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NEUBERGER & BERMAN GUARDIAN TRUST AND PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 15, 1995
No-Load Mutual Fund
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
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Neuberger & Berman GUARDIAN Trust ("Fund"), a series of
Neuberger & Berman Equity Trust ("Trust"), is a no-load mutual fund that
offers shares pursuant to a Prospectus dated December 15, 1995. The Fund
invests all of its net investable assets in Neuberger & Berman GUARDIAN
Portfolio ("Portfolio").
AN INVESTOR CAN BUY, OWN, AND SELL FUND SHARES ONLY
THROUGH AN ACCOUNT WITH A PENSION PLAN ADMINISTRATOR, BROKER-DEALER, OR
OTHER INSTITUTION (EACH AN "INSTITUTION") THAT PROVIDES ACCOUNTING,
RECORDKEEPING, AND OTHER SERVICES TO INVESTORS AND THAT HAS AN
ADMINISTRATIVE SERVICES AGREEMENT WITH NEUBERGER & BERMAN MANAGEMENT
INCORPORATED ("N&B MANAGEMENT").
The Fund's Prospectus provides basic information that an
investor should know before investing. A copy of the Prospectus may be
obtained, without charge, from Neuberger & Berman Management Incorporated,
Institutional Services, 605 Third Avenue, 2nd Floor, New York, NY 10158-
0180, or by calling 800-877-9700.
This Statement of Additional Information ("SAI") is not a
prospectus and should be read in conjunction with the Prospectus.
No person has been authorized to give any information or
to make any representations not contained in the Prospectus or in this SAI
in connection with the offering made by the Prospectus, and, if given or
made, such information or representations must not be relied upon as
having been authorized by the Fund or its distributor. The Prospectus and
this SAI do not constitute an offering by the Fund or its distributor in
any jurisdiction in which such offering may not lawfully be made.
INVESTMENT INFORMATION
The Fund is a separate series of the Trust, a Delaware
business trust that is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company. The Fund
seeks its investment objective by investing all of its net investable
assets in the Portfolio, a series of Equity Managers Trust ("Managers
Trust") that has an investment objective identical to, and a name similar
to, that of the Fund. The Portfolio, in turn, invests in accordance with
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an investment objective, policies, and limitations identical to those of
the Fund. (The Trust and Managers Trust, which is an open-end management
investment company managed by N&B Management, are together referred to
below as the "Trusts.")
The following information supplements the discussion in
the Prospectus of the investment objective, policies, and limitations of
the Fund and Portfolio. The investment objective and, unless otherwise
specified, the investment policies and limitations of the Fund and
Portfolio are not fundamental. Although any investment policy or
limitation that is not fundamental may be changed by the trustees of the
Trust ("Fund Trustees") or of Managers Trust ("Portfolio Trustees")
without shareholder approval, the Fund intends to notify its shareholders
before changing its investment objective or implementing any material
change in any non-fundamental policy or limitation. The fundamental
investment policies and limitations of the Fund or the Portfolio may not
be changed without the approval of the lesser of (1) 67% of the total
units of beneficial interest ("shares") of the Fund or Portfolio
represented at a meeting at which more than 50% of the outstanding Fund or
Portfolio shares are represented or (2) a majority of the outstanding
shares of the Fund or Portfolio. This vote is required by the Investment
Company Act of 1940 ("1940 Act") and is referred to in this SAI as a "1940
Act majority vote." Whenever the Fund is called upon to vote on a change
in the fundamental investment policy or limitation of the Portfolio, the
Fund casts its votes thereon in proportion to the votes of its
shareholders at a meeting thereof called for that purpose.
Investment Policies and Limitations
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The Fund has the following fundamental investment policy,
to enable it to invest in the Portfolio:
Notwithstanding any other investment policy of the Fund,
the Fund may invest all of its investable assets (cash,
securities, and receivables relating to securities) in an
open-end management investment company having substan-
tially the same investment objective, policies, and
limitations as the Fund.
All other fundamental investment policies and limitations
and the non-fundamental investment policies and limitations of the Fund
and the Portfolio are identical. Therefore, although the following dis-
cusses the investment policies and limitations of the Portfolio, it
applies equally to the Fund.
Except for the limitation on borrowing and the limitation
on ownership of portfolio securities by officers and trustees, any
investment policy or limitation that involves a maximum percentage of
securities or assets will not be considered to be violated unless the
percentage limitation is exceeded immediately after, and because of, a
transaction by the Portfolio.
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The Portfolio's fundamental investment policies and
limitations are as follows:
1. Borrowing. The Portfolio may not borrow money,
except that the Portfolio may (i) borrow money from banks for temporary or
emergency purposes and not for leveraging or investment and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and
(ii) in combination do not exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than borrowings).
If at any time borrowings exceed 33-1/3% of the value of the Portfolio's
total assets, the Portfolio will reduce its borrowings within three days
(excluding Sundays and holidays) to the extent necessary to comply with
the 33-1/3% limitation.
2. Commodities. The Portfolio may not purchase
physical commodities or contracts thereon, unless acquired as a result of
the ownership of securities or instruments, but this restriction shall not
prohibit the Portfolio from purchasing futures contracts or options
(including options on futures contracts, but excluding options or futures
contracts on physical commodities) or from investing in securities of any
kind.
3. Diversification. The Portfolio may not, with
respect to 75% of the value of its total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities) if, as a result,
(i) more than 5% of the value of the Portfolio's total assets would be
invested in the securities of that issuer or (ii) the Portfolio would hold
more than 10% of the outstanding voting securities of that issuer.
4. Industry Concentration. The Portfolio may not
purchase any security if, as a result, 25% or more of its total assets
(taken at current value) would be invested in the securities of issuers
having their principal business activities in the same industry. This
limitation does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
5. Lending. The Portfolio may not lend any security
or make any other loan if, as a result, more than 33-1/3% of its total
assets (taken at current value) would be lent to other parties, except, in
accordance with its investment objective, policies, and limitations, (i)
through the purchase of a portion of an issue of debt securities or (ii)
by engaging in repurchase agreements.
6. Real Estate. The Portfolio may not purchase real
estate unless acquired as a result of the ownership of securities or
instruments, but this restriction shall not prohibit the Portfolio from
purchasing securities issued by entities or investment vehicles that own
or deal in real estate or interests therein or instruments secured by real
estate or interests therein.
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7. Senior Securities. The Portfolio may not issue
senior securities, except as permitted under the 1940 Act.
8. Underwriting. The Portfolio may not underwrite
securities of other issuers, except to the extent that the Portfolio, in
disposing of portfolio securities, may be deemed to be an underwriter
within the meaning of the Securities Act of 1933 ("1933 Act").
The following non-fundamental investment policies and
limitations apply to the Portfolio:
1. Borrowing. The Portfolio may not purchase secu-
rities if outstanding borrowings, including any reverse repurchase agree-
ments, exceed 5% of its total assets.
2. Lending. Except for the purchase of debt
securities and engaging in repurchase agreements, the Portfolio may not
make any loans other than securities loans.
3. Investments in Other Investment Companies. The
Portfolio may not purchase securities of other investment companies,
except to the extent permitted by the 1940 Act and in the open market at
no more than customary brokerage commission rates. This limitation does
not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of a reorganization, consolidation, or merger.
4. Margin Transactions. The Portfolio may not
purchase securities on margin from brokers or other lenders, except that
the Portfolio may obtain such short-term credits as are necessary for the
clearance of securities transactions. Margin payments in connection with
transactions in futures contracts and options on futures contracts shall
not constitute the purchase of securities on margin and shall not be
deemed to violate the foregoing limitation.
5. Short Sales. The Portfolio may not sell
securities short unless it owns, or has the right to obtain without
payment of additional consideration, securities equivalent in kind and
amount to the securities sold. Transactions in forward contracts, futures
contracts and options shall not constitute selling securities short.
6. Ownership of Portfolio Securities by Officers and
Trustees. The Portfolio may not purchase or retain the securities of any
issuer if, to the knowledge of N&B Management, those officers and trustees
of Managers Trust and officers and directors of N&B Management who each
owns individually more than 1/2 of 1% of the outstanding securities of
such issuer, together own more than 5% of such securities.
7. Unseasoned Issuers. The Portfolio may not
purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of the Portfolio's total assets
would be invested in the securities of business enterprises that,
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including predecessors, have a record of less than three years of
continuous operation.
8. Puts, Calls, Straddles, or Spreads. The
Portfolio may not invest in puts, calls, straddles, spreads, or any
combination thereof, except that the Portfolio may (i) write (sell)
covered call options against portfolio securities having a market value
not exceeding 10% of its net assets and (ii) purchase call options in
related closing transactions. The Portfolio does not construe the
foregoing limitation to preclude it from purchasing or writing options on
futures contracts or from purchasing securities with rights to put the
securities to the issuer or a guarantor.
9. Illiquid Securities. The Portfolio may not
purchase any security if, as a result, more than 10% 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.
10. Foreign Securities. The Portfolio may not invest
more than 10% of the value of its total assets in securities of foreign
issuers, provided that this limitation shall not apply to foreign
securities denominated in U.S. dollars, including American Depositary
Receipts ("ADRs").
11. Oil and Gas Programs. The Portfolio may not
invest in participations or other direct interests in oil, gas, or other
mineral leases or exploration or development programs, but the Portfolio
may purchase securities of companies that own interests in any of the
foregoing.
12. Real Estate. The Portfolio may not purchase or sell
real property (including interests in real estate limited partnerships,
but excluding readily marketable interests in real estate investment
trusts and readily marketable securities of companies that invest in real
estate); provided that the Portfolio may not purchase any security if, as
a result, more than 10% of its total assets would be invested in
securities of real estate investment trusts.
13. Investments in Any One Issuer. The Portfolio may
not purchase the securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 5% of the Portfolio's total
assets would be invested in the securities of that issuer.
14. Warrants. The Portfolio may not invest more than
5% of its net assets in warrants, including warrants that are not listed
on the New York Stock Exchange ("NYSE") or American Stock Exchange
("AmEx"), or more than 2% of its net assets in such unlisted warrants.
For purposes of this limitation, warrants are valued at the lower of cost
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or market value, and warrants acquired by the Portfolio in units or
attached to securities may be deemed to be without value.
15. Pledging. 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 Portfolio, as an operating policy, does not intend to
invest in futures contracts and options thereon during the coming year.
Kent C. Simons and Lawrence Marx III, Portfolio Managers of the Portfolio
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The Portfolio is managed by two veterans of N&B Manage-
ment who have consistently followed their value-oriented philosophy over
many years: Kent Simons and Larry Marx.
The Portfolio subscribes to the same stock-picking
philosophy followed since 1950, when Roy R. Neuberger founded the
predecessor of Neuberger & Berman GUARDIAN Fund, which, like the Fund,
invests all its net investable assets in the Portfolio.
It's no great trick for a mutual fund to make money when
the market is rising. The tide that lifts stock values will carry most
funds along. The true test of management is its ability to make money
even when the market is flat or declining. By that measure, the Fund,
Neuberger & Berman GUARDIAN Fund and its predecessor have served
shareholders well and have paid a dividend every quarter and a capital
gain distribution EVERY YEAR since 1950. Of course, there can be no
assurance that this trend will continue.
Both Mr. Simons and Mr. Marx place a high premium on
being knowledgeable about the companies whose stocks they buy for the
Portfolio. That knowledge is important, because sometimes it takes
courage to buy stocks that the rest of the market has forsaken. Says Mr.
Marx, "We're usually early in and early out. We'd rather buy an
undervalued stock because we expect it to become fairly valued than buy
one fairly valued and hope it becomes overvalued. We like a stock 'under
a rock' or with a cloud over it; you are not going to get great companies
at great valuations when the market perception is great."
"People who switch around a lot are not going to benefit
from our approach. They're following the market -- we're looking at
fundamentals."
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Additional Investment Information
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The Portfolio, as indicated below, may make the following
investments, among others, although it may not buy all of the types of
securities or use all of the investment techniques that are described.
Repurchase Agreements. Repurchase agreements are
agreements under which the Portfolio purchases securities from a bank that
is a member of the Federal Reserve System or from a securities dealer that
agrees to repurchase the securities from the Portfolio at a higher price
on a designated future date. Repurchase agreements generally are for a
short period of time, usually less than a week. The Portfolio may not
enter into a repurchase agreement with a maturity of more than seven days
if, as a result, more than 10% of the value of its net assets would then
be invested in such repurchase agreements and other illiquid securities.
The Portfolio may enter into a repurchase agreement only if (1) the
underlying securities are of the type that the Portfolio's investment
policies and limitations would allow it to purchase directly, (2) the
market value of the underlying securities, including accrued interest, at
all times equals or exceeds the value of the repurchase agreement, 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. In order to realize income, the
Portfolio may lend portfolio securities with a value not exceeding 33-1/3%
of its total assets to banks, brokerage firms, or institutional investors
judged creditworthy by N&B Management. Borrowers are required
continuously to secure their obligations to return securities on loan from
the Portfolio by depositing collateral in a form determined to be satis-
factory by the Portfolio Trustees. The collateral, which must be marked
to market daily, must be equal to at least 100% of the market value of the
loaned securities, which will also be marked to market daily. N&B Man-
agement 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.
Restricted Securities and Rule 144A Securities. The
Portfolio may invest in restricted securities, which are securities that
may not be sold to the public without an effective registration statement
under the 1933 Act or, if they are unregistered, 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. Rule 144A is designed further to facilitate
efficient trading among institutional investors by permitting the sale of
certain unregistered securities to qualified institutional buyers. To the
extent privately placed securities held by the Portfolio qualify under
Rule 144A, and an institutional market develops for those securities, the
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Portfolio likely will be able to dispose of the securities without regis-
tering them under the 1933 Act. To the extent that institutional buyers
become, for a time, uninterested in purchasing these securities, investing
in Rule 144A securities could increase the level of the Portfolio's
illiquidity. N&B Management, acting under guidelines established by the
Portfolio Trustees, may determine that certain securities qualified for
trading under Rule 144A are liquid. Foreign securities that can be freely
sold in the markets in which they are principally traded 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, the Portfolio may be
obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the decision to sell and the time
the Portfolio may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market
conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to sell. To the extent privately
placed securities, including Rule 144A securities, are illiquid, purchases
thereof will be subject to the Portfolio's 10% limit on investments in
illiquid securities. Restricted securities for which no market exists are
priced at fair value as determined in accordance with procedures approved
and periodically reviewed by the Portfolio Trustees.
