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NEUBERGER BERMAN EQUITY TRUST AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1999
AS AMENDED MAY 1, 2000
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Neuberger Berman MANHATTAN Trust Neuberger Berman GENESIS Trust
(and Neuberger Berman Manhattan Portfolio) (and Neuberger Berman Genesis Portfolio)
Neuberger Berman FOCUS Trust Neuberger Berman GUARDIAN Trust
(and Neuberger Berman Focus Portfolio) (and Neuberger Berman Guardian Portfolio)
Neuberger Berman PARTNERs Trust Neuberger Berman SOCIALLY RESPONSIVE Trust
(and Neuberger Berman Partners Portfolio) (and Neuberger Berman Socially Responsive Portfolio)
Neuberger Berman MILLENNIUM Trust Neuberger Berman INTERNATIONAL Trust
(and Neuberger Berman Millennium Portfolio) (and Neuberger Berman International Portfolio)
Neuberger Berman CENTURY Trust Neuberger Berman REGENCY Trust
(and Neuberger Berman Century Portfolio) (and Neuberger Berman Regency Portfolio)
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No-Load Mutual Funds
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-877-9700
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Neuberger Berman MANHATTAN Trust, Neuberger Berman GENESIS Trust,
Neuberger Berman FOCUS Trust, Neuberger Berman GUARDIAN Trust, Neuberger Berman
PARTNERS Trust, Neuberger Berman SOCIALLY RESPONSIVE Trust, Neuberger Berman
MILLENNIUM Trust, Neuberger Berman INTERNATIONAL Trust, Neuberger Berman CENTURY
Trust and Neuberger Berman REGENCY Trust (each a "Fund") are no-load mutual
funds that offer shares pursuant to a Prospectus dated December 1, 1999. The
Funds invest all of their net investable assets in Neuberger Berman MANHATTAN
Portfolio, Neuberger Berman GENESIS Portfolio, Neuberger Berman FOCUS Portfolio,
Neuberger Berman Guardian Portfolio, Neuberger Berman PARTNERS Portfolio,
Neuberger Berman SOCIALLY RESPONSIVE Portfolio, Neuberger Berman MILLENNIUM
Portfolio, Neuberger Berman INTERNATIONAL Portfolio, Neuberger Berman CENTURY
Portfolio and Neuberger Berman REGENCY Portfolio (each a "Portfolio"),
respectively.
An investor 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").
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The Funds' Prospectus provides basic information that an investor
should know before investing. You can get a free copy of the Prospectus from
Neuberger Berman Management Inc. ("NB Management"), 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 a Fund or its distributor. The Prospectus and this SAI do not constitute an
offering by a Fund or its distributor in any jurisdiction in which such offering
may not lawfully be made.
The "Neuberger Berman" name and logo are service marks of Neuberger
Berman, LLC. "Neuberger Berman Management Inc." and the fund and portfolio names
in this SAI are either service marks or registered trademarks of Neuberger
Berman Management Inc.(C) 2000 Neuberger Berman Management Inc.
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TABLE OF CONTENTS
Page
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INVESTMENT INFORMATION.........................................................1
Investment Policies and Limitations.......................................1
Temporary Defensive Position..............................................5
Investment Insight........................................................5
Neuberger Berman CENTURY Portfolio.................................6
Neuberger Berman MANHATTAN Portfolio...............................9
Neuberger Berman GENESIS Portfolio................................10
Neuberger Berman FOCUS Portfolio..................................12
Neuberger Berman GUARDIAN Portfolio...............................13
Neuberger Berman PARTNERS Portfolio...............................15
Neuberger Berman SOCIALLY RESPONSIVE Portfolio....................16
Neuberger Berman MILLENNIUM Portfolio.............................18
Neuberger Berman REGENCY Portfolio................................19
Neuberger Berman INTERNATIONAL Portfolio..........................21
Additional Investment Information.................................24
Neuberger Berman FOCUS Portfolio - Description of Economic Sectors.......45
Neuberger Berman SOCIALLY RESPONSIVE Portfolio -
Description of Social Policy............................................47
PERFORMANCE INFORMATION.......................................................50
Total Return Computations................................................50
Comparative Information..................................................51
Other Performance Information............................................52
CERTAIN RISK CONSIDERATIONS...................................................53
TRUSTEES AND OFFICERS.........................................................53
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES.............................60
Investment Manager and Administrator.....................................60
Management and Administration Fees.......................................62
Sub-Adviser..............................................................65
Investment Companies Managed.............................................66
Codes of Ethics..........................................................68
Management and Control of NB Management and Neuberger Berman.............69
DISTRIBUTION ARRANGEMENTS.....................................................69
Distributor..............................................................69
Distribution and Shareholder Services Plan...............................70
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ADDITIONAL PURCHASE INFORMATION...............................................71
Share Prices and Net Asset Value.........................................71
ADDITIONAL EXCHANGE INFORMATION...............................................72
ADDITIONAL REDEMPTION INFORMATION.............................................72
Suspension of Redemptions................................................72
Redemptions in Kind......................................................73
DIVIDENDS AND OTHER DISTRIBUTIONS.............................................73
ADDITIONAL TAX INFORMATION....................................................74
Taxation of the Funds....................................................74
Taxation of the Portfolios...............................................74
Taxation of the Funds' Shareholders......................................78
PORTFOLIO TRANSACTIONS........................................................78
Portfolio Turnover.......................................................85
REPORTS TO SHAREHOLDERS.......................................................86
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS................................86
CUSTODIAN AND TRANSFER AGENT..................................................88
INDEPENDENT AUDITORS/ACCOUNTANTS..............................................89
LEGAL COUNSEL.................................................................89
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................89
REGISTRATION STATEMENT........................................................94
FINANCIAL STATEMENTS..........................................................94
Appendix A: RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER.................A-1
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INVESTMENT INFORMATION
Each Fund is a separate operating series of Neuberger Berman Equity
Trust ("Trust"), a Delaware business trust that is registered with the
Securities and Exchange Commission ("SEC") as a diversified, open-end management
investment company. Each Fund seeks its investment objective by investing all of
its net investable assets in a Portfolio of Equity Managers Trust or, in the
case of Neuberger Berman International Trust, in a Portfolio of Global Managers
Trust that has an investment objective identical to, and a name similar to, that
of the Fund. Each Portfolio, in turn, invests in securities in accordance with
an investment objective, policies, and limitations identical to those of its
corresponding Fund. (Equity Managers Trust and Global Managers Trust ("Managers
Trusts") are open-end management investment companies managed by NB Management;
the Managers Trusts together with the Trust, are referred to below as the
"Trusts.").
The following information supplements the discussion in the Prospectus
of the investment objective, policies, and limitations of each Fund and
Portfolio. The investment objective and, unless otherwise specified, the
investment policies and limitations of each Fund and Portfolio are not
fundamental. Any investment objective, policy or limitation that is not
fundamental may be changed by the trustees of the Trust ("Fund Trustees") or of
the corresponding Managers Trusts ("Portfolio Trustees") without shareholder
approval. The fundamental investment policies and limitations of a Fund or a
Portfolio may not be changed without the approval of the lesser of:
(1) 67% of the total units of beneficial interest ("shares") of the
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.
These percentages are required by the Investment Company Act of 1940
("1940 Act") and are referred to in this SAI as a "1940 Act majority vote."
Whenever a Fund is called upon to vote on a change in a fundamental investment
policy or limitation of its corresponding Portfolio, the Fund casts its votes in
proportion to the votes of its shareholders at a meeting thereof called for that
purpose.
INVESTMENT POLICIES AND LIMITATIONS Each Fund (except Neuberger Berman SOCIALLY
RESPONSIVE, Neuberger Berman Millennium, and Neuberger Berman INTERNATIONAL
Trusts) has the following fundamental investment policy, to enable it to invest
in its corresponding 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 substantially the same investment objective, policies, and
limitations as the Fund.
Neuberger Berman SOCIALLY RESPONSIVE Trust and Neuberger Berman
MILLENNIUM Trust have the following fundamental investment policy, to enable
each to invest in its corresponding Portfolio:
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Notwithstanding any other investment policy of the Fund, the Fund may
invest all of its net investable assets (cash, securities, and
receivables relating to securities) in an open-end management
investment company having substantially the same investment objective,
policies, and limitations as the Fund.
Neuberger Berman INTERNATIONAL Trust has the following fundamental
investment policy, to enable it to invest in its corresponding Portfolio:
Notwithstanding any other investment policy of the Fund, the Fund may
invest all of its net investable assets in an open-end management
investment company having substantially 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 each Fund are identical
to those of its corresponding Portfolio. Therefore, although the following
discusses the investment policies and limitations of the Portfolios, it applies
equally to their corresponding Funds.
Except for the limitation on borrowing, 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 a Portfolio.
The following investment policies and limitations are fundamental and
apply to all Portfolios unless otherwise indicated:
1. BORROWING (ALL PORTFOLIOS EXCEPT NEUBERGER BERMAN INTERNATIONAL
PORTFOLIO). No Portfolio may borrow money, except that a 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 a Portfolio's total assets, that Portfolio will reduce its borrowings within
three days (excluding Sundays and holidays) to the extent necessary to comply
with the 33-1/3% limitation.
BORROWING (NEUBERGER BERMAN INTERNATIONAL PORTFOLIO). The Portfolio may
not borrow money, except that the Portfolio may (i) borrow money from banks for
temporary or emergency purposes and 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 (ALL PORTFOLIOS EXCEPT NEUBERGER BERMAN INTERNATIONAL
PORTFOLIO). No Portfolio may purchase physical commodities or contracts thereon,
unless acquired as a result of the ownership of securities or instruments, but
this restriction shall not prohibit a Portfolio from purchasing futures
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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.
COMMODITIES (NEUBERGER BERMAN INTERNATIONAL PORTFOLIO). 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, options (including
options on futures contracts, but excluding options or futures contracts on
physical commodities), foreign currencies or forward contracts, or from
investing in securities of any kind.
3. DIVERSIFICATION. No Portfolio may, 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. No Portfolio may 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. No Portfolio may 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 (ALL PORTFOLIOS EXCEPT NEUBERGER BERMAN INTERNATIONAL
PORTFOLIO). No Portfolio may purchase real estate unless acquired as a result of
the ownership of securities or instruments, but this restriction shall not
prohibit a Portfolio from purchasing securities issued by entities or investment
vehicles that own or deal in real estate or interests therein or instruments
secured by real estate or interests therein.
REAL ESTATE (NEUBERGER BERMAN INTERNATIONAL PORTFOLIO). This Portfolio
may not invest any part of its total assets in real estate or interests in real
estate unless acquired as a result of the ownership of securities or
instruments, but this restriction shall not prohibit the Portfolio from
purchasing readily marketable securities issued by entities or investment
vehicles that own or deal in real estate or interests therein or instruments
secured by real estate or interests therein.
7. SENIOR SECURITIES. No Portfolio may issue senior securities, except
as permitted under the 1940 Act.
8. UNDERWRITING. No Portfolio may underwrite securities of other
issuers, except to the extent that a Portfolio, in disposing of portfolio
securities, may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 ("1933 Act").
For purposes of the limitation on commodities, the Portfolios do not
consider foreign currencies or forward contracts to be physical commodities.
