NEUBERGER & BERMAN EQUITY TRUST, 497, 1998-02-04

NEUBERGER & BERMAN EQUITY TRUST
497, 1998-02-04

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<PAGE> 1

Neuberger&Berman
GENESIS TRUST(R)

- -------------------------------
A No-Load Equity Fund
- --------------------------------------------------------------------------------

Neuberger&Berman GENESIS TRUST (the "Fund") is a capital appreciation fund
that invests primarily in common stocks of companies with small market
capitalizations.

YOU CAN BUY, OWN, AND SELL FUND SHARES ONLY THROUGH AN ACCOUNT WITH AN
ADMINISTRATOR, BROKER-DEALER, OR OTHER INSTITUTION THAT PROVIDES ACCOUNTING,
RECORDKEEPING, AND OTHER SERVICES TO INVESTORS AND THAT HAS AN ADMINISTRATIVE
SERVICES AGREEMENT WITH NEUBERGER&BERMAN MANAGEMENT INCORPORATED (EACH AN
"INSTITUTION").
- --------------------------------------------------------------------------------
The Fund, which is a series of Neuberger&Berman Equity Trust (the "Trust"),
invests all of its net investable assets in Neuberger&Berman Genesis Portfolio
(the "Portfolio") of Equity Managers Trust ("Managers Trust"), an open-end
management investment company managed by Neuberger&Berman Management
Incorporated ("N&B Management"). The Portfolio invests in securities in
accordance with an investment objective, policies, and limitations identical to
those of the Fund. The investment performance of the Fund directly corresponds
with the investment performance of the Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information on this structure that you should consider, see "Summary" on page 3,
and "Information Regarding Organization, Capitalization, and Other Matters" on
page 22.
Please read this Prospectus before investing in the Fund and keep it for
future reference. It contains information about the Fund that a prospective
investor should know before investing. A Statement of Additional Information
("SAI") about the Fund and Portfolio, dated December 15, 1997, is on file with
the Securities and Exchange Commission ("SEC"). The SAI is incorporated herein
by reference (so it is legally considered a part of this Prospectus). You can
obtain a free copy of the SAI by calling N&B Management at 800-877-9700.

PROSPECTUS DATED DECEMBER 15, 1997.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY 3
The Fund and Portfolio; Risk
Factors 3
Management 4
The Neuberger&Berman
Investment Approach 4

EXPENSE INFORMATION 5
Shareholder Transaction
Expenses 5
Annual Fund Operating
Expenses 5
Example 6

FINANCIAL HIGHLIGHTS 7
Selected Per Share Data and
Ratios 7
INVESTMENT PROGRAM 10
Special Considerations of
Small-Cap Company Stocks 11
Short-Term Trading;
Portfolio Turnover 11
Borrowings 11
Other Investments 11

PERFORMANCE INFORMATION 12
Total Return Information 12

HOW TO BUY SHARES 14

HOW TO SELL SHARES 15

SHARE PRICES AND NET
ASSET VALUE 16

DIVIDENDS, OTHER
DISTRIBUTIONS, AND TAXES 17
Distribution Options 17
Taxes 17

MANAGEMENT AND
ADMINISTRATION 19
Trustees and Officers 19
Investment Manager, Administrator,
Distributor, and
Sub-Adviser 19
Expenses 20
Transfer Agent 21

INFORMATION REGARDING
ORGANIZATION,
CAPITALIZATION, AND
OTHER MATTERS 22
The Fund 22
The Portfolio 23

DESCRIPTION OF
INVESTMENTS 25

DIRECTORY 28
</TABLE>

<PAGE> 3

SUMMARY

- --------------------------------------------------
The Fund and Portfolio; Risk Factors
- --------------------------------------------------------------------------------
The Fund is a series of the Trust and invests in the Portfolio which, in
turn, invests in securities in accordance with an investment objective,
policies, and limitations that are identical to those of the Fund. This is
sometimes called a master/feeder fund structure, because the Fund "feeds"
shareholders' investments into the Portfolio, a "master" fund. The structure
looks like this:

SHAREHOLDERS

BUY SHARES IN
-

FUND

INVESTS IN
-

PORTFOLIO

INVESTS IN
-

STOCKS & OTHER SECURITIES

The trustees who oversee the Fund believe that this structure may benefit
shareholders; investment in the Portfolio by investors in addition to the Fund
may enable the Portfolio to achieve economies of scale that could reduce
expenses. For more information about the organization of the Fund and the
Portfolio, including certain features of the master/feeder fund structure, see
"Information Regarding Organization, Capitalization, and Other Matters" on page
22. An investment in the Fund involves certain risks, depending upon the types
of investments made by the Portfolio. For more details about the Portfolio, its
investments and their risks, see "Investment Program" on page 10 and
"Description of Investments" on page 25.

3
<PAGE> 4

Here is a summary highlighting features of the Fund and the Portfolio. Of
course, there can be no assurance that the Fund will meet its investment
objective.

<TABLE>
<S> <C> <C>
NEUBERGER&BERMAN INVESTMENT PORTFOLIO
EQUITY TRUST STYLE CHARACTERISTICS
- ----------------------------------------------------------------------
GENESIS TRUST Broadly diversified, Invests primarily in stocks
small-cap value fund. of companies with small
market capitalizations (up
to $1.5 billion at the time
of the Portfolio's
investment). Portfolio
managers seek to buy the
stocks of strong companies
with a history of solid
performance and a proven
management team, which are
selling at attractive
prices.
</TABLE>

- -------------------
Management
- --------------------------------------------------------------------------------

N&B Management, with the assistance of Neuberger&Berman, LLC
("Neuberger&Berman") as sub-adviser, selects investments for the Portfolio. N&B
Management also provides administrative services to the Portfolio and the Fund
and acts as distributor of Fund shares. See "Management and Administration" on
page 19. If you want to know how to buy and sell shares of the Fund, see "How to
Buy Shares" on page 14 and "How to Sell Shares" on page 15, and the policies of
the Institution through which you are purchasing shares.