Reverse Repurchase Agreements. In a reverse repurchase
agreement, the Portfolio sells portfolio securities subject to its
agreement to repurchase the securities at a later date for a fixed price
reflecting a market rate of interest; these agreements are considered
borrowings for purposes of the Portfolio's investment policies and
limitations concerning borrowings. While a reverse repurchase agreement
is outstanding, the Portfolio will maintain with its custodian in a
segregated account cash, U.S. Government or Agency Securities, or other
liquid, high-grade debt securities, marked to market daily, in an amount
at least equal to the Portfolio's obligations under the agreement. There
is a risk that the contra-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.
Foreign Securities. The Portfolio may invest in U.S.
dollar-denominated securities issued by foreign issuers (including banks,
governments, and quasi-governmental organizations) and foreign branches of
U.S. banks, including negotiable certificates of deposit ("CDs"), bankers'
acceptances, and commercial paper. These investments are subject to the
Portfolio's quality standards. While investments in foreign securities
are intended to reduce risk by providing further diversification, such
investments involve sovereign and other risks, in addition to the credit
and market risks normally associated with domestic securities. These
additional risks include the possibility of adverse political and economic
developments (including political instability) and the potentially adverse
effects of unavailability of public information regarding issuers, less
governmental supervision and regulation of financial markets, reduced
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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.
The Portfolio also may invest in equity, debt, or other
income-producing securities that are denominated in or indexed to foreign
currencies, including (1) common and preferred stocks, (2) CDs, commercial
paper, fixed time deposits, and bankers' acceptances issued by foreign
banks, (3) obligations of other corporations, and (4) obligations of
foreign governments or their subdivisions, agencies, and instrumentali-
ties, international agencies, and supranational entities. Investing in
foreign currency denominated securities includes the special risks asso-
ciated with investing in non-U.S. issuers described in the preceding
paragraph and the additional risks of (1) adverse changes in foreign
exchange rates, (2) nationalization, expropriation, or confiscatory taxa-
tion, (3) adverse changes in investment or exchange control regulations
(which could prevent cash from being brought back to the United States),
and (4) expropriation or nationalization of foreign portfolio companies.
Additionally, dividends and interest payable on foreign securities may be
subject to foreign taxes, including taxes withheld from those payments.
Commissions on foreign securities exchanges are often at fixed rates and
are generally higher than negotiated commissions on U.S. exchanges,
although the Portfolio endeavors to achieve the most favorable net results
on portfolio transactions. The Portfolio may invest only in securities of
issuers in countries whose governments are considered stable by N&B Man-
agement.
Foreign securities often trade with less frequency and in
less volume than domestic securities and therefore may exhibit greater
price volatility. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to
domestic custody arrangements, and transaction costs of foreign currency
conversions.
Prices of foreign securities and exchange rates for
foreign currencies may be affected by the interest rates prevailing in
other countries. 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
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position.
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. Such
delays in settlement could result in temporary periods when a portion of
the assets of the Portfolio are uninvested and no return is earned
thereon. The inability of the Portfolio to make intended security
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purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to the
Portfolio due to subsequent declines in value of the portfolio securities,
or, if the Portfolio has entered into a contract to sell the securities,
could result in possible liability to the purchaser.
In order to limit the risk inherent in investing in
foreign currency denominated securities, the Portfolio may not purchase
any such security if, after such purchase, more than 10% of its total
assets (taken at market value) would be invested in foreign currency
denominated securities. Within that limitation, however, the Portfolio is
not restricted in the amount it may invest in securities denominated in
any one foreign currency.
Covered Call Options. The Portfolio may write or
purchase covered call options on securities it owns valued at up to 10% of
its net assets. Generally, the purpose of writing and purchasing these
options is to reduce the effect of price fluctuations of securities held
by the Portfolio on the Portfolio's and the Fund's net asset values
("NAVs"). Portfolio securities on which call options may be written and
purchased by the Portfolio are purchased solely on the basis of investment
considerations consistent with the Portfolio's investment objective.
When the Portfolio writes a call option, it is obligated
to sell a security to a purchaser at a specified price at any time the
purchaser requests until a certain date, and receives a premium for
writing the call option. So long as the obligation of the call option
continues, the Portfolio may be assigned an exercise notice, requiring it
to deliver the underlying security against payment of the exercise price.
The Portfolio may be obligated to deliver securities underlying an option
at less than the market price, thereby giving up any additional gain on
the security.
The Portfolio writes only "covered" call options on
securities it owns. The writing of covered call options is a conservative
investment technique that is believed to involve relatively little risk
(in contrast to the writing of "naked" or uncovered call options, which
the Portfolio will not do), but is capable of enhancing the Portfolio's
total return. When writing a covered call option, the Portfolio, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security
decline.
If a call option that the Portfolio has written expires
unexercised, the Portfolio will realize a gain in the amount of the
premium; however, that gain may be offset by a decline in the market value
of the underlying security during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of
the underlying security.
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When the Portfolio purchases a call option, it pays a
premium for the right to purchase a security from the writer at a
specified price until a specified date. A Portfolio would purchase a call
option to offset a previously written call option.
The obligation under any option terminates upon
expiration of the option or, at an earlier time, when the writer offsets
the option by entering into a "closing purchase transaction" to purchase
an option of the same series. If an option is purchased by the Portfolio
and is never exercised, the Portfolio will lose the entire amount of the
premium paid.
Options are traded both on national securities exchanges
and in the over-the-counter ("OTC") market. Exchange-traded options in
the United States are issued by a clearing organization affiliated with
the exchange on which the option is listed; the clearing organization in
effect guarantees completion of every exchange-traded option. In
contrast, OTC options are contracts between the Portfolio and its counter-
party with no clearing organization guarantee. Thus, when the Portfolio
writes an OTC option, it generally will be able to "close out" the option
prior to its expiration only by entering into a closing purchase
transaction with the dealer to whom the Portfolio originally sold the
option. There can be no assurance that the Portfolio would be able to
liquidate an OTC option at any time prior to expiration. Unless the
Portfolio is able to effect a closing purchase transaction in a covered
OTC call option it has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or until
different cover is substituted. In the event of the counter-party's
insolvency, the Portfolio may be unable to liquidate its options position
and the associated cover. N&B Management monitors the creditworthiness of
dealers with which the Portfolio may engage in OTC options transactions,
and limits the Portfolios' counter-parties in such transactions to dealers
with a net worth of at least $20 million as reported in their latest
financial statements.
The assets used as cover for OTC options written by the
Portfolio will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Portfolio may repurchase any OTC
option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC call option written
subject to this 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 premium received (or paid) by the Portfolio when it
writes (or purchases) an option is the amount at which the option is
currently traded on the applicable exchange, less (or plus) a commission.
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 general interest rate environment. The premium received
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by the Portfolio for writing an option is recorded as a liability on the
Portfolio's statement of assets and liabilities. This liability is
adjusted daily to the option's current market value, which is the sales
price on the option's last reported trade on that day before the time the
Portfolio's NAV is computed or, in the absence of any trades thereof on
that day, the mean between the closing bid and ask prices.
Closing transactions are effected in order to realize a
profit on an outstanding option, to prevent an underlying security from
being called, or to permit the sale or the put of the underlying security.
If the Portfolio desires to sell a security on which it has written a call
option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no
assurance that the Portfolio will be able to effect closing transactions
at favorable prices. If the Portfolio cannot enter into such a
transaction, it may be required to hold a security that it might otherwise
have sold, in which case it would continue to be at market risk on the
security.
The Portfolio will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the call option. However,
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.
The Portfolio pays brokerage commissions in connection
with purchasing or writing options, including those used to close out
existing positions. These brokerage commissions normally are higher than
those applicable to purchases and sales of portfolio securities.
Options normally have expiration dates between three and
nine months from the date written. 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.
Forward Foreign Currency Contracts. The Portfolio may
enter into contracts for the purchase or sale of a specific currency at a
future date at a fixed price ("forward contracts") in amounts not
exceeding 5% of its net assets. The Portfolio enters into forward
contracts in an attempt to hedge against expected changes in prevailing
currency exchange rates. The Portfolio does not engage in transactions in
forward contracts for speculation; it views investments in forward
contracts as a means of establishing more definitely the effective return
on securities denominated in foreign currencies that are held or intended
to be acquired by it. Forward contract transactions include forward sales
or purchases of foreign currencies for the purpose of protecting the U.S.
dollar value of securities held or to be acquired by the Portfolio or
protecting the U.S. dollar equivalent of dividends, interest, or other
payments on those securities.
- 12 -
<PAGE>
N&B Management believes that the use of foreign currency
hedging techniques, including "cross-hedges," can help protect against
declines in the U.S. dollar value of income available for distribution and
declines in the Portfolio's NAV resulting from adverse changes in currency
exchange rates. For example, the return available from securities denomi-
nated 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 cross-hedge
involving a forward contract to sell a different foreign currency, where
the contract is available on terms more advantageous to the Portfolio than
a contract to sell the currency in which the securities being hedged are
denominated. N&B Management believes that hedges and cross-hedges can,
therefore, provide significant protection of NAV in the event of a general
rise in the U.S. dollar against foreign currencies. However, a hedge or
cross-hedge cannot protect against exchange rate risks perfectly, and if
N&B Management is incorrect in its judgment of future exchange rate
relationships, the Portfolio could be in a less advantageous position than
if such a hedge had not been established. In addition, because forward
contracts are not traded on an exchange, the assets used to cover such
contracts may be illiquid.
Options on Foreign Currencies. The Portfolio may write
and purchase covered call and put options on foreign currencies, in
amounts not exceeding 5% of its net assets. The Portfolio would engage in
such transactions 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. As with other types of
options, however, writing an option on foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the Portfolio
could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The risks of
currency options are similar to the risks of other options, 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. To the extent the Portfolio
writes options on foreign currencies that are traded on an exchange
regulated by the Commodity Futures Trading Commission ("CFTC") other than
for bona fide hedging purposes (as defined by the CFTC), the aggregate
initial margin and premiums on those positions (excluding the amount by
which options are "in-the-money") may not exceed 5% of the Portfolio's net
assets.
General Considerations Involving Options and Forward Contracts
(collectively, "Hedging Instruments")
Risks Involved in Using Hedging Instruments. The primary
risks in using Hedging Instruments are (1) imperfect correlation or no
correlation between changes in market value of the securities held or to
be acquired by the Portfolio and changes in market value of Hedging
Instruments; (2) possible lack of a liquid secondary market for Hedging
Instruments and the resulting inability to close out Hedging Instruments
- 13 -
<PAGE>
when desired; (3) the fact that the skills needed to use Hedging Instru-
ments are different from those needed to select the Portfolio's
securities; (4) the fact that, although use of these instruments for
hedging purposes can reduce the risk of loss, they also can reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in hedged investments; and (5) the possible inability of
the Portfolio to purchase or sell a portfolio security at a time that
would otherwise be favorable for it to do so, or the possible need for the
Portfolio to sell a portfolio security at a disadvantageous time, due to
its need to maintain "cover" or to segregate securities in connection with
its use of Hedging Instruments. N&B Management intends to reduce the risk
of imperfect correlation by investing only in Hedging Instruments whose
behavior is expected to resemble that of the Portfolio's underlying
securities. N&B Management intends to reduce the risk that the Portfolio
will be unable to close out Hedging Instruments by entering into such
transactions only if N&B Management believes there will be an active and
liquid secondary market. Hedging Instruments used by the Portfolio are
generally considered "derivatives." There can be no assurance that the
Portfolio's use of Hedging Instruments will be successful.
The Portfolio's use of Hedging Instruments may be limited
by the requirements of the Internal Revenue Code of 1986, as amended
("Code"), that apply to the Fund for qualification as a regulated
investment company ("RIC"). See "Additional Tax Information."
Cover for Hedging Instruments. The Portfolio will comply
with SEC guidelines regarding cover for Hedging Instruments and, if the
guidelines so require, set aside in a segregated account with its
custodian cash, U.S. Government or Agency Securities, or other liquid,
high-grade debt securities in the prescribed amount. Securities held in a
segregated account cannot be sold while the option or forward strategy
covered by those securities is outstanding, unless they are replaced with
other suitable assets. As a result, segregation of a large percentage of
the Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet current obligations. The Portfolio may be
unable promptly to dispose of assets which cover, or are segregated with
respect to, an illiquid option or forward position; this inability may
result in a loss to the Portfolio.
Fixed Income Securities. While the emphasis of the
Portfolio's investment program is on common stocks and other equity
securities (including preferred stocks and securities convertible into or
exchangeable for common stocks), it may also invest in money market in-
struments, U.S. Government or Agency Securities, and other fixed income
securities. The Portfolio may invest in corporate bonds and debentures
receiving one of the four highest ratings from Standard & Poor's ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), or any other nationally
recognized statistical rating organization ("NRSRO"), or, if not rated by
any NRSRO, deemed comparable by N&B Management to such rated securities
("Comparable Unrated Securities"). 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
- 14 -
<PAGE>
same maturity, coupon, and rating may have different yields. The Port-
folio relies primarily on 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 general market liquidity ("market
risk"). 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.
Subsequent to its purchase by the Portfolio, an issue of debt securities
may cease to be rated or its rating may be reduced, so that the securities
would not be eligible for purchase by the Portfolio. In such a case, N&B
Management will engage in an orderly disposition of the downgraded
securities to the extent necessary to ensure that the Portfolio's holdings
of such securities will not exceed 5% of its net assets.
Commercial Paper. Commercial paper is a short-term debt
security issued by a corporation or bank for purposes such as financing
current operations. The Portfolio may invest only in commercial paper
receiving the highest rating from S&P (A-1) or Moody's (P-1), or deemed by
N&B Management to be of equivalent quality.
The Portfolio may invest in commercial paper that cannot
be resold to the public without an effective registration statement under
the 1933 Act. While restricted commercial paper normally is deemed
illiquid, N&B Management may in certain cases determine that such paper is
liquid, pursuant to guidelines established by the Portfolio Trustees.
Convertible Securities. The Portfolio may invest in
convertible 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, such securities ordinarily provide a stream
of income with generally higher yields than common stocks of the same or
similar issuers, but lower than the yield on non-convertible debt.
Convertible securities are usually subordinated to comparable-tier non-
convertible securities but rank senior to common stock in a corporation's
capital structure. The value of a convertible security is a function of
(1) its yield in comparison to the yields of other securities of
comparable maturity and quality that do not have a conversion privilege
and (2) its worth if converted into the underlying common stock.