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The following investment policies and limitations are non-fundamental
and apply to all Portfolios unless otherwise indicated:
1. BORROWING (ALL PORTFOLIOS EXCEPT NEUBERGER BERMAN INTERNATIONAL
PORTFOLIO). None of these Portfolios may purchase securities if outstanding
borrowings, including any reverse repurchase agreements, exceed 5% of its total
assets.
2. LENDING. Except for the purchase of debt securities and engaging in
repurchase agreements, no Portfolio may make any loans other than securities
loans.
3. MARGIN TRANSACTIONS. No Portfolio may purchase securities on margin
from brokers or other lenders, except that a Portfolio may obtain such
short-term credits as are necessary for the clearance of securities
transactions. Margin payments in connection with transactions in futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
4. FOREIGN SECURITIES (ALL PORTFOLIOS EXCEPT NEUBERGER BERMAN
INTERNATIONAL, NEUBERGER BERMAN MILLENNIUM AND NEUBERGER BERMAN CENTURY
PORTFOLIOS). None of these Portfolios may 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").
FOREIGN SECURITIES (NEUBERGER BERMAN MILLENNIUM AND NEUBERGER BERMAN
CENTURY PORTFOLIOS). Neither Portfolio may invest more than 20% 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").
5. ILLIQUID SECURITIES. No Portfolio may purchase any security if, as
a result, more than 15% 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.
6. PLEDGING (NEUBERGER BERMAN GENESIS AND NEUBERGER BERMAN GUARDIAN
PORTFOLIOS). Neither of these Portfolios may pledge or hypothecate any of its
assets, except that (i) Neuberger Berman GENESIS Portfolio may pledge or
hypothecate up to 15% of its total assets to collateralize a borrowing permitted
under fundamental policy 1 above or a letter of credit issued for a purpose set
forth in that policy and (ii) each Portfolio may pledge or hypothecate up to 5%
of its total assets in connection with its entry into any agreement or
arrangement pursuant to which a bank furnishes a letter of credit to
collateralize a capital commitment made by the Portfolio to a mutual insurance
company of which the Portfolio is a member. The other Portfolios are not subject
to any restrictions on their ability to pledge or hypothecate assets and may do
so in connection with permitted borrowings.
7. SECTOR CONCENTRATION (NEUBERGER BERMAN FOCUS PORTFOLIO). This
Portfolio may not invest more than 50% of its total assets in any one economic
sector.
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8. INVESTMENTS IN ANY ONE ISSUER (NEUBERGER BERMAN INTERNATIONAL
PORTFOLIO). At the close of each quarter of this Portfolio's taxable year, (i)
no more than 25% of its total assets may be invested in the securities of a
single issuer, and (ii) with regard to 50% of its total assets, no more than 5%
of its total assets may be invested in the securities of a single issuer. These
limitations do not apply to U.S. Government securities, as defined for tax
purposes, or securities of another regulated investment company ("RIC").
9. SOCIAL POLICY (NEUBERGER BERMAN SOCIALLY RESPONSIVE PORTFOLIO). The
portfolio may not purchase securities of issuers who derive more than 5% of
their total revenue from alcohol, tobacco, gambling or weapons, or that are
involved in nuclear power.
Although the Portfolios do not have policies limiting their investment
in warrants, no Portfolio currently intends to invest in warrants unless
acquired in units or attached to securities.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes, each Portfolio
(except Neuberger Berman SOCIALLY RESPONSIVE Portfolio and Neuberger Berman
INTERNATIONAL 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.
Any part of Neuberger Berman SOCIALLY RESPONSIVE Portfolio's assets may
be retained temporarily in investment grade fixed income securities of
non-governmental issuers, U.S. Government and Agency Securities, repurchase
agreements, money market instruments, commercial paper, and cash and cash
equivalents when NB Management believes that significant adverse market,
economic political, or other circumstances require prompt action to avoid
losses. In addition, the feeder funds that invest in Neuberger Berman SOCIALLY
RESPONSIVE Portfolio deal with large institutional investors, and the Portfolio
may hold such instruments pending investment or payout when the Portfolio has
received a large influx of cash due to sales of Neuberger Berman SOCIALLY
RESPONSIVE Fund shares, or shares of another fund which invests in the
Portfolio, or when it anticipates a substantial redemption. Generally, the
foregoing temporary investments for Neuberger Berman SOCIALLY RESPONSIVE
Portfolio are selected with a concern for the social impact of each investment.
For temporary defensive purposes, Neuberger Berman INTERNATIONAL
Portfolio may invest up to 100% of its total assets in short-term foreign and
U.S. investments, such as cash or cash equivalents, commercial paper, short-term
bank obligations, government and agency securities, and repurchase agreements.
Neuberger Berman INTERNATIONAL Portfolio may also invest in such instruments to
increase liquidity or to provide collateral to be held in segregated accounts.
Investment Insight
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Neuberger Berman's commitment to its asset management approach is
reflected in the more than $125 million the organization's employees and their
families have invested in the Neuberger Berman mutual funds.
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In advertisements, each Fund's allocation to a particular market
sector(s) may be discussed as a way to demonstrate how the portfolio managers
uncover stocks that they perceive to fit the Fund's investment parameters. These
discussions may include references to current or former holdings of a Fund.
Neuberger Berman Century Portfolio
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Remember when big corporations were slow and stodgy? Those days are
gone. Today's companies are redefining the concept of big business.
Call them giants for the new century. Call them anything but slow. The
stock of large companies, many of which are in the Standard & Poor's 500 Index,
have chalked up impressive performance in recent years. Of course, past
performance is no guarantee of future results.
We believe the new giants still have room to grow. Their strengths may
include:
/ / Durable brand names
/ / Growing markets
/ / Global reach
/ / Diverse revenue flows
/ / Pricing power with customers
/ / Influence over suppliers' costs
Neuberger Berman CENTURY Portfolio will invest in many of the names you
already know as the world's largest companies. But it will also seek out
companies the portfolio manager believes are poised to become the giants of
tomorrow. Using this strategy, the portfolio manager intends to invest in stocks
that may comprise part of the Russell 1000 Growth Index(1), as well as stocks
from the Standard & Poor's 500 Index. The fund's median market capitalization
will be greater than $10 billion.
Brooke Cobb is the portfolio manager for the fund. Describing his
investment strategy for Neuberger Berman CENTURY Portfolio, he says, "We look
for the leaders of today and tomorrow. Many fast-growing companies join the
large-capitalization sector with years of growth still ahead. Our goal is to
identify them early, to investment in the companies that are going to be the
growth leaders of the new century."
WHY LARGE-CAP GROWTH?
DIVERSIFICATION
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(1) The Russell 1000(R) Index measures the performance of the 1,000 largest
companies in the Russell 3000(R) Index (which measures the performance of the
3,000 largest U.S. companies based on total market capitalization). The Russell
1000 Index represents approximately 92% of the total market capitalization of
the Russell 3000 Index. The Russell 1000(R) Growth Index measures the
performance of the Russell 1000 companies with higher price-to-book ratios and
higher forecasted growth values.
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The key to a well-balanced portfolio is asset allocation. We believe
that diversifying your investments across different asset classes can increase
the changes you will participate when one group outperforms another.
In the long-term, small-cap stocks have tended to outperform
large-caps.(2) But in recent years, large-cap stocks have turned the tables, and
have outperformed small-caps. Growth stock investments have outperformed
value-style investments in recent years too.(3)
While an expert investor might be able to time the market perfectly to
take advantage of each cycle, market timing is notoriously difficult, even for
professionals. For most of us, diversification is key to stronger performance
over time.
PERFORMANCE
Although past performance does not guarantee future results,
performance of large-cap stocks has been impressive. Many of the best performers
have been in fast-growing areas like technology, pharmaceuticals and the
Internet, with global markets for their products.
Recent economic conditions have also favored the new breed of growth
leaders. In general, a low-inflation environment can help large companies
because of their greater ability than smaller companies to negotiate suppliers'
costs: When low inflation prevents companies from raising prices, the ability to
control costs becomes more important.
STABILITY
For investors who favor a moderate risk profile, large-cap stocks may
provide a greater degree of comfort than smaller stocks. The price fluctuations
of large-cap stocks have historically been less volatile than small-cap stocks.
Although there are no guarantees, size can make a difference should economic
conditions turn downward. Large companies, with their hefty capital bases,
diversified revenue streams and strong brand names may be able to offer relative
stability in an uncertain world.
OPPORTUNITIES
When a large company's earnings have consistently grown, the company
may have a competitive advantage. Perhaps it has a dominant market share. Or it
may have expanded on the strength of innovative products, or astute marketing,
or superior management.
Continued earnings growth is never guaranteed, but a track record of
strong earnings growth invites further investigation.
OUR INVESTMENT PROCESS [VISUAL]
1. Initial Focus Screens:
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(2) Source: Ibbotson Associates.
(3) Source: Callan Associates. From January 1, 1999 through September 30, 1999,
the S&P BARRA Growth annualized return outperformed the S&P BARRA Value by
7.62%.
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Market Cap
Earnings Growth
2. Proprietary Ranking System:
Positive Earnings Surprises/Revisions
Low Price/Earnings to Growth Rates
3. Top Quintile of Remaining Companies
4. Fundamental Research:
Input from Growth Group/NY Research Analysts
Consider Wall Street Research
Meet with Company Management
5. Portfolio of 65-85 Stocks*
Median Market Cap >$10 billion*
*Number of holdings based on portfolio assets of $25 - $50 million.
WHY NEUBERGER BERMAN?
Neuberger Berman offers a full spectrum of investment styles in its
mutual funds. Although many clients know us as a "value" investment house of
long standing, we also have a dedicated growth stock research and management
group based in Boston.
The Boston-based growth group, headed by Jennifer Silver, an investment
manager with close to 20 years of experience, includes eight professionals, who
work closely with Neuberger Berman's research department of 23 investment
analysts.
Brooke Cobb, who has close to 30 years of experience managing both
mid-cap and large-cap growth portfolios, manages the CENTURY Portfolio. He notes
that the CENTURY Portfolio neatly complements the existing Neuberger Berman
growth funds.
Experience teaches. And in today's volatile markets, the wisdom that
comes from experience matters more than ever. That's why clients come to
Neuberger Berman. For more than 60 years, we have helped institutions and
individuals build wealth, earn income, and preserve capital. Today our clients
entrust more than $51 billion to our management, $18 billion of that in our
family of mutual funds.(4)
In an industry where investment fads sweep through with predictable
regularity, Neuberger Berman has build a family of funds that relies on
disciplined, fundamental research. Neuberger Berman is committed to the belief
that investors' interests come first. Our long-standing and, in many cases,
multigenerational relationships underscore the success of this approach. We
welcome the opportunity to put your money to work.
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(4) As of September 30, 1999.
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NEUBERGER BERMAN MANHATTAN PORTFOLIO
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Investment Program
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Invests in common stocks of mid-capitalization companies that are in
new or rapidly evolving industries. Seeks growth of capital by investing in
companies with financial strength, above-average growth of earnings, earnings
that have exceeded analysts' expectations, a strong position relative to
competitors and a stock price that is reasonable in light of its growth rate.
