Neuberger&Berman Equity Trust[REGISTERED TRADEMARK]
Supplement to the Prospectus dated December 6, 1996
The table on page 4 under the heading, "SUMMARY -- The Funds and
Portfolios; Risk Factors," is amended to read as follows:
NEUBERGER&BERMAN
EQUITY TRUST INVESTMENT STYLE PORTFOLIO CHARACTERISTICS
MANHATTAN TRUST Broadly diversified, Invests in securities believed
small-, medium- and to have the maximum potential
large-cap growth fund. for long-term capital
appreciation. Portfolio
managers seek stocks of
companies that are projected to
grow at above-average rates and
that may appear poised for a
period of accelerated earnings.
The following replaces pages 5-6 under the heading, "SUMMARY -- The
Neuberger&Berman Investment Approach":
While each Portfolio has its own investment objective, policies, and
limitations, each Portfolio is managed using one of two basic investment
approaches -- value or growth.
A value-oriented portfolio manager buys stocks that are selling for less
than their perceived market values. These include stocks that are currently
under-researched or are temporarily out of favor on Wall Street.
Portfolio managers identify value stocks in several ways. One of the most
common identifiers is a low price-to-earnings ratio -- that is, stocks selling
at multiples of earnings per share that are lower than that of the market as a
whole. Other criteria are high dividend yield, a strong balance sheet and
financial position, a recent company restructuring with the potential to realize
hidden values, strong management, and low price-to-book value (net value of the
company's assets). A value-oriented manager believes that, over time, securities
that are undervalued are more likely to appreciate in price and be subject to
less risk of price decline than securities whose market prices have already
reached their perceived economic values. This approach also contemplates selling
portfolio securities when N&B Management believes they have reached their
potential.
While a value approach concentrates on securities that are undervalued in
relation to their fundamental economic values, a growth approach seeks stocks of
companies that N&B Management projects will grow at above-average rates and
faster than others expect. While a growth portfolio manager may be willing to
pay a higher multiple of earnings per share than a value manager, the multiple
tends to be reasonable relative to the manager's expectation of the company's
earnings growth rate.
In general, Neuberger&Berman FOCUS, Neuberger&Berman GENESIS,
Neuberger&Berman GUARDIAN, and Neuberger&Berman PARTNERS Portfolios adhere to a
value-oriented investment approach. Neuberger&Berman MANHATTAN Portfolio adheres
to a growth-oriented investment approach. Neuberger&Berman MANHATTAN Portfolio
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is therefore willing to invest in securities with prices that are higher
multiples of earnings than securities purchased by the other Portfolios, but
generally buys companies that have higher earnings growth rates.
The following replaces pages 20-21 under the heading, "INVESTMENT PROGRAMS
- -- Neuberger&Berman MANHATTAN Portfolio":
The investment objective of Neuberger&Berman MANHATTAN Portfolio and
Neuberger&Berman MANHATTAN Trust is to seek capital appreciation without regard
to income.
Neuberger&Berman MANHATTAN Portfolio can invest in securities of small-,
medium-, and large-capitalization companies believed to have the maximum
potential for long-term capital appreciation. The portfolio managers currently
intend to focus primarily on the securities of medium-capitalization companies.
The portfolio managers do not seek to invest in securities that pay dividends or
interest, and any such income is incidental.
The Portfolio uses a growth-oriented investment approach. When N&B
Management believes that particular securities have greater potential for
long-term capital appreciation, the Portfolio may purchase such securities at
prices with relatively higher multiples to measures of economic value (such as
earnings or cash flow) than other Portfolios. In selecting stocks, N&B
Management considers, among other factors, a company's financial strength,
competitive position, projected future earnings, management strength and
experience, reasonable valuation and other investment criteria. The Portfolio
also diversifies its investments among companies and industries.
The Portfolio's growth investment program involves greater risks and share
price volatility than programs that invest in more undervalued securities.
