NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 2000
The Balanced Portfolio, Growth Portfolio, Guardian Portfolio,
International Portfolio, Limited Maturity Bond Portfolio, Liquid Asset
Portfolio, Mid-Cap Growth Portfolio, Partners Portfolio and Socially Responsive
Portfolio (each a "Portfolio") of Neuberger Berman Advisers Management Trust
("Trust") offer shares pursuant to a Prospectus dated May 1, 2000.
The Portfolios' Prospectus provides the basic information that an
investor should know before investing. You can get a free copy of the Prospectus
from Neuberger Berman Management Inc. ("NB Management"), 605 Third Avenue, 2nd
Floor, New York, NY 10158-0180, or by calling the Trust at 1-800-877-9700.
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 a Portfolio or its distributor. The Prospectus and this SAI do not constitute
an offering by a Portfolio 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 Portfolios named in this
SAI are either service marks or registered trademarks of NB Management.(C)2000
Neuberger Berman Management Inc.
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TABLE OF CONTENTS
Page
INVESTMENT INFORMATION........................................................1
Investment Policies and Limitations..................................1
Temporary Defensive Positions........................................4
Rating Agencies......................................................5
Investment Insight...................................................5
Additional Investment Information...................................16
PERFORMANCE INFORMATION......................................................51
TRUSTEES AND OFFICERS........................................................56
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................61
INVESTMENT MANAGEMENT, ADVISORY AND ADMINISTRATION SERVICES..................64
Expense Limitations.................................................66
Management and Control of NB Management and Neuberger Berman........67
Sub-Adviser.........................................................68
Investment Companies Advised........................................69
DISTRIBUTION ARRANGEMENTS....................................................72
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................72
Suspension of Redemptions...........................................73
Redemptions in Kind.................................................74
DIVIDENDS AND OTHER DISTRIBUTIONS............................................74
ADDITIONAL TAX INFORMATION...................................................74
Taxation of Each Portfolio..........................................75
PORTFOLIO TRANSACTIONS.......................................................80
PORTFOLIO TURNOVER...........................................................86
REPORTS TO SHAREHOLDERS......................................................86
INFORMATION REGARDING ORGANIZATION, CAPITALIZATION, AND OTHER MATTERS........87
CUSTODIAN AND TRANSFER AGENT.................................................88
INDEPENDENT AUDITORS.........................................................88
LEGAL COUNSEL................................................................88
REGISTRATION STATEMENT.......................................................88
FINANCIAL STATEMENTS.........................................................88
APPENDIX A: RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER................a-1
APPENDIX B: TOTAL RETURN ANALYSIS .........................................B-1
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INVESTMENT INFORMATION
Each Portfolio is a separate series of the Trust, a Delaware business
trust registered with the Securities and Exchange Commission ("SEC") as a
diversified, open-end management investment company and organized on May 23,
1994. Each Portfolio seeks its investment objective by investing in accordance
with its investment objective and policies. The Portfolios are managed by NB
Management.
Prior to May 1, 2000, the Portfolios invested through a two-tier
master/feeder structure. Rather than investing directly in securities, each
Portfolio invested all of its assets in another fund that served as a
corresponding "master series." All of the master series were separate series of
an investment company named Advisers Managers Trust. The master series, in turn,
invested in portfolio securities. Effective May 1, 2000, the Portfolios
converted to a conventional one-tier structure. Each Portfolio redeemed its
investment in its corresponding master series in return for delivery of the
series' portfolio securities, at current net asset value, subject to the
liabilities of the master series. Accordingly, each Portfolio received the
investment securities of its corresponding master series and will continue to
hold portfolio securities directly.
The following information supplements the discussion in the Prospectus
of the investment objective, policies and limitations of each Portfolio. Unless
otherwise specified, those investment objectives, policies and limitations are
not fundamental and may be changed by the trustees of the Trust ("Trustees")
without shareholder approval. The fundamental investment objectives, policies
and limitations of a Portfolio may not be changed without the approval of the
lesser of: (1) 67% of the total units of beneficial interest ("shares") of the
Portfolio represented at a meeting at which more than 50% of the outstanding
Portfolio shares are represented; or (2) a majority of the outstanding shares of
the 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."
Investment Policies and Limitations
Each Portfolio has its own fundamental and non-fundamental investment
policies and limitations, as discussed below.
For purposes of the investment limitation on concentration in a
particular industry, NB Management determines the "issuer" of a municipal
obligation that is not a general obligation note or bond based on the
obligation's characteristics. The most significant of these characteristics is
the source of funds for the repayment of principal and payment of interest on
the obligation. If an obligation is backed by an irrevocable letter of credit or
other guarantee, without which the obligation would not qualify for purchase
under a Portfolio's quality restrictions, the issuer of the letter of credit or
the guarantee is considered an issuer of the obligation. If an obligation meets
the quality restrictions of a Portfolio without credit support, the Portfolio
treats the commercial developer or the industrial user, rather than the
governmental entity or the guarantor, as the issuer of the obligation, even if
the obligation is backed by a letter of credit or other guarantee. The Liquid
Asset Portfolio determines the "issuer" of a municipal obligation for purposes
of its policy on industry concentration in accordance with the principles of
Rule 2a-7 under the 1940 Act. Also for purposes of the investment limitation on
concentration in a particular industry, both mortgage-backed and asset-backed
securities are grouped together as a single industry and certificates of deposit
("CD") are interpreted to include similar types of time deposits.
Except for the limitation on borrowing and, with respect to Limited
Maturity Bond Portfolio and Liquid Asset Portfolio, the limitation on illiquid
securities, any maximum percentage of securities or assets contained in any
investment policy or limitation will not be considered to be exceeded unless the
percentage limitation is exceeded immediately after, and because of, a
transaction by a Portfolio. If events subsequent to a transaction result in a
Portfolio exceeding the percentage limitation on borrowing, as applicable, or
illiquid securities, NB Management will take appropriate steps to reduce the
percentage of borrowings or the percentage held in illiquid securities, as may
be required by law, within a reasonable amount of time.
The Portfolios' fundamental investment policies and limitations are as
follows:
1........Borrowing. Each Portfolio may not borrow money, except that a
Portfolio may (i) borrow money from banks for temporary or emergency purposes
and not for leveraging or investment (except for International Portfolio which
may borrow for leveraging or investment) and (ii) enter into reverse repurchase
agreements for any purpose; provided that (i) and (ii) in combination do not
exceed 33-1/3% of the value of its total assets (including the amount borrowed)
less liabilities (other than borrowings). If at any time borrowings exceed
33-1/3% of the value of a 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. Each 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 a
Portfolio from purchasing futures contracts or options (including options on
futures and foreign currencies and forward contracts but excluding options or
futures contracts on physical commodities) or from investing in securities of
any kind.
For purposes of the limitations on commodities, the Portfolios do not
consider foreign currencies or forward contracts to be physical commodities.
3........Diversification. Each 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. Each Portfolio may not purchase any
security if, as a result, 25% or more of its total assets (taken at current
value) would be invested in the securities of issuers having their principal
business activities in the same industry. This limitation does not apply to
purchases of (i) securities issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities, or (ii) investments by all Portfolios (except
Partners Portfolio and International Portfolio) in certificates of deposit or
bankers' acceptances issued by domestic branches of U.S. banks.
5........Lending. Each 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. Each Portfolio may not purchase real estate
unless acquired as a result of the ownership of securities or instruments, but
this restriction shall not prohibit a 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. Each Portfolio may not issue senior
securities, except as permitted under the 1940 Act.
8........Underwriting. Each Portfolio may not underwrite securities of
other issuers, except to the extent that a Portfolio, in disposing of portfolio
securities, may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 ("1933 Act").
9........Investment through a Master/Feeder Structure. Notwithstanding
any other investment policy, each Portfolio may invest all of its net 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 Portfolio. Currently, the Portfolios
do not utilize this policy. Rather, each Portfolio invests directly in
securities.
The following non-fundamental investment policies and limitations apply
to all Portfolios unless otherwise indicated.
1........Borrowing. (All Portfolios except International Portfolio).
Each 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, each Portfolio may not make any loans other
than securities loans.
3........Margin Transactions. Each Portfolio may not purchase
securities on margin from brokers or other lenders except that a Portfolio may
obtain such short-term credits as are necessary for the clearance of securities
transactions. For all Portfolios (except Liquid Asset Portfolio) 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........Illiquid Securities. Each Portfolio may not purchase any
security if, as a result, more than 15% (10% in the case of Liquid Asset
Portfolio) 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.
5........Investments in Any One Issuer. (International Portfolio). At
the close of each quarter of the Portfolio's taxable year, (i) no more than 25%
of its total assets will be invested in the securities of a single issuer, and
(ii) with regard to 50% of its total assets, no more than 5% of its total assets
will be invested in the securities of a single issuer. These limitations do not
apply to U.S. government securities, as defined for tax purposes, or securities
of another regulated investment company.
(Liquid Asset Portfolio). The Portfolio may not purchase the securities
of any one issuer (other than U.S. Government and Agency Securities or
securities subject to a guarantee issued by a non-controlled person as defined
in Rule 2a-7 under the 1940 Act) if, as a result, more than 5% of the
Portfolio's total assets would be invested in the securities of that issuer.
6........Foreign Securities. (Guardian, Partners, and Socially
Responsive Portfolios). These Portfolios may not invest more than 10% of the
value of their 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").
7........Pledging. (Guardian Portfolio). The Portfolio may not pledge
or hypothecate any of its assets, except that 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.
The other Portfolios are not subject to any restrictions on their
ability to pledge or hypothecate assets and may do so in connection with
permitted borrowings.
8........Social Policy. (Socially Responsive Portfolio). The Portfolio
may not purchase securities of issuers who derive more than 5% of their total
revenue from alcohol, tobacco, gambling or weapons, or that are involved in
nuclear power.
In addition to the preceding non-fundamental investment policies and
limitations, Liquid Asset Portfolio has adopted procedures pursuant to Rule 2a-7
under the 1940 Act which impose certain restrictions and limitations on the
Portfolio's investments.
Temporary Defensive Positions
For temporary defensive purposes, each Portfolio (except Socially
Responsive and International Portfolios) may invest up to 100% of its total
assets in cash or cash equivalents, U.S. Government and Agency Securities,
commercial paper, other money market funds (except for Liquid Asset Portfolio)
and certain other money market instruments, as well as repurchase agreements
collateralized by the foregoing. Limited Maturity Bond, Balanced (debt
securities portion) and Liquid Asset Portfolios may adopt shorter than normal
weighted average maturities or durations. Yields on these securities are
generally lower than yields available on the lower-rated debt securities in
which Limited Maturity Bond and Balanced (debt portion) Portfolios normally
invests.
Any part of Socially Responsive Portfolio's assets may be retained
temporarily in investment grade fixed income securities of non-governmental
issuers, U.S. Government and Agency Securities, repurchase agreements, money
market instruments, commercial paper, and cash and cash equivalents when NB
Management believes that significant adverse market, economic, political, or
other circumstances require prompt action to avoid losses. Generally, the
foregoing temporary investments for Socially Responsive Portfolio are selected
with a concern for the social impact of each investment.
For temporary defensive purposes, International Portfolio may invest up
to 100% of its total assets in short-term foreign and U.S. investments, such as
cash or cash equivalents, commercial paper, short-term bank obligations,
government and agency securities, and repurchase agreements. International
Portfolio may also invest in such instruments to increase liquidity or to
provide collateral to be held in segregated accounts.
Rating Agencies
Each Portfolio may purchase securities rated by Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or any other
nationally recognized statistical rating organization ("NRSRO"). The ratings of
an NRSRO represent its opinion as to the quality of securities it undertakes to
rate. Ratings are not absolute standards of quality; consequently, securities
with the same maturity, coupon and rating may have different yields. Although
the Portfolios may rely on the ratings of any NRSRO, the Portfolios mainly refer
to ratings assigned by S&P and Moody's, which are described in Appendix A to
this SAI. The Portfolios may also invest in unrated securities that are deemed
comparable in quality by NB Management to the rated securities in which the
Portfolios may permissibly invest.
Investment Insight
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.
Limited Maturity Bond, Balanced (debt securities portion) and Liquid
Asset Portfolio are designed with varying degrees of risk and return based on
the duration and/or maturity of each Portfolio. Duration measures a bond's
exposure to interest rate risk. Duration incorporates a bond's yield, coupon
interest payments, final maturity and call features into one measure. In
general, the longer you extend a bond's duration, the greater its potential
return and exposure to interest rate fluctuations.
For example, Liquid Asset Portfolio is a money market fund with average
portfolio maturity of up to 90 days. Limited Maturity Bond and Balanced (debt
securities portion) Portfolios seek a higher income but can experience more
price fluctuation. Their portfolio of bonds has a maximum average duration of
four years. A more detailed discussion of each Portfolio follows. In all cases,
these Portfolios pursue attractive current income with varying levels of risk to
principal and differ according to their investment guidelines. These guidelines
include maturity or duration, type of bonds, and the credit quality of these
bonds.
Growth, Mid-Cap Growth, and Balanced (equity securities portion) Portfolios
Investment Program
Invests in common stock of mid-capitalization companies that are in new
or rapidly evolving industries. Seeks growth of capital by investing in
companies with financial strength, above-average growth of earnings, earnings
that have exceeded analysts' expectations, a strong position relative to
competitors and a stock price that is reasonable in light of its growth rate.
Mid-Cap Growth Stock Investments
The portfolio co-mangers consider themselves growth stock investors in
the purest sense of the term. By that, they mean they want to own the stocks of
companies that are growing earnings faster than the average American business
and, ideally, faster than the competitors in their respective industries. Their
exhaustive research efforts are focused on the mid-cap universe and,
specifically, stocks that are in new or rapidly evolving industries. The kind of
fast-growth companies the portfolio co-managers favor generally do not trade at
below market average price-to-earnings ratios. However, they do look for
companies trading at reasonable levels compared to their growth rates.
An Intensive Research Effort
The portfolio co-managers love stock with positive earnings surprises.
Their extensive research has revealed that mid-cap stocks that have exceeded
Wall Street earnings estimates have also tended to offer greater potential for
long-term capital appreciation. To find these companies they scour the mid-cap
growth stock universe to isolate stocks whose most recent earnings have beaten
consensus expectations. Then, the real work begins, where through diligent
fundamental research they strive to identify those companies most likely to
record a string of positive earnings surprises. Their ultimate goal is to invest
today in the fast growing mid-sized companies that they believe are poised to
become tomorrow's Fortune 500.
A Disciplined Sell Process
"We are dispassionate sellers," says one portfolio co-manager. "If a
stock does not live up to our earnings expectations or if we believe its
valuation has become excessive, we will sell and direct the assets to another
opportunity we find more attractive." A stock will also be sold when it reaches
its target price. They prefer to broadly diversify the portfolio's assets among
many different companies and industries rather than heavily concentrating its
holdings in just a few of the fastest growing industry sectors. This broad
diversification helps to manage the overall risk inherent in a portfolio of
equity securities.
Investors can expect:
o Mid-cap growth stock investments
o An intensive research effort
o A disciplined sell process
Investment Insight
Without question, the portfolio co-managers are growth stock investors.
They look for companies believed capable of delivering positive earnings
surprises, particularly those with the potential to do so consistently. Ideally,
they seek to identify companies that will someday rank among the Fortune 500.
Guardian Portfolio
Investment Program
Seeks long term growth of capital and, secondarily, current income.
Invests primarily in stocks of long-established companies considered to be
undervalued in comparison to stocks of similar companies. Using a value-oriented
investment approach in selecting securities, the Portfolio looks for such
factors as low price-to-earnings ratios, strong balance sheets, solid
management, and consistent earnings.
Disciplined, Large-Cap Value Orientation
As part of its stock selection process, the Portfolio pursues a
disciplined, value-driven investment style, which is Neuberger Berman's historic
strength. Specifically, the portfolio co-managers seek large-capitalization
companies whose stock prices are substantially undervalued. Characteristics of
these firms may include: solid balance sheets, above-average returns, low
valuations, and consistent earnings.
Bottom-Up Approach to Stock Selection
According to one of the portfolio co-managers, "Cheap stocks are
plentiful, but true investment bargains are a rare find." To uncover them, the
portfolio co-managers scour a universe of stocks consisting of the bottom 20% of
the market in terms of valuation. Those deemed by the managers as inexpensive
and poised for a turnaround are placed under consideration. They look for
financially sound, well-managed companies that are undervalued relative to their
earnings potential and the market as a whole.
A Broad View of Risk Management
Managing risk involves carefully monitoring the way the stocks in the
portfolio react to one another as well as to outside factors. Companies that are
in completely different sectors may in fact react similarly to certain economic,
market or international events. In their efforts to consider these
relationships, the managers use quantitative analysis to evaluate these factors
and their impact on the overall portfolio. It is a process they believe is a
crucial component in controlling risk and one that evolves over time as new
holdings are introduced to the portfolio.
A Strong Sell Discipline
The portfolio co-managers will generally make an initial investment in
a stock of between 1-4% of total net assets. A higher weighting indicates that
they believe their research gives them an "edge" over Wall Street analysts, or
they believe the stock has an undiscovered value that others may have
overlooked. Once a stock grows beyond the high side of that range, gains are
harvested and the holding is reduced to about 3% of total net assets.
Investment Process
Portfolio Risk Management
o Monitor portfolio's exposure
Selection Criteria
o Improving financials
o Superior management
o Discount valuations to the market
Stock Universe
o Large-cap value
Investors can expect:
o Disciplined, large-cap value orientation
o Bottom-up approach to stock selection
o Broad view of risk management
o Strong sell discipline
Investment Insight
The portfolio co-managers look for established companies whose
intrinsic value, by their measure, is undiscovered among the majority of
investors. In managing overall risk, a conscious effort is made to determine the
risk/reward scenario of each individual holding as well as its impact at the
portfolio level.
International Portfolio
Equity portfolios consisting solely of domestic investments generally
have not enjoyed the higher returns foreign opportunities can offer. Over the
past thirty years, for example, the average growth rates of many foreign
economies have out-paced that of the United States. While the United States
accounted for almost 66% of the world's total securities market capitalization
in 1970, it accounted for less than 51% of that total at the end of 1998.1
Over time, a number of international equity markets have outperformed
their U.S. counterpart. Although there are no guarantees, foreign markets could
continue to provide attractive investment opportunities.
In addition, according to Morgan Stanley Capital International, the
leading companies in any given sector are not always U.S.-based. For example,
nine of the ten largest steel companies, and eight of the ten largest electronic
and automobile companies are based outside the United States.
A principal advantage of investing overseas is diversification. A
diversified portfolio gives investors the opportunity to pursue increased
overall return while reducing risk. It is prudent to diversify by taking
advantage of investment opportunities in more than one country's stock or bond
market. By investing in several countries through a worldwide portfolio,
investors can lower their exposure and vulnerability to weakness in any one
market. Investors should be aware, however, that international investing is not
a guarantee against market risk and may be affected by economic and other
factors described in the Prospectus and this SAI. These include the prospects of
individual companies and other risks such as currency fluctuations or controls,
expropriation, nationalization and confiscator taxation.
Furthermore, buying foreign stocks and bonds can be difficult for the
individual investor and involves many decisions. Accessing international markets
is complicated; few individuals have the time or resources to evaluate
thoroughly foreign companies and markets or the ability to incur the high
transaction costs of direct investment in such markets. A mutual fund investing
in foreign securities offers an investor broad diversification at a relatively
low cost.
At least 65% of the Portfolio's total assets normally are invested in
equity securities of foreign issuers. The Portfolio invests primarily in equity
securities of companies located in developed foreign economies, as well as in
"emerging markets." NB Management's investment process includes a combination of
a top-down or macro-economic analysis and a bottom-up, micro-economic approach,
as well as a blend of growth and value investment styles. The Portfolio may use
leverage to facilitate transactions it enters into for hedging purposes.
Investment Program
Seeks long-terms growth of capital by investing primarily in common
stocks of foreign companies of any capitalization, including companies in
developed and emerging industrialized markets. Investments in well-managed
companies that show potential for above-average growth or whose stock price is
undervalued.
A combination of top-down and bottom-up approaches to investing.
The portfolio manager's top-down view of various regions and countries
helps her choose the areas that offer the best relative value. As she explained,
"We are value-added investors, not "Closet" indexers. We will overweight the
portfolio with securities from countries we believe have the best investment
potential and underweight those we think have limited prospects." Her bottom-up
perspective seeks well-managed companies with strong fundamentals, such as
attractive cash flows, strong balance sheets, and solid earnings growth. The
Portfolio has no capitalization constraints and thus can invest in companies of
all sizes.
A Blend of Growth and Value Investment Styles
The portfolio manager uses a blend of styles to reduce the risks of
significant losses when a particular style falls out of favor with investors.
The growth component highlights rapidly growing companies in niche industries
with unique products or services, while the value component focuses on
undervalued, out-of-favor companies that she believes are poised for a
turnaround.
High potential rewards with commensurate risks.
The Portfolio invests in equity securities of both developed and
emerging markets. While the potential rewards are high, so are the associated
risks. Foreign markets are often less developed and foreign governments and
economic infrastructures may not be as stable compared to the U.S. Other
international risks, such as currency exchange rate and interests rate
fluctuations, could result in greater volatility than domestic funds.
An added level of diversification.