MID-CAP GROWTH STOCK INVESTMENTS
The portfolio co-managers consider themselves growth stock investors in
the purest sense of the term. By that, they mean they want to own the stocks of
companies that are growing earnings faster than the average American business
and, ideally, faster than the competitors in their respective industries. Their
exhaustive research efforts are focused on the mid-cap universe and,
specifically, stocks that are in new or rapidly evolving industries. The kind of
fast-growth companies the portfolio co-managers favor generally do not trade at
below market average price-to-earnings ratios. However, they do look for
companies trading at reasonable levels compared to their growth rates. They
believe that attractive valuations in the mid-cap range have been created as a
result of the large-cap area performing well for several years, relative to
other capitalization ranges.
AN INTENSIVE RESEARCH EFFORT
The portfolio co-managers love stocks with positive earnings surprises.
Their extensive research has revealed that the stocks of companies that have
consistently beaten Wall Street earnings estimates have also tended to offer
greater potential for long-term capital appreciation. To find these companies
they scour the mid-cap growth stock universe to isolate stocks whose most recent
earnings have beaten consensus expectations. Then, the real work begins, where
through diligent fundamental research they strive to identify those companies
most likely to record a string of positive earnings surprises. Their ultimate
goal is to invest today in the fast growing mid-sized companies that they
believe are poised to become tomorrow's Fortune 500.
A DISCIPLINED SELL PROCESS
"We are dispassionate sellers," says one portfolio co-manager. "If a
stock does not live up to our earnings expectations or if we believe its
valuation has become excessive, we will sell and direct the assets to another
opportunity we find more attractive." A stock will also be sold when it reaches
its target price. They prefer to broadly diversify the portfolio's assets among
many different companies and industries rather than heavily concentrating its
holdings in just a few of the fastest growing industry sectors. Broad
diversification helps to manage the overall risk inherent in a portfolio of
equity securities. Nevertheless, the managers acknowledge that currently there
are positive growth opportunities in the technology sector, particularly
biotechnology and Internet-related companies. One portfolio co-manager adds, "We
believe that we are on the verge of a technology-induced industrial revolution,
and there may be an opportunity for investors to build capital by focusing in
this area."
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--------------------------------------------------------------
INVESTMENT PROCESS
------------------
ACTIVE RISK MANAGEMENT
BETTER MID-CAP GROWTH STOCKS
o Fundamental Verfication
MID-CAP GROWTH UNIVERSE
o Proprietary Quantitative Evaluation
STOCK UNIVERSE
o Focus Screens
-------------------------------------------------------------
MANHATTAN INVESTORS CAN EXPECT:
[ ] Mid-cap growth stock investments
[ ] An intensive research effort
[ ] A disciplined sell process
NEUBERGER BERMAN GENESIS PORTFOLIO
----------------------------------
Investment Program
------------------
Invests mainly in common stocks of small-capitalization companies.
Seeks undervalued companies whose current product lines and balance sheets are
strong. The Portfolio regards companies with market capitalizations of up to
$1.5 billion at the time of investment as small-cap companies.
A SMALL-CAP VALUE BIAS
The portfolio co-managers employ a value bias in their stock selection
process. They comb the universe of small-cap stocks specifically looking for
those they consider cheap compared to the market as a whole. Depending on
current market conditions, they sometimes find stocks that are cheap on an
absolute basis as well. They primarily choose from a universe of small-cap
companies whose total market valuation is less than $1.5 billion at the time of
initial investment. The characteristics they look for may include above average
returns, established market niches, high barriers to entry, strong capital
bases, and sound future business prospects.
10
<PAGE>
A PHILOSOPHY THAT CONTRADICTS POPULAR INVESTMENT TRENDS
The portfolio co-managers focus on strong companies in industry niches
that are often overlooked by investors because they lack an exciting new product
or innovation. They aren't interested in buying experimental or cutting-edge
technology names that often trade on high future expectations but have no
established record of earnings. The rationale behind their approach is that
companies in what may be considered "unexciting" industries to some, such as
utilities and oil services, are a safer point of entry into the small-cap
universe because, as they put it, "if there's not a lot of expectation built
into a company, then it tends not to disappoint."
SMALL COMPANIES, POTENTIALLY BIG OPPORTUNITIES
The portfolio co-managers favor the small-cap arena because they think
it abounds with opportunities for the long-term investor, specifically
small-caps' potential ability to grow earnings dramatically over time. According
to one portfolio co-manager, "Unlike large-cap stocks, small-cap companies are
starting from a very low base and therefore may have the ability to grow
dramatically."
INVESTMENT PROCESS
(Qualitative Analysis
(Meetings with Company Executives One-on-One
[ ] 300 Face-to-Face Meetings per Year
[ ] Heavy Phone Contact
(Quantitative Characteristics
[ ] Low Price-to-Earnings Ratio
[ ] Low Price-to-Cash Flow Ratio
GENESIS INVESTORS CAN EXPECT:
[ ] A small-cap value bias
[ ] A philosophy that contradicts popular investment trends
[ ] Small companies, potentially big opportunities
INVESTMENT INSIGHT
The portfolio co-managers seek out small companies that are not well
known and often found in unglamorous industries. Future growth is one area they
focus on, but equally important to them is evidence of solid performance and a
proven management team. As value investors, they look for stocks that are
selling at attractive prices.
11
<PAGE>
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 PORTFOLIO
--------------------------------
Investment Program
- ------------------
Seeks long-term growth of capital. Invests principally in common stocks
selected from 13 multi-industry sectors of the economy. To maximize potential
return, the Portfolio normally makes at least 90% or more of its investments in
not more than six sectors it identifies as undervalued.
EMPHASIS ON QUALITY, UNDERVALUED COMPANIES OF ALL MARKET
CAPITALIZATIONS
The portfolio manager selects companies with solid fundamentals that he
considers undervalued by the marketplace. Specifically, he looks for industry
leaders with above-average earnings, established market niches, and sound future
business prospects. He believes these types of organizations come in all sizes,
therefore he does not limit his selections to any particular capitalization
range.
A CONCENTRATED PORTFOLIO
------------------------
In addition to his value bias, the portfolio manager concentrates his
efforts on six out of 13 possible economic sectors. Although the portfolio is
built one stock at a time, he has found that the conditions leading to an
individual stock being undervalued similarly affect other companies in the same
industries or sectors. Thus, an emphasis on relatively few sectors is a natural
outgrowth of the fund's stock selection process. The portfolio manager won't
dedicate more than 50% of assets to any one sector and no more than 25% of
assets to any one industry.
BOTTOM-UP, VALUE-ORIENTED STOCK SELECTION PROCESS
The portfolio manager's bottom-up approach focuses on stocks that are
currently out of favor, due to temporary setbacks. He also likes stocks that
have been largely ignored by Wall Street, but that he believes still offer good
long-term growth potential. He prefers to buy companies that are industry
leaders, not those that he believes are undervalued for good reasons such as
poor management or limited growth prospects. Ideal investment candidates are
financially sound companies that have little or no debt and exhibit high returns
on equity.
THOROUGH RESEARCH EFFORT
He believes it's the management teams that drive companies and how they
react to changes in their respective industries. As he explains, "The only way
to come to those conclusions is to meet with the people behind the stocks we
like." Furthermore, he does not rely on a company's initial merits after its
stock has been purchased. Instead, he prefers to revisit its fundamentals
regularly and then, as a reality check, look back at the company's performance
to see if it's consistently delivering.
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<PAGE>
INVESTMENT PROCESS
(Qualitative Analysis
[ ] Meeting with Company Executives One-on-One
(Monitor Exposure to Economic Conditions
[ ] Interest Rate Changes
(Sector Analysis
(Stock Universe
(Quantitative Analysis
FOCUS INVESTORS CAN EXPECT:
[ ] Emphasis on quality, undervalued companies of all market
capitalizations
[ ] A concentrated portfolio
[ ] Bottom-up, value-oriented stock selection process
[ ] Thorough research efforts
INVESTMENT INSIGHT
The investment approach for the FOCUS Fund involves looking for
companies that have low price-to-earnings ratios, solid balance sheets and
strong management. The portfolio manager often finds that these companies are
concentrated in certain sectors of the economy, which prompts him to look
further within these sectors for other companies that meet his criteria.
NEUBERGER BERMAN GUARDIAN PORTFOLIO
-----------------------------------
Investment Program
- ------------------
Seeks long term growth of capital and, secondarily, current income.
Invests primarily in stocks of long-established companies considered to be
undervalued in comparison to stocks of similar companies. Using a value-oriented
investment approach in selecting securities, the Portfolio looks for such
factors as low price-to-earnings ratios, strong balance sheets, solid
management, and consistent earnings.
DISCIPLINED, LARGE-CAP VALUE ORIENTATION
As part of its stock selection process, the portfolio pursues a
disciplined, value-driven investment style, which is Neuberger Berman's historic
strength. Specifically, the portfolio co-managers seek large-capitalization
companies whose stock prices are substantially undervalued. Characteristics of
these firms may include: solid balance sheets, above-average returns, low
valuations, and consistent earnings.
13
<PAGE>
BOTTOM-UP APPROACH TO STOCK SELECTION
According to one of the portfolio co-managers, "Cheap stocks are
plentiful, but true investment bargains are a rare find." To uncover them, the
portfolio co-managers scour a universe of stocks consisting of the bottom 20% of
the market in terms of valuation. Those deemed by the managers as inexpensive
and poised for a turnaround are placed under consideration. They look for
financially sound, well-managed companies that are undervalued relative to their
earnings potential and the market as a whole.
A BROAD VIEW OF RISK MANAGEMENT
Managing risk involves carefully monitoring the way the stocks in the
portfolio react to one another as well as to outside factors. Companies that are
in completely different sectors may in fact react similarly to certain economic,
market or international events. In their efforts to consider these
relationships, the portfolio co-managers use quantitative analysis to evaluate
these factors and their impact on the overall portfolio. It is a process they
believe is a crucial component in controlling risk and one that evolves over
time as new holdings are introduced to the portfolio.
A STRONG SELL DISCIPLINE
The portfolio co-managers will generally make an initial investment in
a stock of between 1-4% of total net assets. A higher weighting indicates that
they believe their research gives them an "edge" over Wall Street analysts, or
they believe the stock has an uncovered value that others may have overlooked.
Once a stock grows beyond the high side of that range, gains are harvested and
the holding is reduced to about 3% of total net assets.
INVESTMENT PROCESS
(Portfolio Risk Management
[ ] Monitor Portfolio's Exposure
(Selection Criteria
[ ] Improving Financials
[ ] Superior Management
[ ] Discount Valuations to the Market
(Stock Universe
[ ] Large-Cap Value
GUARDIAN INVESTORS CAN EXPECT:
[ ] Disciplined, large-cap value orientation
[ ] Bottom-up approach to stock selection
[ ] Broad view of risk management
[ ] Strong sell discipline
14
<PAGE>
INVESTMENT INSIGHT
The portfolio co-managers look for established companies whose
intrinsic value, by their measure, is undiscovered among the majority of
investors. In managing overall risk, a conscious effort is made to determine the
risk/reward scenario of each individual holding as well as its impact at the
portfolio level.
NEUBERGER BERMAN PARTNERS PORTFOLIO
-----------------------------------
Investment Program
------------------
Invests principally in common stocks of established companies, using
the value-oriented investment approach. Seeks growth of capital through an
investment approach that is designed to increase capital with reasonable risk.