Investments in smaller and medium sized companies may present greater
opportunities for capital appreciation, but may involve greater risks and share
price volatility than investment in securities of larger capitalization
companies. These companies may have limited product lines, market or financial
resources, or they may be dependent upon a limited management group. Their
securities may be traded only in the over-the-counter market or on a regional
securities exchange. As a result, such companies may be subject to more abrupt
or erratic market movements than larger, more established companies, and any
such movements may be reflected in the Fund's net asset value. Moreover, the
Portfolio does not follow a policy of active trading for short-term profits.
Accordingly, the Portfolio may be more appropriate for investors with a
longer-range perspective.
The following replaces pages 33-35 under the heading, "MANAGEMENT AND
ADMINISTRATION--Investment Manager, Administrator, Distributor, and
Sub-Adviser":
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Unless otherwise indicated, the following is five-year information about
the individuals who are primarily responsible for the day-to-day management of
the Portfolios.
Neuberger&Berman FOCUS Portfolio and Neuberger&Berman GUARDIAN Portfolio -
Kent C. Simons and Kevin L. Risen are co-managers of the Portfolios. Mr. Simons
and Mr. Risen are Vice Presidents of N&B Management and principals of
Neuberger&Berman. Mr. Simons has had responsibility for Neuberger&Berman FOCUS
Portfolio since 1988, and for Neuberger&Berman GUARDIAN Portfolio since 1983.
Mr. Risen has had those responsibilities since 1996, and during the year prior
thereto, he was a portfolio manager for Neuberger&Berman. He was a research
analyst at Neuberger&Berman from 1992 to 1995.
Neuberger&Berman GENESIS Portfolio - Judith M. Vale and Robert W. D'Alelio
are co-managers of the Portfolio. Ms. Vale and Mr. D'Alelio have been senior
members of Neuberger&Berman's Small Cap Group since 1992 and 1996, respectively,
and are both Vice Presidents of N&B Management. Ms. Vale is a principal of
Neuberger&Berman. Ms. Vale and Mr. D'Alelio have been primarily responsible for
the day-to-day management of Neuberger&Berman GENESIS Portfolio since February
1994 and July 1997, respectively. Mr. D'Alelio was a senior portfolio manager
for another investment management group from 1992 to 1996.
Neuberger&Berman MANHATTAN Portfolio - Jennifer K. Silver and Brooke A.
Cobb are co-managers of the Portfolio. Ms. Silver is Director of the
Neuberger&Berman Growth Equity Group, and both she and Mr. Cobb are Vice
Presidents of N&B Management. Ms. Silver is a principal of Neuberger&Berman.
Both Ms. Silver and Mr. Cobb have had responsibility for Neuberger&Berman
MANHATTAN Portfolio since July 1997. Previously, Ms. Silver was a portfolio
manager for several large mutual funds managed by a prominent investment
adviser. Mr. Cobb was the chief investment officer for an investment advisory
firm managing individual accounts from 1995 to 1997 and, from 1992 to 1995, a
portfolio manager of a large mutual fund managed by a prominent investment
adviser.
Neuberger&Berman PARTNERS Portfolio - Michael M. Kassen and Robert I.
Gendelman are co-managers of the Portfolio. Mr. Kassen and Mr. Gendelman are
Vice Presidents of N&B Management and principals of Neuberger&Berman. Mr. Kassen
and Mr. Gendelman have had responsibility for Neuberger&Berman PARTNERS
Portfolio since June 1990 and October 1994, respectively. Mr. Kassen has been an
employee of N&B Management since 1990. Mr. Gendelman was a portfolio manager for
another mutual fund manager from 1992 to 1993.
Neuberger&Berman acts as the principal broker for the Portfolios in the
purchase and sale of portfolio securities and in the sale of covered call
options, and for those services receives brokerage commissions. In effecting
securities transactions, each Portfolio seeks to obtain the best price and
execution of orders. For more information, see the SAI.