Domestic and foreign markets generally do not all move in the same
direction at the same time and are subject to different sets of risk factors.
Investors with exposure to more than a single market can potentially offset
losses in one market with gains in another. While foreign markets can be
inherently risky, investors who include international securities in their
portfolios can benefit from an additional layer of diversification along with
the potential for long-term growth.
Investment Process
1. Screen International Universe
2. Quantitative and Qualitative Evaluation
3. Review Prime Buy Ideas
4. Portfolio Construction
Investors can expect:
o A combination of top-down and bottom-up approaches to investing o A blend of
growth and value investment styles o High potential rewards with commensurate
risks o An added level of portfolio diversification
Investment Insight
In identifying attractive stocks from among the many thousands
currently available outside the U.S., it's important to have a clear strategy.
The International Portfolio uses a combination of growth and value criteria,
while also considering larger scale economic factors.
Currency Risk Management
Exchange rate movements and volatility are important factors in
international investing. The portfolio manager believes in actively managing the
Portfolio's currency exposure, in an effort to capitalize on foreign currency
trends and to reduce overall portfolio volatility. Currency risk management is
performed separately from equity analysis. The portfolio manager uses a
combination of economic analysis to guide the Portfolio's longer-term posture
and quantitative trend analysis to assist in timing decisions with respect to
whether (or when) to invest in instruments denominated in a particular foreign
currency, or whether (or when) to hedge particular foreign currencies in which
liquid foreign exchange markets exist.
To illustrate the importance of including an international component in
a well-diversified portfolio, below are the annual returns for the S&P "500"
Index and the EAFE(R) Index for the years 1985-1999. In seven of the past
fifteen years, international stocks (as represented by the EAFE Index) have
outperformed U.S. stocks (as represented by the S&P 500 Index), in some cases by
a significant margin. Conversely, in other years, U.S. stocks have substantially
outperformed international stocks. Investors with exposure to both domestic and
international issues can minimize losses because gains in one market can offset
losses in another.
<TABLE>
<CAPTION>
Annual Total Returns for EAFE and S&P 500 (1985-1999)2
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
Year 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
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S&P 500 21.01% 28.52% 33.32% 22.90% 37.44% 1.36% 10.03% 7.61% 30.34% -3.11% 31.59% 16.50% 5.18% 18.62% 31.64%
----------------------------------------------------------------------------------------------------------------------------------
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EAFE 27.30% 20.33% 2.06% 6.36% 11.55% 8.06% 32.94% -11.85% 12.50% -23.20% 10.80% 28.59% 24.93% 69.94% 56.72%
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</TABLE>
Of course, these historical results may not continue in the future.
Investors should keep in mind the greater risks inherent in foreign markets,
such as currency exchange fluctuations, interest rates, and potentially adverse
economic and political conditions.
Limited Maturity Bond and Balanced (debt securities portion) Portfolios
The Portfolios seek the highest available current income consistent
with liquidity and low risk to principal; total return is a secondary goal. They
invest in investment-grade bonds and other debt securities from U.S. government
and corporate issuers.
Investors can expect:
o Actively managed portfolio duration
o Credit selection with a value bias
o Risk reduction through diversification
Actively managed portfolio duration. The portfolio co-managers attempt
to increase income and preserve or enhance total return by actively managing
average portfolio duration. As one manager explains. "Historically, limited
maturity portfolios have been able to deliver much of the yield available in the
investment-grade bond market with reduced volatility." Of course, there is no
assurance that past results will continue in the future. By keeping average
duration at four years or less, the managers attempt to reduce the higher level
of volatility that is generally associated with bonds of longer duration. In
general, the longer a security's duration, the higher the yield and the greater
the volatility.
Credit selection with a value bias. As part of their credit selection
process, the portfolio co-managers monitor national trends in the corporate and
government securities markets, including a range of economic and financial
factors. Specifically, they look for short- to intermediate-term securities that
appear underpriced compared to bonds of similar structure and securities, the
managers look for companies in sound financial condition that may not be well
known to the majority of investors.
Risk reduction through diversification. In an attempt to reduce credit
risk, the portfolio diversifies among many different issuers and types of
securities. The portfolios invests mainly in investment-grade bonds and other
debt securities from U.S. government and corporate issuers. In an effort to
enhance yield and add diversification, it may also invest up to 10% of net
assets in securities that are below investment-grade, provided that, at the time
of purchase, they are rated at least B by Moody's or Standard & Poor's, or
unrated securities managers believe, "The incremental yield compensates for the
additional political and economic risks we take on." On occasion, they may also
place a portion of assets in foreign securities, which could cause greater
movements in the fund's share price.
Liquid Asset Portfolio
Liquid Asset Portfolio seeks to provide investors with the highest
available current income consistent with safety and liquidity. In pursuit of its
objective, the Portfolio invests in high-quality U.S.-dollar denominated money
market instruments. The portfolio co-managers select securities to maximize
yield, while seeking a stable $1.00 net asset value. They also broadly diversify
among a number and types of issuers to help limit risk.
Partners Portfolio
Investment Program
Invests principally in common stocks of established companies, using
the value-oriented investment approach. Seeks growth of capital through an
investment approach that is designed to increase capital with reasonable risk.
Seeks securities believed to be undervalued based on strong fundamentals such as
a low price-to-earnings ratio, consistent cash flow, and a company's sound track
record through all phases of the market cycle.
Undiscovered values in the mid- to large-cap area
The portfolio co-managers comb the universe of mid- and large-cap stock
in search of those that have yet to be "discovered" by the majority of
investors. They generally shy away from big, well-known companies because they
believe it is harder to gain a competitive edge in a stock that is covered by
many analysts. The managers prefer to focus their efforts outside of the Fortune
100, where they think many investment bargains abound.
Strong companies at reasonable prices
Like many of their value-oriented peers, the co-managers try to buy
quality stocks for substantially less than their estimated market value.
However, they differ in their approach by applying another layer of analysis to
their value strategy. For example, in addition to searching for stocks trading
at below market price-to-earnings ratios, they also focus on companies with
strong fundamentals, consistent cash flows, sound track records through all
phases of the market cycle and those selling at the low end of their trading
ranges. They are not interested in buying cheap stocks if they don't meet these
other measures of value as well.
Solid Research
The portfolio co-managers believe that through "exhaustive research
efforts, good companies selling for less than their true worth can be
identified." To do this the portfolio co-managers spend a lot of time
interviewing senior company managers. Their philosophy is that when they sit
across the table from a CEO or CFO and question him or her about the company,
they get to know it quite well. They find that there's simply no substitute for
that kind of firsthand knowledge. In addition, the portfolio co-managers
carefully examine a company's financial statements and contact its suppliers and
competitors. While this type of analysis requires a lot of extra legwork, they
believe it's worth the effort.
Investment Process
Executive Management Team Evaluation
o Proven Track Record
o Strategic Plan
o Inside Ownership
Value Stock Universe
Qualitative Evaluation: Catalyst for Change
Stock Universe
Quantitative Analysis
Investors can expect:
o Undiscovered values in the mid- to large-cap arena
o Strong companies at reasonable prices
o Solid research
Investment Insight
The portfolio co-managers seek companies they believe are undervalued
relative to their earnings potential--where there is a gap between the actual
price of a stock and its intrinsic value in the marketplace. When a company
grows in value or the valuation gap closes, the success of their strategy is
realized.
Socially Responsive Portfolio
Investment Program
Seeks long-term capital appreciation through investments primarily in
securities of companies that meet both financial criteria and social policy. The
portfolio co-managers initially screen companies using a value investing
criteria, then look for companies that show leadership in major areas of social
impact such as the environment, workplace diversity and employment.
Financially sound companies with a social conscience
The portfolio co-managers look for the stocks of mid- to large-cap
companies that first meet their stringent financial criteria. Their social
screens are then applied to these stocks. The ones considered worthy from a
financial standpoint are then evaluated using a proprietary database that
develops and monitors information on companies in various categories of social
criteria. Ideal investment candidates are companies that show leadership in the
areas of the environment, workplace diversity and employment. Other
considerations are based on companies' records in other areas of concern,
including public health, type of products, and corporate citizenship.
A traditional value approach
The portfolio co-managers' initial financial screens select companies
using a traditional value approach. They look for undervalued companies with
solid balance sheets, strong management, consistent cash flows, and other
value-related factors, such as low price-to-earnings and low price-to-book
ratios. Their value approach examines these price-to-earnings and low
price-to-book ratios. Their value approach examines these companies, searching
for those that may rise in price before other investors realize their worth.
They strongly believe in helping investors put their money to work, while
supporting companies that follow principles of good corporate citizenship.
An ever-evolving journey on the path to good corporate citizenship
The portfolio co-managers believe that most socially responsive
investors are not utopians. They do not expect instant perfection, but rather
look for signs that a company is evolving and moving toward a corporate
commitment to excellence. As they put it, "Good corporate citizenship is one of
those things that is a journey, not a destination. We've been working in this
field for some time, and know that the social records of most companies are
written in shades of gray. We are pleased to see that more and more companies
are coming to realize that change is a positive force for them."
Investment Process
Social Policy
Quantitative Financial Criteria
o Low Price-to-Earnings Ratio (relative & absolute)
o Strong Balance Sheet
o Free Cash Flow
o Risk Management
Stock Universe
Focus Screens
Socially Responsive Investors can expect:
o Financially sound companies with a social conscience
o A traditional value approach
o An ever-evolving journey on the path to good corporate citizenship
Investment Insight
The portfolio co-managers believe that sound practices in areas like
employment and the environment can have a positive impact on a company's bottom
line. The look for companies that meet value-investing criteria and also show a
commitment to uphold or improve their standards of corporate citizenship.
Additional Investment Information
Some or all of the Portfolios, as indicated below, may make the
following investments, among others, some of which are part of the Portfolios'
principal investment strategies and some of which are not. The principal risks
of each Portfolio's principal strategies are discussed in the Prospectus. They
may not buy all of the types of securities or use all of the investment
techniques that are described. As used herein, "Equity Portfolios" refers to
Balanced (equity securities portion), Growth, Guardian, International, Mid-Cap
Growth, Partners and Socially Responsive Portfolios. "Income Portfolios" refers
to Balanced (debt securities portion), Limited Maturity Bond, and Liquid Asset
Portfolios. Each Equity Portfolio invests in a wide array of stocks, and no
single stock makes up more than a small fraction of any Portfolio's total
assets. Of course, each Portfolio's holdings are subject to change.
* * *
Illiquid Securities. (All Portfolios). 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, determines they are liquid. Generally,
foreign securities freely tradable in their principal market are not considered
restricted or illiquid even if they are not registered in the U.S. Illiquid
securities may be difficult for a 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. Each Portfolio may invest up to 15% (10% in
the case of Liquid Asset Portfolio) of its net assets in illiquid securities.
Repurchase Agreements. (All Portfolios). In a repurchase agreement, a
Portfolio purchases securities from a bank that is a member of the Federal
Reserve System (or with respect to International Portfolio, from a foreign bank
or a U.S. branch or agency of a foreign bank), 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. If International
Portfolio enters into a repurchase agreement subject to foreign law and the
counter-party defaults, that Portfolio may not enjoy protections comparable to
those provided to certain repurchase agreements under U.S. bankruptcy law and
may suffer delays and losses in disposing of the collateral as a result.
Policies and Limitations. Repurchase agreements with a maturity of more
than seven days are considered to be illiquid securities. No Portfolio may enter
into a repurchase agreement with a maturity of more than seven days if, as a
result, more than 15% (10% with respect to Liquid Asset Portfolio) of the value
of its net assets would then be invested in such repurchase agreements and other
illiquid securities. A Portfolio may enter into a repurchase agreement only if
(1) the underlying securities are of a type (excluding maturity and duration
limitations) that the Portfolio's investment policies and limitations would
allow it to purchase directly, (2) the market value of the underlying
securities, including accrued interest, at all times equals or exceeds the
repurchase price, and (3) payment for the underlying securities is made only
upon satisfactory evidence that the securities are being held for the
Portfolio's account by its custodian or a bank acting as the Portfolio's agent.
Securities Loans. (All Portfolios). Each Portfolio may lend securities
to banks, brokerage firms, or 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. Each Portfolio may lend 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 a Portfolio by depositing collateral in a form determined to be
satisfactory by the 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. Securities lending by
Socially Responsive Portfolio is not subject to the Social Policy.
Restricted Securities and Rule 144A Securities. (All Portfolios). Each
Portfolio may invest in restricted securities, which are securities that may not
be sold to the public without an effective registration statement under the 1933
Act. Before they are registered, such securities may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional market for
unregistered securities and the importance of institutional investors in the
formation of capital, the SEC has adopted Rule 144A under the 1933 Act, which 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 a
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 have the effect of increasing the level
of a Portfolio's illiquidity. NB Management, acting under guidelines established
by the Trustees, may determine that certain securities qualified for trading
under Rule 144A are liquid. Foreign securities that are freely tradable in their
principal markets are not considered to be restricted. 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, a 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 Trustees believe
accurately reflect fair value.
Policies and Limitations. To the extent restricted securities,
including Rule 144A securities, are illiquid, purchases thereof will be subject
to each Portfolio's 15% (10% in the case of Liquid Asset Portfolio) limit on
investments in illiquid securities.
Commercial Paper. (All Portfolios). Commercial paper is a short-term
debt security issued by a corporation, bank, municipality, or other issuer,
usually for purposes such as financing current operations. Each 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 Trustees.
Policies and Limitations. Each Equity Portfolio normally may invest up
to 35% of its net assets in debt securities, including commercial paper. The
Equity Portfolios 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. International Portfolio may invest in such commercial
paper as a defensive measure, to increase liquidity, or as needed for segregated
accounts. To the extent restricted commercial paper is deemed illiquid,
purchases thereof will be subject to each Portfolio's 15% (10% in the case of
Liquid Asset Portfolio) limit on investments in illiquid securities.
Reverse Repurchase Agreements. (All Portfolios). In a reverse
repurchase agreement, a Portfolio sells portfolio securities subject to its
agreement to repurchase the securities at a later date for a fixed price
reflecting a market rate of interest. Reverse repurchase agreements may increase
fluctuations in a Portfolio's net asset value ("NAV") and may be viewed as a
form of leverage. There is a risk that the counter-party to a reverse repurchase
agreement will be unable or unwilling to complete the transaction as scheduled,
which may result in losses to the Portfolio. NB Management monitors the
creditworthiness of counterparties to reverse repurchase agreements.
Policies and Limitations. Reverse repurchase agreements are considered
borrowings for purposes of each Portfolio's investment limitations and policies
concerning borrowings. While a reverse repurchase agreement is outstanding, a
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 each Portfolio's obligations under the agreement.
Banking and Savings Institution Securities. (All Portfolios). These
include CDs, time deposits, bankers' acceptances, and other short-term and
long-term debt obligations issued by commercial banks and savings institutions.
CDs are receipts for funds deposited for a specified period of time at a
specified rate of return; time deposits generally are similar to CDs, but are
uncertificated. Bankers' acceptances are time drafts drawn on commercial banks
by borrowers, usually in connection with international commercial transactions.
The CDs, time deposits, and bankers' acceptances in which a Portfolio invests
typically are not covered by deposit insurance.
Policies and Limitations. Liquid Asset Portfolio may invest 25% or more
of its total assets in CDs or banker's acceptances issued by domestic branches
of U.S. banks. CDs are interpreted to include similar types of time deposits.
The Portfolios may invest in securities issued by a commercial bank or savings
institution only if (1) the bank or institution has total assets of at least
$1,000,000,000, (2) the bank or institution is on NB Management's approved list,
and (3) in the case of a foreign bank or institution, the securities are, in NB
Management's opinion, of an investment quality comparable with other debt
securities that may be purchased by the Portfolio. These limitations do not
prohibit investments in securities issued by foreign branches of U.S. banks that
meet the foregoing requirements.
Each Equity Portfolio will normally limit its investments in debt
securities, including banking and savings institution securities, to no more
than 35% of its total assets.
Leverage. (International Portfolio). The Portfolio may make investments
when borrowings are outstanding. Leverage creates an opportunity for increased
net income but, at the same time, creates special risk considerations. For
example, leveraging may amplify changes in the Portfolio's NAV. Although the
principal of such borrowings will be fixed, the Portfolio's assets may change in
value during the time the borrowing is outstanding. Leverage from borrowing
creates interest expenses for the Portfolio. To the extent the income derived
from securities purchased with borrowed funds exceeds the interest the Portfolio
will have to pay, the Portfolio's net income will be greater than it would be if
leveraging were not used. Conversely, if the income from the assets obtained
with borrowed funds is not sufficient to cover the cost of leveraging, the net
income of the Portfolio will be less than if leveraging were not used, and
therefore the amount available for distribution to the Portfolio's shareholders
as dividends will be reduced.
Policies and Limitations. Generally, the Portfolio does not intend to
use leverage for investment purposes. It may, however, use leverage to purchase
securities needed to close out short sales entered into for hedging purposes and
to facilitate other hedging transactions. Reverse repurchase agreements create
leverage and are considered borrowings for purposes of the Portfolio's
investment limitations.
Foreign Securities. (All Portfolios). Each Portfolio may invest in U.S.
dollar-denominated securities issued by foreign issuers and foreign branches of
U.S. banks, including negotiable CDs, banker's 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 (except with respect to International
Portfolio), 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 adverse effects of unavailability
of public information regarding issuers, less governmental supervision regarding
financial markets, reduced liquidity of certain financial markets, and the lack
of uniform accounting, auditing, and financial standards or the application of
standards that are different or less stringent than those applied in the United
States. It may be difficult to invoke legal process or to enforce contractual
obligations abroad.
Each Portfolio (except Liquid Asset Portfolio) also may invest in
equity (except Limited Maturity Bond Portfolio), debt, or other income-producing
securities that are denominated in or indexed to foreign currencies, including,
but not limited to (1) common and preferred stocks, with respect to all
Portfolios except Limited Maturity Bond Portfolio, (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,
or their subdivisions, agencies, and instrumentalities, international agencies,
and supranational entities. Investing in foreign currency denominated securities
includes the special risks associated with investing in non-U.S. issuers
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, and there are generally
higher commission rates on foreign portfolio transactions. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each 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 may exhibit greater price volatility. Additional
costs associated with an investment in foreign securities may include higher
custodian fees than apply to domestic custodial arrangements and transaction
costs of foreign currency conversions. Changes in foreign exchange rates also
will affect the value of securities denominated or quoted in currencies other
than the U.S. dollar.
Foreign markets also have different clearance and settlement
procedures, and in certain markets, there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of a Portfolio is uninvested and
no return is earned thereon. The inability of a Portfolio to make intended
security purchases due to settlement problems could cause a Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a
Portfolio due to subsequent declines in value of the portfolio securities, or,
if a Portfolio has entered into a contract to sell the securities, could result
in possible liability to the purchaser.
Prices of foreign securities and exchange rates for foreign currencies
may be affected by the interest rates prevailing in other countries. The
interest rates in other countries are often affected by 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.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
The Portfolios (except Liquid Asset and Limited Maturity Bond
Portfolios) 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
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, Balanced (equity
securities portion), Growth, Guardian, Partners, and Socially Responsive
Portfolios 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. Limited Maturity Bond Portfolio may not purchase
securities denominated in or indexed to foreign currencies, if, as a result,
more than 25% of its total assets (taken at market value) would be invested in
such securities. Mid-Cap Growth Portfolio may not purchase foreign currency
denominated securities if, as a result, more than 20% of its total assets (taken
at market value) would be invested in such securities. Within those limitations,
however, no Portfolio is restricted in the amount it may invest in securities
denominated in any one foreign currency. International Portfolio invests
primarily in foreign securities. Liquid Asset Portfolio may not invest in
foreign currency-denominated securities.
Investments in securities of foreign issuers are subject to each
Portfolio's quality, and, with respect to the Income Portfolios, maturity and
duration standards. Each Portfolio (except International Portfolio) may invest
only in securities of issuers in countries whose governments are considered
stable by NB Management.
Japanese Investments. (International Portfolio). All of the Portfolios
may invest in foreign securities, including securities of Japanese issuers. From
time to time International Portfolio may invest a significant portion of its
assets in securities of Japanese issuers. The performance of the Portfolio may
therefore be significantly affected by events influencing the Japanese economy
and the exchange rate between the Japanese yen and the U.S. dollar. Japan has
experienced a severe recession, including a decline in real estate values and
other events that adversely affected the balance sheets of many financial
institutions and indicate that there may be structural weaknesses in the
Japanese financial system. The effects of this economic downturn may be felt for
a considerable period and are being exacerbated by the currency exchange rate.
Japan is heavily dependent on foreign oil. Japan is located in a seismically
active area, and severe earthquakes may damage important elements of the
country's infrastructure. Japan's economic prospects may be affected by the
political and military situations of its near neighbors, notably North and South
Korea, China and Russia.
Variable or Floating Rate Securities; Demand and Put Features and
Guarantees. (All Portfolios). Variable rate securities provide for automatic
adjustment of the interest rate at fixed intervals (e.g., daily, monthly, or
semi-annually); floating rate securities provide for automatic adjustment of the
interest rate whenever a specified interest rate or index changes. The interest
rate on variable and floating rate securities (collectively, "Adjustable Rate
Securities") ordinarily is determined by reference to a particular bank's prime
rate, the 90-day U.S. Treasury Bill rate, the rate of return on commercial paper
or bank CDs, an index of short-term tax-exempt rates or some other objective
measure.