- --------------------------------------------------------------
The Neuberger&Berman Investment Approach
- --------------------------------------------------------------------------------

In general, the Portfolio adheres to a value-oriented investment approach. A
value-oriented portfolio manager buys stocks that are selling for a price that
is lower than what the manager believes they are worth. 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 they are considered to have reached their potential.

4
<PAGE> 5

EXPENSE INFORMATION

This section gives you certain information about the expenses of the Fund
and the Portfolio. See "Performance Information" for important facts about the
investment performance of the Fund, after taking expenses into account.

- ------------------------------------------------
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
As shown by this table, the Fund imposes no transaction charges when you buy
or sell Fund shares.

<TABLE>
<S> <C>
Sales Charge Imposed on Purchases NONE
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charges NONE
Redemption Fees NONE
Exchange Fees NONE
</TABLE>

- ----------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
- --------------------------------------------------------------------------------
The following table shows annual operating expenses for the Fund which are
paid out of the assets of the Fund and which include the Fund's pro rata portion
of the operating expenses of the Portfolio ("Total Operating Expenses"). "Total
Operating Expenses" exclude interest, taxes, brokerage commissions, and
extraordinary expenses.
The Fund pays N&B Management an administration fee based on the Fund's
average daily net assets. The Portfolio pays N&B Management a management fee
based on the Portfolio's average daily net assets; a pro rata portion of this
fee is borne indirectly by the Fund. "Management and Administration Fees" in the
following table have been restated based on current fee rates. For more
information, see "Management and Administration" and the SAI.
The Fund and the Portfolio incur other expenses for things such as
accounting and legal fees, transfer agency fees, custodial fees, printing and
furnishing shareholder statements and Fund reports and compensating trustees who
are not affiliated with N&B Management ("Other Expenses"). Other Expenses are
based on the Fund's and Portfolio's expenses for the past fiscal year. All
expenses are factored into the Fund's share prices and dividends and are not
charged directly to Fund shareholders.

<TABLE>
<CAPTION>
NEUBERGER&BERMAN MANAGEMENT AND 12B-1 OTHER TOTAL OPERATING
EQUITY TRUST ADMINISTRATION FEES FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GENESIS TRUST 1.21% None 0.14% 1.35%
</TABLE>

For more information, see "Expenses" on page 20.

5
<PAGE> 6

- -------------
Example
- --------------------------------------------------------------------------------
To illustrate the effect of Total Operating Expenses, let's assume that the
Fund's annual return is 5% and that it had Total Operating Expenses described in
the table above. For every $1,000 you invested in the Fund, you would have paid
the following amounts of total expenses if you closed your account at the end of
each of the following time periods:

<TABLE>
<CAPTION>
NEUBERGER&BERMAN
EQUITY TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GENESIS TRUST $14 $ 43 $ 74 $ 162
</TABLE>

The assumption in this example of a 5% annual return is required by
regulations of the SEC applicable to all mutual funds. THE INFORMATION IN THE
PREVIOUS TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN; ACTUAL EXPENSES OR RETURNS MAY BE GREATER OR LESS
THAN THOSE SHOWN, AND MAY CHANGE IF EXPENSE REIMBURSEMENTS CHANGE.

6
<PAGE> 7

FINANCIAL HIGHLIGHTS

- --------------------------------------------------
Selected Per Share Data and Ratios
- --------------------------------------------------------------------------------
The financial information in the following table is for the Fund as of
August 31, 1997 and prior periods. This information has been audited by the
Fund's independent auditors. You may obtain, at no cost, further information
about the performance of the Fund in its annual report to shareholders. The
auditors' report is incorporated in the SAI by reference to the annual report.
Please call 800-877-9700 for a free copy of the annual report and for up-to-date
information. Also, see "Performance Information."

7
<PAGE> 8

FINANCIAL HIGHLIGHTS
Neuberger&Berman

- -------------------
Genesis Trust
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
Financial Statements. The per share amounts and ratios which are shown reflect
income and expenses, including the Fund's proportionate share of the Portfolio's
income and expenses. It should be read in conjunction with the Portfolio's
Financial Statements and notes thereto.

<TABLE>
<CAPTION>
Period from
August 26,
1993(1)
Year Ended August 31, to August 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 14.99 $ 12.65 $ 10.59 $ 10.05 $10.00
-------------------------------------------------------------------
Income From Investment Operations
Net Investment Loss (.01) (.02) (.01) (.01) --
Net Gains or Losses on Securities (both realized
and unrealized) 6.61 2.68 2.08 .56 .05
-------------------------------------------------------------------
Total From Investment Operations 6.60 2.66 2.07 .55 .05
-------------------------------------------------------------------
Less Distributions
Distributions (from net capital gains) (.14) (.32) (.01) (.01) --
-------------------------------------------------------------------
Net Asset Value, End of Year $ 21.45 $ 14.99 $ 12.65 $ 10.59 $10.05
-------------------------------------------------------------------
Total Return(2) +44.31% +21.44% +19.51% +5.47% +0.50%(3)
-------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year (in millions) $ 382.7 $ 65.2 $ 30.6 $ 3.1 $ --
-------------------------------------------------------------------
Ratio of Gross Expenses to Average Net Assets(4) 1.26% 1.38% -- -- --
-------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets(5) 1.25% 1.38% 1.42% 1.36% 1.51%(6)
-------------------------------------------------------------------
Ratio of Net Investment Loss to Average Net
Assets(5) (.16%) (.27%) (.24%) (.21%) (.44%)(6)
-------------------------------------------------------------------
</TABLE>

See Notes to Financial Highlights

8
<PAGE> 9

NOTES TO FINANCIAL HIGHLIGHTS

1)The date investment operations commenced.