Convertible securities are typically issued by smaller
capitalization companies whose stock prices may be volatile. The price of
a convertible security often reflects variations in the price of the
underlying common stock in a way that non-convertible debt does not. A
convertible security may be subject to redemption at the option of the
issuer at a price established in the security's governing instrument. If
a convertible security held by the Portfolio is called for redemption, the
- 15 -
<PAGE>
Portfolio will be required to convert it into the underlying common stock,
sell it to a third party or permit the issuer to redeem the security. Any
of these actions could have an adverse effect on the Portfolio's and the
Fund's ability to achieve their investment objectives.
Preferred Stock. The Portfolio may invest in preferred
stock. Unlike interest payments on debt securities, dividends on
preferred stock are generally payable at the discretion of the issuer's
board of directors, 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.
PERFORMANCE INFORMATION
The Fund's performance figures are based on historical
earnings and are not intended to indicate future performance. The share
price and total return of the Fund will vary, and an investment in the
Fund, when redeemed, may be worth more or less than an investor's original
cost.
Total Return Computations
-------------------------
The Fund may advertise certain total return information.
An average annual compounded rate of return ("T") may be computed by using
the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment of $1,000 ("P") over a period of time
("n") according to the formula:
P(1+T)n = ERV
Average annual total return smooths out year-to-year
variations and, in that respect, differs from actual year-to-year results.
Although the Fund commenced operations on August 3, 1993,
the Fund's investment objective, limitations, and policies are the same as
another mutual fund administered by N&B Management, which has a name
similar to the Fund's and invests in the same Portfolio ("Sister Fund").
The Sister Fund had a predecessor. The following total return data is for
the Fund since its inception and, for periods prior to the Fund's
inception, the Sister Fund and the Sister Fund's predecessor. The total
returns for periods prior to the Fund's inception would have been lower
had they reflected the higher fees of the Fund, as compared to those of
the Sister Fund and its predecessor. Appendix B to this SAI includes
additional performance data.
The average annual total returns for the Fund, its Sister
Fund, and the Sister Fund's predecessor for the one-, five-, and ten-year
- 16 -
<PAGE>
periods ended August 31, 1995, were 24.01%, 20.14%, and 15.66%, respec-
tively. If an investor had invested $10,000 in the predecessor's shares
on June 1, 1950 and had reinvested all distributions and income dividends,
the NAV of that investor's holdings would have been $2,629,312 on August
31, 1995.
Comparative Information
-----------------------
From time to time the Fund's performance may be compared
with:
(1) data (that may be expressed as rankings or
ratings) published by independent services or
publications (including newspapers, newsletters, and
financial periodicals) that monitor the performance of
mutual funds, such as Lipper Analytical Services, Inc.,
C.D.A. Investment Technologies, Inc., Wiesenberger
Investment Companies Service, Investment Company Data
Inc., Morningstar, Inc., Micropal Incorporated, and
quarterly mutual fund rankings by Money, Fortune, Forbes,
Business Week, Personal Investor, and U.S. News & World
Report magazines, The Wall Street Journal, New York
Times, Kiplingers Personal Finance, and Barron's News-
paper, or
(2) recognized stock and other indices, such as
the S&P 500 Composite Stock Price Index ("S&P 500
Index"), S&P Small Cap 600 Index ("S&P 600 Index"), S&P
Mid Cap 400 Index ("S&P 400 Index"), Russell 2000 Stock
Index, Dow Jones Industrial Average ("DJIA"), Wilshire
1750, Nasdaq Composite 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, and various other domestic, international,
and global indices. The S&P 500 Index is a broad index
of common stock prices, while the DJIA represents a
narrower segment of industrial companies. The S&P 600
Index includes stocks that range in market value from $27
million to $880 million, with an average of $302 million.
The S&P 400 Index measures mid-sized companies with an
average market capitalization of $1.2 billion. Each
assumes reinvestment of distributions and is calculated
without regard to tax consequences or the costs of
investing. The Portfolio may invest in different types
of securities from those included in some of the above
indices.
Evaluations of the Fund's performance, its total returns,
and comparisons may be used in advertisements and in information furnished
to current and prospective shareholders (collectively, "Advertisements").
- 17 -
<PAGE>
The Fund may also be compared to individual asset classes such as common
stocks, small-cap stocks, or Treasury bonds, based on information supplied
by Ibbotson and Sinquefield.
Other Performance Information
-----------------------------
From time to time, information about the Portfolio's
portfolio allocation and holdings as of a particular date may be included
in Advertisements for the Fund. This information, for example, may
include the Portfolio's portfolio diversification by asset type.
Information used in Advertisements may include statements or illustrations
relating to the appropriateness of types of securities and/or mutual funds
that may be employed to meet specific financial goals, such as (1) funding
retirement, (2) paying for children's education, and (3) financially
supporting aging parents.
N&B Management believes that many of its common stock
funds may be attractive investment vehicles for conservative investors who
are interested in long-term appreciation from stock investments, but who
have a moderate tolerance for risk. Such investors may include, for
example, individuals (1) planning for or facing retirement, (2) receiving
or expecting to receive lump-sum distributions from individual retirement
accounts ("IRAs"), self-employed individual retirement plans ("Keogh
plans"), or other retirement plans, (3) anticipating rollovers of CDs or
IRAs, Keogh plans, or other retirement plans, and (4) receiving a
significant amount of money as a result of inheritance, sale of a
business, or termination of employment.
Investors who may find the Fund to be an attractive
investment vehicle also include parents saving to meet college costs for
their children. For instance, the cost of a college education is rapidly
approaching the cost of the average family home. Four years' tuition,
room and board at a top private institution can already cost over $80,000.
If college expenses continue to increase at current rates, by the time
today's pre-schooler enters the ivy-covered halls in 2009, four years at a
private college may easily cost $200,000!1/
Information relating to inflation and its effects on the
dollar also may be included in Advertisements. For example, after ten
years, the purchasing power of $25,000 would shrink to $16,621, $14,968,
$13,465, and $12,100, respectively, if the annual rates of inflation
during that period were 4%, 5%, 6%, and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the
inflation rate for the ten-year period.)
From time to time the investment philosophy of N&B Man-
agement's founder, Roy R. Neuberger, may be included in the Fund's
Advertisements. This philosophy is described in further detail in "The
1/ Source: College Board, 1994, 1995 Annual Survey of Colleges,
Princeton, NJ, assuming an average 6% increase in annual expenses.
- 18 -
<PAGE>
Art of Investing: A Conversation with Roy Neuberger," attached as Appendix
C to this SAI.
CERTAIN RISK CONSIDERATIONS
Although the Portfolio seeks to reduce risk by investing
in a diversified portfolio, diversification does not eliminate all risk.
There can, of course, be no assurance that the Portfolio will achieve its
investment objective, and an investment in the Fund involves certain risks
that are described in the sections entitled "Investment Program" and
"Description of Investments" in the Prospectus and "Investment Information
-- Additional Investment Information" in this SAI.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the
trustees and officers of the Trusts, including their addresses and
principal business experience during the past five years. Some persons
named as trustees and officers also serve in similar capacities for other
funds, and (where applicable) their corresponding portfolios, administered
or managed by N&B Management and Neuberger & Berman, L.P. ("Neuberger &
Berman").
<TABLE>
<CAPTION>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
-------------- -------------------- --------------------------
<S> <C> <C>
Faith Colish (60) Trustee of each Trust Attorney at Law, Faith Colish, A
63 Wall Street, 24th Floor Professional Corporation.
New York, NY 10005
Donald M. Cox (73) Trustee of each Trust Retired. Formerly Senior Vice President
435 East 52nd Street and Director of Exxon Corporation; Director
New York, NY 10022 of Emigrant Savings Bank.
Stanley Egener* (61) Chairman of the Board, Chief Partner of Neuberger & Berman; President
Executive Officer, and and Director of N&B Management; Chairman of
Trustee of each Trust the Board, Chief Executive Officer, and
Trustee of eight other mutual funds for
which N&B Management acts as investment
manager or administrator.
- 19 -
<PAGE>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
-------------- -------------------- --------------------------
Alan R. Gruber (68) Trustee of each Trust Chairman and Chief Executive Officer of
Orion Capital Corporation Orion Capital Corporation (property and
600 Fifth Avenue, 24th Floor casualty insurance); Director of Trenwick
New York, NY 10020 Group, Inc. (property and casualty
reinsurance); Chairman of the Board and
Director of Guaranty National Corporation
(property and casualty insurance); formerly
Director of Ketema, Inc. (diversified
manufacturer).
Howard A. Mileaf (57) Trustee of each Trust Vice President and Special Counsel to
Wheeling Pittsburgh Corporation Wheeling Pittsburgh Corporation (holding
110 East 59th Street company) since 1992; formerly Vice Presi-
New York, NY 10022 dent and General Counsel of Keene
Corporation (manufacturer of industrial
products); Director of Kevlin Corporation
(manufacturer of microwave and other
products).
Edward I. O'Brien* (67) Trustee of each Trust Until 1993, President of the Securities
12 Woods Lane Industry Association ("SIA") (securities
Scarsdale, NY 10583 industry's representative in government
relations and regulatory matters at the
federal and state levels); until November
1993, employee of the SIA; Director of Legg
Mason, Inc.
John T. Patterson, Jr. (67) Trustee of each Trust President of SOBRO (South Bronx Overall
90 Riverside Drive, Apartment 1B Economic Development Corporation).
New York, NY 10024
John P. Rosenthal (63) Trustee of each Trust Senior Vice President of Burnham Securities
Burnham Securities Inc. Inc. (a registered broker-dealer) since
Burnham Asset Management Corp. 1991; formerly Partner of Silberberg,
1325 Avenue of the Americas Rosenthal & Co. (member of National Asso-
17th Floor ciation of Securities Dealers, Inc.);
New York, NY 10019 Director, Cancer Treatment Holdings, Inc.
Cornelius T. Ryan (64) Trustee of each Trust General Partner of Oxford Partners and
Oxford Bioscience Partners Oxford Bioscience Partners (venture capital
315 Post Road West partnerships) and President of Oxford Ven-
Westport, CT 06880 ture Corporation; Director of Capital Cash
Management Trust (money market fund) and
Prime Cash Fund.
- 20 -
<PAGE>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
-------------- -------------------- --------------------------
Gustave H. Shubert (66) Trustee of each Trust Senior Fellow/Corporate Advisor and
13838 Sunset Boulevard Advisory Trustee of Rand (a non-profit
Pacific Palisades, CA 90272 public interest research institution) since
1989; Member of the Board of Overseers of
the Institute for Civil Justice, the Policy
Advisory Committee of the Clinical Scholars
Program at the University of California,
the American Association for the
Advancement of Science, the Counsel on
Foreign Relations, and the Institute for
Strategic Studies (London); advisor to the
Program Evaluation and Methodology Division
of the U.S. General Accounting Office;
formerly Senior Vice President and Trustee
of Rand.
Lawrence Zicklin* (59) President and Trustee of Partner of Neuberger & Berman; Director of
each Trust N&B Management; President of five other
mutual funds for which N&B Management acts
as investment manager or administrator.
Daniel J. Sullivan (55) Vice President of each Trust Senior Vice President of N&B Management
since 1992; prior thereto, Vice President
of N&B Management; Vice President of eight
other mutual funds for which N&B Management
acts as investment manager or
administrator.
Michael J. Weiner (48) Vice President and Principal Senior Vice President and Treasurer of N&B
Financial Officer of each Management since 1992; prior thereto, Vice
Trust President and Treasurer of N&B Management
and Treasurer of certain mutual funds for
which N&B Management acted as investment
adviser; Vice President and Principal
Financial Officer of eight other mutual
funds for which N&B Management acts as
investment manager or administrator.
Claudia A. Brandon (38) Secretary of each Trust Vice President of N&B Management; Secretary
of eight other mutual funds for which N&B
Management acts as investment manager or
administrator.
- 21 -
<PAGE>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
-------------- -------------------- --------------------------
Richard Russell (48) Treasurer and Principal Ac- Vice President of N&B Management since
counting Officer of each 1993; prior thereto, Assistant Vice
Trust President of N&B Management; Treasurer and
Principal Accounting Officer of eight other
mutual funds for which N&B Management acts
as investment manager or administrator.
Stacy Cooper-Shugrue (32) Assistant Secretary of each Assistant Vice President of N&B Management
Trust since 1993; employee of N&B Management
since 1989; Assistant Secretary of eight
other mutual funds for which N&B Management
acts as investment manager or
administrator.
C. Carl Randolph (57) Assistant Secretary of each Partner of Neuberger & Berman since 1992;
Trust employee thereof since 1971; Assistant
Secretary of eight other mutual funds for
which N&B Management acts as investment
manager or administrator.
</TABLE>
___________________
(1) Unless otherwise indicated, the business address of each listed
person is 605 Third Avenue, New York, New York 10158.
(2) Except as otherwise indicated, each individual has held the positions
shown for at least the last five years.
* Indicates an "interested person" of each Trust within the meaning of
the 1940 Act. Messrs. Egener and Zicklin are interested persons by virtue
of the fact that they are officers and/or directors of N&B Management and
partners of Neuberger & Berman. Mr. O'Brien is an interested person by
virtue of the fact that he is a director of Legg Mason, Inc., a wholly
owned subsidiary of which, from time to time, serves as a broker or dealer
to the Portfolio and other funds for which N&B Management serves as
investment manager.
The Trust's Trust Instrument and Managers Trust's
Declaration of Trust each provides that it will indemnify its trustees and
officers against liabilities and expenses reasonably incurred in
connection with litigation in which they may be involved because of their
offices with the Trust, unless it is adjudicated that they engaged in bad
faith, willful misfeasance, gross negligence, or reckless disregard of the
duties involved in the conduct of their offices. In the case of
settlement, such indemnification will not be provided unless it has been
- 22 -
<PAGE>
determined (by a court or other body approving the settlement or other
disposition, by a majority of disinterested trustees based upon a review
of readily available facts, or in a written opinion of independent
counsel) that such officers or trustees have not engaged in willful
misfeasance, bad faith, gross negligence, or reckless disregard of their
duties.
For the fiscal year ended August 31, 1995, the Fund and Portfolio
paid fees and expenses of $15,468 to the Fund and Portfolio Trustees who
were not affiliated with N&B Management or Neuberger & Berman.