Adjustable Rate Securities frequently permit the holder to demand
payment of the obligations' principal and accrued interest at any time or at
specified intervals not exceeding one year. The demand feature usually is backed
by a credit instrument (e.g., a bank letter of credit) from a creditworthy
issuer and sometimes by insurance from a creditworthy insurer. Without these
credit enhancements, some Adjustable Rate Securities might not meet the quality
standards applicable to obligations purchased by the Portfolio. Accordingly, in
purchasing these securities, each Portfolio relies primarily on the
creditworthiness of the credit instrument issuer or the insurer. A Portfolio can
also buy fixed rate securities accompanied by demand features or put options,
permitting the Portfolio to sell the security to the issuer or third party at a
specified price. A Portfolio may rely on the creditworthiness of issuers of
credit enhancements in purchasing these securities.
Among the Adjustable Rate Securities in which Liquid Asset Portfolio
may invest are so-called guaranteed investment contracts ("GICs") issued by
insurance companies. In the event of insolvency of the issuing insurance
company, the ability of the Portfolio to recover its assets may depend on the
treatment of GICs under state insurance laws.
Policies and Limitations. Except for Liquid Asset Portfolio, no
Portfolio may invest more than 5% of its total assets in securities backed by
credit instruments from any one issuer or by insurance from any one insurer. For
purposes of this limitation, each Portfolio except for Liquid Asset Portfolio
excludes securities that do not rely on the credit instrument or insurance for
their ratings, i.e., stand on their own credit. Liquid Asset Portfolio may
invest in securities subject to demand features or guarantees as permitted by
Rule 2a-7 under the 1940 Act. Each Equity Portfolio normally may invest up to
35% of its total assets in debt securities, including variable or floating rate
securities.
For purposes of determining its dollar-weighted average maturity,
Liquid Asset Portfolio calculates the remaining maturity of variable and
floating rate instruments as provided in Rule 2a-7 under the 1940 Act. In
calculating its dollar-weighted average maturity and duration, a Portfolio is
permitted to treat certain Adjustable Rate Securities as maturing on a date
prior to the date on which principal must unconditionally be paid. In applying
such maturity shortening devices, NB Management considers whether the interest
rate reset is expected to cause the security to trade at approximately its par
value.
GICs are generally regarded as illiquid. Thus, Liquid Asset Portfolio
may not invest in such GICs if, as a result, more than 10% of the value of its
net assets would then be invested in such GICs and other illiquid securities.
Mortgage-Backed Securities. (Income Portfolios). Mortgage-backed
securities represent direct or indirect participations in, or are secured by and
payable from, pools of mortgage loans. They may be issued or guaranteed by a
U.S. Government agency or instrumentality such as the GNMA, Fannie Mae, and
Freddie Mac, though not necessarily backed by the full faith and credit of the
United States, or may be issued by private issuers. Private issuers are
generally originators of and investors in mortgage loans and include savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. Private mortgage-backed securities may be supported by
U.S. Government Agency mortgage-backed securities or some form of
non-governmental credit enhancement.
Mortgage-backed securities may have either fixed or adjustable interest
rates. Tax or regulatory changes may adversely affect the mortgage securities
market. In addition, changes in the market's perception of the issuer may affect
the value of mortgage-backed securities. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying loans,
which generally increase as market interest rates decline; as a result, when
interest rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities.
Because many mortgages are repaid early, the actual maturity and
duration of mortgage-backed securities are typically shorter than their stated
final maturity and their duration calculated solely on the basis of the stated
life and payment schedule. In calculating its dollar-weighted average maturity
and duration, a Portfolio may apply certain industry conventions regarding the
maturity and duration of mortgage-backed instruments. Different analysts use
different models and assumptions in making these determinations. The Portfolios
use an approach that NB Management believes is reasonable in light of all
relevant circumstances. If this determination is not borne out in practice, it
could positively or negatively affect the value of the Portfolio when market
interest rates change. Increasing market interest rates generally extend the
effective maturities of mortgage-backed securities, increasing their sensitivity
to interest rate changes.
Mortgage-backed securities may be issued in the form of collateralized
mortgage obligations ("CMOs") or collateralized mortgage-backed bonds ("CBOs").
CMOs are obligations that are fully collateralized, directly or indirectly, by a
pool of mortgages on which payments of principal and interest are passed through
to the holders of the CMOs, although not necessarily on a pro rata basis, on the
same schedule as they are received. CBOs are general obligations of the issuer
that are fully collateralized, directly or indirectly, by a pool of mortgages.
The mortgages serve as collateral for the issuer's payment obligations on the
bonds, but interest and principal payments on the mortgages are not passed
through either directly (as with mortgage-backed "pass-through" securities
issued or guaranteed by U.S. Government agencies or instrumentalities) or on a
modified basis (as with CMOs). Accordingly, a change in the rate of prepayments
on the pool of mortgages could change the effective maturity or the duration of
a CMO but not that of a CBO (although, like many bonds, CBOs may be callable by
the issuer prior to maturity). To the extent that rising interest rates cause
prepayments to occur at a slower than expected rate, a CMO could be converted
into a longer-term security that is subject to greater risk of price volatility.
Governmental, government-related, and private entities (such as
commercial banks, savings institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers), including securities
broker-dealers and special purpose entities that generally are affiliates of the
foregoing established to issue such securities may create mortgage loan pools to
back CMOs and CBOs. Such issuers may be the originators and/or servicers of the
underlying mortgage loans as well as the guarantors of the mortgage-backed
securities. Pools created by non-governmental issuers generally offer a higher
rate of interest than government and government-related pools because of the
absence of direct or indirect government or agency guarantees. Various forms of
insurance or guarantees, including individual loan, title, pool, and hazard
insurance, and letters of credit, may support timely payment of interest and
principal of non-governmental pools. The insurance and guarantees are issued by
governmental entities, private insurers, and the mortgage poolers. NB Management
considers such insurance and guarantees, as well as the creditworthiness of the
issuers thereof, in determining whether a mortgage-backed security meets a
Portfolio's investment quality standards. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. A Portfolio may buy mortgage-backed
securities without insurance or guarantees, if NB Management determines that the
securities meet the Portfolio's quality standards. NB Management will,
consistent with the Portfolio's investment objectives, policies and limitations
and quality standards, consider making investments in new types of
mortgage-backed securities as such securities are developed and offered to
investors.
Policies and Limitations. A Portfolio may not purchase mortgage-backed
securities that, in NB Management's opinion, are illiquid if, as a result, more
than 15% (10% in the case of Liquid Asset Portfolio) of the value of the
Portfolio's net assets would be invested in illiquid securities.
Dollar Rolls. (Limited Maturity Bond and Balanced (debt securities
portion) Portfolios). In a "dollar roll", a Portfolio sells securities for
delivery in the current month and simultaneously agrees to repurchase
substantially similar (i.e., same type and coupon) securities on a specified
future date from the same party. During the period before the repurchase, the
Portfolio forgoes principal and interest payments on the securities. The
Portfolio is compensated by the difference between the current sales price and
the forward price for the future purchase (often referred to as the "drop"), as
well as by the interest earned on the cash proceeds of the initial sale. Dollar
rolls may increase fluctuations in a Portfolio's NAV and may be viewed as a form
of leverage. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash-equivalent securities position that
matures (or can be sold and settled) on or before the forward settlement date of
the dollar roll transaction. There is a risk that the counterparty will be
unable or unwilling to complete the transaction as scheduled, which may result
in losses to the Portfolio. NB Management monitors the creditworthiness of
counterparties to dollar rolls.
Policies and Limitations. Dollar rolls are considered borrowings for
purposes of each Portfolio's investment policies and limitations concerning
borrowings.
Forward Commitments (International Portfolio) and When-Issued
Securities. (International, Limited Maturity Bond, and Balanced (debt securities
portion) Portfolios). The Portfolios may purchase securities (including, with
respect to Limited Maturity Bond and Balanced Portfolios, mortgage-backed
securities such as GNMA, Fannie Mae, and Freddie Mac certificates) on a
when-issued basis and International Portfolio may purchase or sell securities on
a forward commitment basis. These transactions involve a commitment by a
Portfolio to purchase or sell securities at a future date (ordinarily within two
months although the Portfolios may agree to a longer settlement period). The
price of the underlying securities (usually expressed in terms of yield) and the
date when the securities will be delivered and paid for (the settlement date)
are fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges.
When-issued purchases and forward commitment transactions enable a
Portfolio to "lock in" what NB Management believes to be an attractive price or
yield on a particular security for a period of time, regardless of future
changes in interest rates. For instance, in periods of rising interest rates and
falling prices, International Portfolio might sell securities it owns on a
forward commitment basis to limit its exposure to falling prices. In periods of
falling interest rates and rising prices, a Portfolio might purchase a security
on a when-issued or forward commitment basis and sell a similar security to
settle such purchase, thereby obtaining the benefit of currently higher yields.
If the seller fails to complete the sale, the Portfolio may lose the opportunity
to obtain a favorable price.
The value of securities purchased on a when-issued or forward
commitment basis and any subsequent fluctuations in their value are reflected in
the computation of a Portfolio's NAV starting on the date of the agreement to
purchase the securities. Because the Portfolio has not yet paid for the
securities, this produces an effect similar to leverage. A Portfolio does not
earn interest on the securities it has committed to purchase until they are paid
for and delivered on the settlement date. When International Portfolio makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Portfolio's assets. Fluctuations in the market
value of the underlying securities are not reflected in the Portfolio's NAV as
long as the commitment to sell remains in effect.
Policies and Limitations. A Portfolio will purchase securities on a
when-issued basis or purchase or sell securities on a forward commitment basis
only with the intention of completing the transaction and actually purchasing or
selling the securities. If deemed advisable as a matter of investment strategy,
however, a Portfolio may dispose of or renegotiate a commitment after it has
been entered into. A Portfolio also may sell securities it has committed to
purchase before those securities are delivered to the Portfolio on the
settlement date. A Portfolio may realize a capital gain or loss in connection
with these transactions.
When a Portfolio purchases securities on a when-issued basis, it will
deposit, in a segregated account with its custodian, until payment is made,
appropriate liquid securities having a value (determined daily) at least equal
to the amount of the Portfolio's purchase commitments. In the case of a forward
commitment to sell portfolio securities, the custodian will hold the portfolio
securities themselves in a segregated account while the commitment is
outstanding. These procedures are designed to ensure that a Portfolio will
maintain sufficient assets at all times to cover its obligations under
when-issued purchases and forward commitment transactions.
Futures, Options on Futures, Options on Securities and Indices,
Forward Contracts, and Options on Foreign
Currencies (collectively, "Financial Instruments")
Futures Contracts and Options Thereon. (The Equity Portfolios and
Limited Maturity Bond and Balanced (debt securities portion) Portfolios). Each
of Socially Responsive and Mid-Cap Growth Portfolios may purchase and sell
interest rate futures contracts, stock and bond index futures contracts, and
foreign currency futures contracts and may purchase and sell options thereon in
an attempt to hedge against changes in the prices of securities or, in the case
of foreign currency futures and options thereon, to hedge against changes in
prevailing currency exchange rates. Because the futures markets may be more
liquid than the cash markets, the use of futures contracts permits each
Portfolio to enhance portfolio liquidity and maintain a defensive position
without having to sell portfolio securities. These Portfolios view investment in
(i) interest rate and securities index futures and options thereon as a maturity
management device and/or a device to reduce risk or preserve total return in an
adverse environment for the hedged securities, and (ii) foreign currency futures
and options thereon as a means of establishing more definitely the effective
return on, or the purchase price of, securities denominated in foreign
currencies that are held or intended to be acquired by the Portfolio.
Limited Maturity Bond and Balanced (debt securities portion) Portfolios
may purchase and sell interest rate and bond index futures contracts and options
thereon, and may purchase and sell foreign currency futures contracts and
options thereon in an attempt to hedge against changes in the prices of
securities or, in the case of foreign currency futures and options thereon, to
hedge against changes in prevailing currency exchange rates. Because the futures
markets may be more liquid than the cash markets, the use of futures permits a
Portfolio to enhance portfolio liquidity and maintain a defensive position
without having to sell portfolio securities. The Portfolios view investment in
(1) interest rate and bond index futures and options thereon as a maturity or
duration management device and/or a device to reduce risk and preserve total
return in an adverse interest rate environment for the hedged securities and (2)
foreign currency futures and options thereon as a means of establishing more
definitely the effective return on, or the purchase price of, securities
denominated in foreign currencies held or intended to be acquired by the
Portfolios.
International Portfolio may enter into futures contracts on currencies,
debt securities, interest rates, and securities indices that are traded on
exchanges regulated by the Commodity Futures Trading Commission ("CFTC") or on
foreign exchanges. Trading on foreign exchanges is subject to the legal
requirements of the jurisdiction in which the exchange is located and to the
rules of such foreign exchange.
International Portfolio may sell futures contracts in order to offset a
possible decline in the value of its portfolio securities. When a futures
contract is sold by the Portfolio, the value of the contract will tend to rise
when the value of the portfolio securities declines and will tend to fall when
the value of such securities increases. The Portfolio may purchase futures
contracts in order to fix what NB Management believes to be a favorable price
for securities the Portfolio intends to purchase. If a futures contract is
purchased by the Portfolio, the value of the contract will tend to change
together with changes in the value of such securities. To compensate for
differences in historical volatility between positions International Portfolio
wishes to hedge and the standardized futures contracts available to it, the
Portfolio may purchase or sell futures contracts with a greater or lesser value
than the securities it wishes to hedge.
With respect to currency futures, International Portfolio may sell a
futures contract or a call option, or it may purchase a put option on such
futures contract, if NB Management anticipates that exchange rates for a
particular currency will fall. Such a transaction will be used as a hedge (or,
in the case of a sale of a call option, a partial hedge) against a decrease in
the value of portfolio securities denominated in that currency. If NB Management
anticipates that a particular currency will rise, International Portfolio may
purchase a currency futures contract or a call option to protect against an
increase in the price of securities which are denominated in that currency and
which the Portfolio intends to purchase. The Portfolio may also purchase a
currency futures contract or a call option thereon for non-hedging purposes when
NB Management anticipates that a particular currency will appreciate in value,
but securities denominated in that currency do not present an attractive
investment and are not included in the Portfolio.
For the purposes of managing cash flow, each Portfolio may purchase and
sell stock index futures contracts, and may purchase and sell options thereon to
increase its 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 a Portfolio will usually be liquidated
in this manner, the Portfolio may instead make or take delivery of underlying
securities whenever it appears economically advantageous for it to do so.
"Margin" with respect to a futures contract is the amount of assets
that must be deposited by a 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.
Each 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 each 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. Further, an appropriate futures contract may not be
available even if the portfolio manager wishes to enter into one. 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 a 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
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 a Portfolio, it could (depending on the size of the position)
have an adverse impact on the NAV of the Portfolio.
Policies and Limitations. Socially Responsive and Mid-Cap Growth
Portfolio each may purchase and sell futures contracts and may purchase and sell
options thereon in an attempt to hedge against changes in the prices of
securities or, in the case of foreign currency futures and options thereon, to
hedge against prevailing currency exchange rates. These Portfolios do not engage
in transactions in futures and options on futures for speculation. The use of
futures and options on futures by Socially Responsive Portfolio is not subject
to the Social Policy.
International Portfolio may purchase and sell futures for bona fide
hedging purposes, as defined in regulations of the CFTC, and for non-hedging
purposes (i.e., in an effort to enhance income). The Portfolio may also purchase
and write put and call options on such futures contracts for bona fide hedging
and non-hedging purposes.
For purposes of managing cash flow, each Portfolio may purchase and
sell stock index futures contracts, and may purchase and sell options thereon to
increase its exposure to the performance of a recognized securities index, such
as the S&P 500 Index.
Limited Maturity Bond and Balanced Portfolios may purchase and sell
interest rate and bond index futures and may purchase and sell options thereon
in an attempt to hedge against changes in securities prices resulting from
changes in prevailing interest rates. The Portfolios engage in foreign currency
futures and options transactions in an attempt to hedge against changes in
prevailing currency exchange rates. Neither Portfolio engages in transactions in
futures or options thereon for speculation.
Call Options on Securities. (All Portfolios except Liquid Asset
Portfolio). Socially Responsive, Mid-Cap Growth, Limited Maturity Bond, Balanced
and International Portfolios may write covered call options and may purchase
call options on securities. Each of the other Portfolios 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 NAV) or to earn premium income. Portfolio securities on which call
options may be written and purchased by a are purchased solely on the basis of
investment considerations consistent with the Portfolio's investment objective.
When a 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. When writing call options, each Portfolio writes
only "covered" call options on securities it owns. So long as the obligation of
the call option continues, the Portfolio may be assigned an exercise notice,
requiring it to deliver the underlying security against payment of the exercise
price. The Portfolio may be obligated to deliver securities underlying 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 a Portfolio's total return. When writing a covered call option, a
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 a 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 a 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.
Policies and Limitations. (Limited Maturity Bond and Balanced (debt
securities portion) Portfolios). Each Portfolio may write covered call options
and may purchase call options on debt securities in its portfolio or on foreign
currencies in its portfolio for hedging purposes. Each Portfolio may write
covered call options for the purpose of producing income. Each Portfolio will
write a call option on a security only if it holds that security or currency or
has the right to obtain the security or currency at no additional cost.
Equity Portfolios. Each Portfolio may write covered call options and
may purchase call options in related closing transactions. Each 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).
A Portfolio would purchase a call option to offset a previously written
call option. Each of Socially Responsive, Mid-Cap Growth, Limited Maturity Bond
and Balanced Portfolios also may purchase a call option to protect against an
increase in the price of the securities it intends to purchase. The use of call
options on securities by Socially Responsive Portfolio is not subject to the
Social Policy. International Portfolio may purchase call options for hedging or
non-hedging purposes.
Put Options on Securities. (Socially Responsive, Mid-Cap Growth,
International, Limited Maturity Bond and Balanced Portfolios). Each of these
Portfolios may write and purchase put options on securities. The Portfolios will
receive a premium for writing a put option, which obligates the Portfolio to
acquire a security at a certain price at any time until a certain date if the
purchaser decides to exercise the option. The Portfolio may be obligated to
purchase the underlying security at more than its current value.
When a Portfolio purchases a put option, it pays a premium to the
writer for the right to sell a security to the writer for a specified amount at
any time until a certain date. The Portfolio would purchase a put option in
order to protect itself against a decline in the market value of a security it
owns.
Portfolio securities on which put options may be written and purchased
by a Portfolio are purchased solely on the basis of investment considerations
consistent with the Portfolio's investment objective. When writing a put option,
the Portfolio, in return for the premium, takes the risk that it must purchase
the underlying security at a price that may be higher than the current market
price of the security. If a put option that the Portfolio has written expires
unexercised, the Portfolio will realize a gain in the amount of the premium.
Policies and Limitations. Socially Responsive, Mid-Cap Growth and
International Portfolios generally write and purchase put options on securities
for hedging purposes (i.e., to reduce, at least in part, the effect of price
fluctuations of securities held by the Portfolio on the Portfolio's NAV).
However, International Portfolio also may use put options for non-hedging
purposes. The use of put options on securities by Socially Responsive Portfolio
is not subject to the Social Policy.
Limited Maturity Bond and Balanced Portfolios generally write and
purchase put options on securities or on foreign currencies for hedging purposes
(i.e., to reduce, at least in part, the effect of price fluctuations of
securities held by the Portfolio on the Portfolio's NAV).
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.
International Portfolio also may purchase European-style options, which are
exercisable only immediately prior to their expiration date. The obligation
under any option written by a 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 a 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. International Portfolio also may purchase
and sell options that are traded on foreign exchanges. Exchange-traded options
are issued by a clearing organization affiliated with the exchange on which the
option is listed; the clearing organization in effect guarantees completion of
every exchange-traded option. In contrast, OTC options are contracts between a
Portfolio and a counter-party, with no clearing organization guarantee. Thus,
when a 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 a Portfolio is able to effect a closing purchase transaction
in a covered OTC call option it has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or until
different cover is substituted. In the event of the counter-party's insolvency,
a Portfolio may be unable to liquidate its options position and the associated
cover. NB Management monitors the creditworthiness of dealers with which a
Portfolio may engage in OTC options transactions.
The premium received (or paid) by a 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 a Portfolio for
writing an option is recorded as a liability on the Portfolio's statement of
assets and liabilities. This liability is adjusted daily to the option's current
market value, which is the last reported sales price before the time the
Portfolio's NAV is computed on the day the option is being valued or, in the
absence of any trades thereof on that day, the mean between the bid and asked
prices as of that time.
Closing transactions are effected in order to realize a profit (or
minimize a loss) on an outstanding option, to prevent an underlying security
from being called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits the Portfolio to write
another call option on the underlying security with a different exercise price
or expiration date or both. There is, of course, no assurance that a Portfolio
will be able to effect closing transactions at favorable prices. If a 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.
A 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.
A Portfolio pays brokerage commissions or spreads in connection with
purchasing or writing options, including those used to close out existing
positions. From time to time, the Portfolio may purchase an underlying security
for delivery in accordance with an exercise notice of a call option assigned to
it, rather than delivering the security from its portfolio. In those cases,
additional brokerage commissions are incurred.