Seeks securities believed to be undervalued based on strong fundamentals such as
a low price-to-earnings ratio, consistent cash flow, and a company's sound track
record through all phases of the market cycle.
UNDISCOVERED VALUES IN THE MID- TO LARGE-CAP ARENA
The Partners' portfolio co-managers comb the universe of mid- and
large-cap stocks in search of those that have yet to be "discovered" by the
majority of investors. They generally shy away from big, well-known companies
because they believe it is harder to gain a competitive edge in a stock that is
covered by many analysts. The managers prefer to focus their efforts outside of
the Fortune 100, where they think many investment bargains abound.
STRONG COMPANIES AT REASONABLE PRICES
Like many of their value-oriented peers, the co-managers try to buy
quality stocks for substantially less than their estimated market values.
However, they differ in their approach by applying another layer of analysis to
their value strategy. For example, in addition to searching for stocks trading
at below market price-to-earnings ratios, they also focus on companies with
strong fundamentals, consistent cash flows, sound track records through all
phases of the market cycle and those selling at the low end of their trading
ranges. They are not interested in buying cheap stocks if they don't meet these
other measures of value as well.
SOLID RESEARCH
The portfolio co-managers believe that through "exhaustive research
efforts, good companies selling for less than their true worth can be
identified." To do this the portfolio co-managers spend a lot of time
interviewing senior company managers. Their philosophy is that when they sit
across the table from a CEO or CFO and question him or her about the company,
they get to know it quite well. They find that there's simply no substitute for
that kind of firsthand knowledge. In addition, the portfolio co-managers
carefully examine a company's financial statements and contact its suppliers and
competitors. While this type of analysis requires a lot of extra legwork, they
believe it's worth the effort.
15
<PAGE>
INVESTMENT PROCESS
(Executive Management Team Evaluation
[ ] Proven Track Record
[ ] Strategic Plan
[ ] Inside Ownership
(Value Stock Universe
[ ] Qualitative Evaluation: Catalyst for Change
(Stock Universe
[ ] Quantitative Analysis
PARTNERS INVESTORS CAN EXPECT:
[ ] Undiscovered values in the mid- to large-cap arena
[ ] Strong companies at reasonable prices
[ ] Solid research
INVESTMENT INSIGHT
The portfolio co-managers seek companies they believe are undervalued
relative to their earnings potential--where there is a gap between the actual
price of a stock and its intrinsic value in the marketplace. When a company
grows in value or the valuation gap closes, the success of their strategy is
realized.
NEUBERGER BERMAN SOCIALLY RESPONSIVE PORTFOLIO
----------------------------------------------
Investment Program
------------------
Seeks long-term capital appreciation through investments primarily in
securities of companies that meet both financial criteria and social policy. The
portfolio co-managers initially screen companies using a value investing
criteria, then look for companies that show leadership in major areas of social
impact such as the environment, workplace diversity and employment.
FINANCIALLY SOUND COMPANIES WITH A SOCIAL CONSCIENCE
The portfolio co-managers look for the stocks of mid- to large-cap
companies that first meet their stringent financial criteria. Their social
screens are then applied to these stocks. The ones considered worthy from a
16
<PAGE>
financial standpoint are then evaluated using a proprietary database that
develops and monitors information on companies in various categories of social
criteria. Ideal investment candidates are companies that show leadership in the
areas of the environment, workplace diversity and employment. Other
considerations are based on companies' records in other areas of concern,
including public health, type of products, and corporate citizenship.
A TRADITIONAL VALUE APPROACH
The portfolio co-managers' initial financial screens select companies
using a traditional value approach. They look for undervalued companies with
solid balance sheets, strong management, consistent cash flows, and other
value-related factors, such as low price-to-earnings and low price-to-book
ratios. Their value approach examines these companies, searching for those that
may rise in price before other investors realize their worth. They strongly
believe in helping investors put their money to work, while supporting companies
that follow principles of good corporate citizenship.
AN EVER-EVOLVING JOURNEY ON THE PATH TO GOOD CORPORATE CITIZENSHIP
The portfolio co-managers believe that most socially responsive
investors are not utopians. They do not expect instant perfection, but rather
look for signs that a company is evolving and moving toward a corporate
commitment to excellence. As they put it, "Good corporate citizenship is one of
those things that is a journey, not a destination. We've been working in this
field for some time, and know that the social records of most companies are
written in shades of gray. We are pleased to see that more and more companies
are coming to realize that change is a positive force for them."
INVESTMENT PROCESS
(Social Policy
(Quantitative Financial Criteria
[ ] Low Price-to-Earnings Ratio (relative & absolute)
[ ] Strong Balance Sheet
[ ] Free Cash Flow
[ ] Risk Management
(Stock Universe
[ ] Focus Screens
SOCIALLY RESPONSIVE INVESTORS CAN EXPECT:
[ ] Financially sound companies with a social conscience
17
<PAGE>
[ ] A traditional value approach
[ ] An ever-evolving journey on the path to good corporate citizenship
INVESTMENT INSIGHT
The portfolio co-managers believe that sound practices in areas like
employment and the environment can have a positive impact on a company's bottom
line. They look for companies that meet value-investing criteria and also show a
commitment to uphold or improve their standards of corporate citizenship.
NEUBERGER BERMAN MILLENNIUM PORTFOLIO
-------------------------------------
Investment Program
------------------
Invests primarily in equity securities of small-sized domestic
companies (up to $1.5 billion in market capitalization at time of investment).
Seeks growth of capital and looks for new companies that are in the
developmental stage as well as older companies that appear poised to grow
because of new products, markets or management.
DISCIPLINED STOCK SELECTION PROCESS
The portfolio co-managers employ a three-tiered disciplined investment
process. It begins with a search for fast growing, small companies that exhibit
sustainable earnings growth of at least 15%. Next, they assess a company's
financial and managerial wherewithal to capitalize on opportunities and grow its
business, despite occasional setbacks. Finally, the managers determine whether
or not a stock's price is reasonable. Their analysis attempts to avoid companies
considered overvalued relative to their earnings growth rate.
LONG-TERM GROWTH POTENTIAL OF SMALL-CAP STOCKS
Simply put, a small company might become a mid-sized one rapidly with
the launch of a single blockbuster product. And, since the potential growth of a
small company is often uninhibited by several layers of management, it might be
able to bring new products or services to the market quickly. What adds to the
attractiveness of small-cap stocks is the fact that they're generally less
researched than large-caps, which presents the managers with more opportunities
to find good companies that are not yet recognized by many investors.
Small-caps, however, are more risky than other securities due to their
volatility and greater sensitivity to market trends, company news and industry
developments.
RISK MANAGEMENT
"We abide by three rules for managing risk: pay only reasonable prices,
remain emotionally detached, and stay diversified", says one of the portfolio
co-managers about their risk-management strategy. First, the Fund focuses on
rapidly growing companies that are selling at reasonable prices relative to
their growth prospects. This is done in an effort to avoid those stocks whose
valuations are out of line with their growth rates because we believe they are
18
<PAGE>
often the most susceptible to steep declines caused by fundamental
disappointments or during a market downturn. Second, our portfolio co-managers
remain emotionally detached from their stock picks. When deteriorating
fundamentals are discovered in a company, the portfolio co-managers take quick
and decisive action to eliminate it from the portfolio. And third, to limit
downside risk, the portfolio co-managers expect to invest in a diversified
portfolio across an array of sectors and industries. Nevertheless, the managers
acknowledge that currently there are positive growth opportunities in the
technology sector, particularly biotechnology and Internet-related companies. No
single stock represents more than 5% of total assets, measured at the time of
investment.
INVESTMENT PROCESS
SCREENS
(3 Price Is this stock price reasonable?
(2 Utility Can the company go the distance?
Financial Strength
Management Depth and Talent
(1 Growth Are earnings growing rapidly?
15%+ Annual Growth Rates
Positive Earnings Surprises
MILLENNIUM INVESTORS CAN EXPECT:
[ ] Disciplined stock selection process
[ ] Long-term growth potential of small-cap stocks
[ ] Risk management
INVESTMENT INSIGHT
The portfolio co-managers of the Millennium Fund make it their business
to track down promising small-cap companies wherever they may exist. As a
result, this fund enables investors who can accept the risks of small-cap stocks
to pursue the potential for long-term growth that small-caps may provide.
NEUBERGER BERMAN REGENCY PORTFOLIO
----------------------------------
Investment Program
------------------
Seeks growth of capital by investing mainly in common stocks of
mid-capitalization companies. The Portfolio seeks to reduce risk by diversifying
among different companies and industries.
19
<PAGE>
MID-CAP COMPANIES WITH MARKET LEADERSHIP
Regency's portfolio co-managers search the mid-cap stock universe for
companies with a dominant market share in their industry. Historically,
businesses with market leadership have delivered significant returns for
shareholders over the long term. While this may not always be the case,
discovering such middle-weight champions before the rest of Wall Street does can
yield substantial payoffs for investors. Of course, there can be no assurance
that the managers will select the right stocks every time. Remember that the
stocks of mid-cap companies may be more volatile, and entail more risk, than the
stocks of larger companies.
BOTTOM-UP APPROACH TO STOCK SELECTION
The portfolio co-managers' extensive bottom-up approach begins with
financial screens that are used to search for undervalued securities with
compelling fundamentals. Then, in-depth company and industry analyses are
conducted, followed by interviews with company managements and their
competitors, customers, and suppliers. In this stage, reviewing strategic plans
and evaluating management are critical steps. After applying these financial and
qualitative screens the portfolio co-managers then seek to identify a catalyst
for change that could improve a stock's valuation. These catalysts are generally
managerial, operational, structural or financial in nature and include changes
in company management, new corporate strategies, changes in the business mix,
and improving financials, among others. The remaining candidates are then ranked
on a risk/reward basis. Stocks with the most compelling risk/reward ratios are
placed in the portfolio, while stocks that are currently not a good portfolio
fit, are placed on a monitor list for further evaluation.
BROAD VIEW OF RISK MANAGEMENT
In order to reduce risk on the buy side, the managers look for
reasonably priced stocks, diversify investments across an array of industries,
and avoid making large sector bets. On the sell side, stocks are sold when they
reach their price target, do not perform as expected, or are considered less
attractive than other opportunities.
INVESTMENT PROCESS
STOCK UNIVERSE
[ ] Financial Analysis
VALUE STOCK UNIVERSE
[ ] Qualitative Evaluation
[ ] Catalyst for change
EXECUTIVE MANAGEMENT TEAM EVALUATION
[ ] Proven Track Record
[ ] Strategic Plan
[ ] Inside Ownership
20
<PAGE>
REGENCY INVESTORS CAN EXPECT:
[ ] Mid-cap companies with market leadership
[ ] Bottom-up approach to stock selection
[ ] Broad view of risk management
INVESTMENT INSIGHT
The portfolio co-managers' ultimate goal is to find undervalued
companies that have not yet been discovered by the majority of investors, or
better yet, to buy "great companies at a great price." They attempt to do this
by focusing on the mid-cap segment of the market because it tends to be less
followed than the large-cap segment by Wall Street analysts.