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The principals and employees of Neuberger&Berman and officers and
employees of N&B Management, together with their families, have invested over
$100 million of their own money in Neuberger&Berman Funds.
To mitigate the possibility that a Portfolio will be adversely affected by
employees' personal trading, the Trust, Managers Trust, N&B Management, and
Neuberger&Berman have adopted policies that restrict securities trading in the
personal accounts of the portfolio managers and others who normally come into
possession of information on portfolio transactions.
This Supplement supersedes the Supplements dated December 17, 1996 and
July 15, 1997.
The date of this Supplement is July 31, 1997.
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NEUBERGER & BERMAN EQUITY TRUST
Supplement dated July 31, 1997 to Statement of Additional
Information dated December 6, 1996
INVESTMENT INFORMATION
The sections regarding the investment programs and managers of the Portfolios
(pages 6 - 11) are revised to read as follows:
NEUBERGER & BERMAN MANHATTAN PORTFOLIO
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Neuberger & Berman MANHATTAN Portfolio's objective is capital
appreciation, without regard to income. The Portfolio differs from other
Portfolios in its willingness to invest in stocks with price/earnings ratios or
price-to-cash-flow ratios that are higher relative to those of the general
market but that are reasonable relative to the companies' earnings growth rates.
The Portfolio is comprised of what the portfolio co-managers believe are stocks
of financially sound companies with a special market capability, management
strength and experience, a competitive advantage or a product that makes them
particularly attractive over the long term.
Neuberger & Berman MANHATTAN Portfolio's co-managers view value on
both a relative and an absolute basis, so the Portfolio may buy stocks with
somewhat above-market historical growth rates. The Portfolio steers clear of
popular growth stocks selling at extremely high prices.
NEUBERGER & BERMAN GENESIS PORTFOLIO
- ------------------------------------
The predecessor of Neuberger & Berman GENESIS Fund (which, like
Neuberger & Berman GENESIS Trust, invests all of its net investable assets in
Neuberger & Berman GENESIS Portfolio) was established in 1988. A fund dedicated
primarily to small-capitalization stocks (companies with total market value of
outstanding common stock of up to $1.5 billion at the time the Portfolio
invests), Neuberger & Berman GENESIS Portfolio is devoted to the same value
principles as most of the other equity funds managed by N&B Management. The
Portfolio is comprised of what the portfolio co-managers believe are small-cap
stocks with solid earnings today, not just promises for tomorrow.
Many people think that small-capitalization stock funds are
predominantly invested in high-risk companies. That is not necessarily the case.
Neuberger & Berman GENESIS Portfolio looks for the same fundamentals in
small-capitalization stocks as other Portfolios look for in stocks of larger
companies. The portfolio co-managers stick to the areas they understand. They
look for the most persistent earnings growth at the lowest multiple, as well as
for well-established companies with entrepreneurial management and sound
finances. Also considered are catalysts to exposing value, such as management
changes and new product lines. Often, these are firms that have suffered
temporary setbacks or undergone a restructuring.
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Neuberger & Berman GENESIS Portfolio's motto is "boring is
beautiful." Instead of investing in trendy, high-priced stocks that tend to hurt
shareholders on the downside, the Portfolio looks for little-known, solid,
growing companies whose stocks the managers believe are wonderful bargains.
AN INTERVIEW WITH THE CO-PORTFOLIO MANAGER
Q: If I already own a large-cap stock fund, why should I
consider investing in a small-cap fund as well?
A: Look at how fast a sapling grows compared to, say, a mature
tree. Much of the same can be true about companies. It's possible for a
smaller company to grow 50% faster than an IBM or a Coca-Cola.
So, many small-cap stocks offer superior growth potential. Consider
the cereal you eat, the detergent you use, the coffee you drink -- and imagine
if you had invested in these products BEFORE they became household names. If you
had invested only in the blue-chip companies of the day, you would have missed
out on these opportunities.