2)Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of the Fund during each fiscal
period, and assumes dividends and other distributions, if any, were
reinvested. Results represent past performance and do not guarantee future
results. Investment returns and principal may fluctuate and shares when
redeemed may be worth more or less than original cost. Had N&B Management not
reimbursed certain expenses or waived a portion of the management fee, total
return would have been lower.

3)Not annualized.

4)For fiscal periods ending after September 1, 1995, the Fund is required to
calculate an expense ratio without taking into consideration any expense
reductions related to expense offset arrangements. These ratios reflect the
reimbursement of certain expenses and a waiver of a portion of the management
fee.

5)After reimbursement of expenses by N&B Management and a waiver of a portion of
the management fee. Had N&B Management not undertaken such action, the
annualized ratios of net expenses and net investment income (loss) to average
daily net assets would have been:

<TABLE>
<CAPTION>
Period from
August 3, 1993
Year Ended August 31, to August 31,
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Expenses 1.35% 1.65% 1.78% 2.50% 2.50%
------------------------------------------------------------
Net Investment Loss (.26%) (.54%) (.60%) (1.35%) (1.43%)
------------------------------------------------------------
</TABLE>

6)Annualized.

7)Because the Fund invests only in the Portfolio and the Portfolio (rather than
the Fund) engages in securities transactions, the Fund does not calculate a
portfolio turnover rate or pay any brokerage commissions. The portfolio
turnover rates for the Portfolio for the period from August 2, 1993 to August
31, 1993 and the years ended August 31, 1994, 1995, 1996, and 1997 were 3%,
63%, 37%, 21%, and 18%, respectively. The average commission rates paid by the
Portfolio for the years ended August 31, 1996 and 1997 were $0.0576 and
$0.0565, respectively.

9
<PAGE> 10

INVESTMENT PROGRAM

The investment policies and limitations of the Fund are identical to those
of the Portfolio. The Fund invests only in the Portfolio. Therefore, the
following shows you the kinds of securities in which the Portfolio invests. For
an explanation of some types of investments, see "Description of Investments" on
page 25.
Investment policies and limitations of the Fund and Portfolio are not
fundamental unless otherwise specified in this Prospectus or the SAI.
Fundamental policies may not be changed without shareholder approval. A
non-fundamental policy or limitation may be changed by the trustees of the Trust
or of Managers Trust without shareholder approval.

Additional investment techniques, features, and limitations concerning the
Portfolio's investment program are described in the SAI.
The investment objective of the Fund and Portfolio is to seek capital
appreciation. This investment objective is not fundamental. There can be no
assurance that the Fund or Portfolio will achieve its objective. The Fund, by
itself, does not represent a comprehensive investment program.

The Portfolio invests primarily in common stocks of companies with small
market capitalizations ("small-cap companies"). Market capitalization means the
total market value of a company's outstanding common stock. The Portfolio
regards companies with market capitalizations of up to $1.5 billion at the time
of the Portfolio's investment as small-cap companies. Companies whose market
capitalizations exceed $1.5 billion after purchase continue to be considered
small-cap companies for purposes of the Portfolio's investment policies. There
is no necessary correlation between market capitalization and the financial
attributes -- such as levels of assets, revenues, or income -- commonly used to
measure the size of a company.

Studies indicate that the market values of small-cap company stocks, such as
those included in the Russell 2000 Index and the Wilshire 1750 Index or quoted
on Nasdaq, are out-of-sync with larger capitalization stocks. Over the last 30
years, small-cap company stocks have outperformed larger capitalization stocks
about two-thirds of the time, even though small-cap stocks have usually declined
more than larger capitalization stocks in declining markets. There can be no
assurance that this pattern will continue.

The Portfolio tries to enhance the potential for appreciation and limit the
risk of decline in the value of its securities by employing the value-oriented
investment approach. The Portfolio seeks securities that appear to be
underpriced and are issued by companies with proven management, sound finances,
and strong potential for market growth. To reduce risk, the Portfolio
diversifies its holdings among many companies and industries. The Portfolio
focuses on the fundamentals of each small-cap company, instead of trying to
anticipate what changes might occur in the stock market, the economy, or the
political environment. This approach differs from

10
<PAGE> 11

that used by many other funds investing in small-cap company stocks. Those funds
often buy stocks of companies they believe will have above-average earnings
growth, based on anticipated future developments. In contrast, the Portfolio's
securities are generally selected with the belief that they are currently
undervalued, based on existing conditions.
For more information, see "Special Considerations of Small-Cap Company
Stocks."

- --------------------------------------
Special Considerations of
Small-Cap Company Stocks
- --------------------------------------------------------------------------------
Investments in small-cap company stocks may present greater opportunities
for capital appreciation than investments in stocks of large-capitalization
companies ("large-cap companies"). However, small-cap company stocks may have
higher risk and volatility. These stocks generally are not as broadly traded as
large-cap company stocks and their prices thus may fluctuate more widely and
abruptly. Any such movements in stocks held by the Portfolio would be reflected
in the Fund's net asset value. Small-cap company stocks also are less researched
than large-cap company stocks and are often overlooked in the market.

- -----------------------------------------------------
Short-Term Trading; Portfolio Turnover
- --------------------------------------------------------------------------------
Although the Portfolio does not purchase securities with the intention of
profiting from short-term trading, the Portfolio may sell portfolio securities
when N&B Management believes that such action is advisable. See "Notes to
Financial Highlights" for more information about the portfolio turnover rate of
the Portfolio.

- -----------------
Borrowings
- --------------------------------------------------------------------------------
The Portfolio has a fundamental policy that it may not borrow money, except
that it may (1) borrow money from banks for temporary or emergency purposes and
not for leveraging or investment and (2) enter into reverse repurchase
agreements for any purpose, so long as the aggregate amount of borrowings and
reverse repurchase agreements does not exceed one-third of the Portfolio's total
assets (including the amount borrowed) less liabilities (other than borrowings).
The Portfolio does not expect to borrow money or to enter into reverse
repurchase agreements. As a non-fundamental policy, the Portfolio may not
purchase portfolio securities if its outstanding borrowings, including reverse
repurchase agreements, exceed 5% of its total assets.