NEUBERGER BERMAN INTERNATIONAL PORTFOLIO
----------------------------------------
Equity portfolios consisting solely of domestic investments generally
have not enjoyed the higher returns foreign opportunities can offer. Over the
past thirty years, for example, the average growth rates of many foreign
economies have outpaced that of the United States. While the United States
accounted for almost 66% of the world's total securities market capitalization
in 1970, it accounted for less than 51% of that total at the end of 1998 -- or
less than a third of the dollar value of the world's available stocks and
bonds.(5)
Over time, a number of international equity markets have outperformed
their U.S. counterpart. Although there are no guarantees, foreign markets could
continue to provide attractive investment opportunities.
In addition, according to Morgan Stanley Capital International, the
leading companies in any given sector are not always U.S.-based. For example,
nine of the ten largest steel companies, eight of the ten largest electronic
companies and eight of the ten largest automobile companies are based outside
the United States.
A principal advantage of investing overseas is diversification. A
diversified portfolio gives investors the opportunity to pursue increased
overall return while reducing risk. It is prudent to diversify by taking
advantage of investment opportunities in more than one country's stock or bond
market. By investing in several countries through a worldwide portfolio,
investors can lower their exposure and vulnerability to weakness in any one
market. Investors should be aware, however, that international investing is not
a guarantee against market risk and may be affected by the economic and other
factors described in the Prospectus. These include the prospects of individual
companies and other risks such as currency fluctuations or controls,
expropriation, nationalization and confiscatory taxation.
Furthermore, buying foreign stocks and bonds can be difficult for the
individual investor and involves many decisions. Accessing international markets
- -----------------------
(5) Source: Morgan Stanley Capital International.
21
<PAGE>
is complicated; few individuals have the time or resources to evaluate
thoroughly foreign companies and markets or the ability to incur the high
transaction costs of direct investment in such markets. A mutual fund investing
in foreign securities offers an investor broad diversification at a relatively
low cost.
At least 65% of the Portfolio's total assets normally are invested in
equity securities of foreign issuers. The Portfolio invests primarily in equity
securities of companies located in developed foreign economies, as well as in
"emerging markets." NB Management's investment process includes a combination of
a top-down or macro-economic analysis and a bottom-up, micro-economic approach,
as well as a blend of growth and value investment styles. The Portfolio may use
leverage to facilitate transactions it enters into for hedging purposes.
Investment Program
------------------
Seeks long-term growth of capital by investing primarily in common
stocks of foreign companies of any capitalization, including companies in
developed and emerging industrialized markets. Invests in well-managed companies
that show potential for above-average growth or whose stock price is
undervalued.
A COMBINATION OF TOP-DOWN AND BOTTOM-UP APPROACHES TO INVESTING
The portfolio manager's top-down view of various regions and countries
helps her choose the areas that offer the best relative value. As she explains,
"We are value-added investors, not "closet" indexers. We will overweight the
portfolio with securities from countries we believe have the best investment
potential and underweight those we think have limited prospects." Her bottom-up
perspective seeks well-managed companies with strong fundamentals, such as
attractive cash flows, strong balance sheets, and solid earnings growth. The
Fund has no capitalization constraints and thus can invest in companies of all
sizes.
A BLEND OF GROWTH AND VALUE INVESTMENT STYLES
The portfolio manager uses a blend of styles to reduce the risk of
significant losses when a particular style falls out of favor with investors.
The growth component highlights rapidly growing companies in niche industries
with unique products or services, while the value component focuses on
undervalued, out-of-favor companies that she believes are poised for a
turnaround.
HIGH POTENTIAL REWARDS WITH COMMENSURATE RISKS
The portfolio invests in equity securities of both developed and
emerging markets. While the potential rewards are high, so are the associated
risks. Foreign markets are often less developed and foreign governments and
economic infrastructures may not be as stable compared to the U.S. Other
international risks, such as currency exchange rate and interest rate
fluctuations, could result in greater volatility than domestic funds.
22
<PAGE>
AN ADDED LEVEL OF DIVERSIFICATION
Domestic and foreign markets generally do not all move in the same
direction at the same time and are subject to different sets of risk factors.
Investors with exposure to more than a single market can potentially offset
losses in one market with gains in another. While foreign markets can be
inherently risky, investors who include international securities in their
portfolios can benefit from an additional layer of diversification along with
the potential for long-term growth.
INVESTMENT PROCESS
1. Screen International Universe
2. Quantitative and Qualitative Evaluation
3. Review Prime Buy Ideas
4. Portfolio Construction
INTERNATIONAL INVESTORS CAN EXPECT:
[ ] A combination of top-down and bottom-up approaches to investing
[ ] A blend of growth and value investment styles
[ ] High potential rewards with commensurate risks
[ ] An added level of portfolio diversification
INVESTMENT INSIGHT
In identifying attractive stocks from among the many thousands
currently available outside the U.S., it's important to have a clear strategy.
The International Portfolio uses a combination of growth and value criteria,
while also considering larger scale economic factors.
CURRENCY RISK MANAGEMENT
Exchange rate movements and volatility are important factors in
international investing. The portfolio manager believes in actively managing the
Portfolio's currency exposure, in an effort to capitalize on foreign currency
trends and to reduce overall portfolio volatility. Currency risk management is
performed separately from equity analysis. The portfolio manager uses a
combination of economic analysis to guide the Portfolio's longer-term posture
and quantitative trend analysis to assist in timing decisions with respect to
whether (or when) to invest in instruments denominated in a particular foreign
currency, or whether (or when) to hedge particular foreign currencies in which
liquid foreign exchange markets exist.
To illustrate the importance of including an international component in
a well-diversified portfolio, below are the annual returns for the S&P 500 Index
and the EAFE(R) Index for the years 1984-1998. In seven of the past fifteen
years, international stocks (as represented by the EAFE Index) have outperformed
23
<PAGE>
U.S. stocks (as represented by the S&P 500 Index), in some cases by a
significant margin. Conversely, in other years, U.S. stocks have substantially
outperformed international stocks. Investors with exposure to both domestic and
international issues can minimize losses because gains in one market can offset
losses in another.
ANNUAL TOTAL RETURNS FOR EAFE AND S&P 500 (1984-1998):(6)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>>
YEAR 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
- ----- ------ ------ ------ ------ ----- ------ ----- ------ ------ ------ ------ ----- ------ ------ -----
S&P 28.52% 33.32% 22.90% 37.44% 1.36% 10.03% 7.61% 30.34% -3.11% 31.59% 16.50% 5.18% 18.62% 31.64% 6.22%
500
- ---- ------ ------ ----- ------ ----- ------ ------- ------ ------- ------ ------ ------ ------ ------ -----
EAFE 20.33% 2.06% 6.36% 11.55% 8.06% 32.94% -11.85% 12.50% -23.20% 10.80% 28.59% 24.93% 69.94% 56.72% 7.86%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Of course, these historical results may not continue in the
future. Investors should keep in mind the greater risks inherent in
foreign markets, such as currency exchange fluctuations, interest
rates, and potentially adverse economic and political conditions.
* * * * *
Each Portfolio invests in a wide array of stocks, and no single stock
makes up more than a small fraction of any Portfolio's total assets. Of course,
each Portfolio's holdings are subject to change.
Additional Investment Information
---------------------------------
Some or all of the Portfolios, as indicated below, may make the
following investments, among others; some of which are part of the Portfolios'
principal investment strategies and some of which are not. The principal risks
of each Portfolio's principal strategies are discussed in the prospectus. They
may not buy all of the types of securities or use all of the investment
techniques that are described.
ILLIQUID SECURITIES (ALL PORTFOLIOS). Illiquid securities are
securities that cannot be expected to be sold within seven days at approximately
the price at which they are valued. These may include unregistered or other
restricted securities and repurchase agreements maturing in greater than seven
days. Illiquid securities may also include commercial paper under section 4(2)
of the 1933 Act, as amended, and Rule 144A securities (restricted securities
that may be traded freely among qualified institutional buyers pursuant to an
exemption from the registration requirements of the securities laws); these
securities are considered illiquid unless NB Management, acting pursuant to
guidelines established by the trustees of the Managers Trusts, determines they
- -----------------------
(6) Total return includes investment of all dividends and other distributions.
the EAFE(R) Index, also known as the Morgan Stanley Capital International
Europe, Australasia, Far East Index, is an unmanaged index of over 1,000 foreign
stock prices and is translated into U.S. dollars. The S&P "500" Index is an
unmanaged index generally considered to be representative of U.S. stock market
activity. Indices do not take into account brokerage commissions or other fees
and expenses of investing in the individual securities that they track. Data
about the peformance of these indices are prepared or obtained by NB Management.
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are liquid. Generally, foreign securities freely tradable in their principal
market are not considered restricted or illiquid. Illiquid securities may be
difficult for a Portfolio to value or dispose of due to the absence of an active
trading market. The sale of some illiquid securities by the Portfolios may be
subject to legal restrictions which could be costly to the Portfolios.
POLICIES AND LIMITATIONS. Each Portfolio may invest up to 15% of its
net assets in illiquid securities.
REPURCHASE AGREEMENTS (ALL PORTFOLIOS). In a repurchase agreement, a
Portfolio purchases securities from a bank that is a member of the Federal
Reserve System (or, in the case of Neuberger Berman INTERNATIONAL Portfolio,
also from a foreign bank or a U.S. branch or agency of a foreign bank) or from a
securities dealer that agrees to repurchase the securities from the Portfolio at
a higher price on a designated future date. Repurchase agreements generally are
for a short period of time, usually less than a week. Costs, delays, or losses
could result if the selling party to a repurchase agreement becomes bankrupt or
otherwise defaults. NB Management monitors the creditworthiness of sellers. If
Neuberger Berman INTERNATIONAL Portfolio enters into a repurchase agreement
subject to foreign law and the counter-party defaults, that Portfolio may not
enjoy protections comparable to those provided to certain repurchase agreements
under U.S. bankruptcy law and may suffer delays and losses in disposing of the
collateral as a result.
POLICIES AND LIMITATIONS. Repurchase agreements with a maturity of more
than seven days are considered to be illiquid securities. No Portfolio may enter
into a repurchase agreement with a maturity of more than seven days if, as a
result, more than 15% of the value of its net assets would then be invested in
such repurchase agreements and other illiquid securities. A Portfolio may enter
into a repurchase agreement only if (1) the underlying securities are of a type
that the Portfolio's investment policies and limitations would allow it to
purchase directly, (2) the market value of the underlying securities, including
accrued interest, at all times equals or exceeds the repurchase price, and (3)
payment for the underlying securities is made only upon satisfactory evidence
that the securities are being held for the Portfolio's account by its custodian
or a bank acting as the Portfolio's agent.
SECURITIES LOANS (ALL PORTFOLIOS). Each Portfolio may lend securities
to banks, brokerage firms, and other institutional investors judged creditworthy
by NB Management, provided that cash or equivalent collateral, equal to at least
100% of the market value of the loaned securities, is continuously maintained by
the borrower with the Portfolio. The Portfolio may invest the cash collateral
and earn income, or it may receive an agreed upon amount of interest income from
a borrower who has delivered equivalent collateral. During the time securities
are on loan, the borrower will pay the Portfolio an amount equivalent to any
dividends or interest paid on such securities. These loans are subject to
termination at the option of the Portfolio or the borrower. The Portfolio may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Portfolio does not have the
right to vote securities on loan, but would terminate the loan and regain the
right to vote if that were considered important with respect to the investment.
