neuberger & Berman
Socially Responsive Portfolio (p. 14)
An Interview with Janet Prindle
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Q: FIRST THINGS FIRST. HOW DO YOU BEGIN YOUR STOCK SELECTION
PROCESS?
A: Our first question is always: On financial grounds alone, is a
company a smart investment? For a company's stock to meet our financial
test, it must pass a number of hurdles.
We look for bargains, just like the portfolio managers of other
Neuberger & Berman Equity Funds. More specifically, we search for
companies that we believe have terrific products, excellent customer
service, and solid balance sheets -- but because they may have missed
quarterly earnings expectations by a few pennies, because their sectors
are currently out of favor, because Wall Street overreacted to a temporary
setback, or because the company's merits aren't widely known, their stocks
are selling at a discount.
While we look at the stock's fundamentals carefully, that's not
all we examine. We meet an awful lot of CEOs and CFOs. Top officers of
over 400 companies visit Neuberger & Berman each year, and I'm also
frequently on the road visiting dozens of corporations. From Neuberger &
Berman Socially Responsive Fund's inception, we've met with every company
we own.
When I'm face to face with a CEO, I'm searching for answers to
two crucial questions: "Does the company have a vision of where it wants
to go?" and "Can the management team make it happen?" I've analyzed
companies for over three decades, and I always look for companies that
have both clear strategies and management talent.
Q: WHEN YOU EVALUATE A COMPANY'S BALANCE SHEET, WHAT MATTERS THE
MOST TO YOU?
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A: Definitely a company's "free cash flow." Compare it to your
household's discretionary income -- the money you have left over each
month after you pay off your monthly debt and other expenses. With ample
free cash flow, a company can do any number of things. It can buy back
its stock. Make important acquisitions. Expand its research &
development spending. Or increase its dividend payments.
When a company generates lots of excess cash flow, it has growth
capital at its disposal. It can invest for higher profits down the line
and improve shareholder value. Determining exactly how a company intends
to spend its excess cash is an entirely different matter -- and that's
where the information learned in our company meetings come in. Still,
you've got to have the extra cash in the first place. Which is why we pay
so much attention to it.
Q: SO YOU TAKE A HARD LOOK AT A COMPANY'S BALANCE SHEET AND ITS
MANAGEMENT. AFTER A COMPANY PASSES YOUR FINANCIAL TEST, WHAT DO YOU DO
NEXT?
A: After we're convinced of a company's merits on financial grounds
alone, we review its record as a corporate citizen. In particular, we
look for evidence of leadership in three key areas: concern for the
environment, workplace diversity, and enlightened employment practices.
It should be clear that our social screening always takes place
after we search far and wide for what we believe are the best investment
opportunities available. This is a crucial point, and I'll use an analogy
to explain it. Let's assume you're looking to fill a vital position in
your company. What you'd pay attention to first is the candidate's
competence: Can he or she do the job? So after interviewing a number of
candidates, you'd narrow your list to those that are highly qualified. To
choose from this smaller group, you might look at the candidate's
personality: Can he or she get along with everyone in your group?
Obviously, you wouldn't hire an unqualified person simply because
he or she is likable. What you'd probably do is give the job to a highly
qualified person who is also compatible with your group.
Now, let's turn to the companies that do make our financial cuts.
How do we decide whether they meet our social criteria? Once again, our
regular meetings with CEOs are key. We look for top management's support
of programs that put more women and minorities in the pipeline to be
future officers and board members; that minimize emissions, reduce waste,
conserve energy, and protect natural resources; and that enable employees
to balance work and family life with benefits such as flextime and
generous maternal and paternal leave.
We realize that companies are not all good or all bad. Instead
of looking for ethical perfection, we analyze how a company responds to
troublesome problems. If a company is cited for breaking a pollution law,
we evaluate its reaction. We also ask: is it the first time? Do its top
executives have a plan for making sure it doesn't happen again -- and how
committed are they?
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If we're satisfied with the answers, a company makes it into our
portfolio. When all is said and done, we invest in companies that have
diverse work forces, strong CEOs, tough environmental standards, and
terrific balance sheets. In our judgment, financially strong companies
that are also good corporate citizens are more likely to enjoy a
competitive advantage. These days, more and more people won't buy a
product unless they know it's environmentally friendly. In a similar
vein, companies that treat their workers well may be more productive and
profitable.
Q: WHY HAVE INVESTORS BEEN ATTRACTED TO NEUBERGER & BERMAN SOCIALLY
RESPONSIVE FUND?
A: Our shareholders are looking to invest for the future in more
ways than one. While they care deeply about their own financial futures,
they're equally passionate about the world they leave to later
generations. They want to be able to meet their college bills and leave a
world where the air is a little cleaner and where the doors to the
executive suite are a little more open.
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