- --------------------------
Other Investments
- --------------------------------------------------------------------------------
For temporary defensive purposes, the Portfolio may invest up to 100% of its
total assets in cash and cash equivalents, U.S. Government and Agency
Securities, commercial paper and certain other money market instruments, as well
as repurchase agreements collateralized by the foregoing.

11
<PAGE> 12

PERFORMANCE INFORMATION

The performance of the Fund is commonly measured as TOTAL RETURN. TOTAL
RETURN is the change in value of an investment in a fund over a particular
period, assuming that all distributions have been reinvested. Thus, total return
reflects dividends, other distributions, and variations in share prices from the
beginning to the end of a period.

An average annual total return is a hypothetical rate of return that, if
achieved annually, would result in the same cumulative total return as was
actually achieved for the period. This evens out year-to-year variations in
actual performance. Past results do not, of course, guarantee future
performance. Share prices may vary, and your shares when redeemed may be worth
more or less than your original purchase price.
The Fund commenced operations in August 1993, and its first fiscal year
ended August 31, 1993. However, a mutual fund that is a series of
Neuberger&Berman Equity Funds ("N&B Equity Funds"), and which has a name similar
to the Fund and the same investment objective, policies and limitations as the
Fund ("Sister Fund"), also invests in the Portfolio and has a longer operating
history. The following table shows the average annual total returns of the Fund
for the 1-year, 5-year, 10-year and since inception periods ended August 31,
1997. Returns for periods prior to the Fund's commencement of operations
represent the performance of the Sister Fund. The table also shows a comparison
with the Russell 2000(R) Index. The Russell 2000 is an unmanaged index of the
securities of the 2,000 issuers having the smallest capitalization in the
Russell 3000(R) Index, representing about 10% of the Russell 3000's total market
capitalization. Please note that an index does not take into account any fees or
expenses of investing in the individual securities that it tracks. Further
information regarding the Fund's performance is presented in its annual report
to shareholders, which is available without charge by calling 800-877-9700.

AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS
ENDED AUGUST 31, 1997

<TABLE>
<CAPTION>
NEUBERGER&BERMAN SINCE INCEPTION
EQUITY TRUST 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENESIS TRUST +44.31 +22.35 N/A +16.76 9/27/88

RUSSELL 2000
INDEX +28.96 +19.36 N/A +14.57* N/A
</TABLE>

* From the Sister Fund's inception date.

Had N&B Management not reimbursed certain expenses or waived certain fees,
the total returns of the Fund would have been lower. The total returns for
periods prior to the Fund's commencement of operations would have been lower had
they reflected the higher fees of the Fund as compared to those of the Sister
Fund.

12
<PAGE> 13

The following table lets you take a closer look at how the Fund and its
Sister Fund performed year by year, in terms of an annual per share total return
for each of the last ten calendar years (ending December 31). Please note that
the previous chart reflects information for periods ended on the Fund's last
fiscal year-end (that is, as of August 31, 1997).

TOTAL RETURNS FOR CALENDAR YEARS ENDED DECEMBER 31

<TABLE>
<CAPTION>
NEUBERGER&BERMAN
EQUITY TRUST 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GENESIS TRUST N/A N/A +17.3 -16.2 +41.6 +15.6 +14.4 -1.7 +27.2 +29.9

RUSSELL 2000
INDEX N/A N/A +16.3 -19.5 +46.0 +18.4 +18.9 -1.8 +28.5 +16.5
</TABLE>

TOTAL RETURN INFORMATION. You can obtain current performance information
about the Fund by calling N&B Management at 800-877-9700.

13
<PAGE> 14

HOW TO BUY SHARES

YOU CAN BUY AND OWN FUND SHARES ONLY THROUGH AN ACCOUNT WITH AN INSTITUTION.
N&B Management and the Fund do not recommend, endorse, or receive payments from
any Institution. N&B Management compensates Institutions for services they
provide under an administrative services agreement. N&B Management does not
provide investment advice to any Institution or its clients or make decisions
regarding their investments.

Each Institution will establish its own procedures for the purchase of Fund
shares, including minimum initial and additional investments for shares of the
Fund and the acceptable methods of payment for shares. Shares are purchased at
the next price calculated on a day the New York Stock Exchange ("NYSE") is open,
after a purchase order is received and accepted by an Institution. Investors
should consult their Institution to determine the time by which it must receive
an order so that Fund shares can be purchased at that day's price. Prices for
Fund shares are calculated as of the close of regular trading on the NYSE,
usually 4 p.m. Eastern time. An Institution may be closed on days when the NYSE
is open. As a result, prices for Fund shares may be significantly affected on
days when an investor has no access to that Institution to buy shares.

- --------------------------
Other Information
- --------------------------------------------------------------------------------

- An Institution must pay for shares it purchases on its clients' behalf
in U.S. dollars.

- The Fund has the right to suspend the offering of its shares for a
period of time. The Fund also has the right to accept or reject a
purchase order in its sole discretion.

- The Fund does not issue certificates for shares.

- Some Institutions may charge their clients a fee in connection with
purchases of shares of the Fund.

- Through an account with an Institution, you may be able to exchange
shares of the Fund for shares of another Neuberger&Berman Fund.
Investors should consult their Institution for more details.

14
<PAGE> 15

HOW TO SELL SHARES

You can sell (redeem) all or some of your Fund shares only through an
account with an Institution. Each Institution will establish its own procedures
for the sale of Fund shares and the payment of redemption proceeds. Shares are
sold at the next price calculated on a day the NYSE is open, after a sales order
is received and accepted by an Institution. Investors should consult their
Institution to determine the time by which it must receive an order so that Fund
shares can be sold at that day's price. Prices for Fund shares are calculated as
of the close of regular trading on the NYSE, usually 4 p.m. Eastern time. An
Institution may be closed on days when the NYSE is open. As a result, prices for
Fund shares may be significantly affected on days when an investor has no access
to that Institution to sell shares.