NB Management believes the risk of loss on these transactions is slight because,
if a borrower were to default for any reason, the collateral should satisfy the
obligation. However, as with other extensions of secured credit, loans of
portfolio securities involve some risk of loss of rights in the collateral
should the borrower fail financially.
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POLICIES AND LIMITATIONS. Each Portfolio may lend portfolio securities
with a value not exceeding 33-1/3% of its total assets to banks, brokerage
firms, or other institutional investors judged creditworthy by NB Management.
Borrowers are required continuously to secure their obligations to return
securities on loan from a Portfolio by depositing collateral in a form
determined to be satisfactory by the 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.
Securities lending by Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not
subject to the Social Policy.
RESTRICTED SECURITIES AND RULE 144A SECURITIES (ALL PORTFOLIOS). Each
Portfolio may invest in restricted securities, which are securities that may not
be sold to the public without an effective registration statement under the 1933
Act. Before they are registered, such securities may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional market for
unregistered securities and the importance of institutional investors in the
formation of capital, the SEC has adopted Rule 144A under the 1933 Act. Rule
144A is designed to facilitate efficient trading among institutional investors
by permitting the sale of certain unregistered securities to qualified
institutional buyers. To the extent privately placed securities held by a
Portfolio qualify under Rule 144A and an institutional market develops for those
securities, the Portfolio likely will be able to dispose of the securities
without registering them under the 1933 Act. To the extent that institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could increase the level of a Portfolio's
illiquidity. NB Management, acting under guidelines established by the Portfolio
Trustees, may determine that certain securities qualified for trading under Rule
144A are liquid. Regulation S under the 1933 Act permits the sale abroad of
securities that are not registered for sale in the United States.
Where registration is required, a Portfolio may be obligated to pay all
or part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
for which no market exists are priced by a method that the Portfolio Trustees
believe accurately reflects fair value.
POLICIES AND LIMITATIONS. To the extent restricted securities,
including Rule 144A securities, are illiquid, purchases thereof will be subject
to each Portfolio's 15% limit on investments in illiquid securities.
REVERSE REPURCHASE AGREEMENTS (ALL PORTFOLIOS). In a reverse repurchase
agreement, a Portfolio sells portfolio securities subject to its agreement to
repurchase the securities at a later date for a fixed price reflecting a market
rate of interest. There is a risk that the counter-party to a reverse repurchase
agreement will be unable or unwilling to complete the transaction as scheduled,
which may result in losses to the Portfolio.
POLICIES AND LIMITATIONS. Reverse repurchase agreements are considered
borrowings for purposes of each Portfolio's investment policies and limitations
concerning borrowings. While a reverse repurchase agreement is outstanding, a
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Portfolio will deposit in a segregated account with its custodian cash or
appropriate liquid securities, marked to market daily, in an amount at least
equal to the Portfolio's obligations under the agreement.
LEVERAGE (NEUBERGER BERMAN INTERNATIONAL PORTFOLIO). The Portfolio may
make investments while borrowings are outstanding. Leverage creates an
opportunity for increased total return but, at the same time, creates special
risk considerations. For example, leverage may amplify changes in the
Portfolio's and its corresponding Fund's net asset values ("NAVs"). Although the
principal of such borrowings will be fixed the Portfolio's assets may change in
value during the time the borrowing is outstanding. Leverage from borrowing
creates interest expenses for the Portfolio. To the extent the income derived
from securities purchased with borrowed funds exceeds the interest the Portfolio
will have to pay, the Portfolio's total return will be greater than it would be
if leverage were not used. Conversely, if the income from the assets obtained
with borrowed funds is not sufficient to cover the cost of leveraging, the net
income of the Portfolio will be less than it would be if leverage were not used,
and therefore the amount available for distribution to the Fund's shareholders
as dividends will be reduced. Reverse repurchase agreements create leverage and
are considered borrowings for the purposes of the Portfolio's investment
limitations.
POLICIES AND LIMITATIONS. Generally, the Portfolio does not intend to
use leverage for investment purposes. It may, however, use leverage to purchase
securities needed to close out short sales entered into for hedging purposes and
to facilitate other hedging transactions.
FOREIGN SECURITIES (ALL PORTFOLIOS). Each Portfolio may invest in U.S.
dollar-denominated securities of foreign issuers and foreign branches of U.S.
banks, including negotiable certificates of deposit ("CDs"), bankers'
acceptances and commercial paper. Foreign issuers are issuers organized and
doing business principally outside the U.S. and include banks, non-U.S.
governments, and quasi-governmental organizations. While investments in foreign
securities are intended to reduce risk by providing further diversification,
such investments involve sovereign and other risks, in addition to the credit
and market risks normally associated with domestic securities. These additional
risks include the possibility of adverse political and economic developments
(including political instability, nationalization, expropriation, or
confiscatory taxation) and the potentially adverse effects of unavailability of
public information regarding issuers, less governmental supervision and
regulation of financial markets, reduced liquidity of certain financial markets,
and the lack of uniform accounting, auditing, and financial reporting standards
or the application of standards that are different or less stringent than those
applied in the United States.
Each 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 and their subdivisions, agencies, and instrumentalities,
international agencies, and supranational entities. Investing in foreign
currency denominated securities involves the special risks associated with
investing in non-U.S. issuers, as described in the preceding paragraph, and the
additional risks of (1) adverse changes in foreign exchange rates, and (2)
adverse changes in investment or exchange control regulations (which could
prevent cash from being brought back to the United States). Additionally,
dividends and interest payable on foreign securities (and gains realized on
disposition thereof) may be subject to foreign taxes, including taxes withheld
from those payments. Commissions on foreign securities exchanges are often at
fixed rates and are generally higher than negotiated commissions on U.S.
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exchanges, although the Portfolios endeavor to achieve the most favorable net
results on portfolio transactions.
Foreign securities often trade with less frequency and in less volume
than domestic securities and 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.
Foreign markets also have different clearance and settlement
procedures. In certain markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of a Portfolio are uninvested and
no return is earned thereon. The inability of a Portfolio to make intended
security 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 a Portfolio due
to subsequent declines in value of the securities or, if the Portfolio has
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
Interest rates prevailing in other countries may affect the prices of
foreign securities and exchange rates for foreign currencies. 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, often affect interest rates in other countries. 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.
The Portfolios may invest in ADRs, EDRs, GDRs, and IDRs. ADRs
(sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust
company evidencing its ownership of the underlying foreign securities. Most ADRs
are denominated in U.S. dollars and are traded on a U.S. stock exchange. Issuers
of the securities underlying sponsored ADRs, but not unsponsored ADRs, are
contractually obligated to disclose material information in the United States.
Therefore, the market value of unsponsored ADRs may not reflect the effect of
such information. EDRs and IDRs are receipts typically issued by a European bank
or trust company evidencing its ownership of the underlying foreign securities.
GDRs are receipts issued by either a U.S. or non-U.S. banking institution
evidencing its ownership of the underlying foreign securities and are often
denominated in U.S. dollars.
POLICIES AND LIMITATIONS. In order to limit the risks inherent in
investing in foreign currency denominated securities, a Portfolio (except
Neuberger Berman INTERNATIONAL, Neuberger Berman MILLENNIUM and Neuberger Berman
CENTURY Portfolios) may not purchase any such security if, as a result, more
than 10% of its total assets (taken at market value) would be invested in
foreign currency denominated securities. Each of Neuberger Berman MILLENNIUM and
Neuberger Berman CENTURY Portfolios may not purchase foreign currency
denominated securities if, as a result, more than 20% of its total assets (taken
at market value) would be invested in such securities. Within those limitations,
however, no Portfolio is restricted in the amount it may invest in securities
denominated in any one foreign currency. Neuberger Berman INTERNATIONAL
Portfolio invests primarily in foreign securities.
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Investments in securities of foreign issuers are subject to each
Portfolio's quality standards. Each Portfolio (except Neuberger Berman
INTERNATIONAL Portfolio) may invest only in securities of issuers in countries
whose governments are considered stable by NB Management.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES (NEUBERGER BERMAN
INTERNATIONAL PORTFOLIO). The Portfolio may purchase securities on a when-issued
basis and may purchase or sell securities on a forward commitment basis. These
transactions involve a commitment by the Portfolio to purchase or sell
securities at a future date (ordinarily within two months, although the
Portfolio may agree to a longer settlement period). The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases and forward commitment
transactions are negotiated directly with the other party, and such commitments
are not traded on exchanges.
When-issued purchases and forward commitment transactions enable the
Portfolio to "lock in" what NB Management believes to be an attractive price or
yield on a particular security for a period of time, regardless of future
changes in interest rates. For instance, in periods of rising interest rates and
falling prices, the Portfolio might sell securities it owns on a forward
commitment basis to limit its exposure to falling prices. In periods of falling
interest rates and rising prices, the Portfolio might purchase a security on a
when-issued or forward commitment basis and sell a similar security to settle
such purchase, thereby obtaining the benefit of currently higher yields. If the
seller fails to complete the sale, the Portfolio may lose the opportunity to
obtain a favorable price.
The value of securities purchased on a when-issued or forward
commitment basis and any subsequent fluctuations in their value are reflected in
the computation of the Portfolio's NAV starting on the date of the agreement to
purchase the securities. Because the Portfolio has not yet paid for the
securities, this produces an effect similar to leverage. The Portfolio does not
earn interest on securities it has committed to purchase until the securities
are paid for and delivered on the settlement date. When the Portfolio makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Portfolio's assets. Fluctuations in the market
value of the underlying securities are not reflected in the Portfolio's NAV as
long as the commitment to sell remains in effect.
POLICIES AND LIMITATIONS. The Portfolio will purchase securities on a
when-issued basis or purchase or sell securities on a forward commitment basis
only with the intention of completing the transaction and actually purchasing or
selling the securities. If deemed advisable as a matter of investment strategy,
however, the Portfolio may dispose of or renegotiate a commitment after it has
been entered into. The Portfolio also may sell securities it has committed to
purchase before those securities are delivered to the Portfolio on the
settlement date. The Portfolio may realize capital gains or losses in connection
with these transactions.
When the Portfolio purchases securities on a when-issued or forward
commitment basis, the Portfolio will deposit in a segregated account with its
custodian, until payment is made, appropriate liquid securities having a value
(determined daily) at least equal to the amount of the Portfolio's purchase
commitments. In the case of a forward commitment to sell portfolio securities,
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the custodian will hold the portfolio securities themselves in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Portfolio maintains sufficient assets at all times to cover its
obligations under when-issued purchases and forward commitment transactions.
FUTURES, OPTIONS ON FUTURES, OPTIONS ON SECURITIES AND INDICES,
FORWARD CONTRACTS, AND OPTIONS ON FOREIGN CURRENCIES (COLLECTIVELY,
"FINANCIAL INSTRUMENTS")
FUTURES CONTRACTS AND OPTIONS THEREON (ALL PORTFOLIOS). Each of
Neuberger Berman SOCIALLY RESPONSIVE, Neuberger Berman MILLENNIUM and Neuberger
Berman CENTURY Portfolios may purchase and sell interest rate futures contracts,
stock and bond index futures contracts, and foreign currency futures contracts
and may purchase and sell options thereon in an attempt to hedge against changes
in the prices of securities or, in the case of foreign currency futures and
options thereon, to hedge against changes in prevailing currency exchange rates.