The following table sets forth information concerning the
compensation of the trustees and officers of the Trust. None of the
Neuberger & Berman Fund(SERVICEMARK) has any retirement plan for its
trustees or officers.
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/95
-----------------------------
Aggregate Total Compensation
Name and Position Compensation from the Neuberger & Berman
with the Trust from the Trust Fund Complex Paid to Trustees
------------------ -------------- -----------------------------
<S> <C> <C>
Faith Colish $1,336.05 $39,000
Trustee (5 other investment companies)
Donald M. Cox $1,336.05 $31,000
Trustee (3 other investment companies)
Stanley Egener $0 $0
Chairman of the Board, (9 other investment companies)
Chief Executive
Officer, and Trustee
Alan R. Gruber $1,336.05 $31,000
Trustee (3 other investment companies)
Howard A. Mileaf $1,404.81 $36,500
Trustee (4 other investment companies)
Edward I. O'Brien $1,388.74 $31,500
Trustee (3 other investment companies)
John T. Patterson, Jr. $1,371.96 $34,500
Trustee (4 other investment companies)
- 23 -
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/95
-----------------------------
Aggregate Total Compensation
Name and Position Compensation from the Neuberger & Berman
with the Trust from the Trust Fund Complex Paid to Trustees
------------------ -------------- -----------------------------
John P. Rosenthal $1,309.92 $33,000
Trustee (4 other investment companies)
Cornelius T. Ryan $1,404.81 $33,500
Trustee (3 other investment companies)
Gustave H. Shubert $1,309.92 $30,000
Trustee (3 other investment companies)
Lawrence Zicklin $0 $0
President and Trustee (5 other investment companies)
</TABLE>
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
Investment Manager and Administrator
------------------------------------
Because all of the Fund's net investable assets are
invested in the Portfolio, the Fund does not need an investment manager.
N&B Management serves as the Portfolio's investment manager pursuant to a
management agreement with Managers Trust, dated as of August 2, 1993
("Management Agreement"). The Management Agreement was approved for the
Portfolio by the Portfolio Trustees, including a majority of the Portfolio
Trustees who were not "interested persons" of N&B Management or Managers
Trust ("Independent Portfolio Trustees"), on July 15, 1993, and was
approved by the holders of the interests in the Portfolio on August 2,
1993.
The Management Agreement provides, in substance, that N&B
Management will make and implement investment decisions for the Portfolio
in its discretion and will continuously develop an investment program for
the Portfolio's assets. The Management Agreement permits N&B Management
to effect securities transactions on behalf of the Portfolio through
associated persons of N&B Management. The Management Agreement also
specifically permits N&B Management to compensate, through higher
commissions, brokers and dealers who provide investment research and
analysis to the Portfolio, although N&B Management has no current plans to
do so.
N&B Management provides to the Portfolio, without
separate cost, office space, equipment, and facilities and the personnel
- 24 -
<PAGE>
necessary to perform executive, administrative, and clerical functions.
N&B Management pays all salaries, expenses, and fees of the officers,
trustees, and employees of Managers Trust who are officers, directors, or
employees of N&B Management. Two directors of N&B Management (who also
are partners of Neuberger & Berman), one of whom also serves as an officer
of N&B Management, presently serve as trustees and officers of the Trusts.
See "Trustees and Officers." Each Portfolio pays N&B Management a
management fee based on the Portfolio's average daily net assets, as
described in the Prospectus.
N&B Management provides similar facilities, services and
personnel, as well as shareholder accounting, recordkeeping, and other
shareholder services, to the Fund pursuant to an administration agreement
dated August 3, 1993 ("Administration Agreement"). For such
administrative services, the Fund pays N&B Management a fee based on the
Fund's daily net assets, as described in the Prospectus. N&B Management
enters into administrative services agreements with Institutions, pursuant
to which it compensates such Institutions for accounting, recordkeeping,
and other services that they provide to investors who purchase shares of
the Fund.
During the fiscal years ended August 31, 1995 and 1994,
and the period from August 3 to August 31, 1993, the Fund accrued
management and administration fees of $2,417,586, $142,142, and $43.97,
respectively.
N&B Management has voluntarily undertaken until December
31, 1996, to reimburse the Fund for its Operating Expenses and its pro
rata share of the Portfolio's Operating Expenses so that the Fund's
expense ratio per annum will not exceed the expense ratio of its Sister
Fund by more than 0.10% of the Fund's average daily net assets.
"Operating Expenses" exclude interest, taxes, brokerage commissions, and
extraordinary expenses. During the period from August 3, 1993
(commencement of operations of the Fund) to December 31, 1994, N&B
Management voluntarily undertook to reimburse the Fund for its Operating
Expenses and its pro rata share of the Portfolio's Operating Expenses
which, in the aggregate, exceeded the aggregate Operating Expenses and pro
rata share of Portfolio Operating Expenses of the Sister Fund. During the
fiscal years ended August 31, 1995 and 1994, N&B Management reimbursed the
Fund $171,796 and $116,354, respectively, of expenses, under this
arrangement.
The Management Agreement continues with respect to the
Portfolio for a period of two years after the date the Portfolio became
subject thereto. The Management Agreement is renewable thereafter from
year to year with respect to the Portfolio, so long as its continuance is
approved at least annually (1) by the vote of a majority of the
Independent Portfolio Trustees, cast in person at a meeting called for the
purpose of voting on such approval, and (2) by the vote of a majority of
the Portfolio Trustees or by a 1940 Act majority vote of the outstanding
shares in the Portfolio. The Administration Agreement continues with
respect to the Fund for a period of two years after the date the Fund
- 25 -
<PAGE>
became subject thereto. The Administration Agreement is renewable from
year to year with respect to the Fund, so long as its continuance is
approved at least annually (1) by the vote of a majority of the Fund
Trustees who are not "interested persons" of N&B Management or the Trust
("Independent Fund Trustees"), cast in person at a meeting called for the
purpose of voting on such approval, and (2) by the vote of a majority of
the Fund Trustees or by a 1940 Act majority vote of the outstanding shares
in the Fund.
The Management Agreement is terminable, without penalty,
with respect to the Portfolio on 60 days' written notice either by
Managers Trust or by N&B Management. The Administration Agreement is
terminable, without penalty, with respect to the Fund on 60 days' written
notice either by N&B Management or by the Trust if authorized by the Fund
Trustees, including a majority of the Independent Fund Trustees. Each
Agreement terminates automatically if it is assigned.
In addition to the voluntary expense reimbursements
described in the Prospectus under "Management and Administration --
Expenses," N&B Management has agreed in the Management Agreement to
reimburse the Fund's expenses, as follows. If, in any fiscal year, the
Fund's Aggregate Operating Expenses (as defined below) exceed the most
restrictive expense limitation imposed under the securities laws of the
states in which the Fund's shares are qualified for sale ("State Expense
Limitation"), then N&B Management will pay the Fund the amount of that
excess, less the amount of any reduction of the administration fee payable
by the Fund under a similar State Expense Limitation contained in the
Administration Agreement. N&B Management will have no obligation to pay
the Fund, however, for any expenses that exceed the pro rata portion of
the management fees attributable to the Fund's interest in the Portfolio.
At the date of this SAI, the most restrictive State Expense Limitation to
which the Fund expects to be subject is 2 1/2% of the first $30 million of
average net assets, 2% of the next $70 million of average net assets, and
1 1/2% of average net assets over $100 million.
For purposes of the State Expense Limitation, the term
"Aggregate Operating Expenses" means the Fund's operating expenses plus
its pro rata portion of the Portfolio's operating expenses (including any
fees or expense reimbursements payable to N&B Management and any
compensation payable thereto pursuant to (1) the Administration Agreement
or (2) any other agreement or arrangement with Managers Trust in regard to
the Portfolio; but excluding (with respect to both the Fund and the
Portfolio) interest, taxes, brokerage commissions, litigation and
indemnification expenses, and other extraordinary expenses not incurred in
the ordinary course of business).
Sub-Adviser
-----------
N&B Management retains Neuberger & Berman, 605 Third
Avenue, New York, NY 10158-3698, as sub-adviser with respect to the
Portfolio pursuant to a sub-advisory agreement dated August 2, 1993 ("Sub-
Advisory Agreement"). The Sub-Advisory Agreement was approved by the
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<PAGE>
Portfolio Trustees, including a majority of the Independent Portfolio
Trustees, on July 15, 1993 and was approved by the holders of the inter-
ests in the Portfolio on August 2, 1993.
The Sub-Advisory Agreement provides in substance that
Neuberger & Berman will furnish to N&B Management, upon reasonable
request, the same type of investment recommendations and research that
Neuberger & Berman, from time to time, provides to its partners and
employees for use in managing client accounts. In this manner, N&B
Management expects to have available to it, in addition to research from
other professional sources, the capability of the research staff of
Neuberger & Berman. This staff consists of approximately fourteen
investment analysts, each of whom specializes in studying one or more
industries, under the supervision of the Director of Research, who is also
available for consultation with N&B Management. The Sub-Advisory
Agreement provides that N&B Management will pay for the services rendered
by Neuberger & Berman based on the direct and indirect costs to Neuberger
& Berman in connection with those services. Neuberger & Berman also
serves as sub-adviser for all of the other mutual funds managed by N&B
Management.
The Sub-Advisory Agreement continues with respect to the
Portfolio for a period of two years after the date the Portfolio became
subject thereto, and is renewable from year to year, subject to approval
of its continuance in the same manner as the Management Agreement. The
Sub-Advisory Agreement is subject to termination, without penalty, with
respect to the Portfolio by the Portfolio Trustees, by a 1940 Act majority
vote of the outstanding Portfolio shares, by N&B Management, or by
Neuberger & Berman on not less than 30 nor more than 60 days' written
notice. The Sub-Advisory Agreement also terminates automatically with
respect to the Portfolio if it is assigned or if the Management Agreement
terminates with respect to the Portfolio.
Most money managers that come to the Neuberger & Berman
organization have at least fifteen years experience. Neuberger & Berman
and N&B Management employ experienced professionals that work in a
competitive environment.
Investment Companies Managed
----------------------------
N&B Management currently serves as investment manager of
the following investment companies. As of September 30, 1995, these
companies, along with three investment companies advised by Neuberger &
Berman, had aggregate net assets of approximately $11.4 billion, as shown
in the following list:
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<PAGE>
Approximate Net Assets
Name at September 30, 1995
---- ------------------------
Neuberger & Berman Cash Reserves Portfolio
(investment portfolio for Neuberger
& Berman Cash Reserves) $ 377,608,619
Neuberger & Berman Government Income
Portfolio
(investment portfolio for Neuberger
& Berman Government Income Fund and
Neuberger & Berman Government Income
Trust) $ 12,053,656
Neuberger & Berman Government Money
Portfolio
(investment portfolio for Neuberger
& Berman Government Money Fund) $ 346,898,132
Neuberger & Berman Limited Maturity Bond
Portfolio
(investment portfolio for Neuberger
& Berman Limited Maturity Bond Fund
and Neuberger & Berman Limited
Maturity Bond Trust) $ 309,540,451
Neuberger & Berman Municipal Money Portfolio
(investment portfolio for Neuberger
& Berman Municipal Money Fund) $ 149,657,613
Neuberger & Berman Municipal Securities
Portfolio
(investment portfolio for Neuberger
& Berman Municipal Securities Trust) $ 44,568,635
Neuberger & Berman New York Insured
Intermediate Portfolio
(investment portfolio for Neuberger
& Berman New York Insured
Intermediate Fund) $ 10,679,324
Neuberger & Berman Ultra Short Bond
Portfolio
(investment portfolio for Neuberger
& Berman Ultra Short Bond Fund and
Neuberger & Berman Ultra Short Bond $ 102,903,312
Trust)
- 28 -
<PAGE>
Approximate Net Assets
Name at September 30, 1995
---- ------------------------
Neuberger & Berman Focus Portfolio
(investment portfolio for Neuberger & Berman
Focus Fund and Neuberger & Berman Focus
Trust) $ 1,031,915,664
Neuberger & Berman Genesis Portfolio
(investment portfolio for Neuberger
& Berman Genesis Fund and Neuberger
& Berman Genesis Trust) $ 145,188,783
Neuberger & Berman Guardian Portfolio
(investment portfolio for Neuberger
& Berman Guardian Fund and Neuberger
& Berman Guardian Trust) $4,943,764,830
Neuberger & Berman International Portfolio
(investment portfolio for Neuberger
& Berman International Fund) $ 29,990,616
Neuberger & Berman Manhattan Portfolio
(investment portfolio for Neuberger
& Berman Manhattan Fund and
Neuberger & Berman Manhattan Trust) $ 670,916,038
Neuberger & Berman Partners Portfolio
(investment portfolio for Neuberger
& Berman Partners Fund and
Neuberger & Berman Partners Trust) $1,664,460,688
Neuberger & Berman Socially Responsive
Portfolio
(investment portfolio for Neuberger
& Berman Socially Responsive Fund,
Neuberger & Berman Socially
Responsive Trust, and Neuberger &
Berman NYCDC Socially Responsive
Trust) $ 102,675,093
Neuberger & Berman Advisers Managers Trust
(six series) $1,257,506,124
In addition, Neuberger & Berman serves as investment
adviser to three investment companies, Plan Investment Fund, Inc., AHA
Investment Fund, Inc., and AHA Full Maturity, with assets of $85,110,472,
$110,683,193, and $23,891,472, respectively, at September 30, 1995.
- 29 -
<PAGE>
The investment decisions concerning the Portfolio and the
other funds and portfolios managed by N&B Management (collectively, "Other
N&B Funds") have been and will continue to be made independently of one
another. In terms of their investment objectives, most of the Other N&B
Funds differ from the Portfolio. Even where the investment objectives are
similar, however, the methods used by the Other N&B Funds and the
Portfolio to achieve their objectives may differ.
There may be occasions when the Portfolio and one or more
of the Other N&B 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 as to amounts in accordance with a formula
considered to be equitable to the funds involved. Although in some cases
this arrangement may have a detrimental effect on the price or volume of
the securities as to the Portfolio, in other cases it is believed that the
Portfolio's ability to participate in volume transactions may produce
better executions for it. In any case, it is the judgment of the
Portfolio Trustees that the desirability of the Portfolio's having its
advisory arrangements with N&B Management outweighs any disadvantages that
may result from contemporaneous transactions. The investment results
achieved by all of the funds managed by N&B Management have varied from
one another in the past and are likely to vary in the future.