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. Each Portfolio may use American-style
options. International Portfolio may also purchase European-style options and
may purchase and sell options that are traded on foreign exchanges.
The assets used as cover (or held in a segregated account) for OTC
options written by a 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 procedure will be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
The use of put and call options by Socially Responsive Portfolio is not
subject to the Social Policy.
Put and Call Options on Securities Indices. (Equity Portfolios).
International Portfolio may purchase put and call options on securities indices
for the purpose of hedging against the risk of price movements that would
adversely affect the value of the Portfolio's securities or securities the
Portfolio intends to buy. The Portfolio may write securities index options to
close out positions in such options that it has purchased.
For purposes of managing cash flow, each Equity 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.
The effectiveness of hedging through the purchase of securities index
options will depend upon the extent to which price movements in the securities
being hedged correlate with price movements in the selected securities index.
Perfect correlation is not possible because the securities held or to be
acquired by the Portfolio will not exactly match the composition of the
securities indices on which options are available.
Securities index options have characteristics and risks similar to
those of securities options, as discussed herein.
Policies and Limitations. International Portfolio may purchase put and
call options on securities indices for the purpose of hedging. All securities
index options purchased by the Portfolio will be listed and traded on an
exchange. The Portfolio currently does not expect to invest a substantial
portion of its assets in securities index options.
For purposes of managing cash flow, each Equity 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.
Foreign Currency Transactions. (All Portfolios except Liquid Asset
Portfolio). Each 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 Portfolios (other than International Portfolio) enter into forward
contracts in an attempt to hedge against changes in prevailing currency exchange
rates. The Portfolios do not engage in transactions in forward contracts for
speculation; they view 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 a
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, a Portfolio
may either make delivery of the foreign currency or terminate its contractual
obligation to deliver by purchasing an offsetting contract. If the Portfolio
chooses to make delivery of the foreign currency, it may be required to obtain
such currency through the sale of portfolio securities denominated in such
currency or through conversion of other assets of the Portfolio into such
currency. If the Portfolio engages in an offsetting transaction, it will incur a
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, a Portfolio could be in a less advantageous
position than if such a hedge had not been established. If a Portfolio uses
proxy-hedging, it may experience losses on both the currency in which it has
invested and the currency used for hedging if the two currencies do not vary
with the expected degree of correlation. Using forward contracts to protect the
value of a 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. A Portfolio may experience delays in the
settlement of its foreign currency transactions.
International Portfolio may purchase securities of an issuer domiciled
in a country other than the country in whose currency the instrument is
denominated. The Portfolio may invest in securities denominated in the European
Currency Unit ("ECU"), which is a "basket" consisting of a specified amount of
the currencies of certain of the member states of the European Union. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Union from time to time to reflect changes in
relative values of the underlying currencies. The market for ECUs may become
illiquid at times of uncertainty or rapid change in the European currency
markets, limiting the Portfolio's ability to prevent potential losses. In
addition, International Portfolio may invest in securities denominated in other
currency baskets.
Policies and Limitations. The Portfolios (other than International
Portfolio) may enter into forward contracts for the purpose of hedging and not
for speculation. The use of forward contracts by Socially Responsive Portfolio
is not subject to the Social Policy.
International Portfolio may enter into forward contracts for hedging or
non-hedging purposes. When the Portfolio engages in foreign currency
transactions for hedging purposes, it will not enter into forward contracts to
sell currency or maintain a net exposure to such contracts if their consummation
would obligate the Portfolio to deliver an amount of foreign currency materially
in excess of the value of its portfolio securities or other assets denominated
in that currency. International Portfolio may also purchase and sell forward
contracts for non-hedging purposes when NB Management anticipates that a foreign
currency will appreciate or depreciate in value, but securities in that currency
do not present attractive investment opportunities and are not held in the
Portfolio's investment portfolio.
Options on Foreign Currencies. (All Portfolios except Liquid Asset
Portfolio). Each Portfolio may write and purchase covered call and put options
on foreign currencies. International Portfolio may write (sell) put and covered
call options on any currency in order to realize greater income than would be
realized on portfolio securities alone.
Currency options have characteristics and risks similar to those of
securities options, as discussed herein. Certain options on foreign currencies
are traded on the OTC market and involve liquidity and credit risks that may not
be present in the case of exchange-traded currency options.
Policies and Limitations. A 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. In addition, International Portfolio may purchase put and
call options on foreign currencies for non-hedging purposes when NB Management
anticipates that a currency will appreciate or depreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities and are not included in the Portfolio. The use of options on
currencies by Socially Responsive Portfolio is not subject to the Social Policy.
Regulatory Limitations on Using Financial Instruments. To the extent a
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 a Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet current
obligations. A 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. Each 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 a Portfolio and changes in the prices of Financial Instruments; (2) possible
lack of a liquid secondary market for Financial Instruments and the resulting
inability to close out Financial Instruments when desired; (3) the fact that the
skills needed to use Financial Instruments are different from those needed to
select a 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 a 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 a 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 a Portfolio's use of Financial
Instruments will be successful.
Each 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 it is to continue 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 a Portfolio's underlying securities or
currency. NB Management intends to reduce the risk that a 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.
Indexed Securities. (Limited Maturity Bond, International and Balanced
Portfolios). These Portfolios may invest in securities whose value is linked to
foreign currencies, interest rates, commodities, indices, or other financial
indicators ("indexed securities"). Most indexed securities are short- to
intermediate-term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified underlying
instruments. The value of indexed securities may increase or decrease if the
underlying instrument appreciates, and they may have return characteristics
similar to direct investments in the underlying instrument or to one or more
options thereon. However, some indexed securities are more volatile than the
underlying instrument itself.
Inflation-Indexed Securities. (Limited Maturity Bond and Balanced
Portfolios). The Portfolios may invest in U.S. Treasury securities whose
principal value is adjusted daily in accordance with changes to the Consumer
Price Index. Such securities are backed by the full faith and credit of the U.S.
Government. Interest is calculated on the basis of the current adjusted
principal value. The principal value of inflation-indexed securities declines in
periods of deflation, but holders at maturity receive no less than par. If
inflation is lower than expected during the period a Portfolio holds the
security, the Portfolio may earn less on it than on a conventional bond.
Because the coupon rate on inflation-indexed securities is lower than
fixed-rate U.S. Treasury securities, the Consumer Price Index would have to rise
at least to the amount of the difference between the coupon rate of the fixed
rate U.S. Treasury issues and the coupon rate of the inflation-indexed
securities, assuming all other factors are equal, in order for such securities
to match the performance of the fixed-rate Treasury securities.
Inflation-indexed securities are expected to react primarily to changes in the
"real" interest rate (i.e., the nominal (or stated) rate less the rate of
inflation), while a typical bond reacts to changes in the nominal interest rate.
Accordingly, inflation-indexed securities have characteristics of fixed-rate
Treasuries having a shorter duration. Changes in market interest rates from
causes other than inflation will likely affect the market prices of
inflation-indexed securities in the same manner as conventional bonds.
Any increase in principal value is taxable in the year the increase
occurs, even though holders do not receive cash representing the increase until
the security matures. Because each Portfolio must distribute substantially all
of its income to its shareholders to avoid payment of federal income and excise
taxes, a Portfolio may have to dispose of other investments to obtain the cash
necessary to distribute the accrued taxable income on inflation-indexed
securities.
Short Sales. (International Portfolio). The Portfolio may attempt to
limit exposure to a possible decline in the market value of portfolio securities
through short sales of securities that NB Management believes possess volatility
characteristics similar to those being hedged. The Portfolio also may use short
sales in an attempt to realize gain. To effect a short sale, the Portfolio
borrows a security from a brokerage firm to make delivery to the buyer. The
Portfolio then is obliged to replace the borrowed security by purchasing it at
the market price at the time of replacement. Until the security is replaced, the
Portfolio is required to pay the lender any dividends and may be required to pay
a premium or interest.
The Portfolio will realize a gain if the security declines in price
between the date of the short sale and the date on which the Portfolio replaces
the borrowed security. The Portfolio will incur a loss if the price of the
security increases between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium or
interest the Portfolio is required to pay in connection with the short sale. A
short position may be adversely affected by imperfect correlation between
movements in the price of the securities sold short and the securities being
hedged.
The Portfolio also may make short sales against-the-box, in which it
sells securities short only if it owns or has the right to obtain without
payment of additional consideration an equal amount of the same type of
securities sold.
The effect of short selling on the Portfolio is similar to the effect
of leverage. Short selling may amplify changes in the Portfolio's NAV. Short
selling may also produce higher than normal portfolio turnover, which may result
in increased transaction costs to the Portfolio.
Policies and Limitations. Under applicable guidelines of the SEC staff,
if the Portfolio engages in a short sale (other than a short sale
against-the-box), it must put in a segregated account (not with the broker) an
amount of cash or appropriate liquid securities equal to the difference between
(1) the market value of the securities sold short at the time they were sold
short and (2) any cash or securities required to be deposited as collateral with
the broker in connection with the short sale (not including the proceeds from
the short sale). In addition, until the Portfolio replaces the borrowed
security, it must daily maintain the segregated account at such a level that (1)
the amount deposited in it plus the amount deposited with the broker as
collateral equals the current market value of the securities sold short, and (2)
the amount deposited in it plus the amount deposited with the broker as
collateral is not less than the market value of the securities at the time they
were sold short.
Asset-Backed Securities. (Liquid Asset, Limited Maturity Bond and
Balanced Portfolios). Asset-backed securities represent direct or indirect
participations in, or are secured by and payable from, pools of assets such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property, and receivables from revolving
credit (credit card) agreements. These assets are securitized through the use of
trusts and special purpose corporations. Credit enhancements, such as various
forms of cash collateral accounts or letters of credit, may support payments of
principal and interest on asset-backed securities. Although these securities may
be supported by letters of credit or other credit enhancements, payment of
interest and principal ultimately depends upon individuals paying the underlying
loans, which may be affected adversely by general downturns in the economy.
Asset-backed securities are subject to the same risk of prepayment described
with respect to mortgage-backed securities. The risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments,
however, is greater for asset-backed securities than for mortgage-backed
securities.
Certificates for Automobile Receivablessm ("CARSsm") represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interests in the
vehicles securing those contracts. Payment of principal and interest on the
underlying contracts are passed through monthly to certificate holders and are
guaranteed up to specified amounts by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the trust. Underlying
installment sales contracts are subject to prepayment, which may reduce the
overall return to certificate holders. Certificate holders also may experience
delays in payment or losses on CARSsm if the trust does not realize the full
amounts due on underlying installment sales contracts because of unanticipated
legal or administrative costs of enforcing the contracts; depreciation, damage,
or loss of the vehicles securing the contracts; or other factors.
Credit card receivable securities are backed by receivables from
revolving credit card agreements ("Accounts"). Credit balances on Accounts are
generally paid down more rapidly than are automobile contracts. Most of the
credit card receivable securities issued publicly to date have been pass-through
certificates. In order to lengthen their maturity or duration, most such
securities provide for a fixed period during which only interest payments on the
underlying Accounts are passed through to the security holder; principal
payments received on the Accounts are used to fund the transfer of additional
credit card charges made on the Accounts to the pool of assets supporting the
securities. Usually, the initial fixed period may be shortened if specified
events occur which signal a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates. An
issuer's ability to extend the life of an issue of credit card receivable
securities thus depends on the continued generation of principal amounts in the
underlying Accounts and the non-occurrence of the specified events. The
non-deductibility of consumer interest, as well as competitive and general
economic factors, could adversely affect the rate at which new receivables are
created in an Account and conveyed to an issuer, thereby shortening the expected
weighted average life of the related security and reducing its yield. An
acceleration in cardholders' payment rates or any other event that shortens the
period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related security could have a
similar effect on its weighted average life and yield.
Credit cardholders are entitled to the protection of state and federal
consumer credit laws. Many of those laws give a holder the right to set off
certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike the collateral for most other
asset-backed securities, Accounts are unsecured obligations of the cardholder.
Limited Maturity Bond and Balanced Portfolios each may invest in trust
preferred securities, which are a type of asset-backed security. Trust preferred
securities represent interests in a trust formed by a parent company to finance
its operations. The trust sells preferred shares and invests the proceeds in
debt securities of the parent. This debt may be subordinated and unsecured.
Dividend payments on the trust preferred securities match the interest payments
on the debt securities; if no interest is paid on the debt securities, the trust
will not make current payments on its preferred securities. Unlike typical
asset-backed securities, which have many underlying payors and are usually
overcollateralized, trust preferred securities have only one underlying payor
and are not overcollateralized. Issuers of trust preferred securities and their
parents currently enjoy favorable tax treatment. If the tax characterization of
trust preferred securities were to change, they could be redeemed by the
issuers, which could result in a loss to a Portfolio.
Convertible Securities. (Equity Portfolios). Each 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 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, convertible
securities ordinarily provide a stream of income with generally higher yields
than those of 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 nonconvertible 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 with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege, and (2)
its worth, at market value, if converted into the underlying common stock.
The price of a convertible security often reflects such variations in
the price of the underlying common stock in a way that nonconvertible debt does
not. Convertible securities are typically issued by smaller capitalized
companies whose stock prices may be volatile. 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 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 a 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 a Portfolio's ability to achieve its investment
objective.
Policies and Limitations. Socially Responsive Portfolio may invest up to
20% of its net assets in convertible securities. The Portfolio does not intend
to purchase any convertible securities that are not investment grade.
Convertible debt securities are subject to each Portfolio's investment policies
and limitations concerning debt securities.
Preferred Stock. (Equity Portfolios). The Portfolios 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, although preferred shareholders may have certain rights if dividends
are not paid. Shareholders may suffer a loss of value if dividends are not paid,
and generally have no legal recourse against the issuer. The market prices of
preferred stocks are generally more sensitive to changes in the issuer's
creditworthiness than are the prices of debt securities.
Zero Coupon (Partners, Socially Responsive, Limited Maturity Bond,
Balanced, and Liquid Asset Portfolios) and Step Coupon Securities. (Limited
Maturity Bond and Balanced Portfolio). The Portfolios may invest in zero coupon
securities and Limited Maturity Bond and Balanced Portfolios may invest in step
coupon securities, both of which are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or that specify a
future date when the securities begin paying current interest. Zero coupon and
step coupon securities are issued and traded at a significant discount from
their face amount or par value. The discount varies depending on prevailing
interest rates, the time remaining until cash payments begin, the liquidity of
the security, and the perceived credit quality of the issuer. They are redeemed
at face value when they mature.
The discount on zero coupon and step coupon securities ("original issue
discount" or "OID") must be taken into income ratably by each such Portfolio
prior to the receipt of any actual payments. Because each Portfolio must
distribute to its shareholders substantially all of its net income each year for
income tax purposes, a Portfolio may have to dispose of portfolio securities
under disadvantageous circumstances to generate cash, or may be required to
borrow, to satisfy its distribution requirements.
The market prices of zero and step coupon securities generally are more
volatile than the prices of securities that pay interest periodically. Zero
coupon securities are likely to respond to changes in interest rates to a
greater degree than other types of debt securities having a similar maturity and
credit quality.
Municipal Obligations. (Income Portfolios). Municipal obligations are
securities issued by or on behalf of states (as used herein, including the
District of Columbia), territories and possessions of the United States and
their political subdivisions, agencies, and instrumentalities. The interest on
municipal obligations is generally exempt from federal income tax. The
tax-exempt status of any issue of municipal obligations is determined on the
basis of an opinion of the issuer's bond counsel at the time the obligations are
issued.
Municipal obligations include "general obligation" securities, which
are backed by the full taxing power of a municipality, and "revenue" securities,
which are backed only by the income from a specific project, facility, or tax.
Municipal obligations also include industrial development and private activity
bonds which are issued by or on behalf of public authorities, but are not backed
by the credit of any governmental or public authority. "Anticipation notes",
which are also municipal obligations, are issued by municipalities in
expectation of future proceeds from the issuance of bonds, or from taxes or
other revenues, and are payable from those bond proceeds, taxes, or revenues.
Municipal obligations also include tax-exempt commercial paper, which is issued
by municipalities to help finance short-term capital or operating requirements.
The value of municipal obligations is dependent on the continuing
payment of interest and principal when due by the issuers of the municipal
obligations in which a Portfolio invests (or, in the case of industrial
development bonds, the revenues generated by the facility financed by the bonds
or, in certain other instances, the provider of the credit facility backing the
bonds). As with other fixed income securities, an increase in interest rates
generally will reduce the value of a Portfolio's investments in municipal
obligations, whereas a decline in interest rates generally will increase that
value.
Current efforts to restructure the federal budget and the relationship
between the federal government and state and local governments may adversely
impact the financing of some issuers of municipal securities. Some states and
localities are experiencing substantial deficits and may find it difficult for
political or economic reasons to increase taxes. Efforts are underway that may
result in a restructuring of the federal income tax system. These developments
could reduce the value of all municipal securities, or the securities of
particular issuers.
Policies and Limitations. Limited Maturity Bond Portfolio may invest up
to 5% of its net assets in municipal obligations. Liquid Asset Portfolio may
invest in municipal obligations that otherwise meet its criteria for quality and
maturity.
U.S. Government and Agency Securities. (All Portfolios). U.S.
Government Securities are obligations of the U.S. Treasury backed by the full
faith and credit of the United States. U.S. Government Agency Securities are
issued or guaranteed by U.S. Government agencies, or by instrumentalities of the
U.S. Government, such as the Government National Mortgage Association ("GNMA"),
Fannie Mae (also known as the Federal National Mortgage Association), Freddie
Mac (also known as the Federal Home Loan Mortgage Corporation), Student Loan
Marketing Association (commonly known as "Sallie Mae"), and Tennessee Valley
Authority. Some U.S. Government Agency Securities are supported by the full
faith and credit of the United States, while others may be supported by the
issuer's ability to borrow from the U.S. Treasury, subject to the Treasury's
discretion in certain cases, or only by the credit of the issuer. U.S.
Government Agency Securities include U.S. Government Agency mortgage-backed
securities. (See "Mortgage-Backed Securities," below.) The market prices of U.S.
Government Agency Securities are not guaranteed by the Government and generally
fluctuate inversely with changing interest rates.
Policies and Limitations. Liquid Asset Portfolio may invest 25% or more
of its total assets in U.S. Government and Agency
Securities. The Equity Portfolios normally may invest up to 35% of
their total assets in debt securities, including U.S. Government and Agency
Securities.
Swap Agreements. (International Portfolio). The Portfolio may enter
into swap agreements to manage or gain exposure to particular types of
investments (including equity securities or indices of equity securities in
which the Portfolio otherwise could not invest efficiently). In an example of a
swap agreement, one party agrees to make regular payments equal to a floating
rate on a specified amount in exchange for payments equal to a fixed rate, or a
different floating rate, on the same amount for a specified period.
Swap agreements may involve leverage and may be highly volatile;
depending on how they are used, they may have a considerable impact on the
Portfolio's performance. The risks of swap agreements depend upon the other
party's creditworthiness and ability to perform, as well as the Portfolio's
ability to terminate its swap agreements or reduce its exposure through
offsetting transactions. Swap agreements may be illiquid. The swap market is
relatively new and is largely unregulated.
Policies and Limitations. In accordance with SEC staff requirements,
the Portfolio will segregate cash or appropriate liquid securities in an amount
equal to its obligations under swap agreements; when an agreement provides for
netting of the payments by the two parties, the Portfolio will segregate only
the amount of its net obligation, if any.
Fixed Income Securities. (All Portfolios). The Income Portfolios invest
primarily in fixed income securities. While the emphasis of the Equity
Portfolios' investment programs is on common stocks and other equity securities,
the Portfolios may also invest in money market instruments, U.S. Government and
Agency Securities, and other fixed income securities. Each Portfolio may invest
in investment grade corporate bonds and debentures. Partners, Mid-Cap Growth,
Limited Maturity Bond, Balanced and International Portfolio each may invest in
corporate debt securities rated below investment grade.
"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 Portfolios may rely on the ratings of any NRSRO,
the Portfolios primarily refer 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 the fixed income securities in which a
Portfolio may invest is likely to decline in times of rising market interest
rates. Conversely, when rates fall, the value of a Portfolio's fixed income
investments is likely to rise. Foreign debt securities are subject to risks
similar to those of other foreign securities. Lower rated securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates.
Lower Rated Debt Securities. (Balanced, Limited Maturity Bond, Mid-Cap
Growth, Partners and International Portfolios). Lower-rated debt securities or
"junk bonds" are those rated below the fourth highest category by all NRSROs
that have rated them (including those securities rated as low as D by S&P) or
unrated securities of comparable quality. Securities rated below investment
grade may be considered speculative. Securities rated B are judged to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with their terms and obligations. Lower rated
debt securities generally offer a higher current yield than that available for
investment grade issues with similar maturities, but they may involve
significant risk under adverse conditions. In particular, adverse changes in
general economic conditions and in the industries in which the issuers are
engaged and changes in the financial condition of the issuers are more likely to
cause price volatility and weaken the capacity of the issuer to make principal
and interest payments than is the case for higher-grade debt securities. In
addition, a Portfolio that invests in lower-quality securities may incur
additional expenses to the extent recovery is sought on defaulted securities.
Because of the many risks involved in investing in high-yield securities, the
success of such investments is dependent on the credit analysis of NB
Management.