Because the futures markets may be more liquid than the cash markets, the use of
futures contracts permits each Portfolio to enhance portfolio liquidity and
maintain a defensive position without having to sell portfolio securities. These
Portfolios view investment in (i) interest rate and securities index futures and
options thereon as a maturity management device and/or a device to reduce risk
or preserve total return in an adverse environment for the hedged securities,
and (ii) foreign currency futures and options thereon as a means of establishing
more definitely the effective return on, or the purchase price of, securities
denominated in foreign currencies that are held or intended to be acquired by
the Portfolio.
Neuberger Berman INTERNATIONAL Portfolio may enter into futures
contracts on currencies, debt securities, interest rates, and securities indices
that are traded on exchanges regulated by the Commodity Futures Trading
Commission ("CFTC") or on foreign exchanges. Trading on foreign exchanges is
subject to the legal requirements of the jurisdiction in which the exchange is
located and to the rules of such foreign exchange.
Neuberger Berman INTERNATIONAL Portfolio may sell futures contracts in
order to offset a possible decline in the value of its portfolio securities.
When a futures contract is sold by the Portfolio, the value of the contract will
tend to rise when the value of the portfolio securities declines and will tend
to fall when the value of such securities increases. The Portfolio may purchase
futures contracts in order to fix what NB Management believes to be a favorable
price for securities the Portfolio intends to purchase. If a futures contract is
purchased by the Portfolio, the value of the contract will tend to change
together with changes in the value of such securities. To compensate for
differences in historical volatility between positions Neuberger Berman
INTERNATIONAL Portfolio wishes to hedge and the standardized futures contracts
available to it, the Portfolio may purchase or sell futures contracts with a
greater or lesser value than the securities it wishes to hedge.
With respect to currency futures, Neuberger Berman INTERNATIONAL
Portfolio may sell a futures contract or a call option, or it may purchase a put
option on such futures contract, if NB Management anticipates that exchange
rates for a particular currency will fall. Such a transaction will be used as a
hedge (or, in the case of a sale of a call option, a partial hedge) against a
decrease in the value of portfolio securities denominated in that currency. If
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NB Management anticipates that a particular currency will rise, Neuberger Berman
INTERNATIONAL Portfolio may purchase a currency futures contract or a call
option to protect against an increase in the price of securities which are
denominated in that currency and which the Portfolio intends to purchase. The
Portfolio may also purchase a currency futures contract or a call option thereon
for non-hedging purposes when NB Management anticipates that a particular
currency will appreciate in value, but securities denominated in that currency
do not present an attractive investment and are not included in the Portfolio.
For purposes of managing cash flow, each Portfolio may purchase and
sell stock index futures contracts, and may purchase and sell options thereon,
to increase its exposure to the performance of a recognized securities index,
such as the S&P 500 Index.
A "sale" of a futures contract (or a "short" futures position) entails
the assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) entails the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures, including stock and bond index futures, are settled on a net cash
payment basis rather than by the sale and delivery of the securities underlying
the futures.
U.S. futures contracts (except certain currency futures) are traded on
exchanges that have been designated as "contract markets" by the CFTC; futures
transactions must be executed through a futures commission merchant that is a
member of the relevant contract market. In both U.S. and foreign markets, an
exchange's affiliated clearing organization guarantees performance of the
contracts between the clearing members of the exchange.
Although futures contracts by their terms may require the actual
delivery or acquisition of the underlying securities or currency, in most cases
the contractual obligation is extinguished by being offset before the expiration
of the contract. A futures position is offset by buying (to offset an earlier
sale) or selling (to offset an earlier purchase) an identical futures contract
calling for delivery in the same month. This may result in a profit or loss.
While futures contracts entered into by a Portfolio will usually be liquidated
in this manner, the Portfolio may instead make or take delivery of underlying
securities whenever it appears economically advantageous for it to do so.
"Margin" with respect to a futures contract is the amount of assets
that must be deposited by a Portfolio with, or for the benefit of, a futures
commission merchant in order to initiate and maintain the Portfolio's futures
positions. The margin deposit made by the Portfolio when it enters into a
futures contract ("initial margin") is intended to assure its performance of the
contract. If the price of the futures contract changes -- increases in the case
of a short (sale) position or decreases in the case of a long (purchase)
position -- so that the unrealized loss on the contract causes the margin
deposit not to satisfy margin requirements, the Portfolio will be required to
make an additional margin deposit ("variation margin"). However, if favorable
price changes in the futures contract cause the margin deposit to exceed the
required margin, the excess will be paid to the Portfolio. In computing their
NAVs, the Portfolios mark to market the value of their open futures positions.
Each Portfolio also must make margin deposits with respect to options on futures
that it has written (but not with respect to options on futures that it has
purchased). If the futures commission merchant holding the margin deposit goes
bankrupt, the Portfolio could suffer a delay in recovering its funds and could
ultimately suffer a loss.
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An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in the contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume a short futures
position (if the option is a call) or a long futures position (if the option is
a put). Upon exercise of the option, the accumulated cash balance in the
writer's futures margin account is delivered to the holder of the option. That
balance represents the amount by which the market price of the futures contract
at exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option. Options on futures have characteristics
and risks similar to those of securities options, as discussed herein.
Although each Portfolio believes that the use of futures contracts will
benefit it, if NB Management's judgment about the general direction of the
markets or about interest rate or currency exchange rate trends is incorrect,
the Portfolio's overall return would be lower than if it had not entered into
any such contracts. The prices of futures contracts are volatile and are
influenced by, among other things, actual and anticipated changes in interest or
currency exchange rates, which in turn are affected by fiscal and monetary
policies and by national and international political and economic events. At
best, the correlation between changes in prices of futures contracts and of
securities being hedged can be only approximate due to differences between the
futures and securities markets or differences between the securities or
currencies underlying a Portfolio's futures position and the securities held by
or to be purchased for the Portfolio. The currency futures market may be
dominated by short-term traders seeking to profit from changes in exchange
rates. This would reduce the value of such contracts used for hedging purposes
over a short-term period. Such distortions are generally minor and would
diminish as the contract approaches maturity.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage; as a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, or
gain, to the investor. Losses that may arise from certain futures transactions
are potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctuation in the
price of a futures contract or option thereon during a single trading day; once
the daily limit has been reached, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day, however; it thus does not limit potential losses. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable futures and options positions and
subjecting traders to substantial losses. If this were to happen with respect to
a position held by a Portfolio, it could (depending on the size of the position)
have an adverse impact on the NAV of the Portfolio.
POLICIES AND LIMITATIONS. Neuberger Berman SOCIALLY RESPONSIVE,
Neuberger Berman MILLENNIUM and Neuberger Berman CENTURY Portfolios each may
purchase and sell futures contracts and may purchase and sell options thereon in
an attempt to hedge against changes in the prices of securities or, in the case
of foreign currency futures and options thereon, to hedge against prevailing
currency exchange rates. These Portfolios do not engage in transactions in
futures and options on futures for speculation. The use of futures and options
on futures by Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not subject to
the Social Policy.
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Neuberger Berman INTERNATIONAL Portfolio may purchase and sell futures
for BONA FIDE hedging purposes, as defined in regulations of the CFTC, and for
non-hedging purposes (I.E., in an effort to enhance income). The Portfolio may
also purchase and write put and call options on such futures contracts for BONA
FIDE hedging and non-hedging purposes.
For purposes of managing cash flow, each Portfolio may purchase and
sell stock index futures contracts, and may purchase and sell options thereon,
to increase its exposure to the performance of a recognized securities index,
such as the S&P 500 Index.
CALL OPTIONS ON SECURITIES (ALL PORTFOLIOS). Neuberger Berman
MILLENNIUM, CENTURY, SOCIALLY RESPONSIVE and INTERNATIONAL Portfolios may write
covered call options and may purchase call options on securities. Each of the
other Portfolios may write covered call options and may purchase call options in
related closing transactions. The purpose of writing call options is to hedge
(i.e., to reduce, at least in part, the effect of price fluctuations of
securities held by the Portfolio on the Portfolio's and its corresponding Fund's
NAVs) or to earn premium income. Portfolio securities on which call options may
be written and purchased by a Portfolio are purchased solely on the basis of
investment considerations consistent with the Portfolio's investment objective.
When a Portfolio writes a call option, it is obligated to sell a
security to a purchaser at a specified price at any time until a certain date if
the purchaser decides to exercise the option. The Portfolio receives a premium
for writing the call option. So long as the obligation of the call option
continues, the Portfolio may be assigned an exercise notice, requiring it to
deliver the underlying security against payment of the exercise price. The
Portfolio may be obligated to deliver securities underlying an option at less
than the market price.
The writing of covered call options is a conservative investment
technique that is believed to involve relatively little risk but is capable of
enhancing the Portfolios' total return. When writing a covered call option, a
Portfolio, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security decline.
If a call option that a Portfolio has written expires unexercised, the
Portfolio will realize a gain in the amount of the premium; however, that gain
may be offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, the Portfolio will realize a
gain or loss from the sale of the underlying security.
When a Portfolio purchases a call option, it pays a premium for the
right to purchase a security from the writer at a specified price until a
specified date.
POLICIES AND LIMITATIONS. Each Portfolio may write covered call options
and may purchase call options in related closing transactions. Each Portfolio
writes only "covered" call options on securities it owns (in contrast to the
writing of "naked" or uncovered call options, which the Portfolios will not do).
A Portfolio would purchase a call option to offset a previously written
call option. Each of Neuberger Berman MILLENNIUM, CENTURY and SOCIALLY
RESPONSIVE Portfolios also may purchase a call option to protect against an
increase in the price of the securities it intends to purchase. The use of call
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options on securities by Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not
subject to the Social Policy. Neuberger Berman INTERNATIONAL Portfolio may
purchase call options for hedging or non-hedging purposes.
PUT OPTIONS ON SECURITIES (NEUBERGER BERMAN MILLENNIUM, CENTURY,
SOCIALLY RESPONSIVE AND INTERNATIONAL PORTFOLIOS). Each of these Portfolios may
write and purchase put options on securities. Each of Neuberger Berman
MILLENNIUM, CENTURY, SOCIALLY RESPONSIVE or INTERNATIONAL Portfolios will
receive a premium for writing a put option, which obligates the Portfolio to
acquire a security at a certain price at any time until a certain date if the
purchaser decides to exercise the option. The Portfolio may be obligated to
purchase the underlying security at more than its current value.
When Neuberger Berman MILLENNIUM, CENTURY, SOCIALLY RESPONSIVE or
INTERNATIONAL Portfolio purchases a put option, it pays a premium to the writer
for the right to sell a security to the writer for a specified amount at any
time until a certain date. The Portfolio would purchase a put option in order to
protect itself against a decline in the market value of a security it owns.
Portfolio securities on which put options may be written and purchased
by Neuberger Berman MILLENNIUM, CENTURY, SOCIALLY RESPONSIVE or INTERNATIONAL
Portfolio are purchased solely on the basis of investment considerations
consistent with the Portfolio's investment objective. When writing a put option,
the Portfolio, in return for the premium, takes the risk that it must purchase
the underlying security at a price that may be higher than the current market
price of the security. If a put option that the Portfolio has written expires
unexercised, the Portfolio will realize a gain in the amount of the premium.