Management and Control of N&B Management
----------------------------------------
The directors and officers of N&B Management, all of whom
have offices at the same address as N&B Management, are Richard A. Cantor,
Chairman of the Board and director; Stanley Egener, President and
director; Theresa A. Havell, Vice President and director; Irwin Lainoff,
director; Marvin C. Schwartz, director; Lawrence Zicklin, director; Daniel
J. Sullivan, Senior Vice President; Michael J. Weiner, Senior Vice
President and Treasurer; Claudia A. Brandon, Vice President; William
Cunningham, Vice President; Clara Del Villar, Vice President; Mark R.
Goldstein, Vice President; Farha-Joyce Haboucha, Vice President; Michael
M. Kassen, Vice President; Michael Lamberti, Vice President; Josephine P.
Mahaney, Vice President; Lawrence Marx III, Vice President; Ellen Metzger,
Vice President and Secretary; Janet W. Prindle, Vice President; Felix
Rovelli, Vice President; Richard Russell, Vice President; Kent C. Simons,
Vice President; Frederick B. Soule, Vice President; Judith M. Vale, Vice
President; Thomas Wolfe, Vice President; Andrea Trachtenberg, Vice
President of Marketing; Patrick T. Byrne, Assistant Vice President; Robert
Conti, Assistant Vice President; Stacy Cooper-Shugrue, Assistant Vice
President; Robert Cresci, Assistant Vice President; Barbara DiGiorgio,
Assistant Vice President; Roberta D'Orio, Assistant Vice President; Robert
I. Gendelman, Assistant Vice President; Leslie Holliday-Soto, Assistant
Vice President; Carmen G. Martinez, Assistant Vice President; Paul
Metzger, Assistant Vice President; Susan Switzer, Assistant Vice
President; Susan Walsh, Assistant Vice President; and Celeste Wischerth,
Assistant Vice President. Messrs. Cantor, Egener, Lainoff, Schwartz,
- 30 -
<PAGE>
Zicklin, Goldstein, Kassen, Marx, and Simons and Mmes. Havell and Prindle
are general partners of Neuberger & Berman.
Messrs. Egener and Zicklin are trustees and officers, and
Messrs. Sullivan, Weiner, and Russell and Mmes. Brandon and Cooper-Shugrue
are officers, of each Trust. C. Carl Randolph, a general partner of
Neuberger & Berman, also is an officer of each Trust.
All of the outstanding voting stock in N&B Management is
owned by persons who are also general partners of Neuberger & Berman.
DISTRIBUTION ARRANGEMENTS
N&B Management serves as the distributor ("Distributor")
in connection with the offering of the Fund's shares on a no-load basis to
Institutions. In connection with the sale of its shares, the Fund has
authorized the Distributor to give only the information, and to make only
the statements and representations, contained in the Prospectus and this
SAI or that properly may be included in sales literature and
advertisements in accordance with the 1933 Act, the 1940 Act, and
applicable rules of self-regulatory organizations. Sales may be made only
by the Prospectus, which may be delivered either personally, through the
mails, or by electronic means. The Distributor is the Fund's "principal
underwriter" within the meaning of the 1940 Act and, as such, acts as
agent in arranging for the sale of the Fund's shares to Institutions
without sales commission or other compensation and bears all advertising
and promotion expenses incurred in the sale of the Fund's shares.
The Distributor or one of its affiliates may, from time
to time, deem it desirable to offer to the Fund's shareholders, through
use of its shareholder list, the shares of other mutual funds for which
the Distributor acts as distributor or other products or services. Any
such use of the Fund's shareholder lists, however, will be made subject to
terms and conditions, if any, approved by a majority of the Independent
Fund Trustees. These lists will not be used to offer the Fund's
shareholders any investment products or services other than those managed
or distributed by N&B Management or Neuberger & Berman.
From time to time, N&B Management may enter into
arrangements pursuant to which it compensates a registered broker-dealer
or other third party for services in connection with the distribution of
Fund shares.
The Trust, on behalf of the Fund, and the Distributor are
parties to a Distribution Agreement that continues until August 3, 1996.
The Distribution Agreement may be renewed annually if specifically
approved by (1) the vote of a majority of the Fund Trustees or a 1940 Act
majority vote of the Fund's outstanding shares and (2) the vote of a
majority of the Independent Fund Trustees, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution
Agreement may be terminated by either party and will automatically
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<PAGE>
terminate on its assignment, in the same manner as the Management
Agreement.
ADDITIONAL REDEMPTION INFORMATION
Suspension of Redemptions
-------------------------
The right to redeem the Fund's shares may be suspended or
payment of the redemption price postponed (1) when the NYSE is closed
(other than weekend and holiday closings), (2) when trading on the NYSE is
restricted, (3) when an emergency exists as a result of which it is not
reasonably practicable for the Portfolio to dispose of securities it owns
or fairly to determine the value of its net assets, or (4) for such other
period as the SEC may by order permit for the protection of the Fund's
shareholders; provided that applicable SEC rules and regulations shall
govern whether the conditions prescribed in (2) or (3) exist. If the
right of redemption is suspended, shareholders may withdraw their offers
of redemption, or they will receive payment at the NAV per share in effect
at the close of business on the first day the NYSE is open ("Business
Day") after termination of the suspension.
Redemptions in Kind
-------------------
The Fund reserves the right, under certain conditions, to
honor any request for redemption by making payment in whole or in part in
securities valued as described under "Share Information -- Share Prices
and Net Asset Value" in the Prospectus. If payment is made in securities,
a shareholder generally will incur brokerage expenses in converting those
securities into cash and will be subject to fluctuations in the market
price of those securities until they are sold. The Fund does not redeem
in kind under normal circumstances, but would do so when the Fund Trustees
determine that it is in the best interests of the Fund's shareholders as a
whole. Redemptions in kind will be made with readily marketable
securities to the extent possible.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund distributes to its shareholders amounts equal to
substantially all of its proportionate share of any net investment income
(after deducting expenses incurred directly by the Fund), net capital
gains (both long-term and short-term), and net gains from foreign currency
transactions earned or realized by the Portfolio. The Fund calculates its
net investment income and NAV per share as of the close of regular trading
on the NYSE on each Business Day (usually 4:00 p.m. Eastern time).
The Portfolio's net investment income consists of all
income accrued on portfolio assets less accrued expenses, but does not
include realized gains and losses. Net investment income and realized
gains and losses are reflected in the Portfolio's NAV (and, hence, the
Fund's NAV) until they are distributed. The Fund generally distributes
- 32 -
<PAGE>
substantially all of its share of the Portfolio's net investment income,
if any, at the end of each calendar quarter. Distributions of net
realized capital and foreign currency gains, if any, normally are paid
once annually, in December.
Dividends and/or other distributions are automatically
reinvested in additional shares of the Fund, unless and until the
Institution elects to receive them in cash ("cash election"). To the
extent dividends and other distributions are subject to federal, state, or
local income taxation, they are taxable to the shareholders whether
received in cash or reinvested in Fund shares. A cash election with
respect to the Fund remains in effect until the Institution notifies the
Fund in writing to discontinue the election.
ADDITIONAL TAX INFORMATION
Taxation of the Fund
--------------------
In order to continue to qualify for treatment as a RIC
under the Code, the Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital
gain, and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional
requirements. With respect to the Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including gains from Hedging
Instruments) derived with respect to its business of investing in secu-
rities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale
or other disposition of securities, or any of the following, that were
held for less than three months -- (i) options (other than those on
foreign currencies), or (ii) foreign currencies or Hedging Instruments
thereon that are not directly related to the Fund's principal business of
investing in securities (or options with respect thereto) ("Short-Short
Limitation"); and (3) at the close of each quarter of the Fund's taxable
year, (i) at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, and other
securities limited, in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Fund's total assets and 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) of any one issuer.
Certain funds managed by N&B Management, including the
Sister Fund, have received a ruling from the Internal Revenue Service
("Service") that each such fund, as an investor in a corresponding
portfolio of Managers Trust or Income Managers Trust, will be deemed to
own a proportionate share of the portfolio's assets and income for pur-
- 33 -
<PAGE>
poses of determining whether the fund satisfies all the requirements
described above to qualify as a RIC. Although that ruling may not be
relied on as precedent by the Fund, N&B Management believes that the
reasoning thereof and, hence, its conclusion apply to the Fund as well.
The Fund will be subject to a nondeductible 4% excise tax
("Excise Tax") to the extent it fails to distribute by the end of any
calendar year substantially all of its ordinary income for that year and
capital gain net income for the one-year period ended on October 31 of
that year, plus certain other amounts.
See the next section for a discussion of the tax conse-
quences to the Fund of distributions to it from the Portfolio, investments
by the Portfolio in certain securities, and hedging transactions engaged
in by the Portfolio.
Taxation of the Portfolio
-------------------------
The Portfolio has received a ruling from the Service to
the effect that, among other things, the Portfolio will be treated as a
separate partnership for federal income tax purposes and will not be a
"publicly traded partnership." As a result, the Portfolio is not subject
to federal income tax; instead, each investor in the Portfolio, such as
the Fund, is required to take into account in determining its federal
income tax liability its share of the Portfolio's income, gains, losses,
deductions, and credits, without regard to whether it has received any
cash distributions from the Portfolio. The Portfolio also is not subject
to Delaware or New York income or franchise tax.
Because the Fund is deemed to own a proportionate share
of the Portfolio's assets and income for purposes of determining whether
the Fund satisfies the requirements to qualify as a RIC, the Portfolio
intends to continue to conduct its operations so that the Fund will be
able to continue to satisfy all those requirements.
Distributions to the Fund from the Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result
in the Fund's recognition of any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent any cash
that is distributed exceeds the Fund's basis for its interest in the
Portfolio before the distribution, (2) income or gain will be recognized
if the distribution is in liquidation of the Fund's entire interest in the
Portfolio and includes a disproportionate share of any unrealized
receivables held by the Portfolio, and (3) loss will be recognized if a
liquidation distribution consists solely of cash and/or unrealized
receivables. The Fund's basis for its interest in the Portfolio generally
equals the amount of cash the Fund invests in the Portfolio, increased by
the Fund's share of the Portfolio's net income and gains and decreased by
(1) the amount of cash and the basis of any property the Portfolio distri-
butes to the Fund and (2) the Fund's share of the Portfolio's losses.
- 34 -
<PAGE>
Dividends and interest received by the Portfolio may be
subject to income, withholding, or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on its
securities. Tax treaties between certain countries and the United States
may reduce or eliminate these foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments
by foreign investors.
The Portfolio may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation that, in
general, meets either of the following tests: (1) at least 75% of its
gross income is passive or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, if the Portfolio holds stock of a PFIC, the Fund
(indirectly through its interest in the Portfolio) will be subject to
federal income tax on a portion of any "excess distribution" received on
the stock or of any gain on disposition of the stock (collectively, "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Fund's investment company taxable income
and, accordingly, will not be taxable to it to the extent that income is
distributed to its shareholders.
If the Portfolio invests in a PFIC and elects to treat
the PFIC as a "qualified electing fund," then in lieu of the Fund's
incurring the foregoing tax and interest obligation, the Fund would be
required to include in income each year its pro rata share of the
Portfolio's pro rata share of the qualified electing fund'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 Fund to satisfy the Distribution Requirement
and to avoid imposition of the Excise Tax -- even if those earnings and
gain were not received by the Portfolio. In most instances it will be
very difficult, if not impossible, to make this election because of
certain requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as
the Fund, would be entitled to elect to mark to market their stock in
certain PFICs. Marking to market, in this context, means recognizing as
gain for each taxable year the excess, as of the end of that year, of the
fair market value of each such PFIC's stock over the adjusted basis in
that stock (including mark to market gain for each prior year for which an
election was in effect).
The Portfolio's use of hedging strategies, such as writ-
ing (selling) and purchasing options and entering into forward contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Portfolio
realizes in connection therewith. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and
income from transactions in Hedging Instruments derived by the Portfolio
with respect to its business of investing in securities or foreign cur-
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<PAGE>
rencies, will qualify as permissible income for the Fund under the Income
Requirement. However, income from the disposition by the Portfolio of
options (other than those on foreign currencies) will be subject to the
Short-Short Limitation for the Fund if they are held for less than three
months. Income from the disposition of foreign currencies, and Hedging
Instruments on foreign currencies, that are not directly related to the
Portfolio's principal business of investing in securities (or options with
respect thereto) also will be subject to the Short-Short Limitation for
the Fund if they are held for less than three months.
If the Portfolio satisfies certain requirements, any in-
crease in value of a position that is part of a "designated hedge" will be
offset by any decrease in value (whether realized or not) of the
offsetting hedging position during the period of the hedge for purposes of
determining whether the Fund satisfies the Short-Short Limitation. Thus,
only the net gain (if any) from the designated hedge will be included in
gross income for purposes of that limitation. The Portfolio will consider
whether it should seek to qualify for this treatment for its hedging
transactions. To the extent the Portfolio does not so qualify, it may be
forced to defer the closing out of certain Hedging Instruments beyond the
time when it otherwise would be advantageous to do so, in order for the
Fund to continue to qualify as a RIC.
Taxation of the Fund's Shareholders
-----------------------------------
If Fund shares are sold at a loss after being held for
six months or less, the loss will be treated as long-term, instead of
short-term, capital loss to the extent of any capital gain distributions
received on those shares. Investors also should be aware that if shares
of the Fund are purchased shortly before the record date for a dividend or
other distribution, the purchaser will receive some portion of the
purchase price back as a taxable distribution.
PORTFOLIO TRANSACTIONS
Neuberger & Berman acts as the Portfolio's principal
broker in the purchase and sale of its portfolio securities and in connec-
tion with the writing of covered call options on its securities.
Transactions in portfolio securities for which Neuberger & Berman serves
as broker will be effected in accordance with Rule 17e-1 under the 1940
Act.
During the period August 3 to August 31, 1993, the
Portfolio paid brokerage commissions of $201,981, of which $149,496 was
paid to Neuberger & Berman. During the fiscal year ended August 31, 1994,
the Portfolio paid brokerage commissions of $2,207,401, of which
$1,647,807 was paid to Neuberger & Berman.