During periods of economic downturn or rising interest rates, highly
leveraged issuers may experience financial stress which could adversely affect
their ability to make payments of interest and principal and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
The market for lower rated debt securities has expanded rapidly in
recent years, and its growth generally paralleled a long economic expansion. In
the past, the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or defaults. There can be no
assurance that such declines will not recur.
The market for lower rated debt issues generally is thinner or less
active than that for higher quality securities, which may limit a Portfolio's
ability to sell such securities at fair value in response to changes in the
economy or financial markets. Judgment may play a greater role in pricing such
securities than it does for more liquid securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower rated debt securities, especially in
a thinly traded market.
See Appendix A for further information about the ratings of debt
securities assigned by S&P and Moody's.
Policies and Limitations. Partners Portfolio may invest up to 15% of
its net assets, measured at the time of investment, in corporate debt securities
rated below investment grade or Comparable Unrated Securities. Limited Maturity
Bond and Mid-Cap Growth Portfolios may invest up to 10% of their net assets,
measured at the time of investment, in debt securities rated below investment
grade, but rated at least B with respect to Limited Maturity Bond Portfolio and
C with respect to Mid-Cap Growth Portfolio by S&P or Moody's, or Comparable
Unrated Securities. Balanced Portfolio may invest up to 10% of the debt
securities portion of its investments, measured at the time of investment, in
debt securities rated below investment grade, but rated at least B by S&P or
Moody's, or Comparable Unrated Securities.
International Portfolio may invest in domestic and foreign debt
securities of any rating, including those rated below investment grade and
Comparable Unrated Securities.
Subsequent to its purchase by a 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 that Portfolio. In such a case, Socially
Responsive Portfolio will engage in an orderly disposition of the downgraded
securities, and Limited Maturity Bond and Balanced (debt securities portion)
Portfolios will engage in an orderly disposition of the downgraded securities or
other securities to the extent necessary to ensure the Portfolio's holdings that
are considered by the Portfolio to be below investment grade will not exceed 10%
of its net assets. Limited Maturity Bond and Balanced (debt securities portion)
Portfolios may each hold up to 5% of its net assets in securities that are
downgraded after purchase to a rating below that permissible by the Portfolio's
investment policies. Each other Portfolio (except International Portfolio) will
engage in an orderly disposition of 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 (15% in the case of Partners Portfolio and 10% in the case of Mid-Cap
Growth Portfolio). NB Management will make a determination as to whether
International Portfolio should dispose of the downgraded securities. With
respect to Liquid Asset Portfolio, NB Management will consider the need to
dispose of such securities in accordance with the requirements of Rule 2a-7
under the 1940 Act.
NB Management will invest in lower-rated securities only when it
concludes that the anticipated return on such an investment to Partners, Mid-Cap
Growth or International Portfolio warrants exposure to the additional level of
risk.
Ratings of Fixed Income Securities
As discussed above, the Portfolios may purchase securities rated by
S&P, Moody's, or any other NRSRO. The ratings of an NRSRO represent its opinion
as to the quality of securities it undertakes to rate. Ratings are not absolute
standards of quality; consequently, securities with the same maturity, duration,
coupon, and rating may have different yields. Although the Portfolios may rely
on the ratings of any NRSRO, the Portfolio mainly refer to ratings assigned by
S&P and Moody's, which are described in Appendix A. Each Portfolio may also
invest in unrated securities that are deemed comparable in quality by NB
Management to the rated securities in which the Portfolio may permissibly
invest.
High-quality debt securities. High-quality debt securities are
securities that have received a rating from at least one NRSRO, such as S&P or
Moody's, in one of the two highest rating categories (the highest category in
the case of commercial paper) or, if not rated by any NRSRO, such as U.S.
Government and Agency Securities, have been determined by NB Management to be of
comparable quality. If two or more NRSROs have rated a security, at least two of
them must rate it as high quality if the security is to be eligible for purchase
by Liquid Asset Portfolio.
Investment Grade Debt Securities. Investment grade debt securities are
securities that have received a rating from at least one NRSRO in one of the
four highest rating categories or, if not rated by any NRSRO, have been
determined by NB Management to be of comparable quality. Moody's deems
securities rated in its fourth highest category (Baa) to have speculative
characteristics; a change in economic factors could lead to a weakened capacity
of the issuer to repay.
Lower-Rated Debt Securities. Lower-rated debt securities or "junk
bonds" are those rated below the fourth highest category by all NRSROs that have
rated them (including those securities rated as low as D by S&P) or unrated
securities of comparable quality. Securities rated below investment grade may be
considered speculative. Securities rated B are judged to be predominantly
speculative with respect to their capacity to pay interest and repay principal
in accordance with the terms of the obligations. Although these securities
generally offer higher yields than investment grade debt securities with similar
maturities, lower-quality securities involve greater risks, including the
possibility of default or bankruptcy by the issuer, or the securities may
already be in default. See the additional risks described above for lower-rated
securities.
Subsequent to its purchase by a 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 that Portfolio. The policy on downgraded
securities is discussed above under "Lower Rated Debt Securities."
Duration and Maturity
Duration is a measure of the sensitivity of debt securities to changes
in market interest rates, based on the entire cash flow associated with the
securities, including payments occurring before the final repayment of
principal. For Limited Maturity Bond and Balanced (debt securities portion)
Portfolios, NB Management utilizes duration as a tool in portfolio selection
instead of the more traditional measure known as "term to maturity." "Term to
maturity" measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security's payments prior to
maturity. Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into one measure. Duration therefore provides a more
accurate measurement of a bond's likely price change in response to a given
change in market interest rates. The longer the duration, the greater the bond's
price movement will be as interest rates change. For any fixed income security
with interest payments occurring prior to the payment of principal, duration is
always less than maturity.
Futures, options and options on futures have durations which are
generally related to the duration of the securities underlying them. Holding
long futures or call option positions will lengthen a Portfolio's duration by
approximately the same amount as would holding an equivalent amount of the
underlying securities. Short futures or put options have durations roughly equal
to the negative of the duration of the securities that underlie these positions,
and have the effect of reducing portfolio duration by approximately the same
amount as would selling an equivalent amount of the underlying securities.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage-backed securities. The stated final
maturity of such securities is generally 30 years, but current and expected
prepayment rates are critical in determining the securities' interest rate
exposure. In these and other similar situations, NB Management, where permitted,
will use more sophisticated analytical techniques that incorporate the economic
life of a security into the determination of its interest rate exposure.
Liquid Asset Portfolio is required to maintain a dollar-weighted
average portfolio maturity of no more than 90 days and invest in a portfolio of
debt instruments with remaining maturities of 397 days or less. Limited Maturity
Bond and Balanced (debt securities portion) Portfolios' dollar-weighted average
duration will not exceed four years, although each Portfolio may invest in
individual securities of any duration; the Portfolios' dollar-weighted average
maturity may range up to six years.
Risks of Equity Securities
The Equity Portfolios may invest in securities that include common
stocks, preferred stocks, convertible securities and warrants. Common stocks and
preferred stocks represent shares of ownership in a corporation. Preferred
stocks usually have specific dividends and rank after bonds and before common
stock in claims on assets of the corporation should it be dissolved. Increases
and decreases in earnings are usually reflected in a corporation's stock price.
Convertible securities are debt or preferred equity securities convertible into
common stock. Usually, convertible securities pay dividends or interest at rates
higher than common stock, but lower than other securities. Convertible
securities usually participate to some extent in the appreciation or
depreciation of the underlying stock into which they are convertible. Warrants
are options to buy a stated number of shares of common stock at a specified
price anytime during the life of the warrants.
To the extent a Portfolio invests in such securities, the value of
securities held by the Portfolio will be affected by changes in the stock
markets, which may be the result of domestic or international political or
economic news, changes in interest rates or changing investor sentiment. At
times, the stock markets can be volatile and stock prices can change
substantially. The equity securities of smaller companies are more sensitive to
these changes than those of larger companies. This market risk will affect the
Portfolio's NAV per share, which will fluctuate as the value of the securities
held by the Portfolio changes. Not all stock prices change uniformly or at the
same time and not all stock markets move in the same direction at the same time.
Other factors affect a particular stock's prices, such as poor earnings reports
by an issuer, loss of major customers, major litigation against an issuer, or
changes in governmental regulations affecting an industry. Adverse news
affecting one company can sometimes depress the stock prices of all companies in
the same industry. Not all factors can be predicted.
Other Investment Companies. International Portfolio may invest in the
shares of other investment companies. Such investment may be the most practical
or only manner in which the Portfolio can participate in certain foreign markets
because of the expenses involved or because other vehicles for investing in
those countries may not be available at the time the Portfolio is ready to make
an investment. Each Equity 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 or another appropriate
index. Limited Maturity Bond and Balanced Portfolios, for temporary defensive
purposes, may each invest up to 10% of its total assets in the securities of
money market funds.
As a shareholder in an investment company, a Portfolio would bear its
pro rata share of that investment company's expenses. At the same time, the
Portfolio will continue to pay its own management fees and expenses with respect
to its portfolio investments, including the shares of other investment
companies. Investment in other funds may involve the payment of substantial
premiums above the value of such issuer's portfolio securities. The Portfolios
do 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. Each 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.
Preferred Stock. (Equity Portfolios). Each 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.
Socially Responsive Portfolio - Description of Social Policy
Background Information on Socially Responsive Investing
In an era when many people are concerned about the relationship between
business and society, socially responsive investing ("SRI") is a mechanism for
assuring that investors' social values are reflected in their investment
decisions. As such, SRI is a direct descendent of the successful effort begun in
the early 1970's to encourage companies to divest their South African operations
and subscribe to the Sullivan Principles. Today, a growing number of individuals
and institutions are applying similar strategies to a broad range of problems.
Although there are many strategies available to the socially responsive
investor, including proxy activism, below-market loans to community projects,
and venture capital, the SRI strategies used by the Portfolio generally fall
into two categories:
Avoidance Investing. Most socially responsive investors seek to avoid
holding securities of companies whose products or policies are seen as being at
odds with the social good. The most common exclusions historically have involved
tobacco companies and weapons manufacturers.
Leadership Investing. A growing number of investors actively look for
companies with progressive programs that are exemplary or companies which make
it their business to try to solve some of the problems of today's society.
The marriage of social and financial objectives would not have
surprised Adam Smith, who was, first and foremost, a moral philosopher. The
Wealth of Nations is firmly rooted in the Enlightenment conviction that the
purpose of capital is the social good and the related belief that idle capital
is both wasteful and unethical. But, what very likely would have surprised Smith
is the sheer complexity of the social issues we face today and the diversity of
our attitudes toward the social good. War and peace, race and gender, the
distribution of wealth, and the conservation of natural resources -- the social
agenda is long and compelling. It is also something about which reasonable
people differ. What should society's priorities be? What can and should be done
about them? And what is the role of business in addressing them? Since
corporations are on the front lines of so many key issues in today's world, a
growing number of investors feel that a corporation's role cannot be ignored.
This is true of some of the most important issues of the day such as equal
opportunity and the environment.
The Socially Responsive Database
Neuberger Berman, LLC ("Neuberger Berman"), the Portfolio's
sub-adviser, maintains a database of information about the social impact of the
companies it follows. NB Management uses the database to evaluate social issues
after it deems a stock acceptable from a financial standpoint for acquisition by
the Portfolio. The aim of the database is to be as comprehensive as possible,
given that much of the information concerning corporate responsibility comes
from subjective sources. Information for the database is gathered by Neuberger
Berman in many categories and then analyzed by NB Management in the following
six categories of corporate responsibility:
Workplace Diversity and Employment. NB Management looks for companies
that show leadership in areas such as employee training and promotion policies
and benefits, such as flextime, generous profit sharing, and parental leave. NB
Management looks for active programs to promote women and minorities and takes
into account their representation among the officers of an issuer and members of
its board of directors. As a basis for exclusion, NB Management looks for Equal
Employment Opportunity Act infractions and Occupational Safety and Health Act
violations; examines each case in terms of severity, frequency, and time elapsed
since the incident; and considers actions taken by the company since the
violation. NB Management also monitors companies' progress and attitudes toward
these issues.
Environment. A company's impact on the environment depends largely on
the industry. Therefore, NB Management examines a company's environmental record
vis-a-vis those of its peers in the industry. All companies operating in an
industry with inherently high environmental risks are likely to have had
problems in such areas as toxic chemical emissions, federal and state fines, and
Superfund sites. For these companies, NB Management examines their problems in
terms of severity, frequency, and elapsed time. NB Management then balances the
record against whatever leadership the company may have demonstrated in terms of
environmental policies, procedures, and practices. NB Management defines an
environmental leadership company as one that puts into place strong affirmative
programs to minimize emissions, promote safety, reduce waste at the source,
insure energy conservation, protect natural resources, and incorporate recycling
into its processes and products. NB Management looks for the commitment and
active involvement of senior management in all these areas. Several major
manufacturers which still produce substantial amounts of pollution are among the
leaders in developing outstanding waste source reduction and remediation
programs.
Product. NB Management considers company announcements, press reports,
and public interest publications relating to the health, safety, quality,
labeling, advertising, and promotion of both consumer and industrial products.
NB Management takes note of companies with a strong commitment to quality and
with marketing practices which are ethical and consumer-friendly. NB Management
pays particular attention to companies whose products and services promote
progressive solutions to social problems.
Public Health. NB Management measures the participation of companies in
such industries and markets as alcohol, tobacco, gambling and nuclear power. NB
Management also considers the impact of products and marketing activities
related to those products on nutritional and other health concerns, both
domestically and in foreign markets.
Weapons. NB Management keeps track of domestic military sales and,
whenever possible, foreign military sales and categorizes them as nuclear
weapons related, other weapons related, and non-weapon military supplies, such
as micro-chip manufacturers and companies that make uniforms for military
personnel.
Corporate Citizenship. NB Management gathers information about a
company's participation in community affairs, its policies with respect to
charitable contributions, and its support of education and the arts. NB
Management looks for companies with a focus, dealing with issues not just by
making financial contributions, but also by asking the questions: What can we do
to help? What do we have to offer? Volunteerism, high-school mentoring programs,
scholarships and grants, and in-kind donations to specific groups are just a few
ways that companies have responded to these questions.
Implementation of Social Policy
Companies deemed acceptable by NB Management from a financial
standpoint are analyzed using Neuberger Berman's database. The companies are
then evaluated by the portfolio manager to determine if the companies' policies,
practices, products, and services withstand scrutiny in the following major
areas of concern: the environment and workplace diversity and employment.
Companies are then further evaluated to determine their track record in issues
and areas of concern such as public health, weapons, product, and corporate
citizenship.
The issues and areas of concern that are tracked lend themselves to
objective analysis in varying degrees. Few, however, can be resolved entirely on
the basis of scientifically demonstrable facts. Moreover, a substantial amount
of important information comes from sources that do not purport to be
disinterested. Thus, the quality and usefulness of the information in the
database depend on Neuberger Berman's ability to tap a wide variety of sources
and on the experience and judgment of the people at NB Management who interpret
the information.
In applying the information in the database to stock selection for the
Portfolio, NB Management considers several factors. NB Management examines the
severity and frequency of various infractions, as well as the time elapsed since
their occurrence. NB Management also takes into account any remedial action
which has been taken by the company relating to these infractions. NB Management
notes any quality innovations made by the company in its effort to create
positive change and looks at the company's overall approach to social issues.
PERFORMANCE INFORMATION
A Portfolio's performance may be quoted in advertising in terms of
yield or total return if accompanied by performance of an insurance company's
separate account. Each Portfolio's performance figures are based on historical
earnings and are not intended to indicate future performance. The share price
yield and total return of each Portfolio will vary, and an investment in a
Portfolio, when redeemed, may be worth more or less than the original purchase
price. Performance information does not reflect insurance product or qualified
plan expenses.
Yield Calculations
The Liquid Asset Portfolio may advertise its "current yield" and
"effective yield." The Portfolio's current yield is based on the return for a
recent seven-day period and is computed by determining the net change (excluding
capital changes) in the value of a hypothetical account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period. The result is a
"base period return," which is then annualized -- that is, the amount of income
generated during the seven-day period is assumed to be generated each week over
a 52-week period -- and shown as an annual percentage of the investment.
The effective yield of the Portfolio is calculated similarly, but the
base period return is assumed to be reinvested. The assumed reinvestment is
calculated by adding 1 to the base period return, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result, according to
the following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
For the seven calendar days ended December 31, 1999, the current yield
of the Liquid Asset Portfolio was 4.77%. For the same period, the effective
yield was 4.88%.
Limited Maturity Bond Portfolio. The Portfolio may advertise its
"yield" based on a 30-day (or one-month) period. This yield is computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period. The result then
is annualized and shown as an annual percentage of the investment.
The annualized yield for the Limited Maturity Bond Portfolio for the
30-day period ended December 31, 1999 was 6.22%.
Total Return Computations. (All Portfolios except Liquid Asset Portfolio).
A Portfolio 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. Of
course, past performance cannot be a guarantee of future results. These
calculations assume that all dividends and distributions are reinvested.
The average annual total returns for the Growth Portfolio (and the
predecessor of the Growth Portfolio for the period prior to May 1, 1995) for the
one-, five-, and ten-year periods ended December 31, 1999, were +50.40%,
+26.37%, and +15.61%, respectively.
The average annual total returns for the Limited Maturity Bond
Portfolio (and the predecessor of the Limited Maturity Bond Portfolio for the
period prior to May 1, 1995) for the one-, five-, and ten-year periods ended
December 31, 1999, were +1.48%, +5.52%, and +5.86%, respectively.
The average annual total returns for the Balanced Portfolio (and the
predecessor of the Balanced Portfolio for the period prior to May 1, 1995) for
the one, five, and ten-year periods ended December 31, 1999, were +33.56%,
+18.81%, and +12.65%, respectively.
The average annual total return for the Partners Portfolio (and the
predecessor of the Partners Portfolio for the period prior to May 1, 1995) for
the one-year and five-year periods ended December 31, 1999 and for the period
from March 22, 1994 (commencement of operations) through December 31, 1999 was
+7.37%, +21.03%, and +17.47% respectively.
The average annual total return for the Mid-Cap Growth Portfolio for
the one year period ended December 31, 1999 and the period since inception
(November 3, 1997) through December 31, 1999 was +53.89% and +52.97%,
respectively.
The average annual total return for the Guardian Portfolio for the one
year period ended December 31, 1999 and the period since inception (November 3,
1997) through December 31, 1999 was +14.93 and +23.93% respectively.
The average annual total return for the Socially Responsive Portfolio
for the period from February 18, 1999 (inception date) through December 31, 1999
was +15.40%.
NB Management may waive a portion of its fee or reimburse certain of
the Portfolios and predecessors of the Portfolios for certain expenses during
the periods shown, which has the effect of increasing total return. Actual
reimbursements and waivers are described in the Prospectus and in "Investment
Management and Administrative Services" below.
Average annual total returns quoted for the Portfolios include the
effect of deducting a Portfolio's expenses, but do not include insurance-related
charges and other expenses attributable to any particular insurance product.
Since you can only purchase shares of a Portfolio through a variable annuity or
variable life insurance contract (except with respect to the Balanced Portfolio,
which may also be purchased by Qualified Plans) you should carefully review the
prospectus of the insurance product you have chosen for information on relevant
charges and expenses. Excluding these charges from quotations of a Portfolio's
performance has the effect of increasing the performance quoted. You should bear
in mind the effect of these charges when comparing a Portfolio's performance to
that of other mutual funds.
Comparative Information
From time to time a Portfolio'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.
("Lipper"), C.D.A. Investment Technologies, Inc., Wiesenberger
Investment Companies Service, Investment Company Data Inc.,
IBC/Financial Data Inc.'s Money Market Fund Report, Morningstar, Inc.
("Morningstar"), Micropal Incorporated, VARDS and quarterly mutual fund
rankings by Money, Fortune, Forbes, Business Week, Personal Investor,
and U.S. News & World Report magazines, The Wall Street Journal, New
York Times, Kiplinger's Personal Finance, and Barron's Newspaper, or
(2) recognized bond, stock and other indices, such as the
Shearson Lehman Bond Index, The Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index"), S&P Small Cap 600 ("S&P 600"), S&P Mid
Cap 400 ("S&P 400"), Russell 2000 Stock Index, Russell Mid Cap Growth
Index, Dow Jones Industrial Average ("DJIA"), Wilshire 1750, NASDAQ,
Montgomery Securities Growth Stock Index, Value Line Index, U.S.
Department of Labor Consumer Price Index ("Consumer Price Index"),
College Board Survey of Colleges Annual Increases of College costs,
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
includes stocks that range in market value from $35 million to $6.1
billion, with an average of $572 million. The S&P 400 measures
mid-sized companies with 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, Australia, 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. Each Portfolio may
invest in different types of securities from those included in some of
the above indices.
The Limited Maturity Bond Portfolio's performance may also be compared
with the Merrill Lynch 1-3 year Treasury Index and the Lehman Brothers
Intermediate Government/Corporate Bond Index, as well as the performance of
Treasury Securities, corporate bonds, and the Lipper Short Investment Grade Debt
Funds category.
The Socially Responsive Portfolio's performance may also be compared to
various socially responsive indices. These include The Domini Social Index and
the indices developed by the quantitative department of Prudential Securities,
such as that department's Large and Mid-Cap portfolio indices for various
breakdowns ("Sin" Stock Free, Cigarette-Stock Free, S&P Composite, etc.).