Of course, we're not advocating investing in a portfolio consisting
only of small-cap stock funds. It pays to diversify. Let's look back about 25
years. While past performance cannot indicate future performance, small-cap
stocks outperformed larger-cap stocks 16 out of the 25 years from 1971 to 1996,
which means larger-cap stocks did better the rest of the time.1/
Q: Neuberger & Berman GENESIS Trust is classified as a
"small-cap value fund." To many people, "small-cap value" is an oxymoron.
Can you clarify the Portfolio's investment approach?
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1/ Results are on a total return basis and include reinvestment of all
dividends and capital gain distributions. Small-cap stocks are represented by
the fifth capitalization quintile of stocks on the NYSE from 1971 to 1981 and
performance of the Dimensional Fund Advisors (DFA) Small Company Fund from 1982
to 1996. Larger-cap stocks are represented by the S&P "500" Index, an unmanaged
group of stocks. Please note that indices do not take into account any fees or
expenses of investing in the individual securities that they track. Data about
these indices are prepared or obtained by N&B Management. The Portfolio may
invest in many securities not included in the above-described indices. Source:
STOCKS, BONDS, BILL AND INFLATION 1996 YEARBOOKTM, Ibbotson Associates, Chicago
(annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with
permission. All rights reserved.
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A: We understand the confusion. After all, a lot of people equate
"small-cap" with "growth." They also equate "value" with "cheap." At Neuberger &
Berman GENESIS Portfolio, we're 100% behind finding GROWING small-cap companies
- -- what we believe are highly profitable companies with solid records and
promising futures. So where do we part company with managers who follow a
"small-cap growth" style? It comes down to how much growth and at what price.
Small-cap growth investors seem willing to pay a premium for vastly superior
growth. This results in two problems: a) growth tends to be discounted by the
premium valuations, and b) the growth expectations are so high as to be
unsustainable. We believe superior yet more stable returns can be purchased at
significant discounts. They may be found in mundane, perhaps even boring,
industries. Remember, the same glamorous appeal that attracts so many growth
investors also attracts competitors.
In that respect, we're "value" managers. Yet we'd like to make this
point clear: Low price-to-earnings multiples, in and of themselves, cannot
justify a "buy" decision. When we search for growing, high-quality small-cap
companies selling at what we feel are bargain prices, we ask ourselves: Is the
company cheap for a good reason? Or, does it have the financial muscle and the
management talent to make it into the big leagues?
Q: Let's turn to specifics. What criteria are used to decide
which small-cap companies make the cut -- and which ones don't?
A: Over the years, we've seen hundreds of small-cap companies
that flourished and just as many that failed to deliver on their early promises.
What made the difference? While every case is unique, here are a few important
traits of the winners.
First of all, a successful small-cap company normally produces high
returns. In practice, this means the business has a number of barriers to entry.
Perhaps the company has a technology that's hard to duplicate. Or maybe it can
make a product at a substantially lower cost than anyone else. Unlike most
businesses, it has an advantage that allows it to continue earning above-market
returns.
In addition to having a competitive edge, a successful small-cap
company should generate healthy cash flow. With excess cash, a company has the
ability to finance its own growth without diluting the ownership stake of
existing stockholders by issuing more shares.
No small-cap company can grow without having the right people on
board. That's why we spend so much time meeting the CEOs and CFOs of small-cap
companies. While we question the managers about future plans and strategies, we
spend as much time evaluating them as people. Do they seem honest and capable?
Or do they puff up their case? Making portfolio decisions is a lot about making
character judgments -- who has the stuff to manage a growing company, and who
doesn't.
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THE RISKS INVOLVED IN SEEKING CAPITAL APPRECIATION FROM INVESTMENTS
PRIMARILY IN COMPANIES WITH SMALL MARKET CAPITALIZATION ARE SET FORTH IN THE
PROSPECTUS.