During the fiscal year ended August 31, 1995, the
Portfolio paid brokerage commissions of $3,751,206, of which $2,521,523
was paid to Neuberger & Berman. Transactions in which the Portfolio used
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<PAGE>
Neuberger & Berman as broker comprised 70.49% of the aggregate dollar
amount of transactions involving the payment of commissions, and 67.22% of
the aggregate brokerage commissions paid by the Portfolio, during the
fiscal year ended August 31, 1995. 82.78% of the $1,229,683 paid to other
brokers by the Portfolio during that fiscal year (representing commissions
on transactions involving approximately $509,609,733) was directed to
those brokers because of research services they provided. During the
fiscal year ended August 31, 1995, the Portfolio acquired securities of
the following of its Regular B/Ds: EXXON Credit Corp., General Electric
Capital Corp., and Merrill Lynch, Pierce, Fenner & Smith, Inc.; at that
date, the Portfolio held the securities of its Regular B/Ds with an
aggregate value as follows: General Electric Capital Corp., $1,500,000,
and Merrill Lynch, Pierce, Fenner & Smith, Inc., $48,116,875.
Portfolio securities are, from time to time, loaned by
the Portfolio to Neuberger & Berman in accordance with the terms and
conditions of an order issued by the SEC. The order exempts such
transactions from provisions of the 1940 Act that would otherwise prohibit
such transactions, subject to certain conditions. Among the conditions of
the order, securities loans made by the Portfolio to Neuberger & Berman
must be fully secured by cash collateral. Under the order, the portion of
the income on the cash collateral which may be shared with Neuberger &
Berman is determined with reference to concurrent arrangements between
Neuberger & Berman and non-affiliated lenders with which it engages in
similar transactions. In addition, where Neuberger & Berman borrows
securities from the Portfolio in order to relend them to others, Neuberger
& Berman is required to pay the Portfolio, on a quarterly basis, certain
"excess earnings" that Neuberger & Berman otherwise has derived from the
relending of the borrowed securities. When Neuberger & Berman desires to
borrow a security that the Portfolio has indicated a willingness to lend,
Neuberger & Berman must borrow such security from the Portfolio, rather
than from an unaffiliated lender, unless the unaffiliated lender is
willing to lend such security on more favorable terms (as specified in the
order) than the Portfolio. If the Portfolio's expenses exceed its income
in any securities loan transaction with Neuberger & Berman, Neuberger &
Berman must reimburse the Portfolio for such loss.
During the fiscal years ended August 31, 1995 and 1994,
the Portfolio earned $1,430,672 and $147,103, respectively in interest
income from the collateralization of securities loans, from which
Neuberger & Berman was paid $1,252,190 and $119,620, respectively. During
the period August 3 to August 31, 1993, the Portfolio earned interest
income of $3,164 from the collateralization of securities loans, from
which Neuberger & Berman was paid $2,881.
The Portfolio may also lend securities to unaffiliated
entities, including brokers or dealers, banks and other recognized
institutional borrowers of securities, provided that cash or equivalent
collateral, equal to at least 100% of the market value of the securities
loaned, is continuously maintained by the borrower with the Portfolio.
During the time securities are on loan, the borrower will pay the
Portfolio an amount equivalent to any dividends or interest paid on such
- 37 -
<PAGE>
securities. 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. 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.
A committee of Independent Portfolio Trustees from time
to time reviews, among other things, information relating to securities
loans by the Portfolio.
In effecting securities transactions, the Portfolio gen-
erally seeks to obtain the best price and execution of orders. Commission
rates, being a component of price, are considered along with other
relevant factors. The Portfolio plans to continue to use Neuberger &
Berman as its principal broker where, in the judgment of N&B Management
(the Portfolio's investment manager and an affiliate of Neuberger &
Berman), 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 the Portfolio receives give-ups or reciprocal
business in connection with its securities transactions.
The use of Neuberger & Berman as a broker for the Port-
folio is subject to the requirements of Section 11(a) of the Securities
Exchange Act of 1934. Section 11(a) prohibits members of national
securities exchanges from retaining compensation for executing exchange
transactions for accounts which they or their affiliates manage, except
where they have the authorization of the persons authorized to transact
business for the account and comply with certain annual reporting
requirements. The Portfolio Trustees have expressly authorized Neuberger
& Berman to retain such compensation, and Neuberger & Berman complies with
the reporting requirements of Section 11(a).
Under the 1940 Act, commissions paid by the Portfolio to
Neuberger & Berman in connection with a purchase or sale of securities on
a securities exchange may not exceed the usual and customary broker's
commission. Accordingly, it is the Portfolio's policy that the
commissions paid to Neuberger & Berman must, in N&B Management's judgment,
be (1) at least as favorable as those charged by other brokers having
comparable execution capability and (2) at least as favorable as
commissions contemporaneously charged by Neuberger & Berman on comparable
transactions for its most favored unaffiliated customers, except for
accounts for which Neuberger & Berman acts as a clearing broker for
another brokerage firm and customers of Neuberger & Berman considered by a
majority of the Independent Portfolio Trustees not to be comparable to the
Portfolio. The Portfolio does not deem it practicable and in its best
interests to solicit competitive bids for commissions on each transaction
effected by Neuberger & Berman. However, consideration regularly is given
- 38 -
<PAGE>
to information concerning the prevailing level of commissions charged by
other brokers on comparable transactions during comparable periods of
time. The 1940 Act generally prohibits Neuberger & Berman from acting as
principal in the purchase or sale of securities for the Portfolio's
account, unless an appropriate exemption is available.
A committee of Independent Portfolio Trustees from time
to time reviews, among other things, information relating to the
commissions charged by Neuberger & Berman to the Portfolio and to its
other customers and information concerning the prevailing level of
commissions charged by other brokers having comparable execution
capability. In addition, the procedures pursuant to which Neuberger &
Berman effects brokerage transactions for the Portfolio must be reviewed
and approved no less often than annually by a majority of the Independent
Portfolio Trustees.
The Portfolio expects that it will continue to execute a
portion of its transactions through brokers other than Neuberger & Berman.
In selecting those brokers, N&B Management considers the quality and
reliability of brokerage services, including execution capability,
performance, and financial responsibility, and may consider research and
other investment information provided by, and sale of Fund shares effected
through, those brokers.
To ensure that accounts of all investment clients,
including the Portfolio, are treated fairly in the event that transaction
instructions for more than one investment account regarding the same
security are received by Neuberger & Berman at or about the same time,
Neuberger & Berman may combine transaction 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 transaction order
actually placed by the account bears to the aggregate size of transaction
orders simultaneously made by the other accounts, subject to de minimis
exceptions, with all participating accounts paying or receiving the same
price.
A committee comprised of officers of N&B Management and
partners of Neuberger & Berman who are portfolio managers of the Portfolio
and Other N&B Funds (collectively, "N&B 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 N&B 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
- 39 -
<PAGE>
the projected rankings. These variations reflect the following factors,
among others: (1) brokers not on the list or ranking below other brokers
on the list may be selected for particular transactions because they
provide better price and/or execution, which is the primary consideration
in allocating brokerage; (2) adjustments may be required because of
periodic changes in the execution or research capabilities of particular
brokers, or in the execution or research needs of the N&B Funds and/or the
Managed Accounts; and (3) the aggregate amount of brokerage commissions
generated by transactions for the N&B Funds and the Managed Accounts may
change substantially from one semi-annual period to the next.
The commissions charged by a broker other than
Neuberger & Berman may be higher than the amount another firm might charge
if N&B 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. N&B Management believes that
those research services benefit the Portfolio by supplementing the
research otherwise available to N&B Management. That research may be used
by N&B Management in servicing Other N&B Funds and, in some cases, by
Neuberger & Berman in servicing the Managed Accounts. On the other hand,
research received by N&B Management from brokers effecting portfolio
transactions on behalf of the Other N&B Funds and by Neuberger & Berman
from brokers effecting portfolio transactions on behalf of the Managed
Accounts may be used for the Portfolio's benefit.
Lawrence Marx III and Kent C. Simons, each of whom is a
Vice President of N&B Management and a general partner of Neuberger &
Berman, are the persons primarily responsible for making decisions as to
specific action to be taken with respect to the investment portfolio of
the Portfolio. Each of them has full authority to take action with respect
to portfolio transactions and may or may not consult with other personnel
of N&B Management prior to taking such action.
Portfolio Turnover
------------------
The portfolio turnover rate is the lesser of the cost of
the securities purchased or the value of the securities sold, excluding
all securities, including options, whose maturity or expiration date at
the time of acquisition was one year or less, divided by the average
monthly value of such securities owned during the year.
REPORTS TO SHAREHOLDERS
Shareholders of the Fund receive unaudited semi-annual
financial statements, as well as year-end financial statements audited by
the independent auditors for the Fund and Portfolio. The Fund's
statements show the investments owned by the Portfolio and the market
values thereof and provide other information about the Fund and its
operations, including the Fund's beneficial interest in the Portfolio.
- 40 -
<PAGE>
CUSTODIAN AND TRANSFER AGENT
The Fund and Portfolio have selected State Street Bank
and Trust Company ("State Street"), 225 Franklin Street, Boston, MA 02110,
as custodian for their respective securities and cash. All correspondence
should be mailed to Neuberger & Berman Funds, Institutional Services, 605
Third Avenue, 2nd Floor, New York, NY 10158-0180. State Street also
serves as the Fund's transfer agent, administering purchases, redemptions,
and transfers of Fund shares with respect to Institutions and the payment
of dividends and other distributions to Institutions.
INDEPENDENT AUDITORS
The Fund and Portfolio have selected Ernst & Young LLP,
200 Clarendon Street, Boston, MA 02116, as the independent auditors who
will audit their financial statements.
LEGAL COUNSEL
The Fund and Portfolio have selected Kirkpatrick &
Lockhart LLP, 1800 M Street, N.W., Washington, D.C. 20036, as their legal
counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and
percentage of ownership of each person who owned of record, or who was
known by the Fund to own beneficially or of record, 5% or more of the
Fund's outstanding shares at November 30, 1995:
Percentage of
Ownership at
Name and Address November 30, 1995
---------------- -----------------
Neuberger & Berman The Northern Trust Co., 27.18%
GUARDIAN Trust Trustee
Digital Equipment Corp.
DTD 1-3-95
P.O. Box 92956
Chicago, IL 60675-0001
MAC & Co. 17.15%
A/C 195-643
Mellon Bank N.A.
P.O. Box 320
Pittsburgh, PA 15230-0320
- 41 -
<PAGE>
Percentage of
Ownership at
Name and Address November 30, 1995
---------------- -----------------
National Financial Services 9.54%
Corp.*
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
The Bank of NY, Trustee 6.33%
Melville Corp. 401(k)
PSRP - General DTD 6/7/89
1 Wall Street, 7th Floor
New York, NY 10286-0001
MAC & Co. 5.38%
A/C #854-169
Mellon Bank N.A.
Mutual Funds Dept.
P.O. Box 320
Pittsburgh, PA 15230-0320
* National Financial Services Corp. holds these shares of
record for the account of certain of its clients and has informed the Fund
of its policy to maintain the confidentiality of holdings in its client
accounts unless disclosure is expressly required by law.
At December 6, 1995, the trustees and officers of the
Trusts, as a group, owned beneficially or of record less than 1% of the
outstanding shares of the Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the infor-
mation 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.
Statements contained in this SAI and in the Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and 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.
- 42 -
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and related documents
are incorporated herein by reference from the Fund's Annual Report to
shareholders for the fiscal year ended August 31, 1995:
The audited financial statements of the Fund and
Portfolio and notes thereto for the fiscal year ended
August 31, 1995, and the reports of Ernst & Young LLP,
independent auditors, with respect to such audited
financial statements.
- 43 -
<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.
HI - The rating CI is reserved for income bonds on
which no interest is being paid.
D - Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
Plus (+) or Minus (-) - The ratings above may be modified
by the addition of a plus or minus sign to show relative standing within
the major rating categories.
Moody's corporate bond ratings:
Aaa - Bonds rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by
a large or an exceptionally stable margin, and principal is secure.
Although the various protective elements are likely to change, the changes
that can be visualized are most unlikely to impair the fundamentally
strong position of the issuer.
- 44 -
<PAGE>
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 of time
may be small.
Caa - Bonds rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds rated Ca represent obligations that are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Modifiers--Moody's may apply numerical modifiers 1, 2, and 3 in each
generic rating classification described above. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issuer ranks in the lower end of its generic rating.
- 45 -
<PAGE>
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.
- Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
- 46 -
<PAGE>
Appendix B
PERFORMANCE DATA
- 47 -
<PAGE>
<TABLE>
<CAPTION>
COST OF LIVING INDEX
PREPARED FOR: BARBARA
Sales Net Asset Initial
Initial Offering Charge Shares Value Net Asset
Date Investment Price Included Purchased per Share Value
---- ---------- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
9/27/88 $10,000.00 $119.8000 0.00% 83.472 $119.8000 $10,000
Dividends and Capital Gains Reinvested
=========== C O S T O F S H A R E S ==============
Annual Cumulative Total Annual
Cumulative Income Income Investment Cap Gain
Date Investment Dividends Dividends Cost Distrib'n
---- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
8/31/89 10,000 0 0 10,000 0
8/31/90 10,000 0 0 10,000 0
8/31/91 10,000 0 0 10,000 0
8/31/92 10,000 0 0 10,000 0
8/31/93 10,000 0 0 10,000 0
8/31/94 10,000 0 0 10,000 0
8/31/95 10,000 0 0 10,000 0
Totals 0 0
================ V A L U E O F S H A R E S ===============
From From
From Cap Gains Sub- Dividends Total Shares
Date Investment Reinvested Total Reinvested Value Held
---- ---------- ---------- ----- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
8/31/89 10,401 0 10,401 0 10,401 83
8/31/90 10,985 0 10,985 0 10,985 83
8/31/91 11,402 0 11,402 0 11,402 83
8/31/92 11,761 0 11,761 0 11,761 83
8/31/93 12,087 0 12,087 0 12,087 83
8/31/94 12,437 0 12,437 0 12,437 83
8/31/95 12,730 0 12,730 0 12,730 83
Totals 12,730 0 12,730 0 12,730 83
Average Annual Total Return for This Illustration: 3.55% (Annual Compounding)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FROM GUARDIAN TRUST
PREPARED FOR: BARBARA
Sales Net Asset Initial
Initial Offering Charge Shares Value Net Asset
Date Investment Price Included Purchased per Share Value
---- ---------- -------- -------- --------- --------- ---------
6/1/50 $200,000.00 $1.8674 0.00% 107,100.000 $1.8674 $200,000
Systematic Withdrawal Plan
Dividends and Capital Gains Reinvested
Monthly Withdrawals of $1,666.67 (10.0% Annually) Beginning 6/30/50
================= AMOUNTS WITHDRAWN ========================
From Annual
Income From Annual Cumulative Cap Gain
Date Dividends Principal Total Total Distrib'n
---- --------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
12/31/50 1,949 9,718 11,667 11,667 0
12/31/51 8,912 11,088 20,000 31,667 4,011
12/31/52 7,746 12,254 20,000 51,667 5,294
12/31/53 7,508 12,492 20,000 71,667 1,195
12/31/54 6,623 13,377 20,000 91,667 8,092
12/31/55 7,297 12,703 20,000 111,667 14,484
12/31/56 8,168 11,832 20,000 131,667 11,270
12/31/57 8,166 11,834 20,000 151,667 4,022
12/31/58 8,448 11,552 20,000 171,667 7,844
12/31/59 7,257 12,743 20,000 191,667 29,528
12/31/60 8,672 11,328 20,000 211,667 8,561
12/31/61 7,963 12,037 20,000 231,667 24,917
12/31/62 8,563 11,437 20,000 251,667 8,454
12/31/63 9,171 10,829 20,000 271,667 11,764
12/31/64 9,205 10,795 20,000 291,667 20,942
12/31/65 10,119 9,881 20,000 311,667 21,979
12/31/66 10,391 9,609 20,000 331,667 13,153
12/31/67 10,141 9,859 20,000 351,667 35,963
12/31/68 11,847 8,153 20,000 371,667 40,279
12/31/69 14,336 5,664 20,000 391,667 21,098
12/31/70 16,016 3,984 20,000 411,667 4,760
12/31/71 16,556 3,444 20,000 431,667 27,974
12/31/72 16,575 3,425 20,000 451,667 26,866
12/31/73 17,922 2,078 20,000 471,667 12,600
12/31/74 23,031 -3,031 20,000 491,667 2,344
12/31/75 27,310 -7,310 20,000 511.667 4,072
12/31/76 26,446 -6,446 20,000 531,667 40,400
12/31/77 27,585 -7,585 20,000 551,667 31,538
<PAGE>
From Annual
Income From Annual Cumulative Cap Gain
Date Dividends Principal Total Total Distrib'n
---- --------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
12/31/78 30,570 -10,570 20,000 571,667 46,444
12/31/79 34,576 -14,576 20,000 591,667 80,676
12/31/80 41,729 -21,729 20,000 611,667 165,482
12/31/81 66,294 -46,294 20,000 631,667 70,690
12/31/82 68,340 -48,340 20,000 651,667 35,556
12/31/83 66,325 -46,325 20,000 671,667 109,076
12/31/84 71,652 -51,652 20,000 691,667 56,355
12/31/85 93,224 -73,224 20,000 711,667 342,188
12/31/86 96,987 -76,987 20,000 731,667 290,204
12/31/87 112,025 -92,025 20,000 751,667 313,521
12/31/88 93,586 -73,586 20,000 771,667 315,070
12/31/89 104,904 -84,904 20,000 791,667 342,357
12/31/90 113,366 -93,366 20,000 811,667 53,901
12/31/91 105,305 -85,305 20,000 831,667 303,786
12/31/92 91,918 -71,918 20,000 851,667 237,107
12/31/93 50,982 -30,982 20,000 871,667 6,718
12/31/94 81,035 -61,035 20,000 891,667 0
8/31/95 33,973 -20,640 13,333 905,000 0
Totals 1,700,716 -795,716 905,000 905,000 3,212,534
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
======= VALUE OF REMAINING SHARES ========
Remaining Capital
Original Gain Total Shares
Date Shares Shares Value Held
---- --------- --------- ----- ------
<S> <C> <C> <C> <C>
12/31/50 205,803 0 205,803 101,950
12/31/51 217,640 4,164 221,804 98,733
12/31/52 214,635 10,055 224,690 95,798
12/31/53 189,442 10,673 200,115 90,738
12/31/54 229,670 22,978 252,648 88,659
12/31/55 238,303 40,212 278,515 89,362
12/31/56 228,625 52,308 280,933 89,388
12/31/57 186,916 49,235 236,151 87,033
12/31/58 235,536 73,907 309,443 85,637
12/31/59 226,001 105,441 331,442 90,647
12/31/60 222,016 118,118 340,134 89,902
12/31/61 239,690 159,191 398,881 92,910
12/31/62 197,144 147,404 344,548 92,161
12/31/63 215,254 181,382 396,636 92,347
12/31/64 219,173 214,377 433,550 94,492
12/31/65 225,462 252,809 478,271 96,976
12/31/66 197,924 245,799 443,723 97,904
12/31/67 220,178 323,669 543,847 103,273
12/31/68 216,850 370,879 587,729 109,129
12/31/69 179,328 336,080 515,408 112,607
12/31/70 171,975 334,938 506,913 112,917
12/31/71 181,013 389,433 570,446 118,954
12/31/72 184,207 430,959 615,166 123,657
12/31/73 150,890 368,713 519,603 126,534
12/31/74 124,819 298,471 423,290 128,353
12/31/75 173,644 400,266 573,910 131,169
12/31/76 221,270 537,271 758,541 140,602
12/31/77 208,687 520,363 729,050 148,613
12/31/78 214,664 556,158 770,822 160,613
12/31/79 274,553 756,693 1,031,246 178,254
12/31/80 317,570 980,308 1,297,878 207,777
12/31/81 314,589 901,452 1,216,041 230,021
12/31/82 425,892 1,110,224 1,536,116 243,658
12/31/83 530,917 1,372,115 1,903,032 266,216
12/31/84 585,533 1,434,323 2,019,856 281,382
12/31/85 673,563 1,829,577 2,503,140 341,077
12/31/86 726,309 2,055,106 2,781,415 390,624
12/31/87 694,140 2,041,976 2,736,116 454,604
12/31/88 858,447 2,623,825 3,482,272 510,892
12/31/89 1,015,474 3,194,664 4,210,138 568,321
12/31/90 1,019,797 2,971,539 3,991,336 589,942
12/31/91 1,352,732 3,986,428 5,339,160 636,775
12/31/92 1,600,592 4,731,383 6,331,975 669,848
12/31/93 1,834,180 5,332,300 7,166,480 673,541
12/31/94 1,902,833 5,352,346 7,255,179 679,324
8/31/95 2,486,742 6,930,987 9,417,729 680,964
<PAGE>
Remaining Capital
Original Gain Total Shares
Date Shares Shares Value Held
---- --------- --------- ----- ------
<S> <C> <C> <C> <C>
12/31/50 205,803 0 205,803 101,950
Totals 2,486,742 6,930,987 9,417,729 680,964
Average Annual Return for This Illustration: 12.98% (Annual Compounding)
Average Annual Total Returns 1-Year 5-Year 10-Year
at Net Asset Value ------ ------ -------
for Periods Ending 6/30/95: 24.88% 16.17% 14.92%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FROM GUARDIAN TRUST
PREPARED FOR: BARBARA
Sales Net Asset Initial
Initial Offering Charge Shares Value Net Asset
Date Investment Price Included Purchased per Share Value
----- ----------- -------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
6/1/50 $10,000.00 $1.8674 0.00% 5,355.000 $1.8674 $10,000
Dividends and Capital Gains Reinvested
=============== C O S T O F S H A R E S ================
Annual Cumulative Total Annual
Cumulative Income Income Investment Cap Gain
Date Investment Dividends Dividends Cost Distrib'n
---- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
8/31/50 10,000 0 0 10,000 0
8/31/51 10,000 406 406 10,406 0
8/31/52 10,000 511 917 10,917 228
8/31/53 10,000 488 1,404 11,404 330
8/31/54 10,000 512 1,916 11,916 82
8/31/55 10,000 506 2,421 12,421 609
8/31/56 10,000 611 3,033 13,033 1,177
8/31/57 10,000 729 3,761 13,761 984
8/31/58 10,000 867 4,629 14,629 378
8/31/59 10,000 869 5,498 15,498 797
8/31/60 10,000 842 6,340 16,340 3,194
8/31/61 10,000 1,013 7,352 17,352 985
8/31/62 10,000 1,012 8,364 18,364 3,028
8/31/63 10,000 1,117 9,481 19,481 1,086
8/31/64 10,000 1,268 10,750 20,750 1,597
8/31/65 10,000 1,353 12,102 22,102 2,983
8/31/66 10,000 1,553 13,656 23,656 3,275
8/31/67 10,000 1,649 15,305 25,305 2,046
8/31/68 10,000 1,724 17,029 27,029 5,829
8/31/69 10,000 2,081 19,110 29,110 6,776
8/31/70 10,000 2,566 21,676 31,676 3,678
8/31/71 10,000 3,298 24,974 34,974 866
8/31/72 10,000 3,258 28,232 38,232 5,285
8/31/73 10,000 3,355 31,587 41,587 5,256
8/31/74 10,000 3,872 35,458 45,458 2,555
8/31/75 10,000 5,577 41,036 51,036 495
8/31/76 10,000 6,125 47,161 57,161 895
8/31/77 10,000 6,287 53,448 63,448 9,159
8/31/78 10,000 6,693 60,142 70,142 7,349
8/31/79 10,000 7,695 67,837 77,837 11,115
8/31/80 10,000 9,009 76,845 86,845 19,773
<PAGE>
Annual Cumulative Total Annual
Cumulative Income Income Investment Cap Gain
Date Investment Dividends Dividends Cost Distrib'n
---- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
8/31/81 10,000 11,305 88,150 98,150 41,343
8/31/82 10,000 17,522 105,672 115,672 17,945
8/31/83 10,000 18,076 123,748 133,748 9,177
8/31/84 10,000 20,004 143,752 153,752 28,486
8/31/85 10,000 19,528 163,281 173,281 14,879
8/31/86 10,000 27,134 190,415 200,415 91,183
8/31/87 10,000 27,958 218,373 228,373 77,910
8/31/88 10,000 26,953 245,325 255,325 84,700
8/31/89 10,000 26,927 272,252 282,252 85,664
8/31/90 10,000 30,193 302,445 312,445 93,568
8/31/91 10,000 31,735 334,181 344,181 14,818
8/31/92 10,000 24,360 358,541 368,541 83,874
8/31/93 10,000 25,329 383,870 393,870 65,697
8/31/94 10,000 13,106 396,976 406,976 1,867
8/31/95 10,000 22,667 419,643 429,643 0
Totals 419,643 812,922
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===================== VALUE OF SHARES ==========================
From From
From Cap Gains Sub- Dividends Total Shares
Date Investment Reinvested Total Reinvested Value Held
---- ---------- ---------- ----- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
8/31/50 10,070 0 10,070 0 10,070 5,355
8/31/51 11,960 0 11,960 436 12,396 5,550
8/31/52 12,279 242 12,521 978 13,499 5,887
8/31/53 11,451 549 12,000 1,384 13,384 6,259
8/31/54 13,450 740 14,190 2,182 16,372 6,518
8/31/55 17,130 1,719 18,849 3,341 22,190 6,937
8/31/56 17,380 3,019 20,399 4,024 24,423 7,525
8/31/57 16,320 3,830 20,150 4,500 24,650 8,088
8/31/58 16,960 4,427 21,387 5,636 27,023 8,532
8/31/59 21,271 6,483 27,754 8,004 35,758 9,002
8/31/60 20,160 9,559 29,719 8,470 38,189 10,144
8/31/61 23,360 12,273 35,633 10,902 46,535 10,668
8/31/62 19,769 13,016 32,785 10,163 42,948 11,633
8/31/63 23,170 16,559 39,729 13,134 52,863 12,218
8/31/64 24,960 19,612 44,572 15,480 60,052 12,884
8/31/65 25,860 23,410 49,270 17,411 66,681 13,808
8/31/66 23,260 23,993 47,253 17,072 64,325 14,809
8/31/67 29,449 32,922 62,371 23,464 85,835 15,608
8/31/68 28,760 38,443 67,203 24,725 91,928 17,117
8/31/69 25,960 40,738 66,698 24,245 90,943 18,760
8/31/70 21,620 37,139 58,759 22,637 81,396 20,161
8/31/71 26,400 46,409 72,809 31,308 104,117 21,119
8/31/72 26,850 53,451 80,301 35,383 115,684 23,072
8/31/73 22,880 50,080 72,960 33,326 106,286 24,876
8/31/74 17,809 41,114 58,923 29,267 88,190 26,517
8/31/75 22,720 53,090 75,810 43,788 119,598 28,189
8/31/76 28,039 66,646 94,685 60,968 155,653 29,726
8/31/77 27,441 74,636 102,077 65,961 168,038 32,793
8/31/78 30,261 90,846 121,107 80,290 201,397 35,640
8/31/79 32,421 111,545 143,966 95,231 239,197 39,509
8/31/80 34,021 140,270 174,291 109,849 284,140 44,726
8/31/81 30,591 163,434 194,025 109,262 303,287 53,092
8/31/82 28,740 172,049 200,789 190,863 321,652 59,932
8/31/83 39,531 247,290 286,821 186,311 473,132 64,094
8/31/84 38,119 267,922 306,041 200,382 506,423 71,141
8/31/85 43,360 321,569 364,929 248,996 613,925 75,820
8/31/86 45,770 452,146 497,916 294,520 792,436 92,713
8/31/87 50,319 596,296 646,615 357,180 1,003,795 106,823
8/31/88 38,510 554,756 593,266 303,185 896,451 124,656
8/31/89 45,669 763,809 809,478 390,876 1,200,354 140,747
8/31/90 35,710 681,487 717,319 333,090 1,050,409 157,517
8/31/91 44,701 871,487 916,188 454,426 1,370,614 164,198
8/31/92 47,200 1,008,398 1,055,598 505,323 1,560,921 177,092
8/31/93 54,996 1,246,328 1,301,324 616,108 1,917,432 186,702
8/31/94 60,350 1,369,662 1,430,012 690,165 2,120,177 188,126
8/31/95 74,060 1,680,783 1,754,843 874,469 2,629,312 190,117
<PAGE>
From From
From Cap Gains Sub- Dividends Total Shares
Date Investment Reinvested Total Reinvested Value Held
---- ---------- ---------- ----- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Totals 74,060 1,680,783 1,754,843 874,469 2,629,312 190,117
Average Annual Total Return for This Illustration: 13.10% (Annual Compounding)
Average Annual Total Returns 1-Year 5-Year 10-Year
at Net Asset Value ------ ------ -------
for Periods Ending 6/30/95: 24.88% 16.17% 14.92%
</TABLE>
<PAGE>
Appendix C
THE ART OF INVESTMENT:
A CONVERSATION WITH ROY NEUBERGER
<PAGE>
The Art of Investing:
A Conversation with Roy Neuberger
"I firmly believe that
if you want to manage
your own money, you
must be a student of
the market. If you are
unwilling or unable to
do that, find someone
else to manage your
money for you."