Evaluations of a Portfolio's performance, its yield/total return and
comparisons may be used in advertisements and in information furnished to
present and prospective shareholders (collectively, "Advertisements"). The
Portfolios 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.
Each Portfolio may invest some of its assets in different types of
securities than those included in the index used as a comparison with the
Portfolio's historical performance. A Portfolio may also compare certain
indices, which represent different segments of the securities markets, for the
purpose of comparing the historical returns and volatility of those particular
market segments. Measures of volatility show the range of historical price
fluctuations. Standard deviation may be used as a measure of volatility. There
are other measures of volatility, which may yield different results.
In addition, the Income Portfolios' performance may be compared at
times with that of various bank instruments (including bank money market
accounts and CDs of varying maturities) as reported in publications such as The
Bank Rate Monitor. Any such comparisons may be useful to investors who wish to
compare a Portfolio's past performance with that of certain of its competitors.
Of course, past performance is not a guarantee of future results. Unlike an
investment in a Portfolio, bank CDs pay a fixed rate of interest for a stated
period of time and are insured up to $100,000.
Other Performance Information. From time to time, information about a
Portfolio's portfolio allocation and holdings as of a particular date may be
included in Advertisements. This information may include portfolio
diversification by asset type.
<PAGE>
TRUSTEES AND OFFICERS
The following table sets forth information concerning the trustees and
officers of the 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 advised by Neuberger
Berman and NB Management.
<TABLE>
<CAPTION>
<S> <C> <C>
Positions Held with
Name, Address and Age (1) the Trust Principal Occupation(s) (2)
- --------------------- --------------------- -----------------------
Faith Colish Trustee Attorney at law, Faith Colish, A Professional
63 Wall Street Corporation. Trustee of five other mutual
24th FloorNew York, NY 10005 funds for which NB Management acts as investment manager
Age: 64 or administrator.
Walter G. Ehlers Trustee Consultant; Director of The Turner
6806 Suffolk Place Corporation, A.B. Chance Company, and
Harvey Cedars, NJ 08008 Crescent Jewelry, Inc.
Age: 67
C. Anne Harvey Trustee Director of American Association of Retired
2555 Pennsylvania Avenue, N.W. Persons ("AARP") Program Services and
Washington, DC 20037 Administrator of AARP Foundation; The
Age: 62 National Rehabilitation Hospital's Board of
Advisors; Individual Investors Advisory
Committee to the New York Stock Exchange
Board of Directors; Steering Committee for
the U.S. Securities and Exchange Commission
Facts on Saving and Investing Campaign; and
American Savings Education Council's Policy
Board (ASEC).
Howard A. Mileaf Trustee 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). Trustee of
New York, NY 10022 six other mutual funds for which NB
Age: 63 Management acts as investment manager or
administrator.
Ruth E. Salzmann Trustee Retired; formerly Director, John Deere
1556 Pine Street Insurance Group (1999); Actuarial Consultant
Stevens Point, WI 54481 (1998); Executive Vice President and Actuary,
Age: 81 Sentry Insurance Company (1984).
Candace L. Straight Trustee Private investor and consultant specializing
518 E. Passaic Avenue in the insurance industry; Advisory Director
Bloomfield, NJ 07003 of Securities Capital LLC, (a global private
Age: 52 equity investment firm making investments in
the insurance sector); Principal of Head &
Company, LLC (limited liability company
providing investment banking and consulting
services to the insurance industry) until
march 1996; Director of Drake Holdings (U.K.
motor insurer) until June 1996. Trustee of
three other mutual funds for which NB
Management acts as investment manager or
administrator.
Peter P. Trapp Trustee Assistant Regional Manager for Atlanta
Ford Motor Credit Company Region, Ford Motor Credit Company since
1455 Lincoln Parkway August, 1997; prior thereto, President, Ford
Atlanta, GA 30346-2209 Life Insurance Company, April, 1995 until
Age: 55 August, 1997.
Lawrence Zicklin* Chairman of the Board and Managing Director of Neuberger Berman;
Age: 64 Trustee Director of NB Management.
Peter E. Sundman Chairman of the Board, Executive Vice President and Director of
Age: 40 President and Chief Neuberger Berman, Inc. (holding company);
Executive Officer and/or President and Director of NB Management;
Trustee Chairman of the Board, Chief Executive
Officer and Trustee of nine other mutual
funds 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 adviser or administrator.
Daniel J. Sullivan Vice President Senior Vice President of NB Management since
Age: 60 1992; Vice President of nine other mutual
funds for which NB Management acts as
investment manager or administrator.
Michael J. Weiner Vice President and Senior Vice President of NB Management since
Age: 53 Principal Financial Officer 1992; Principal of Neuberger Berman from 1998-99;
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.
Claudia A. Brandon Secretary Employee of Neuberger Berman Management since
Age: 43 1999; Secretary of nine other mutual funds
for which NB Management acts as investment
manager or administrator.
Richard Russell Treasurer and Principal Employee of NB Management since 1993;
Age: 53 Accounting Officer Treasurer and Principal Accounting Officer of
nine other mutual funds for which NB Management act as
investment management or administrator.
Stacy Cooper-Shugrue Assistant Secretary Employee of Neuberger Berman; Assistant
Age: 37 Secretary of nine other mutual funds for
which NB Management acts as investment
manager or administrator.
Barbara DiGiorgio Assistant Treasurer Employee of NB Management; Assistant
Age: 41 Treasurer of nine other mutual funds for
which NB Management acts as investment
manager or administrator since 1996.
Celeste Wischerth Assistant Treasurer of each Employee of NB Management; Assistant
Age: 39 Trust Treasurer 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 position shown for at least the last five years.
* Indicates a Trustee who is an "interested person" of the Trust within
the meaning of the 1940 Act. Mr. Zicklin is an interested person by virtue of
the fact that he is a Director of NB Management and a Managing Director of
Neuberger Berman.
The Trust's Trust Instrument provides that the Trust will indemnify the
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 engaged in bad faith,
willful misfeasance, gross negligence, or reckless disregard of the duties
involved in their offices. 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, or 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. As discussed above under "Investment Information",
effective May 1, 2000, each Portfolio redeemed its investment in its
corresponding series of Advisers Managers Trust in-kind at current net asset
value, subject to the liabilities of Advisers Managers Trust, including the
indemnification obligations to the trustees of Advisers Managers Trust, who are
the same individuals that serve on the Board of Trustees of the Trust. These
indemnification obligations are substantially the same as the indemnification
obligation of the Trust to its Trustees.
Trustees who are not managing directors, officers or employees of NB
Management, Neuberger Berman and/or the participating life insurance companies
or any of their affiliates are paid trustees' fees. For the year ended December
31, 1999, a total of $104,792 in fees was paid to the Trustees as a group by the
Trust and a total of $107,192 in fees was paid to the Trustees as a group by
Advisers Managers Trust. The following table shows 1999 compensation by Trustee.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ------------------ ----------------------
Pension or Total Compensation
Retirement Estimated From Trust and Fund
Aggregate Benefits Accrued Annual Benefits Complex Paid to
Name of Person, Compensation From As Part of Upon Retirement Trustees(1)
Position Trust(1) Trust's Expenses
- -------------------------------- ---------------------- ------------------ ------------------ ----------------------
Faith Colish, $16,075 None None $81,000 (2)
Trustee
Walter G. Ehlers, $14,250 None None $28,500(3)
Trustee
C. Anne Harvey, $15,000 None None $30,000(3)
Trustee
Leslie A. Jacobson,* $15,250 None None $30,500 (3)
Trustee
Howard A. Mileaf,** $833 None None $52,417(4)
Trustee
Robert M. Porter,* $16,000 None None $32,000 (3)
Trustee
Ruth E. Salzmann, $15,250 None None $30,500(3)
Trustee
Candace L. Straight** $833 None None $53,167(5)
Trustee
Peter P. Trapp, $12,500 None None $25,000 (3)
Trustee
Lawrence Zicklin, None None None None
Chairman and Trustee
</TABLE>
(1) "Aggregate Compensation From Trust" and "Total Compensation From
Trust and Fund Complex Paid to Trustees" is for the period
from January 1 through December 31, 1999.
(2) Five other investment companies.
(3) One other investment company.
(4) Six other investment companies.
(5) Three other investment companies.
* Messrs. Jacobson and Porter resigned from the Board of Trustees
effective December 31, 1999.
** Ms. Straight and Mr. Mileaf became Trustees on November 30, 1999.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Shares of the Portfolios are issued and redeemed in connection with
investments in and payments under certain variable annuity contracts and
variable life insurance policies (collectively, "Variable Contracts") issued
through separate accounts of life insurance companies (the "Life Companies").
Shares of the Balanced Portfolio are also offered directly to Qualified Plans.
As of March 31, 2000, the separate accounts of the Life Companies were known to
the Board of Trustees and the management of the Trust to own of record all
shares of the Growth, Guardian, Liquid Asset, Limited Maturity Bond, Mid-Cap
Growth, Partners and Socially Responsive Portfolios of the Trust and
approximately 98.6% of the shares of the Balanced Portfolio of the Trust. There
were no shareholders of the International Portfolio as of that same date. The
Trustees own in the aggregate less than 1% of the total Trust shares issued and
outstanding.
As of March 31, 2000, separate accounts of the following Life Companies
owned of record or beneficially 5% or more of the shares of the following
Portfolios:
Percentage of
Outstanding
Shares Owned
Liquid Asset Portfolio
Hartford Life Insurance Company* 93.31%
200 Hopmeadow
Simsbury, CT 06070
Ameritas Life Insurance Corp. 5.80%
5900 O Street
Lincoln, NE 68501
Partners Portfolio
Nationwide Life Insurance Company* 69.24%
P.O. Box 182029
Columbus, OH 43218-2029
Growth Portfolio
Nationwide Life Insurance Company* 95.91%
P.O. Box 182029
Columbus, OH 43218-2029
Limited Maturity Bond Portfolio
Nationwide Life Insurance Company* 62.21%
P.O. Box 182029
Columbus, OH 43218-2029
Penn Mutual Life Insurance Company 5.01%
600 Dresher Road
Horsham, PA 19044
Security Life of Denver Insurance Company 6.68%
1475 Dunwoody Drive
West Chester, PA 19308
Acacia National Life Insurance Company 5.31%
attn: Ameritas/Acacia Mutual Holding Company
5900 O Street
Lincoln, NE 68510
Balanced Portfolio
Nationwide Life Insurance Company* 49.62%
P.O. Box 182029
Columbus, OH 43218-2029
Penn Mutual Life Insurance Company* 42.05%
600 Dresher Road
Horsham, PA 19044
Guardian Portfolio
Nationwide Life Insurance Company* 99.36%
P.O. Box 182029
Columbus, OH 43218-2029
Mid-Cap Growth Portfolio
Nationwide Life Insurance Company* 51.63%
P.O. Box 182029
Columbus, OH 43218-2029
Lincoln Life & Annuity Company of New York 47.49%
1300 S. Clinton Street
Fort Wayne, IN 46802
Socially Responsive Portfolio
Neuberger Berman Management Inc. 7.89%
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
Neuberger Berman, LLC* 39.12%
605 Third Avenue, 2nd Floor
New York, NY 10158-0180
ReliaStar Life Insurance Company* 22.65%
20 Washington Avenue South
Minneapolis, MN 55401
Northern Life Insurance Company* 29.95%
1501 4th Avenue
Seattle, WA 98101
*These entities owned of record 25% or more of the outstanding shares
of beneficial interest of the Portfolio, and therefore may be presumed to
"control" the Portfolio, as that term is defined in the 1940 Act.
These Life Companies are required to vote Portfolio shares in
accordance with instructions received from owners of Variable Contracts funded
by separate accounts with respect to separate accounts of these Life Companies
that are registered with the Securities and Exchange Commission as unit
investment trusts.
INVESTMENT MANAGEMENT, ADVISORY AND ADMINISTRATION SERVICES
Neuberger Berman is an investment management firm with headquarters in
New York. The firm's focus is on U.S. fixed income, equity and balanced fund
management. Total assets under management by Neuberger Berman and its affiliates
were approximately $54.4 billion as of December 31, 1999. Founded in 1939 to
manage portfolios for high net worth individuals, the firm entered the mutual
fund management business in 1950, and began offering active management for
pension funds and institutions in the mid-1970s. Most money managers that come
to the Neuberger Berman organization have at least fifteen years of experience.
Neuberger Berman and NB Management employ experienced professionals that work in
a competitive environment.
NB Management serves as each Portfolio's investment manager pursuant to
a Management Agreement ("Management Agreement") dated as of May 1, 2000, that
was approved by the Trustees on February 29, 2000.
From May 1, 1995 through April 30, 2000, NB Management served as the
investment manager of the corresponding master series of Advisers Managers Trust
in which each Portfolio invested its net investable assets.
The Management Agreement provides in substance that NB Management will
make and implement investment decisions for the Portfolios in its discretion and
will continuously develop an investment program for each Portfolio's assets. The
Management Agreement permits NB Management to effect securities transactions on
behalf of each 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, but NB Management has no current plans to pay a
material amount of such compensation.
NB Management provides to each Portfolio, without cost, office space,
equipment, and facilities and personnel necessary to perform executive,
administrative, and clerical functions and pays all salaries, expenses, and fees
of the officers, trustees, and employees of the Trust who are officers,
directors, or employees of NB Management. Several individuals who are directors,
officers or employees of NB Management and/or Neuberger Berman also serve as
trustees and/or officers of the Trust. See "Trustees and Officers." NB
Management provides similar facilities and services to each Portfolio pursuant
to an administration agreement dated May 1, 1995 ("Administration Agreement").
Each Portfolio was authorized to become subject to the Administration Agreement
by vote of the Trustees on May 26, 1994, except the International Portfolio,
which became subject to it on May 1, 1995, the Mid-Cap Growth and Guardian
Portfolios, which became subject to it on August 20, 1997, and the Socially
Responsive Portfolio, which became subject to it on May 28, 1998.
Management and Administration Fees
For investment management services, Balanced, Growth, Guardian, Mid-Cap
Growth, Partners and Socially Responsive Portfolio each pays NB Management a fee
at the annual rate of 0.55% of the first $250 million of the Portfolio's average
daily net assets, 0.525% of the next $250 million, 0.50% of the next $250
million, 0.475% of the next $250 million, 0.45% of the next $500 million, and
0.425% of average daily net assets in excess of $1.5 billion. International
Portfolio pays NB Management a fee for investment management services at the
annual rate of 0.85% of the first $250 million of the Portfolio's average daily
net assets, 0.825% of the next $250 million, 0.80% of the next $250 million,
0.775% of the next $250 million, 0.75% of the next $500 million and 0.725% of
average daily net assets in excess of $1.5 billion. Limited Maturity Bond and
Liquid Asset Portfolio each pays NB Management a fee for investment management
services at the annual rate of 0.25% of the first $500 million of the
Portfolio's average daily net assets, 0.225% of the next $500 million, 0.20% of
the next $500 million, 0.175% of the next $500 million, and 0.15% of the
Portfolio's average daily net assets in excess of $2 billion.
For administrative services, each Portfolio (except Limited Maturity
Bond and Liquid Asset Portfolios) pays NB Management a fee at the annual rate of
0.30% of that Portfolio's average daily net assets. For administrative services,
Limited Maturity Bond and Liquid Asset Portfolios each pays NB Management a fee
at the annual rate of 0.40% of average daily net assets. In addition, each
Portfolio pays certain out-of-pocket expenses for technology used for
shareholder servicing and shareholder communications subject to the prior
approval of an annual budget by the Trust's Board of Trustees, including a
majority of those Trustees who are not interested persons of the Trust or of NB
Management, and periodic reports to the Board of Trustees on actual expenses.
During the fiscal years ended December 31, 1999, 1998 and 1997, each
Portfolio accrued management and administration fees as follows (these amounts
include management fees incurred by each Portfolio's corresponding master series
of Advisers Managers Trust.
Management and Administration Fees
Accrued for Fiscal Years
Portfolio Ended December 31
1999 1998 1997
---- ---- ----
Growth $4,480,508 $4,754,721 $5,336,566
Limited Maturity Bond $1,699,646 $1,726,341 $1,642,678
Liquid Asset $ 100,731 $ 96,793 $ 91,752
Guardian $ 936,051 $ 308,524 $ 397
Balanced $1,426,808 $1,418,336 $1,554,602
Partners $9,610,217 $13,672,777 $9,277,108
Mid-Cap Growth $517,803 $ 114,303 $ 681
Socially Responsive $7,354 $ N/A $ N/A
The Management and Administration Agreements each continue until May 1,
2001. Each Agreement is renewable from year to year with respect to a Portfolio,
so long as its continuance is approved at least annually (1) by the vote of a
majority of the Trustees who are not "interested persons" of NB Management or
the Trust ("Independent 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
Trustees or by a 1940 Act majority vote of the outstanding shares in that
Portfolio. The Management Agreement is terminable with respect to a Portfolio
without penalty on 60 days' prior written notice either by the Trust or by NB
Management. The Administration Agreement is terminable with respect to a
Portfolio without penalty by NB Management upon at least 120 days' prior written
notice to the Portfolio, and by the Portfolio if authorized by the Trustees,
including a majority of the Independent Trustees, on at least 30 days' prior
written notice to NB Management. Each Agreement terminates automatically if it
is assigned.
Expense Limitations
All Portfolios (except International and Socially Responsive
Portfolios). NB Management has contractually undertaken to limit the Portfolios'
expenses through April 30, 2001 by reimbursing each Portfolio for its total
operating expenses, excluding the compensation of NB Management (with respect to
all Portfolios but the Guardian, Mid-Cap Growth and Liquid Asset Portfolios),
taxes, interest, extraordinary expenses, brokerage commissions and transaction
costs, that exceed, in the aggregate, 1% per annum of the Portfolio's average
daily net asset value. The Guardian and Mid-Cap Growth Portfolios have each in
turn contractually undertaken to repay through December 31, 2004, for the excess
operating expenses borne by NB Management, so long as the Portfolio's annual
operating expenses during that period (exclusive of the compensation of NB
Management (with respect to all Portfolios but the Guardian, Mid-Cap Growth and
Liquid Asset Portfolios), taxes, interest, extraordinary expenses, brokerage
commissions and transaction costs) do not exceed the expense limitation, and
further provided that the reimbursements are made within three years after the
year in which NB Management incurred the expense.
International and Socially Responsive Portfolios. NB Management has
contractually undertaken to limit the Portfolios' expenses through April 30,
2001 by reimbursing each Portfolio for its total operating expenses (and its pro
rata share of its corresponding master series' total operating expenses),
including compensation to NB Management, but excluding taxes, interest,
extraordinary expenses and brokerage commissions, that exceed, in the aggregate,
1.70% per annum of the International Portfolio's average daily net asset value
and 1.50% per annum of the Socially Responsive Portfolio's average daily net
asset value. Each Portfolio has in turn contractually undertaken to repay
through December 31, 2004 for the excess operating expenses borne by NB
Management, so long as the Portfolio's annual operating expenses during that
period (exclusive of taxes, interest, extraordinary expenses and brokerage
commissions) do not exceed the expense limitation, and further provided that the
reimbursements are made within three years after the year in which NB Management
incurred the expense.
The effect of any expense limitation by NB Management is to reduce
operating expenses of a Portfolio and thereby increase total return. There can
no assurance that these expense limitation agreements will be continued or be
extended beyond the period indicated.
For the year ended December 31, 1999, NB Management reimbursed the
Liquid Asset Portfolio $13,038, the Mid-Cap Growth Portfolio $48,298, the
Socially Responsive Portfolio $64,831. Pursuant to a recoupment agreement, the
Guardian Portfolio repaid NB Management $19,386 during the year ended December
31, 1999 for amounts previously reimbursed by NB Management. For the year ended
December 31, 1998, NB Management reimbursed the Liquid Asset Portfolio $20,005,
the Mid-Cap Growth Portfolio $58,074 and the Guardian Portfolio $50,071. For the
year ended December 31, 1997 NB Management reimbursed the Liquid Asset Portfolio
$15,867, the Mid-Cap Growth Portfolio $13,432, and the Guardian Portfolio
$13,586.
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
Michael M. Kassen, Chairman and Executive Vice President; Richard A. Cantor,
Director; Robert Matza, Director; Theodore P. Giuliano, Director and Vice
President; Barbara Katersky, Senior Vice President; Irwin Lainoff, Director;
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. Zicklin is a trustee of the Trust. Messrs. Sundman and Weiner are
officers of the Trust.
Neuberger Berman and NB Management are wholly owned subsidiaries of
Neuberger Berman, Inc., a publicly held holding company owned primarily by the
employees of Neuberger Berman.
Sub-Adviser
NB Management retains Neuberger Berman, 605 Third Avenue, New York, NY
10158-3698, as a sub-adviser with respect to each Portfolio, pursuant to a
Sub-Advisory Agreement dated May 1, 2000 that was approved by the Trustees on
February 29, 2000.
From May 1, 1995 through April 30, 2000, Neuberger Berman served as the
sub-adviser of the corresponding series of Advisers Managers Trust in which each
Portfolio invested its net investable assets.