- --------------------------
Other Information
- --------------------------------------------------------------------------------

- Redemption proceeds will be paid to Institutions as agreed with N&B
Management, but in any case within three business days (under unusual
circumstances the Fund may take longer, as permitted by law). An
Institution may not follow the same procedures for payment of
redemption proceeds to its clients.

- The Fund may suspend redemptions or postpone payments on days when the
NYSE is closed, when trading on the NYSE is restricted, or as
permitted by the SEC.

- Some Institutions may charge their clients a fee in connection with
redemptions of shares of the Fund.

- Through an account with an Institution, you may be able to exchange
shares of the Fund for shares of another Neuberger&Berman Fund.
Investors should consult their Institution for more details.

15
<PAGE> 16

SHARE PRICES AND NET ASSET VALUE

The Fund's shares are bought or sold at a price that is the Fund's net asset
value ("NAV") per share. The NAVs for the Fund and the Portfolio are calculated
by subtracting liabilities from total assets (in the case of the Portfolio, the
market value of the securities the Portfolio holds plus cash and other assets;
in the case of the Fund, its percentage interest in the Portfolio, multiplied by
the Portfolio's NAV, plus any other assets). The Fund's per share NAV is
calculated by dividing its NAV by the number of Fund shares outstanding and
rounding the result to the nearest full cent. The Fund and the Portfolio
calculate their NAVs as of the close of regular trading on the NYSE, usually 4
p.m. Eastern time, on each day the NYSE is open.

The Portfolio values securities (including options) listed on the NYSE, the
American Stock Exchange, or other national securities exchanges or quoted on
Nasdaq, and other securities for which market quotations are readily available,
at the last sale price on the day the securities are being valued. If there is
no reported sale of such a security on that day, the security is valued at the
mean between its closing bid and asked prices on that day. The Portfolio values
all other securities and assets, including restricted securities, by a method
that the trustees of Managers Trust believe accurately reflects fair value.

If N&B Management believes that the price of a security obtained under the
Portfolio's valuation procedures (as described above) does not represent the
amount that the Portfolio reasonably expects to receive on a current sale of the
security, the Portfolio will value the security based on a method that the
trustees of Managers Trust believe accurately reflects fair value.

16
<PAGE> 17

DIVIDENDS, OTHER DISTRIBUTIONS,
AND TAXES

The Fund distributes, normally in December, substantially all of its share
of any net investment income (net of the Fund's expenses), any net capital gains
from investment transactions, and any net gains from foreign currency
transactions earned or realized by the Portfolio.

- -----------------------------
Distribution Options
- --------------------------------------------------------------------------------

REINVESTMENT IN SHARES. All dividends and other distributions paid on
shares of the Fund are automatically reinvested in additional shares of the
Fund, unless an Institution elects to receive them in cash. Dividends and other
distributions are reinvested at the Fund's per share NAV, usually as of the date
the dividend or other distribution is payable.

DISTRIBUTIONS IN CASH. An Institution may elect to receive dividends in
cash, with other distributions being reinvested in additional Fund shares, or to
receive all dividends and other distributions in cash.

- ------------------------
Taxes
- --------------------------------------------------------------------------------
An investment has certain tax consequences, depending on the type of account
through which the investment is made. FOR AN ACCOUNT UNDER A QUALIFIED
RETIREMENT PLAN OR AN INDIVIDUAL RETIREMENT ACCOUNT, TAXES ARE DEFERRED.

TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax and
generally also are subject to state and local income taxes. Distributions are
taxable when they are paid, whether in cash or by reinvestment in additional
Fund shares, except that distributions declared in December to shareholders of
record on a date in that month and paid in the following January are taxable as
if they were paid on December 31 of the year in which the distributions were
declared. Investors who buy Fund shares just before the Fund deducts a dividend
or other distribution from its NAV will pay the full price for the shares and
then receive a portion of the price back in the form of a taxable distribution.
Investors who are considering the purchase of Fund shares in December should
take this into account.
For federal income tax purposes, dividends and distributions of net
short-term capital gain and net gains from certain foreign currency transactions
are taxed as ordinary income. Distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss), when designated as
such, are generally taxed as long-term capital gain, no matter how long an
investor has owned Fund shares. Distributions of net capital gain may include
gains from the sale of portfolio securities that appreciated in value before an
investor bought Fund shares. Under the Taxpayer Relief Act of 1997, different
maximum tax rates apply to the Fund's distributions of net capital gain
depending on the Portfolio's holding period.

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<PAGE> 18

Every January, the Fund will send each Institution that is a shareholder
therein a statement showing the amount of distributions paid in cash or
reinvested in Fund shares for the previous year. Each Institution will also
receive information showing (1) the portion, if any, of those distributions that
generally is not subject to state and local income taxes in certain states and
(2) capital gain distributions broken down in a manner that will enable
investors or their tax advisers to determine the appropriate rate of capital
gains tax on such distributions.

TAXES ON REDEMPTIONS. Capital gains realized on redemptions of Fund shares
are subject to tax. A capital gain or loss generally is the difference between
the amount paid for shares (including the amount of any dividends and other
distributions that were reinvested) and the amount received when shares are
sold. Capital gain on shares held for more than one year will be long-term
capital gain, in which event it will be subject to federal income tax at the
capital gains rate applicable to an investor's holding period and tax bracket.
When an Institution sells Fund shares, it will receive a confirmation
statement showing the number of shares sold and the price.

OTHER. Every January, Institutions will receive a consolidated transaction
statement for the previous year.
Each Institution is required annually to send each investor in its account a
statement showing the investor's distribution and transaction information for
the previous year. The Fund intends to continue to qualify for treatment as a
regulated investment company for federal income tax purposes so that it will not
have to pay federal income tax on that part of its taxable income and realized
gains that it distributes to its shareholders.
The foregoing is only a summary of some of the important income tax
considerations affecting each Fund and its shareholders. See the SAI for
additional tax information. There may be other federal, state, local, or foreign
tax considerations applicable to a particular investor. Therefore, investors
should consult their tax advisers.