NEUBERGER & BERMAN
<PAGE>
[THIS PAGE IS BLANK - IT IS AN INSIDE PAGE OF THIS BROCHURE]
<PAGE>
[PICTURE OF ROY NEUBERGER]
During my more than sixty-five
years of buying and selling securities,
I've been asked many questions about my
approach to investing. On the pages
that follow are a variety of my
thoughts, ideas and investment
principles which have served me well
over the years. If you gain useful
knowledge in the pursuit of profit as
well as enjoyment from these comments, I
shall be more than content.
\s\ Roy R. Neuberger
- 1 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
YOU'VE BEEN ABLE TO CONDENSE SOME OF THE
CHARACTERISTICS OF SUCCESSFUL INVESTING INTO
FIVE "RULES." WHAT ARE THEY?
Rule #1: Be flexible. My philosophy has
necessarily changed from time to time because
of events and because of mistakes. My views
change as economic, political, and
technological changes occur both on and
sometimes off our planet. It is imperative
that you be willing to change your thoughts to
meet new conditions.
Rule #2: Take your temperament into account.
Recognize whether you are by nature very
speculative or just the opposite - fearful,
timid of taking risks. But in any event --
Diversify your investments, Rule #3: Be broad-gauged. Diversify your
make sure that some of your investments, make sure that some of your
principal is kept safe, and principal is kept safe, and try to increase
try to increase your income your income as well as your capital.
as well as your capital.
[PICTURE OF ROY NEUBERGER]
Rule #4: Always remember there are many ways to
skin a cat! Ben Graham and David Dodd did it by
understanding basic values. Warren Buffet
invested his portfolio in a handful of long-
term holdings, while staying involved with the
companies' managements. Peter Lynch chose to
understand, first-hand, the products of many
hundreds of the companies he invested in.
George Soros showed his genius as a hedge fund
investor who could decipher world currency
trends. Each has been successful in his own
way. But to be successful, remember to
- 2 -
<PAGE>
Rule #5: Be skeptical. To repeat a few well-
worn useful phrases:
A. Dig for yourself.
B. Be from Missouri.
C. If it sounds too good to be true,
it probably is.
IN YOUR 65 YEARS OF INVESTING ARE THERE ANY
GENERAL PATTERNS YOU'VE OBSERVED AS TO HOW THE
MARKET BEHAVES?
Every decade that I've been involved with Wall
Street has a nuance of its own, an economic and
social climate that influences investors. But
generally, bull markets tend to be longer than
bear markets, and stock prices tend to go up
more slowly and erratically than they go down.
Bear markets tend to be shorter and of greater
intensity. The market rarely rises or declines
concurrently with business cycles longer than
six months.
AS A LEGENDARY "VALUE INVESTOR," HOW DO YOU
DEFINE VALUE INVESTING?
Value investing means finding the best values -
- either absolute or relative. Absolute means
a stock has a low market price relative to its
own fundamentals. Relative value means the
price is attractive relative to the market as a
whole.
COULD YOU DESCRIBE A STOCK WITH "GOOD VALUE"?
A classic example is a company that has a low
price to earnings ratio, a low price to book
ratio, free cash flow, a strong balance sheet,
undervalued corporate assets, unrecognized
earnings turnaround and is selling at a
discount to private market value.
These characteristics usually lead to companies
that are under-researched and have a high
degree of inside ownership and entrepreneurial
management.
- 3 -
<PAGE>
One of my colleagues at Neuberger & Berman says
he finds his value stocks either "under a
cloud" or "under a rock." "Under a cloud"
stocks are those Wall Street in general doesn't
like, because an entire industry is out of
favor and even the good stocks are being
dropped. "Under a rock" stocks are those Wall
Street is ignoring, so you have to uncover them
on your own.
ARE THERE OTHER KEY CRITERIA YOU USE TO JUDGE
STOCKS?
I'm more interested in longer-term trends in
earnings than short-term trends. Earnings
gains should be the product of long-term
strategies, superior management, taking
advantage of business opportunities and so on.
If these factors are in their proper place,
short-term earnings should not be of major
concern. Dividends are an important extra
because, if they're stable, they help support
the price of the stock.
WHAT ABOUT SELLING STOCKS?
Most individual investors should invest for the
long term but not mindlessly. A sell
discipline, often neglected by investors, is
vitally important.
"One should fall in love One should fall in love with ideas, with
with ideas, with people or people, or with idealism. But in my book, the
with idealism. But in my last thing to fall in love with is a particular
book, the last thing to security. It is after all just a sheet of paper
fall in love with is a indicating a part ownership in a corporation
particular security." and its use is purely mercenary. If you must
love a security, stay in love with it until it
gets overvalued; then let somebody else fall in
love.
[PICTURE OF ROY NEUBERGER]
- 4 -
<PAGE>
ANY OTHER ADVICE FOR INVESTORS?
I firmly believe that if you want to manage
your own money, you must be a student of the
market. If you're unwilling or unable to do
that, find someone else to manage your money
for you. Two options are a well-managed no-
load mutual fund or, if you have enough assets
for separate account management, a money
manager you trust with a good record.
HOW WOULD YOU DESCRIBE YOUR PERSONAL INVESTING
STYLE?
Every stock I buy is bought to be sold. The
market is a daily event, and I continually
review my holdings looking for selling
opportunities. I take a profit occasionally on
something that has gone up in price over what
was expected and simultaneously take losses
whenever misjudgment seems evident. This
creates a reservoir of buying power that can be
used to make fresh judgments on what are the
best values in the market at that time. My
active investing style has worked well for me
over the years, but for most investors I
recommend a longer-term approach.
I tend not to worry very must about the day to
day swings of the market, which are very hard
to comprehend. Instead, I try to be rather
clever in diagnosing values and trying to win
70 to 80 percent of the time.
YOU BEGAN INVESTING IN 1929. WHAT WAS YOUR
EXPERIENCE WITH THE "GREAT CRASH"?
- 5 -
<PAGE>
The only money I managed in the Panic of 1929
was my own. My portfolio was down about 12
percent, and I had an uneasy feeling about the
market and conditions in general. Those were
the days of 10 percent margin. I studied the
lists carefully for a stock that was overvalued
in my opinion and which I could sell short as a
hedge. I came across RCA at about $100 per
share. It had recently split 5 for 1 and
appeared overvalued. There were no dividends,
little income, a low net worth and a weak
financial position. I sold RCA short in the
amount equal to the dollar value of my long
portfolio. It proved to be a timely and
profitable move.
HOW DID THE CRASH OF 1929 AFFECT YOUR INVESTING
STYLE?
I am prematurely bearish when the market goes
up for a long time and everybody is happy
because they are richer. I am very bullish
when the market has gone down perceptibly and I
feel it has discounted any troubles we are
going to have.
HOW IMPORTANT ARE PSYCHOLOGICAL FACTORS TO
MARKET BEHAVIOR?
There are many factors in addition to economic
statistics or security analysis in a buy or
sell decision. I believe psychology plays an
important role in the Market. Some people
follow the crowd in hopes they'll be swept
along in the right direction, but if the crowd
is late in acting, this can be a bad move.
I like to be contrary. When things look bad, I
become optimistic. When everything looks rosy,
and the crowd is optimistic, I like to be a
seller. Sometimes I'm too early, but I
generally profit.
AS A RENOWNED ART COLLECTOR, DO YOU FIND
SIMILARITIES BETWEEN SELECTING STOCKS AND
SELECTING WORKS OF ART?
- 6 -
<PAGE>
Both are an art, although picking stocks is a
minor art compared with painting, sculpture or
"When things look bad, I literature. I started buying art in the 30s,
become optimistic. When and in the 40s it was a daily, almost hourly
everything looks rosy, and occurrence. My inclination to buy the works of
the crowd is optimistic, I living artists comes from Van Gogh, who sold
like to be a seller." only one painting during his lifetime. He died
in poverty, only then to become a legend and
have his work sold for millions of dollars.
[PICTURE OF ROY NEUBERGER]
There are more variables to consider now in
both buying art and picking stocks. In the
modern stock markets, the heavy use of futures
and options has changed the nature of the
investment world. In past times, the stock
market was much less complicated, as was the
art world.
Artists rose and fell on their own merits
without a lot of publicity and attention. As
more and more dealers are involved with
artists, the price of their work becomes
inflated. So I almost always buy works of
unknown, relatively undiscovered artists,
which, I suppose is similar to value investing.
But the big difference in my view of art and
stocks is that I buy a stock to sell it and
make money. I never bought paintings or
sculptures for investment in my life. The
objective is to enjoy their beauty.
- 7 -
<PAGE>
WHAT DO YOU CONSIDER THE BUSINESS MILESTONES IN
YOUR LIFE?
Being a founder of Neuberger & Berman and
creating one of the first no-load mutual funds.
I started on Wall Street in 1929, and during
the depression I managed my own money and that
of my clientele. We all prospered, but I
wanted to have my own firm. In 1939 I became a
founder of Neuberger & Berman, and for about 10
years we managed money for individuals with
substantial financial assets. But I also
wanted to offer the smaller investor the
benefits of professional money management, so
in 1950 I created the Guardian Mutual Fund (now
known as the Neuberger & Berman Guardian Fund).
The Fund was kind of an innovation in its time
because it didn't charge a sales commission. I
thought the public was being overcharged for
mutual funds, so I wanted to create a fund that
would be offered directly to the public without
a sales charge. Now of course the "no-load"
fund business is a huge industry. I managed
the Fund myself for over 28 years.
[PICTURE OF ROY NEUBERGER]
YOU'RE IN YOUR NINETIES AND STILL YOU GO INTO
THE OFFICE EVERY DAY TO MANAGE YOUR
INVESTMENTS. WHY?
I like the fun of being nimble in the stock
market, and I'm addicted to the market's
fascinations.
WHAT CLOSING WORDS OF ADVICE DO YOU HAVE ABOUT
INVESTING?
Realize that there are opportunities at all
times for the adventuresome investor. And stay
in good physical condition. It's a strange
thing. You do not dissipate your energies by
using them. Exercise your body and your brain
every day, and you'll do better in investments
and in life.
- 8 -
<PAGE>
ROY NEUBERGER: A BRIEF BIOGRAPHY
Roy Neuberger is a founder of the investment
management firm Neuberger & Berman, and a
renowned value investor. He is also a
recognized collector of contemporary American
art, much of which he has given away to museums
and colleges across the country.
During the 1920s, Roy studied art in
Paris. When he realized he didn't possess the
talent to become an artist, he decided to
collect art, and to support this passion, Roy
turned to investing -- a pursuit for which his
talents have proven more than adequate.
A TALENT FOR INVESTING
Roy began his investment career by
joining a brokerage firm in 1929, seven months
before the "Great Crash." Just weeks before
"Black Monday," he shorted the stock of RCA,
thinking it was overvalued. He profited from
the falling market and gained a reputation for
market prescience and stock selection that has
lasted his entire career.
NEUBERGER & BERMAN'S FOUNDING
Roy's investing acumen attracted many
people who wished to have him manage their
money. In 1939, at the age of 36, after
purchasing a seat on the New York Stock
Exchange, Roy founded Neuberger & Berman to
provide money management services to people who
lacked the time, interest or expertise to
manage their own assets.
- 9 -
<PAGE>
NEUBERGER & BERMAN -- OVER FIVE DECADES OF
GROWTH
Neuberger & Berman has grown through
the years and now manages approximately $30
billion of equity and fixed income assets, both
domestic and international, for individuals,
institutions, and its family of no-load mutual
funds. Today, as when the firm was founded,
Neuberger & Berman follows a value approach to
investing, designed to enable clients to
advance in good markets and minimize losses
when conditions are less favorable.
For more complete information about
the Neuberger & Berman Guardian Fund,
including fees and expenses, call
Neuberger & Berman Management at 800-
877-9700 for a free prospectus.
Please read it carefully, before you
invest or send money.
- 10 -
<PAGE>
Neuberger & Berman Management
Inc.[SERVICE MARK]
605 Third Avenue, 2nd
Floor
New York, NY 10158-
0006
Shareholder Services
(800) 877-9700
[COPYRIGHT
SYMBOL]1995 Neuberger
& Berman
PRINTED ON RECYCLED PAPER
WITH SOY BASED INKS
- 11 -
<PAGE>
Table of Contents
-----------------
INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . 1
Investment Policies and Limitations . . . . . . . . 1
Kent C. Simons and Lawrence Marx III, Portfolio
Managers of the Portfolio . . . . . . . . . . . . . 5
Additional Investment Information . . . . . . . . . 6
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . 16
Total Return Computations . . . . . . . . . . . . . 16
Comparative Information . . . . . . . . . . . . . . 17
Other Performance Information . . . . . . . . . . . 18
CERTAIN RISK CONSIDERATIONS . . . . . . . . . . . . . . . . 19
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . 19
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES . . . . . 26
Investment Manager and Administrator . . . . . . . . 26
Sub-Adviser . . . . . . . . . . . . . . . . . . . . 29
Investment Companies Managed . . . . . . . . . . . . 29
Management and Control of N&B Management . . . . . . 33
DISTRIBUTION ARRANGEMENTS . . . . . . . . . . . . . . . . . 34
ADDITIONAL REDEMPTION INFORMATION . . . . . . . . . . . . . 34
DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . 35
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . 36
Taxation of the Fund . . . . . . . . . . . . . . . . 36
Taxation of the Portfolio . . . . . . . . . . . . . 37
Taxation of the Fund's Shareholders . . . . . . . . 39
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . 39
Portfolio Turnover . . . . . . . . . . . . . . . . . 43
REPORTS TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . 44
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . 44
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . 44
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . 44
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . 44
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . 45
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 46
- i -
<PAGE>
Page
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . 47
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER . . 47
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . 50
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . 50
Appendix C . . . . . . . . . . . . . . . . . . . . . . . . . 51
THE ART OF INVESTMENT: A CONVERSATION WITH ROY
NEUBERGER . . . . . . . . . . . . . . . . . . . . . 51
- ii -
<PAGE>
</TABLE>