The Sub-Advisory Agreement provides in substance that Neuberger Berman
will furnish to NB Management, upon reasonable request, investment
recommendations and research information of the same type that Neuberger Berman
from time to time provides to its principals and employees for use in managing
client accounts, as NB Management reasonably requests. 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 research staff consists of numerous investment analysts, each of whom
specializes in studying one or more industries, under the supervision of
research partners who are also available for consultation with NB Management.
The Sub-Advisory Agreement provides that the services rendered by Neuberger
Berman will be paid for by NB Management on the basis of the direct and indirect
costs to Neuberger Berman in connection with those services. Neuberger Berman
also serves as a sub-adviser for all of the other mutual funds advised by NB
Management.
The Sub-Advisory Agreement continues with respect to each Portfolio
until May 1, 2001, and is renewable from year to year thereafter, 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 each Portfolio by the Trustees, or by a 1940 Act majority vote of the
outstanding shares of that Portfolio, by NB Management, or by Neuberger Berman
on not less than 30 nor more than 60 days' prior written notice to the
appropriate Portfolio. The Sub-Advisory Agreement also terminates automatically
with respect to each 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.
The Portfolios are subject to certain limitations imposed on all
advisory clients of Neuberger Berman (including the Portfolios, other mutual
funds referred to below ("Other NB Funds"), and other 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 outstanding shares of public companies.
Investment Companies Advised
NB Management currently serves as investment adviser or manager of the
following investment companies, which had aggregate net assets of approximately
$18.7 billion, as of December 31, 1999. Neuberger Berman acts as sub-adviser to
these investment companies.
<TABLE>
<S> <C>
Approximate Net
Assets at
Name December 31, 1999
- ---- -----------------
Neuberger Berman Cash Reserves . . . . . . . $1,067,386,621
Portfolio (investment portfolio for
Neuberger Berman Cash Reserves)
Neuberger Berman Government Money . . . . $496,244,470
Portfolio (investment portfolio for
Neuberger Berman Government Money
Fund)
Neuberger Berman Limited Maturity Bond . . $264,519,644
Portfolio (investment portfolio for
Neuberger Berman Limited Maturity
Bond Fund and Neuberger Berman
Limited Maturity Bond Trust)
Neuberger Berman High Yield Bond Portfolio. . $17,717,320
(investment portfolio for Neuberger Berman High Yield Bond Fund)
Neuberger Berman Municipal Money . . . . . . $301,713,416
Portfolio (investment portfolio for
Neuberger Berman Municipal Money Fund)
Neuberger Berman Municipal Securities . . . . $32,652,269
Portfolio (investment portfolio for
Neuberger Berman Municipal Securities Trust)
Neuberger Berman Genesis Portfolio . . . . . . $1,619,248,797
(investment portfolio for Neuberger Berman
Genesis Fund, Neuberger Berman
Genesis Trust, Neuberger Berman Genesis Assets and Neuberger Berman
Genesis Institutional)
Neuberger Berman Guardian Portfolio . . . . . $4,406,419,837
(investment portfolio for Neuberger Berman
Guardian Fund, Neuberger Berman
Guardian Trust and Neuberger Berman
Guardian Assets)
Neuberger Berman Manhattan Portfolio . . . . $901,991,808
(investment portfolio for Neuberger Berman
Manhattan Fund, Neuberger Berman
Manhattan Trust and Neuberger Berman
Manhattan Assets)
Neuberger Berman Millennium Portfolio. . . . . . $214,859,495
(investment portfolio for Neuberger Berman Millenium Fund, Neuberger
Berman Millennium Trust and Neuberger Berman Millennium Assets)
Neuberger Berman International Portfolio $195,064,579
(investment portfolio for Neuberger Berman
International Fund and Neuberger Berman International Trust)
Neuberger Berman Partners Portfolio . . . . . . $3,489,710,309
(investment portfolio for Neuberger Berman
Partners Fund, Neuberger Berman
Partners Trust and Neuberger Berman
Partners Assets)
Neuberger Berman Focus Portfolio . . . . . . . $1,772,136,921
(investment portfolio for Neuberger Berman
Focus Fund, Neuberger Berman Focus
Trust and Neuberger Berman Focus Assets)
Neuberger Berman Socially Responsive . . . $146,960,016
Portfolio (investment portfolio for
Neuberger Berman Socially Responsive Fund,
Neuberger Berman Socially Responsive Trust, and
Neuberger Berman Socially Responsive Assets
Neuberger Berman Century Portfolio . . . . . . $12,994,259
(investment portfolio for Neuberger Berman Century Fund and
Neuberger Berman Century Trust
Neuberger Berman Regency Portfolio. . . . . . $33,586,640
(investment portfolio for Neuberger Berman Regency Fund and
Neuberger Berman Regency Trust)
Advisers Managers Trust (eight series) $2,442,187,166
</TABLE>
The investment decisions concerning each Portfolio and the other mutual
funds referred to above (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 Portfolios. Even where
the investment objectives are similar, however, the methods used by the Other NB
Funds and the Portfolios 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 a 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 a Portfolio, in other
cases it is believed that a Portfolio's ability to participate in volume
transactions may produce better executions for it. In any case, it is the
judgment of the Trustees that the desirability of each Portfolio having its
advisory arrangements with NB Management outweighs any disadvantages that may
result from contemporaneous transactions.
The Portfolios are subject to certain limitations imposed on all
advisory clients of Neuberger Berman (including the Portfolios, 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.
DISTRIBUTION ARRANGEMENTS
NB Management serves as the distributor ("Distributor") in connection
with the offering of each Portfolio's shares on a no-load basis. In connection
with the sale of its shares, each Portfolio 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 each Portfolio's "principal underwriter"
within the meaning of the 1940 Act and, as such, acts as agent in arranging for
the sale of each Portfolio's shares without sales commission or other
compensation and bears all advertising and promotion expenses incurred in the
sale of the Portfolios' shares.
The Trust, on behalf of each Portfolio, and the Distributor are parties
to a Distribution Agreement dated May 1, 1995, that continues until May 1, 2001.
The Distribution Agreement may be renewed annually thereafter if specifically
approved by (1) the vote of a majority of the Trustees or a 1940 Act majority
vote of the Portfolio's outstanding shares and (2) the vote of a majority of the
Independent 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 automatically terminate on its assignment, in the same manner as
the Management Agreement and the Sub-Advisory Agreement.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Share Prices and Net Asset Value
Each Portfolio's shares are bought or sold at a price that is the
Portfolio's NAV per share. The NAVs for each Portfolio are calculated by
subtracting total liabilities from total assets. Each Portfolio's per share NAV
is calculated by dividing its NAV by the number of shares outstanding and
rounding the result to the nearest full cent. Each Portfolio calculates its NAV
as of the close of regular trading on the NYSE, usually 4 p.m. Eastern time, on
each day the NYSE is open.
The Liquid Asset Portfolio tries to maintain a stable NAV of $1.00 per
share. It values its securities at their cost at the time of purchase and
assumes a constant amortization to maturity of any discount or premium. Although
the Portfolio's reliance on Rule 2a-7 and its use of the amortized cost
valuation method should enable the Portfolio, under most conditions, to maintain
a stable $1.00 share price, there can be no assurance it will be able to do so.
An investment in the Liquid Asset Portfolio is neither insured nor guaranteed by
the U.S. Government.
The Equity Portfolios (except International Portfolio) value 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. These Portfolios value all
other securities and assets, including restricted securities, by a method that
the Trustees believe accurately reflects fair value.
International Portfolio values equity securities at the last reported
sale price on the principal exchange or in the principal over-the-counter market
in which such securities are traded, as of the close of regular trading on the
NYSE on the day the securities are being valued or, if there are no sales, at
the last available bid price on that day. Debt obligations are valued at the
last available bid price for such securities or, if such prices are not
available, at prices for securities of comparable maturity, quality, and type.
Foreign securities are translated from the local currency into U.S. dollars
using current exchange rates. The Portfolio values all other types of securities
and assets, including restricted securities and securities for which market
quotations are not readily available, by a method that the Trustees believe
accurately reflects fair value.
International Portfolio's securities are traded primarily in foreign
markets which may be open on days when the NYSE is closed. As a result, the NAV
of the International Portfolio may be significantly affected on days when
shareholders have no access to that Portfolio. Similarly, as discussed above
under "Foreign Securities," other Portfolios may invest to varying degrees in
securities traded primarily in foreign markets, and their share prices may also
be affected on days when shareholders have no access to the Portfolios.
Limited Maturity Bond and Balanced (debt securities portion) Portfolios
value their securities on the basis of bid quotations from independent pricing
services or principal market makers, or, if quotations are not available, by a
method that the Trustees believe accurately reflects fair value. The Portfolios
periodically verify valuations provided by the pricing services. Short-term
securities with remaining maturities of less than 60 days may be valued at cost
which, when combined with interest earned, approximates market value.
If NB Management believes that the price of a security obtained under a
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 believe accurately reflects fair value.
Suspension of Redemptions
The Portfolios are normally open for business each day the NYSE is open
("Business Day"). The right to redeem a Portfolio'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 disposal by the Portfolio of securities owned by it is not reasonably
practicable or it is not reasonably practicable for that Portfolio 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 a Portfolio's shareholders; provided
that applicable SEC rules and regulations shall govern as to 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 Business Day after termination of the suspension.
Redemptions in Kind
Each Portfolio 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 Portfolio, whichever is less, by making payment in whole or in part in
securities valued as described under "Share Prices and Net Asset Value" in the
Prospectus. Further, each Portfolio may make payment in whole or in part in
securities if a redeeming shareholder so requests. If payment is made in
securities, a shareholder 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
Portfolios do not redeem in kind under normal circumstances, but may do so in
the circumstances described above in accordance with procedures adopted by the
Board of Trustees.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Portfolio distributes to its shareholders (primarily insurance
company separate accounts and Qualified Plans) substantially all of its share of
its net investment income, any net realized capital gains and, with respect to
all Portfolios except the Liquid Asset Portfolio, any net realized gains from
foreign currency transactions, if any, earned or realized by it. Each Portfolio
calculates its net investment income and NAV as of the close of regular trading
on the NYSE (usually 4:00 p.m. Eastern time) on each Business Day. A Portfolio's
net investment income consists of all income accrued on portfolio assets less
accrued expenses, but does not include net realized or unrealized capital and
foreign currency gains or losses. Net investment income and net gains and losses
are reflected in a Portfolio's NAV until they are distributed. With respect to
the Mid-Cap Growth, Guardian, Growth, Partners, Balanced, Limited Maturity Bond,
Socially Responsive and International Portfolios, dividends from net investment
income and distributions of net realized capital gains and net realized gains
from foreign currency transactions, if any, normally are paid once annually, in
February. The Liquid Asset Portfolio distributes to its shareholders
substantially all of its net investment income and net realized capital gains.
Income dividends are declared daily for the Liquid Asset Portfolio at the time
its NAV is calculated and are paid monthly, and net realized capital gains, if
any, are normally distributed annually in February.
ADDITIONAL TAX INFORMATION
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Portfolios and the purchase, ownership, and disposition of
Portfolio shares. This discussion does not purport to be complete or to deal
with all aspects of federal income taxation that may be relevant to shareholders
in light of their particular circumstances. This discussion is based upon
present provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisers with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Portfolio shares, as well as the tax consequences arising under
the laws of any state, foreign country, or other taxing jurisdiction.
Taxation of Each Portfolio
Subchapter M
To continue to qualify for treatment as a RIC under the Code, each
Portfolio 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, with respect to all Portfolios except
the Liquid Asset Portfolio, net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. With respect to each Portfolio, these requirements include the
following: (1) the Portfolio 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 stock, securities or
foreign currencies, or other income (including gains from options, futures, and
forward contracts (collectively, "Hedging Instruments")) derived with respect to
its business of investing in such stock, securities or currencies ("Income
Requirement"); and (2) at the close of each quarter of the Portfolio'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 Portfolio'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 (together with the 50% requirement, the "Diversification Requirement").
Each Portfolio intends to satisfy the Distribution Requirement, the Income
Requirement, and the Diversification Requirement. If a Portfolio 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 Portfolio's earnings and profits.
A Portfolio will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. To avoid application of the Excise Tax, the Portfolios intend to
make distributions in accordance with the calendar year requirement.
A distribution will be treated as paid on December 31 of a calendar
year if it is declared by a Portfolio in October, November or December of that
year with a record date in such a month and paid by the Portfolio during January
of the following year.
Section 817(h)
The Portfolios serve as the underlying investments for variable annuity
contracts and variable life insurance policies ("Variable Contracts") issued
through separate accounts of the life insurance companies which may or may not
be affiliated. Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of segregated asset accounts that fund
contracts such as the Variable Contracts (that is, the assets of the
Portfolios), which are in addition to the diversification requirements imposed
on the Portfolios by the 1940 Act and Subchapter M of the Code. Failure to
satisfy those standards would result in imposition of Federal income tax on a
Variable Contract owner with respect to the increase in the value of the
Variable Contract. Section 817(h)(2) provides that a segregated asset account
that funds contracts such as the Variable Contracts is treated as meeting the
diversification standards if, as of the close of each calendar quarter, the
assets in the account meet the diversification requirements for a regulated
investment company and no more than 55% of those assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
The Treasury Regulations amplify the diversification standards set
forth in Section 817(h) and provide an alternative to the provision described
above. Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
Portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality shall be treated as a
separate issuer.
Each Portfolio will be managed with the intention of complying with
these diversification requirements. It is possible that, in order to comply with
these requirements, less desirable investment decisions may be made which would
affect the investment performance of a Portfolio.
Tax Aspects of the Investments of the Portfolios
Dividends, interest, and in some cases, capital gains received by a
Portfolio may be subject to income, withholding, or other taxes imposed by
foreign countries and U.S. possessions that would reduce the yield and/or total
return on its securities. Tax conventions 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 Equity Portfolios 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 a Portfolio holds stock of a PFIC, it will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock as well as gain on disposition of the stock (collectively, "PFIC income"),
plus interest thereon, even if the Portfolio distributes the PFIC income as a
taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Portfolio's investment company taxable income and, accordingly,
will not be taxable to it to the extent it distributes that income to its
shareholders (assuming the Portfolio qualifies as a regulated investment
company).
In general, under the PFIC rules, an excess distribution is treated as
having been realized ratably over the period during which the Portfolio held the
PFIC shares. A Portfolio will itself be subject to tax on the portion, if any,
of an excess distribution that is so allocated to prior Portfolio taxable years
and an interest factor will be added to the tax, as if the tax had been payable
in such prior taxable years. Certain distributions from a PFIC as well as gain
from the sale of PFIC shares are treated as excess distributions. Excess
distributions are characterized as ordinary income even though, absent
application of the PFIC rules, certain excess distributions might have been
classified as capital gain.
If a Portfolio invests in a PFIC and elects to treat the PFIC as a
qualified electing fund ("QEF"), then in lieu of incurring the foregoing tax and
interest obligation, the Portfolio would be required to include in income each
year its pro rata share of the Portfolio's pro rata share of the QEF's annual
ordinary earnings and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) -- which most likely would have to be
distributed by the Portfolio to satisfy the Distribution Requirement and avoid
imposition of the excise tax -- even if those earnings and gain were not
received by the Portfolio 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 a PFIC generally may elect to include in ordinary
income for each taxable year the excess, if any, of the fair market value of the
stock over its adjusted basis 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. Any gain on the sale of PFIC stock subject to a mark-to-market
election would be treated as ordinary income.
The use by the Portfolios (except Liquid Asset Portfolio) of hedging
strategies, such as writing (selling) and purchasing futures contracts and
options and entering into forward contracts, involves complex rules that will
determine for income tax purposes the amount, character and timing of
recognition of the gains and losses they realize in connection therewith. Gains
from the disposition of foreign currencies (except certain gains that may be
excluded by future regulations), and gains from Hedging Instruments derived by a
Portfolio with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
Exchange-traded futures contracts, certain options, and certain forward
contracts constitute "Section 1256 Contracts." 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 a Portfolio's
taxable year. Sixty percent of any net gain or loss recognized as a result of
these "deemed sales" and 60% of any net realized gain or loss from any actual
sales of Section 1256 contracts are treated as long-term capital gain or loss,
and the remainder is treated as short-term capital gain or loss. Section 1256
contracts also may be marked-to-market for purposes of the excise tax. These
rules may operate to increase the amount that a Portfolio 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
Portfolio, without in either case increasing the cash available to the
Portfolio. A 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 as ordinary
income) and/or increasing the amount of dividends that such Portfolio must
distribute to meet the Distribution Requirement and to avoid imposition of the
excise tax.
Transactions in options, futures and forward contracts undertaken by a
Portfolio may result in "straddles" for federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by the
Portfolio, and losses realized by the Portfolio on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which the
losses are realized. In addition, certain carrying charges (including interest
expense) associated with positions in a straddle may be required to be
capitalized rather than deducted currently. Certain elections that each
Portfolio may make with respect to its straddle positions may also affect the
amount, character and timing of the recognition of gains or losses from the
affected positions.
Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to each Portfolio are
not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by each Portfolio, which is taxed as ordinary income when
distributed to shareholders. Because application of the straddle rules may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle positions, the amount
which must be distributed to shareholders as ordinary income or long-term
capital gain may be increased or decreased substantially as compared to a fund
that did not engage in such transactions.
Section 988 of the Code also may apply to forward contracts and options
on foreign currencies. Under section 988 each foreign currency gain or loss
generally is computed separately and treated as ordinary income or loss. In the
case of overlap between section 1256 and 988, special provisions determine the
character and timing of any income, gain or loss.
When a covered call option written (sold) by a Portfolio expires, it
realizes a short-term capital gain equal to the amount of the premium it
received for writing the option. When a Portfolio terminates its obligations
under such an option by entering into a closing transaction, it realizes a
short-term capital gain (or loss), depending on whether the cost of the closing
transaction is less (or more) than the premium it received when it wrote the
option. When a covered call option written by a Portfolio is exercised, the
Portfolio is treated as having sold the underlying security, producing long-term
or short-term capital gain or loss, depending on the holding period of the
underlying security and whether the sum of the option price received on the
exercise plus the premium received when it wrote the option is more or less than
the basis of the underlying security.
If a Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Portfolio will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract (e.g., a swap contract), or a futures or forward contract
entered into by a Portfolio or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially 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).
Gains or losses attributable to fluctuations in exchange rates which
occur between the time a Portfolio accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Portfolio actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of some investments, including debt securities and certain forward
contracts denominated in a foreign currency, gains or losses attributable to
fluctuations in the value of the foreign currency between the acquisition and
disposition of the position also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as "Section 988" gains or losses,
increase or decrease the amount of the Portfolio's investment company taxable
income available to be distributed to its shareholders as ordinary income. If
Section 988 losses exceed other investment company taxable income during a
taxable year, the Portfolio would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Portfolio's
shares.
Limited Maturity Bond and Liquid Asset Portfolios may invest in
municipal bonds that are purchased with market discount (that is, at a price
less than the bond's principal amount or, in the case of a bond that was issued
with original issue discount ("OID"), at a price less than the amount of the
issue price plus accrued OID) ("municipal market discount bonds"). If a bond's
market discount is less than the product of (1) 0.25% of the redemption price at
maturity times (2) the number of complete years to maturity after the taxpayer
acquired the bond, then no market discount is considered to exist. Gain on the
disposition of a municipal market discount bond purchased by the Portfolio
(other than a bond with a fixed maturity date within one year from its
issuance), generally is treated as ordinary (taxable) income, rather than
capital gain, to the extent of the bond's accrued market discount at the time of
disposition. Market discount on such a bond generally is accrued ratably, on a
daily basis, over the period from the acquisition date to the date of maturity.
In lieu of treating the disposition gain as described above, a Portfolio may
elect to include market discount in its gross income currently, for each taxable
year to which it is attributable.
Partners, Balanced, and Socially Responsive Portfolios each may acquire
zero coupon or other securities issued with OID. As the holder of those
securities, each Portfolio must take into income the OID and other non-cash
income that accrues on the securities during the taxable year, even if no
corresponding payment on the securities is received during the year. Because
each Portfolio annually must distribute substantially all of its investment
company taxable income to satisfy the Distribution Requirement and avoid
imposition of the excise tax, it may be required in a particular year to
distribute as a dividend an amount that is greater than its share of the total
amount of cash it actually receives. Those distributions will be made from a
Portfolio's cash assets or, if necessary, from the proceeds of the sale of
portfolio securities. A Portfolio may realize capital gains or losses from those
sales, which would increase or decrease its corresponding investment company
taxable income and/or net capital gain.
PORTFOLIO TRANSACTIONS
Neuberger Berman acts as each Portfolio's principal broker (except with
respect to International Portfolio) to the extent a broker is used in the
purchase and sale of portfolio securities (other than certain securities traded
on the OTC market). Neuberger Berman may act as broker for International
Portfolio. Neuberger Berman receives brokerage commissions for these services.
Transactions in portfolio securities for which Neuberger Berman serves as broker
will be effected in accordance with Rule 17e-1 under the 1940 Act.
To the extent a broker is not used, purchases and sales of portfolio
securities generally are transacted with the issuers, underwriters, or dealers
serving as primary market-makers acting as principals for the securities on a
net basis. The Portfolios typically do not pay brokerage commissions for such
purchases and sales. Instead, the price paid for newly issued securities usually
includes a concession or discount paid by the issuer to the underwriter, and the
prices quoted by market-makers reflect a spread between the bid and the asked
prices from which the dealer derives a profit.