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<PAGE> 19

MANAGEMENT AND ADMINISTRATION

- -------------------------------
Trustees and Officers
- --------------------------------------------------------------------------------
The trustees of the Trust and the trustees of Managers Trust, who are
currently the same individuals, have oversight responsibility for the operations
of the Fund and Portfolio, respectively. The SAI contains general background
information about each trustee and officer of the Trust and of Managers Trust.
The trustees and officers of the Trust and of Managers Trust who are officers
and/or directors of N&B Management and/or principals of Neuberger&Berman serve
without compensation from the Fund or the Portfolio.

- --------------------------------------------------
Investment Manager, Administrator,
Distributor, and Sub-Adviser
- --------------------------------------------------------------------------------
N&B Management serves as the investment manager of the Portfolio, as
administrator of the Fund, and as distributor of the shares of the Fund. N&B
Management and its predecessor firms have specialized in the management of
no-load mutual funds since 1950. In addition to serving the Portfolio, N&B
Management currently serves as investment manager of other mutual funds.
Neuberger&Berman acts as sub-adviser for the Portfolio and other mutual funds
managed by N&B Management. The mutual funds managed by N&B Management and
Neuberger&Berman had aggregate net assets of approximately $21.2 billion as of
September 30, 1997.

As sub-adviser, Neuberger&Berman furnishes N&B Management with investment
recommendations and research without added cost to the Portfolio. N&B Management
compensates Neuberger&Berman for its costs in connection with those services.
Neuberger&Berman is a member firm of the NYSE and other principal exchanges and
acts as the Portfolio's principal broker in the purchase and sale of its
securities. Neuberger&Berman and its affiliates, including N&B Management,
manage securities accounts that had approximately $54.1 billion of assets as of
September 30, 1997. All of the voting stock of N&B Management is owned by
individuals who are principals of Neuberger&Berman.
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 the
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 acts as the principal broker for the Portfolio in the
purchase and sale of portfolio securities and in the sale of covered call
options, and for those

19
<PAGE> 20

services receives brokerage commissions. In effecting securities transactions,
the Portfolio seeks to obtain the best price and execution of orders. For more
information, see the SAI.

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(R).

To mitigate the possibility that the 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.

- ---------------
Expenses
- --------------------------------------------------------------------------------
N&B Management provides investment management services to the Portfolio that
include, among other things, making and implementing investment decisions and
providing facilities and personnel necessary to operate the Portfolio. For
investment management services, the Portfolio pays N&B Management a fee at the
annual rate of 0.85% of the first $250 million of the Portfolio's average daily
net assets, 0.80% of the next $250 million, 0.75% of the next $250 million,
0.70% of the next $250 million, and 0.65% of average daily net assets in excess
of $1 billion.
N&B Management provides administrative services to the Fund that include
furnishing facilities and personnel for the Fund and performing accounting,
recordkeeping, and other services. For such administrative services, the Fund
pays N&B Management a fee at the annual rate of 0.40% of the Fund's average
daily net assets. With the Fund's consent, N&B Management may subcontract to
Institutions some of its responsibilities to the Fund under the administration
agreement and may compensate each Institution that provides such services at an
annual rate of up to 0.25% of the average net asset value of Fund shares held
through that Institution.

The Fund bears all expenses of its operations other than those borne by N&B
Management as administrator of the Fund and as distributor of its shares. The
Portfolio bears all expenses of its operations other than those borne by N&B
Management as investment manager of the Portfolio. These expenses include the
"Other Expenses" described on page 5. See "Expense Information -- Annual Fund
Operating Expenses" for information about how these fees and expenses may affect
the value of your investment.
During its 1997 fiscal year, the Fund accrued administration fees and a pro
rata portion of the Portfolio's management fees (prior to any expense
reimbursement or fee waiver), as a percentage of the Fund's average daily net
assets, of 1.21%.

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<PAGE> 21

During its 1997 fiscal year, the Fund bore aggregate expenses as a
percentage of its average daily net assets of 1.25% per annum, after taking into
consideration N&B Management's expense reimbursement and then current waiver of
a portion of the management fee borne indirectly by the Fund.
N&B Management has voluntarily undertaken to reimburse the Fund for its
Total Operating Expenses so that the Fund's expense ratio per annum will not
exceed the expense ratio per annum of its Sister Fund by more than 0.10% of the
Fund's average daily net assets. The Fund's per annum "expense ratio" is the sum
of the Fund's Total Operating Expenses, divided by the Fund's average daily net
assets for the year. N&B Management may terminate this undertaking to the Fund
by giving at least 60 days' prior written notice to the Fund. The effect of
reimbursement by N&B Management is to reduce the Fund's expenses and thereby
increase its total return.

- ---------------------
Transfer Agent
- --------------------------------------------------------------------------------
The Fund's transfer agent is State Street Bank and Trust Company ("State
Street"). State Street administers purchases, redemptions, and transfers of Fund
shares with respect to Institutions and the payment of dividends and other
distributions to Institutions. All correspondence should be addressed to
Neuberger&Berman Funds, Institutional Services, 605 Third Avenue, 2nd Floor, New
York, NY 10158-0180.

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<PAGE> 22

INFORMATION REGARDING ORGANIZATION,
CAPITALIZATION, AND OTHER MATTERS

- ------------------------
The Fund
- --------------------------------------------------------------------------------
The Fund is a separate operating series of the Trust, a Delaware business
trust organized pursuant to a Trust Instrument dated as of May 6, 1993. The
Trust is registered under the Investment Company Act of 1940 (the "1940 Act") as
a diversified, open-end management investment company, commonly known as a
mutual fund. The Trust has seven separate series. The Fund invests all of its
net investable assets in the Portfolio, receiving a beneficial interest in the
Portfolio. The trustees of the Trust may establish additional series or classes
of shares without the approval of shareholders. The assets of a series belong
only to that series, and the liabilities of a series are borne solely by that
series and no other.