NEUBERGER & BERMAN FOCUS AND NEUBERGER & BERMAN GUARDIAN PORTFOLIOS
- -------------------------------------------------------------------
Neuberger & Berman FOCUS Portfolio's investment objective is
long-term capital appreciation. Like the other Portfolios that use a
value-oriented investment approach, it seeks to buy undervalued securities that
offer opportunities for growth, but then it focuses its assets in those sectors
where undervalued stocks are clustered. The portfolio co-managers begin by
looking for stocks that are selling for less than the managers think they're
worth, a "bottom-up approach." More often than not, such stocks are in a few
economic sectors that are out of favor and are undervalued as a group. The
portfolio co-managers think 90% of cheap stocks deserve to be cheap and their
job is to find the 10% that don't.
The portfolio co-managers don't pick sectors for Neuberger & Berman
FOCUS Portfolio based on their perception of how the economy is going to do. Nor
do they engage in making economic or currency predictions. They look for stocks
with either low relative or low absolute valuations. Often, these stocks will be
found in a particular sector, but the managers didn't start out being bullish on
that sector. It's just where they happened to find the values. They find that if
one company comes under a cloud, it tends to happen to its whole industry. If an
investment manager rotates the sectors in a portfolio by buying sectors when
they are undervalued and selling them when they become fully valued, the manager
would be able to achieve above-average performance.
Neuberger & Berman GUARDIAN 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 Neuberger & Berman
GUARDIAN Trust, invests all of its net investable assets in Neuberger & Berman
GUARDIAN 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, this
past record does not necessarily predict the Fund's future practices.
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The portfolio co-managers place a high premium on being
knowledgeable about the companies whose stocks they buy. That knowledge is
important, because sometimes it takes courage to buy stocks that the rest of the
market has forsaken. The Portfolio is usually early in and early out. The
managers would rather buy an undervalued stock because they expect it to become
fairly valued than buy one fairly valued and hope it becomes overvalued. The
managers like a stock "under a rock" or with a cloud over it; they believe an
investor is not going to get great companies at great valuations when the market
perception is great.
Investors who switch around a lot are not going to benefit from
Neuberger & Berman GUARDIAN Portfolio's approach. They're following the market
- -- the Portfolio is looking at fundamentals.
NEUBERGER & BERMAN PARTNERS PORTFOLIO
- -------------------------------------
Neuberger & Berman PARTNERS Portfolio's objective is capital growth.
It seeks to make money in good markets and not give up those gains during rough
times.
Investors in the Portfolio typically seek consistent performance and
have a moderate risk tolerance. They do know, however, that stock investments
can provide the long-term upside potential essential to meeting their long-term
investment goals, particularly a comfortable retirement and planning for a
college education.
The portfolio co-managers look for stocks that are undervalued in
the marketplace either in relation to strong current fundamentals, such as a low
price-to-earnings ratio, consistent cash flow, and support from asset values, or
in relation to their projection of the growth of the company's future earnings.
If the market goes down, those stocks the Portfolio elects to hold,
historically, have gone down less.
The portfolio co-managers monitor stocks of medium- to large-sized
companies that often are not closely scrutinized by other investors. The
managers research these companies in order to determine if they are likely to
produce a new product, become an acquisition target, or undergo a financial
restructuring.
What else catches the portfolio co-managers' eyes? Companies whose
managements own their own stock. These companies usually seek to build
shareholder wealth by buying back shares or making acquisitions that have a
swift and positive impact on the bottom line.
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To increase the upside potential, the managers zero in on companies
that dominate their industries or their specialized niches. The managers'
reasoning? Market leaders tend to earn higher levels of profits.
Neuberger & Berman PARTNERS Portfolio invests in a wide array of
stocks, and no single stock makes up more than a small fraction of the
Portfolio's total assets. Of course, the Portfolio's holdings are subject to
change.
This Supplement supersedes the Supplement dated April 1, 1997.
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