In purchasing and selling portfolio securities other than as described
above (for example, in the secondary market), each Portfolio's policy is to seek
best execution at the most favorable prices through responsible broker-dealers
and, in the case of agency transactions, at competitive commission rates. In
selecting broker-dealers to execute transactions, NB Management considers such
factors as the price of the security, the rate of commission, the size and
difficulty of the order, the reliability, integrity, financial condition, and
general execution and operational capabilities of competing broker-dealers, and
may consider the brokerage and research services they provide to the Portfolio
or NB Management. Some of these research services may be of value to NB
Management in advising its various clients (including the Portfolios) although
not all of these services are necessarily used by NB Management in managing the
Portfolios. Under certain conditions, a Portfolio may pay higher brokerage
commissions in return for brokerage and research services, although no Portfolio
has a current arrangement to do so. In any case, each Portfolio may effect
principal transactions with a dealer who furnishes research services, may
designate any dealer to receive selling concessions, discounts, or other
allowances, or may otherwise deal with any dealer in connection with the
acquisition of securities in underwritings.
During the years ended December 31, 1999, 1998, and 1997, the
corresponding master series of the Growth Portfolio paid total brokerage
commissions of $1,017,394, $906,984, and $1,297,021, respectively, of which
$441,154, $389,675, and $541,724, respectively, was paid to Neuberger Berman.
Transactions in which the corresponding series used Neuberger Berman as broker
comprised 46.8% of the aggregate dollar amount of transactions involving the
payment of commissions, and 43.4% of the aggregate brokerage commissions paid by
it during the year ended December 31, 1999. 98.7% of the $568,809 paid to other
brokers by the corresponding series during the year ended December 31, 1999
(representing commissions on transactions involving approximately $337,898,393)
was directed to those brokers because of research services they provided. During
the year ended December 31, 1999 the corresponding series acquired securities of
the following of its regular broker-dealers ("B/Ds"): Donaldson, Lufkin &
Jenrette Securities Corp.; Goldman, Sachs & Co.; General Electric Capital Corp.;
Lehman Brothers Inc.; and State Street Bank and Trust Company; at that date, the
series held the securities of its regular B/Ds with an aggregate value as
follows:
$4,668,188, Donaldson, Lufkin & Jenrette Securities Corp.; $6,563,281, Lehman
Brothers Inc.; $6,900,000 State Street Bank and Trust Company.
During the years ended December 31, 1999, 1998, and 1997, the
corresponding master series of Balanced Portfolio paid total brokerage
commissions of $208,301, $162,566, and $229,076, respectively, of which $88,807,
$70,352, and $94,867, respectively, was paid to Neuberger Berman. Transactions
in which the series used Neuberger Berman as broker comprised 45.0% of the
aggregate dollar amount of transactions involving the payment of commissions,
and 42.6% of the aggregate brokerage commissions paid by it during the year
ended December 31, 1999. 98.8% of the $118,020 paid to other brokers by the
series during the year ended December 31, 1999 (representing commissions on
transactions involving approximately $71,982,542 was directed to those brokers
because of research services they provided. During the year ended December 31,
1999 the series acquired securities of the following of its regular B/Ds:
Donald, Lufkin & Jenrette Securities Corp.; General Electric Capital Corp.;
Goldman, Sachs & Co.; Merrill Lynch, Pierce, Fenner & Smith, Inc.; and State
Street Bank and Trust Company; at that date, the series held the securities of
its regular B/Ds with an aggregate value as follows: $783,675, Donald, Lufkin &
Jenrette Securities Corp.; $516,092, General Electric Capital Corp.; $2,495,969,
Goldman, Sachs & Co.; $1,762,049, Lehman Brothers Inc.; $1,091,667, Morgan
Stanley Dean Witter & Co.; $1,150,000, State Street Bank and Trust Company.
During the years ended December 31, 1999, 1998, 1997, the corresponding
master series of Partners Portfolio paid total brokerage commissions of
$3,791,850, $6,312,310, $3,535,761, respectively, of which $1,989,139,
$3,663,981, and $2,252,539, respectively, was paid to Neuberger Berman.
Transactions in which the series used Neuberger Berman as broker comprised 55.5%
of the aggregate dollar amount of transactions involving the payment of
commissions, and 52.5% of the aggregate brokerage commissions paid by it during
the year ended December 31, 1999. 89.3% of the $1,610,025 paid to other brokers
by the series during the year ended December 31, 1999 (representing commissions
on transactions involving approximately $1,139,695,158 was directed to those
brokers because of research services they provided. During the year ended
December 31, 1999 the series acquired securities of the following of its regular
B/Ds: General Electric Capital Corp., Goldman, Sachs & Co.; Morgan Stanley Dean
Witter & Co.; and State Street Bank and Trust Company; at that date, the series
held the securities of its regular B/Ds with an aggregate value as follows:
$5,820,000, State Street Bank and Trust Company.
During the years ended December 31, 1999, 1998 and 1997, the
corresponding master series of Mid Cap Growth Portfolio paid total brokerage
commissions of $124,284, $37,363, and $1,469, respectively, of which $60,591,
$18,697 and $1,364, respectively, was paid to Neuberger Berman. Transactions in
which the series used Neuberger Berman as broker comprised 49.5% of the
aggregate dollar amount of transactions involving the payment of commissions,
and 48.8% of the aggregate brokerage commissions paid by it during the year
ended December 31, 1999. 98.4% of the $62,683 paid to other brokers by the
series during the year ended December 31, 1999 (representing commissions on
transactions involving approximately $40,922,833) was directed to those brokers
because of research services they provided. During the year ended December 31,
1999 the series acquired securities of its regular B/Ds: Donaldson, Lufkin &
Jenrette Securities Corp.; General Electric Capital Corp.; Goldman, Sachs & Co.;
Lehman Brothers Inc.; Merrill Lynch, Pierce, Fenner & Smith Inc.; and State
Street Bank and Trust Company; at that date, the series held the securities of
its regular B/Ds with an aggregate value as follows: $933,638 Donaldson, Lufkin
& Jenrette Securities Corp,; $1,321,125, Lehman Brothers Inc.; $2,570,000, State
Street Bank and Trust Company.
During the year ended December 31, 1999, 1998 and 1997, the
corresponding master series of Guardian Portfolio paid total brokerage
commissions of $272,418, $158,418 and $634, respectively, of which $146,413,
$77,154 and $601, respectively, was paid to Neuberger Berman. Transactions in
which the series used Neuberger Berman as broker comprised 59.8% of the
aggregate dollar amount of transactions involving the payment of commissions,
and 53.8% of the aggregate brokerage commissions paid by it during the year
ended December 31, 1999. 85.0% of the $107,146 paid to other brokers by the
series during the year ended December 31, 1999 (representing commissions on
transactions involving approximately $75,262,102) was directed to those brokers
because of research services they provided. During the year ended December 31,
1999 the series acquired securities of the following of its regular B/Ds:
General Electric Capital Corp.; Goldman, Sachs & Co.; Merrill Lynch, Pierce
Fenner & Smith Inc.; Morgan Stanley Dean Witter & Co.; and State Street Bank and
Trust Company; at that date, the series held the securities of its regular B/Ds
with an aggregate value as follows: $1,841,475, Morgan Stanley Dean Witter &
Co.; $4,590,000, State Street Bank and Trust Company.
During the year ended December 31, 1999, corresponding master series
Liquid Asset Portfolio acquired securities of the following of its regular B/Ds:
General Electric Capital Corp.; Goldman, Sachs & Co.; Merrill Lynch, Pierce,
Fenner & Smith Inc.; Morgan Stanley Dean Witter & Co.; and State Street Bank and
Trust Company; at that date, the series held securities of its regular B/Ds with
aggregate value as follows: $397,145, General Electric Capital Corp.; $599,031,
Goldman, Sachs & Co.; $373,114, Merrill Lynch, Pierce, Fenner & Smith Inc.;
$837,280, Morgan Stanley Dean Witter & Co.; $749,000, State Street Bank and
Trust Company.
During the year ended December 31, 1999, corresponding master series of
Limited Maturity Bond Portfolio acquired securities of the following of its
regular B/Ds: General Electric Capital Corp.; Lehman Brother Inc.; and Merrill
Lynch, Pierce, Fenner & Smith Inc.; at that date, the series held securities of
its regular B/Ds with aggregate value as follows: $2,634,853, General Electric
Capital Corp.; $9,983,875, Goldman, Sachs & Co.; $6,715,539 Lehman Brothers
Inc.; $4,231,526, Morgan Stanley Dean Witter & Co.
During the year ended December 31, 1999, the corresponding master
series of the Socially Responsive Portfolio paid total brokerage commission of
$2,890, of which $2,542 was paid to Neuberger Berman. Transactions in which the
corresponding series used Neuberger Berman as broker comprised 90.9% of the
aggregate dollar amount of transactions involving the payment of commissions,
and 88.0% of the aggregate brokerage commissions paid by it during the year
ended December 31, 1999. 100.0% of the $347 paid to other brokers by the
corresponding series during the year ended December 31, 1999 (representing
commissions on transactions involving approximately $189,545) was directed to
those brokers because of research services they provided. During the year ended
December 31, 1999 the series acquired securities of the following of its regular
B/Ds: Goldman, Sachs & Co; and State Street Bank and Trust Company; at that
date, the series did not hold any securities of its regular B/Ds.
Insofar as portfolio transactions of Partners Portfolio result from
active management of equity securities, and insofar as portfolio transactions of
Growth Portfolio and Mid-Cap Growth Portfolio result from seeking capital
appreciation by selling securities whenever sales are deemed advisable without
regard to the length of time the securities may have been held, it may be
expected that the aggregate brokerage commissions paid by those Portfolio to
brokers (including Neuberger Berman where it acts in that capacity) may be
greater than if securities were selected solely on a long-term basis.
Portfolio securities may, from time to time, be loaned by the Equity
Portfolios 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 a Portfolios
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 a Portfolio in order to
re-lend them to Other NB Funds, 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 a Portfolio has indicated a
willingness to lend, Neuberger Berman must borrow such security from that
Portfolio, rather than from a 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, a Portfolio's expense exceed
its income in any securities loan transaction with Neuberger Berman, Neuberger
Berman must reimburse that Portfolio for such loss.
A committee of Independent Trustees from time to time reviews, among
other things, information relating to securities loans by the Portfolios.
In effecting securities transactions, each 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. Each
Portfolio plans to continue to use Neuberger Berman as its 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,
however, no affiliate of any Portfolio receives give-ups or reciprocal business
in connection with their securities transactions.
The use of Neuberger Berman as a broker for a Portfolio is subject to
the requirements of Section 11(a) of the Securities Exchange Act of 1934
("Section 11(a)"). Section 11(a) prohibits members of national securities
exchanges from retaining compensation for executing exchange transactions for
accounts that 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. The Board of Trustees has
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 a Portfolio to Neuberger Berman
in connection with a purchase or sale of securities offered on a securities
exchange may not exceed the usual and customary broker's commission.
Accordingly, it is each Portfolio's policy that the commissions to be paid to
Neuberger Berman must, in NB Management's judgment be (1) at least as favorable
as those that would be 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 Trustees not to be comparable to the
Portfolio. The Portfolio do not deem it practicable and in their best interest
to solicit competitive bids for commissions on each transaction. However,
consideration regularly is given to information concerning the prevailing level
of commissions charged on comparable transactions by other brokers during
comparable periods of time. The 1940 Act generally prohibits Neuberger Berman
from acting as principal in the purchase or sale of securities for a Portfolio's
account, unless an appropriate exemption is available.
A committee of Independent Trustees from time to time reviews, among
other things, information relating to the commissions charged by Neuberger
Berman to the 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 Portfolios must be reviewed and
approved no less often than annually by a majority of the Independent Trustees.
To ensure that accounts of all investment clients, including a
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 a 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
brokerage commissions from both participants in the trade. The other account
participating in an agency cross-trade with a 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 Portfolios participate in.
Each 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 will consider the quality and reliability of brokerage
services, including execution capability and performance and financial
responsibility, and may consider the research and other investment information
provided by those brokers, and the willingness of particular brokers to sell the
Variable Contracts issued by the Life Companies.
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;
and (2) adjustments may be required because of periodic changes in the execution
or research capabilities of 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 provide the Portfolios with
benefits by supplementing the information otherwise available to NB Management.
That research information may be used by NB Management in servicing their
respective funds and, in some cases, by Neuberger Berman in servicing the
Managed Accounts. On the other hand, research information received by NB
Management from brokers effecting portfolio transactions on behalf of the Other
NB Funds and by Neuberger Berman from brokers executing portfolio transactions
on behalf of the Managed Accounts may be used for the Portfolio's benefit.
The following individuals are the persons primarily responsible for
making decisions as to specific action to be taken with respect to the
investment portfolios of the indicated Portfolios: Theodore P. Giuliano and
Catherine Waterworth - Balanced (debt securities portion), Limited Maturity
Bond, and Liquid Asset (with respect to Mr. Giuliani); Josephine Mahaney -
Liquid Asset; Kevin L. Risen and Allan R. White III - Guardian; Valerie Chang -
International; Jennifer K. Silver and Brooke A. Cobb - Growth; Balanced (equity
securities portion) and Mid-Cap Growth; Robert I. Gendelman and S. Basu Mullick
- - Partners; and Janet W. Prindle - Socially Responsive. Each of these
individuals is a Vice President of NB Management and a Managing Director or
officer of Neuberger Berman. 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. If Ms. Prindle is
unavailable to perform her responsibilities, Robert Ladd and/or Ingrid
Saukaitis, each of whom is a Vice President of NB Management, will assume
responsibility for the management of Socially Responsive Portfolio. If Ms. Chang
is unavailable to perform her responsibilities, Benjamin E. Segal, a Vice
President of NB Management, will assume the responsibility for the management of
International Portfolio.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing 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,
foreign financial futures contracts and forward contracts, whose maturity or
expiration date at the time of acquisition was one year or less), divided by the
month-end average monthly value of such securities owned by the Portfolio during
the year.
REPORTS TO SHAREHOLDERS
Shareholders of each Portfolio receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors for the Portfolio. Each Portfolio's report shows the investments owned
by it and the market values thereof and provides other information about the
Portfolio and its operations. In addition, the report contains the Portfolio's
financial statements.
INFORMATION REGARDING ORGANIZATION,
CAPITALIZATION, AND OTHER MATTERS
The Portfolios
Each Portfolio is a separate series of the Trust, a Delaware business
trust organized pursuant to a Trust Instrument dated May 23, 1994. The Trust is
registered under the 1940 Act as a diversified, open-end management investment
company, commonly known as a mutual fund. The Trust has nine separate
Portfolios. The Trustees may establish additional portfolios or classes of
shares, without the approval of shareholders. The assets of each Portfolio
belong only to that Portfolio, and the liabilities of each Portfolio are borne
solely by that Portfolio and no other. As discussed above under "Investment
Information", through April 30, 2000, each Portfolio invested all of its net
investable assets in its corresponding master series of Advisers Managers Trust,
in each case receiving a beneficial interest in that series. Beginning May 1,
2000, each Portfolio invests directly in its own securities portfolio.
NB Management and Neuberger Berman serve as investment manager and
sub-advisor, respectively, to other mutual funds, and the investments for the
Portfolios (through their corresponding series) are managed by the same
portfolio managers who manage one or more other mutual funds, that have similar
names, investment objectives and investment styles as each Portfolio and are
offered directly to the public by means of separate prospectuses. These other
mutual funds are not part of the Trust. You should be aware that each Portfolio
is likely to differ from the other mutual funds in size, cash flow pattern, and
certain tax matters, and may differ in risk/return characteristics. Accordingly,
the portfolio holdings and performance of the Portfolios may vary from those of
the other mutual funds with similar names.
Description of Shares. Each Portfolio is authorized to issue an
unlimited number of shares of beneficial interest (par value $0.001 per share).
Shares of each Portfolio represent equal proportionate interests in the assets
of that Portfolio only and have identical voting, dividend, redemption,
liquidation, and other rights. All shares issued are fully paid and
non-assessable under Delaware law, and shareholders have no preemptive or other
right to subscribe to any additional shares.
Shareholder Meetings. The Trustees do not intend to hold annual
meetings of shareholders of the Portfolios. The Trustees will call special
meetings of shareholders of a Portfolio 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 Portfolio entitled to vote. Pursuant to current
interpretations of the 1940 Act, the Life Companies will solicit voting
instructions from Variable Contract owners with respect to any matters that are
presented to a vote of shareholders of that Portfolio.
Certain Provisions of the Trust Instrument. Under Delaware law, the
shareholders of a Portfolio will not be personally liable for the obligations of
any Portfolio; a shareholder is entitled to the same limitation of personal
liability extended to shareholders of corporations. To guard against the risk
that Delaware law might not be applied in other states, the Trust Instrument
requires that every written obligation of the Trust or a Portfolio contain a
statement that such obligation may be enforced only against the assets of the
Trust or Portfolio and provides for indemnification out of Trust or Portfolio
property of any shareholder nevertheless held personally liable for Trust or
Portfolio obligations, respectively.
CUSTODIAN AND TRANSFER AGENT
Each Portfolio has selected State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110 as custodian for its
securities and cash. State Street also serves as each Portfolio's Transfer Agent
and shareholder servicing agent, administering purchases and redemptions of
Trust shares through its Boston Service Center.
INDEPENDENT AUDITORS
Each Portfolio has selected Ernst & Young LLP, 200 Clarendon Street,
Boston, Massachusetts 02116 as the independent auditors who will audit its
financial statements.
LEGAL COUNSEL
Each Portfolio has selected Dechert Price & Rhoads, 1775 Eye Street,
N.W., Washington, D.C. 20006 as legal counsel.
REGISTRATION STATEMENT
This SAI and 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. Certain portions of the
registration statement have been omitted pursuant to SEC rules and regulations.
The registration statement, including the exhibits filed therewith, may be
examined at the SEC's offices in Washington, D.C. The SEC maintains a Website
(http://www.sec.gov) that contains this SAI, material incorporated by reference
and other information regarding the Portfolios.
Statements contained in this SAI and Prospectus as to the contents of
any contract or other document referred to are not necessarily complete. In each
instance reference is made to the copy of the contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements, notes to the audited financial
statements, and reports of the independent auditors contained in the annual
reports to the shareholders of the Trust for the fiscal year ended December 31,
1999 for Neuberger Berman Advisers Management Trust (with respect to each of the
Balanced Portfolio, Mid-Cap Growth Portfolio, Guardian Portfolio, Growth
Portfolio, Limited Maturity Bond Portfolio, Liquid Asset Portfolio, Partners
Portfolio and Socially Responsive Portfolio), and for Advisers Managers Trust
(with respect to each of the AMT Balanced Investments, AMT Mid-Cap Growth
Investments, AMT Guardian Investments, AMT Growth Investments, AMT Mid-Cap
Growth Investments, AMT Liquid Asset Investments, AMT Partners Investments and
AMT Socially Responsive Investments) are incorporated into this Statement of
Additional Information by reference to each Portfolio's Annual Report to
shareholders for the fiscal year ended December 31, 1999.
<PAGE>
APPENDIX A: RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
S&P corporate bond ratings
AAA - Bonds rated AAA have the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-) - The ratings above may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
Moody's corporate bond ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or an exceptionally stable
margin, and principal is secure. Although the various protective elements are
likely to change, the changes that can be visualized are most unlikely to impair
the fundamentally strong position of the issuer.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as "high
grade bonds." They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa-rated securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa-rated
securities.
A - Bonds rated A possess many favorable investment attributes and are
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 time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Modifiers - Moody's may apply numerical modifiers 1, 2, and 3 in each
generic rating classification described above. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issuer
ranks in the lower end of its generic rating category.
S&P commercial paper ratings
A-1 - This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+).
Moody's commercial paper ratings
Issuers rated Prime-1 (or related supporting institutions), also known
as P-1, have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics:
-Leading market positions in well-established industries;
-High rates of return on funds employed;
-Conservative capitalization structures with moderate reliance on debt
and ample asset protection;
-Broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
<PAGE>
APPENDIX B
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
TOTAL RETURN ANALYSIS USING CONSTANT
ASSET ALLOCATION S&P "500"/2 YR.
U.S. TREASURY NOTES
1960 - 1999
FIXED ASSET ALLOCATION COMPARISON TO 100%
S&P "500"/2 YR. TREASURY NOTES S&P "500" ALLOCATION
100/0 (100% S&P "500")
Return 12.25% 100.0%
Volatility 15.6% 100.0%
70/30
Return 10.83% 88.40%
Volatility 11.2% 71.9%
60/40
Return 10.31% 84.15%
Volatility 9.8% 62.8%
50/50
Return 9.78% 79.83%
Volatility 8.4% 54.0%
0/100
Return 6.80% 55.52%
Volatility 4.1% 26.1%
1 Source: Morgan Stanley Capital International.
2 Total return includes reinvestment of all dividends and other
distributions. The EFAE(R) Index, also known as the Morgan Stanley
Capital International Europe, Australasia, Far East Index, is an
unmanaged index of over 1,000 foreign stock prices and is translated
into U.S. dollars. The S&P 500 Index is an unmanaged index generally
considered to be representative of U.S. stock market activity. Indices
do not take into account brokerage commissions or other fees and
expenses of investing in the individual securities that they track.
Data about the performance of these indices are prepared or obtained by
NB Management.