DESCRIPTION OF SHARES. The Fund is authorized to issue an unlimited number
of shares of beneficial interest (par value $0.001 per share). Shares of the
Fund represent equal proportionate interests in the assets of the Fund only and
have identical voting, dividend, redemption, liquidation, and other rights. All
shares issued are fully paid and non-assessable, and shareholders have no
preemptive or other rights to subscribe to any additional shares.

SHAREHOLDER MEETINGS. The trustees of the Trust do not intend to hold
annual meetings of shareholders of the Fund. The trustees will call special
meetings of shareholders of the Fund only if required under the 1940 Act or in
their discretion or upon the written request of holders of 10% or more of the
outstanding shares of the Fund entitled to vote.

CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the
shareholders of the Fund will not be personally liable for the obligations of
the Fund; a shareholder is entitled to the same limitation of personal liability
extended to shareholders of a corporation. To guard against the risk that
Delaware law might not be applied in other states, the Trust Instrument requires
that every written obligation of the Trust or the Fund contain a statement that
such obligation may be enforced only against the assets of the Trust or Fund and
provides for indemnification out of Trust or Fund property of any shareholder
nevertheless held personally liable for Trust or Fund obligations, respectively.

OTHER. Because Fund shares can be bought, owned and sold only through an
account with an Institution, a client of an Institution may be unable to
purchase additional shares and/or may be required to redeem shares (and possibly
incur a tax liability) if the client no longer has a relationship with the
Institution or if the Institution no longer has a contract with N&B Management
to perform services. Depending on the policies of the Institutions involved, an
investor may be able to transfer an account from one Institution to another.

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<PAGE> 23

- -------------------
The Portfolio
- --------------------------------------------------------------------------------
The Portfolio is a separate operating series of Managers Trust, a New York
common law trust organized as of December 1, 1992. Managers Trust is registered
under the 1940 Act as a diversified, open-end management investment company.
Managers Trust has six separate portfolios. The assets of the Portfolio belong
only to the Portfolio, and the liabilities of the Portfolio are borne solely by
the Portfolio and no other.

FUND'S INVESTMENT IN PORTFOLIO. The Fund is a "feeder fund" that seeks to
achieve its investment objective by investing all of its net investable assets
in the Portfolio, which is a "master fund." The Portfolio, which has the same
investment objective, policies, and limitations as the Fund, in turn invests in
securities; the Fund thus acquires an indirect interest in those securities.

The Fund's investment in the Portfolio is in the form of a non-transferable
beneficial interest. Members of the general public may not purchase a direct
interest in the Portfolio. The Sister Fund, a series of N&B Equity Funds, and
another mutual fund that is a series of Neuberger&Berman Equity Assets ("N&B
Equity Assets"), invest all of their respective net investable assets in the
Portfolio. The shares of the series of N&B Equity Funds (but not of N&B Equity
Assets) are available for purchase by members of the general public. The Fund
does not sell its shares directly to members of the general public. The
Portfolio may also permit other investment companies and/or other institutional
investors to invest in the Portfolio. All investors will invest in the Portfolio
on the same terms and conditions as the Fund and will pay a proportionate share
of the Portfolio's expenses. Other investors in the Portfolio (including the
series of N&B Equity Funds and N&B Equity Assets) are not required to sell their
shares at the same public offering price as the Fund, could have a different
administration fee and expenses than the Fund, and (except the series of N&B
Equity Funds and N&B Equity Assets) might charge a sales commission. Therefore,
Fund shareholders may have different returns than shareholders in another
investment company that invests exclusively in the Portfolio. Information
regarding any fund that invests in the Portfolio is available from N&B
Management by calling 800-877-9700.

The trustees of the Trust believe that investment in the Portfolio by the
series of N&B Equity Funds or N&B Equity Assets or by other potential investors
in addition to the Fund may enable the Portfolio to realize economies of scale
that could reduce its operating expenses, thereby producing higher returns and
benefitting all shareholders.

The Fund may withdraw its entire investment from the Portfolio at any time,
if the trustees of the Trust determine that it is in the best interests of the
Fund and its shareholders to do so. The Fund might withdraw, for example, if
there were other investors in the Portfolio with power to, and who did by a vote
of all investors

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<PAGE> 24

(including the Fund), change the investment objective, policies, or limitations
of the Portfolio in a manner not acceptable to the trustees of the Trust. A
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio to the Fund. That distribution
could result in a less diversified portfolio of investments for the Fund and
could affect adversely the liquidity of the Fund's investment portfolio. If the
Fund decided to convert those securities to cash, it usually would incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from the Portfolio, the trustees of the Trust would consider what actions might
be taken, including the investment of all of the Fund's net investable assets in
another pooled investment entity having substantially the same investment
objective as the Fund or the retention by the Fund of its own investment manager
to manage its assets in accordance with its investment objective, policies, and
limitations. The inability of the Fund to find a suitable replacement could have
a significant impact on shareholders.

INVESTOR MEETINGS AND VOTING. The Portfolio normally will not hold meetings
of investors except as required by the 1940 Act. Each investor in the Portfolio
will be entitled to vote in proportion to its relative beneficial interest in
the Portfolio. On most issues subjected to a vote of investors, the Fund will
solicit proxies from its shareholders and will vote its interest in the
Portfolio in proportion to the votes cast by the Fund's shareholders. If there
are other investors in the Portfolio, there can be no assurance that any issue
that receives a majority of the votes cast by Fund shareholders will receive a
majority of votes cast by all Portfolio investors; indeed, if other investors
hold a majority interest in the Portfolio, they could have voting control of the
Portfolio.

CERTAIN PROVISIONS. Each investor in the Portfolio, including the Fund,
will be liable for all obligations of the Portfolio. However, the risk of an
investor in the Portfolio incurring financial loss beyond the amount of its
investment on account of such liability would be limited to circumstances in
which the Portfolio had inadequate insurance and was unable to meet its
obligations out of its assets. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors.

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<PAGE> 25

DESCRIPTION OF INVESTMENTS

In addition to common stocks and other securities referred to in "Investment
Program" herein, the Portfolio may make the following investments, among others,
individually or in combination, although it may not necessarily buy all of the
types of securities or use all of the investment techniques that are described.
For additional information on the following investments and on other types of
investments which the Portfolio may make, see the SAI.

ILLIQUID, RESTRICTED AND RULE 144A SECURITIES. The Portfolio may invest up
to 15% of its net assets in illiquid securities, which are securities that
cannot be expected to be sold within seven days at approximately the price at
which they are valued. These may include unregistered or other restricted
securities and repurchase agreements maturing in greater than seven days.
Illiquid securities may also include commercial paper under section 4(2) of the
Securities Act of 1933, as amended, and Rule 144A securities (restricted
securities that may be traded freely among qualified institutional buyers
pursuant to an exemption from the registration requirements of the securities
laws); these securities are considered illiquid unless N&B Management, acting
pursuant to guidelines established by the trustees of Managers Trust, determines
they are liquid. Generally, foreign securities freely tradable in their
principal market are not considered restricted or illiquid. Illiquid securities
may be difficult for the Portfolio to value or dispose of due to the absence of
an active trading market. The sale of some illiquid securities by the Portfolio
may be subject to legal restrictions which could be costly to the Portfolio.

FOREIGN SECURITIES. Foreign securities are those of issuers organized and
doing business principally outside the United States, including non-U.S.
governments, their agencies, and instrumentalities. The Portfolio may invest up
to 10% of the value of its total assets in foreign securities. The 10%
limitation does not apply to foreign securities that are denominated in U.S.
dollars, including American Depositary Receipts ("ADRs"). Foreign securities
(including those denominated in U.S. dollars and ADRs) are affected by political
and economic developments in foreign countries. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and there may be less public information about their operations. In
addition, foreign markets may be less liquid and more volatile than U.S. markets
and may offer less protection to investors. Investments in foreign securities
that are not denominated in U.S. dollars (including those made through ADRs) may
be subject to special risks, such as governmental regulation of foreign exchange
transactions and changes in rates of exchange with the U.S. dollar, irrespective
of the performance of the underlying investment.

COVERED CALL OPTIONS. The Portfolio may try to reduce the risk of
securities price changes (hedge) or generate income by writing (selling) covered
call options against portfolio securities and may purchase call options in
related closing transac-

25
<PAGE> 26

tions. When the Portfolio writes a covered call option against a security, the
Portfolio is obligated to sell that security to the purchaser of the option at a
fixed price at any time during a specified period if the purchaser decides to
exercise the option. The maximum price the Portfolio may realize on the security
during the option period is the fixed price; the Portfolio continues to bear the
risk of a decline in the security's price, although this risk is reduced, at
least in part, by the premium received for writing the option.

The primary risks in using call options are (1) possible lack of a liquid
secondary market for options and the resulting inability to close out options
when desired; (2) the fact that use of options is a highly specialized activity
that involves skills, techniques, and risks (including price volatility and a
high degree of leverage) different from those associated with selection of the
Portfolio's securities; (3) 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 by offsetting favorable price movements in hedged
investments; and (4) the possible inability of the Portfolio to sell a security
at a time that would otherwise be favorable for it to do so, or the possible
need for the Portfolio to sell a security at a disadvantageous time, due to its
need to maintain "cover" in connection with its use of these instruments.

REPURCHASE AGREEMENTS/SECURITIES LOANS. In a repurchase agreement, the
Portfolio buys a security from a Federal Reserve member bank or a securities
dealer and simultaneously agrees to sell it back at a higher price, at a
specified date, usually less than a week later. The underlying securities must
fall within the Portfolio's investment policies and limitations. The Portfolio
also may lend portfolio securities to banks, brokerage firms, or institutional
investors to earn income. Costs, delays, or losses could result if the selling
party to a repurchase agreement or the borrower of portfolio securities becomes
bankrupt or otherwise defaults. N&B Management monitors the creditworthiness of
sellers and borrowers.

OTHER INVESTMENTS. Although the Portfolio invests primarily in common
stocks, when market conditions warrant it may invest in preferred stocks,
securities convertible into or exchangeable for common stocks, U.S. Government
and Agency Securities, investment grade debt securities, or money market
instruments, or may retain assets in cash or cash equivalents.
U.S. Government Securities are obligations of the U.S. Treasury backed by
the full faith and credit of the United States. U.S. Government Agency
Securities are issued or guaranteed by U.S. Government agencies or by
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, Fannie Mae (formerly, Federal National Mortgage
Association), Freddie Mac (formerly, Federal Home Loan Mortgage Corporation),
Student Loan Marketing Association (commonly known as "Sallie Mae"), and
Tennessee Valley Authority. Some U.S. Government Agency Securities are supported
by the full faith and credit of the United States, while others may be supported
by the issuer's ability to borrow from

26
<PAGE> 27

the U.S. Treasury, subject to the Treasury's discretion in certain cases, or
only by the credit of the issuer. U.S. Government Agency Securities include U.S.
Government Agency mortgage-backed securities. The market prices of U.S.
Government and Agency Securities are not guaranteed by the Government.

"Investment grade" debt securities are those receiving one of the four
highest ratings from Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's, or another nationally recognized statistical rating organization
("NRSRO") or, if unrated by any NRSRO, deemed comparable by N&B Management to
such rated securities ("Comparable Unrated Securities"). Securities rated by
Moody's in its fourth highest category (Baa) or Comparable Unrated Securities
may be deemed to have speculative characteristics. The value of the fixed income
securities in which the Portfolio may invest is likely to decline in times of
rising market interest rates. Conversely, when rates fall, the value of the
Portfolio's fixed income investments is likely to rise.

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