POLICIES AND LIMITATIONS. Neuberger Berman MILLENNIUM, CENTURY,
SOCIALLY RESPONSIVE and INTERNATIONAL Portfolios generally write and purchase
put options on securities for hedging purposes (I.E., to reduce, at least in
part, the effect of price fluctuations of securities held by the Portfolio on
the Portfolio's and its corresponding Fund's NAVs). However, Neuberger Berman
INTERNATIONAL Portfolio also may use put options for non-hedging purposes. The
use of put options on securities by Neuberger Berman SOCIALLY RESPONSIVE
Portfolio is not subject to the Social Policy.
GENERAL INFORMATION ABOUT SECURITIES OPTIONS. The exercise price of an
option may be below, equal to, or above the market value of the underlying
security at the time the option is written. Options normally have expiration
dates between three and nine months from the date written. American-style
options are exercisable at any time prior to their expiration date. Neuberger
Berman INTERNATIONAL Portfolio also may purchase European-style options, which
are exercisable only immediately prior to their expiration date. The obligation
under any option written by a Portfolio terminates upon expiration of the option
or, at an earlier time, when the Portfolio offsets the option by entering into a
"closing purchase transaction" to purchase an option of the same series. If an
option is purchased by a Portfolio and is never exercised or closed out, the
Portfolio will lose the entire amount of the premium paid.
Options are traded both on U.S. national securities exchanges and in
the over-the-counter ("OTC") market. Neuberger Berman INTERNATIONAL Portfolio
also may purchase and sell options that are traded on foreign exchanges.
Exchange-traded options are issued by a clearing organization affiliated with
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the exchange on which the option is listed; the clearing organization in effect
guarantees completion of every exchange-traded option. In contrast, OTC options
are contracts between a Portfolio and a counter-party, with no clearing
organization guarantee. Thus, when a Portfolio sells (or purchases) an OTC
option, it generally will be able to "close out" the option prior to its
expiration only by entering into a closing transaction with the dealer to whom
(or from whom) the Portfolio originally sold (or purchased) the option. There
can be no assurance that the Portfolio would be able to liquidate an OTC option
at any time prior to expiration. Unless a Portfolio is able to effect a closing
purchase transaction in a covered OTC call option it has written, it will not be
able to liquidate securities used as cover until the option expires or is
exercised or until different cover is substituted. In the event of the
counter-party's insolvency, a Portfolio may be unable to liquidate its options
position and the associated cover. NB Management monitors the creditworthiness
of dealers with which a Portfolio may engage in OTC options transactions.
The premium received (or paid) by a Portfolio when it writes (or
purchases) an option is the amount at which the option is currently traded on
the applicable market. The premium may reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to the market price, the historical price volatility of the underlying security,
the length of the option period, the general supply of and demand for credit,
and the interest rate environment. The premium received by a Portfolio for
writing an option is recorded as a liability on the Portfolio's statement of
assets and liabilities. This liability is adjusted daily to the option's current
market value.
Closing transactions are effected in order to realize a profit (or
minimize a loss) on an outstanding option, to prevent an underlying security
from being called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits Neuberger Berman
MILLENNIUM, SOCIALLY RESPONSIVE or INTERNATIONAL Portfolio to write another call
option on the underlying security with a different exercise price or expiration
date or both. There is, of course, no assurance that a Portfolio will be able to
effect closing transactions at favorable prices. If a Portfolio cannot enter
into such a transaction, it may be required to hold a security that it might
otherwise have sold (or purchase a security that it would not have otherwise
bought), in which case it would continue to be at market risk on the security.
A Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the call or put option. Because increases in the market
price of a call option generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset, in whole or in part, by appreciation of the underlying
security owned by the Portfolio; however, the Portfolio could be in a less
advantageous position than if it had not written the call option.
A Portfolio pays brokerage commissions or spreads in connection with
purchasing or writing options, including those used to close out existing
positions. From time to time, Neuberger Berman MILLENNIUM, SOCIALLY RESPONSIVE
or INTERNATIONAL Portfolio may purchase an underlying security for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering the security from its portfolio. In those cases, additional brokerage
commissions are incurred.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
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price and rate movements can take place in the underlying markets that cannot be
reflected in the options markets.
POLICIES AND LIMITATIONS. Each Portfolio may use American-style
options. Neuberger Berman INTERNATIONAL Portfolio also may purchase
European-style options and may purchase and sell options that are traded on
foreign exchanges.
The assets used as cover (or held in a segregated account) for OTC
options written by a Portfolio will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Portfolio may
repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC call option
written subject to this procedure will be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
The use of put and call options by Neuberger Berman SOCIALLY RESPONSIVE
Portfolio is not subject to the Social Policy.
PUT AND CALL OPTIONS ON SECURITIES INDICES. Neuberger Berman
INTERNATIONAL Portfolio may purchase put and call options on securities indices
for the purpose of hedging against the risk of price movements that would
adversely affect the value of the Portfolio's securities or securities the
Portfolio intends to buy. The Portfolio may write securities index options to
close out positions in such options that it has purchased.
For purposes of managing cash flow, each Portfolio may purchase put and
call options on securities indices to increase the Portfolio's exposure to the
performance of a recognized securities index, such as the S&P 500 Index.
Unlike a securities option, which gives the holder the right to
purchase or sell a specified security at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (1) the difference between the exercise price of the
option and the value of the underlying securities index on the exercise date (2)
multiplied by a fixed "index multiplier." A securities index fluctuates with
changes in the market values of the securities included in the index. Options on
stock indices are currently traded on the Chicago Board Options Exchange, the
New York Stock Exchange ("NYSE"), the American Stock Exchange, and other U.S.
and foreign exchanges.
The effectiveness of hedging through the purchase of securities index
options will depend upon the extent to which price movements in the securities
being hedged correlate with price movements in the selected securities index.
Perfect correlation is not possible because the securities held or to be
acquired by the Portfolio will not exactly match the composition of the
securities indices on which options are available.
Securities index options have characteristics and risks similar to
those of securities options, as discussed herein.
POLICIES AND LIMITATIONS. Neuberger Berman INTERNATIONAL Portfolio may
purchase put and call options on securities indices for the purpose of hedging.
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All securities index options purchased by the Portfolio will be listed and
traded on an exchange. The Portfolio currently does not expect to invest a
substantial portion of its assets in securities index options.
For purposes of managing cash flow, each Portfolio may purchase put and
call options on securities indices to increase the Portfolio's exposure to the
performance of a recognized securities index, such as the S&P 500 Index. All
securities index options purchased by the Portfolios will be listed and traded
on an exchange.
FOREIGN CURRENCY TRANSACTIONS (ALL PORTFOLIOS). Each Portfolio may
enter into contracts for the purchase or sale of a specific currency at a future
date (usually less than one year from the date of the contract) at a fixed price
("forward contracts"). The Portfolios also may engage in foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
The Portfolios (other than Neuberger Berman INTERNATIONAL Portfolio)
enter into forward contracts in an attempt to hedge against changes in
prevailing currency exchange rates. The Portfolios do not engage in transactions
in forward contracts for speculation; they view investments in forward contracts
as a means of establishing more definitely the effective return on, or the
purchase price of, securities denominated in foreign currencies. Forward
contract transactions include forward sales or purchases of foreign currencies
for the purpose of protecting the U.S. dollar value of securities held or to be
acquired by a Portfolio or protecting the U.S. dollar equivalent of dividends,
interest, or other payments on those securities.
Forward contracts are traded in the interbank market directly between
dealers (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades; foreign exchange dealers realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies.
At the consummation of a forward contract to sell currency, a Portfolio
may either make delivery of the foreign currency or terminate its contractual
obligation to deliver by purchasing an offsetting contract. If the Portfolio
chooses to make delivery of the foreign currency, it may be required to obtain
such currency through the sale of portfolio securities denominated in such
currency or through conversion of other assets of the Portfolio into such
currency. If the Portfolio engages in an offsetting transaction, it will incur a
gain or a loss to the extent that there has been a change in forward contract
prices. Closing purchase transactions with respect to forward contracts are
usually made with the currency dealer who is a party to the original forward
contract.
NB Management believes that the use of foreign currency hedging
techniques, including "proxy-hedges," can provide significant protection of NAV
in the event of a general rise in the U.S. dollar against foreign currencies.
For example, the return available from securities denominated in a particular
foreign currency would diminish if the value of the U.S. dollar increased
against that currency. Such a decline could be partially or completely offset by
an increase in value of a hedge involving a forward contract to sell that
foreign currency or a proxy-hedge involving a forward contract to sell a
different foreign currency whose behavior is expected to resemble the currency
in which the securities being hedged are denominated but which is available on
more advantageous terms.
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However, a hedge or proxy-hedge cannot protect against exchange rate
risks perfectly, and, if NB Management is incorrect in its judgment of future
exchange rate relationships, a Portfolio could be in a less advantageous
position than if such a hedge had not been established. If a Portfolio uses
proxy-hedging, it may experience losses on both the currency in which it has
invested and the currency used for hedging if the two currencies do not vary
with the expected degree of correlation. Using forward contracts to protect the
value of a Portfolio's securities against a decline in the value of a currency
does not eliminate fluctuations in the prices of the underlying securities.
Because forward contracts are not traded on an exchange, the assets used to
cover such contracts may be illiquid. A Portfolio may experience delays in the
settlement of its foreign currency transactions.
Neuberger Berman INTERNATIONAL Portfolio may purchase securities of an
issuer domiciled in a country other than the country in whose currency the
instrument is denominated. The Portfolio may invest in securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of a
specified amount of the currencies of certain of the member states of the
European Union. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Union from time to time to
reflect changes in relative values of the underlying currencies. The market for
ECUs may become illiquid at times of uncertainty or rapid change in the European
currency markets, limiting the Portfolio's ability to prevent potential losses.
In addition, Neuberger Berman INTERNATIONAL Portfolio may invest in securities
denominated in other currency baskets.
POLICIES AND LIMITATIONS. The Portfolios (other than Neuberger Berman
INTERNATIONAL Portfolio) may enter into forward contracts for the purpose of
hedging and not for speculation. The use of forward contracts by Neuberger
Berman SOCIALLY RESPONSIVE Portfolio is not subject to the Social Policy.
Neuberger Berman INTERNATIONAL Portfolio may enter into forward
contracts for hedging or non-hedging purposes. When the Portfolio engages in
foreign currency transactions for hedging purposes, it will not enter into
forward contracts to sell currency or maintain a net exposure to such contracts
if their consummation would obligate the Portfolio to deliver an amount of
foreign currency materially in excess of the value of its portfolio securities
or other assets denominated in that currency. Neuberger Berman INTERNATIONAL
Portfolio may also purchase and sell forward contracts for non-hedging purposes
when NB Management anticipates that a foreign currency will appreciate or
depreciate in value, but securities in that currency do not present attractive
investment opportunities and are not held in the Portfolio's investment
portfolio.
OPTIONS ON FOREIGN CURRENCIES (ALL PORTFOLIOS). Each Portfolio may
write and purchase covered call and put options on foreign currencies. Neuberger
Berman INTERNATIONAL Portfolio may write (sell) put and covered call options on
any currency in order to realize greater income than would be realized on
portfolio securities alone.
Currency options have characteristics and risks similar to those of
securities options, as discussed herein. Certain options on foreign currencies
are traded on the OTC market and involve liquidity and credit risks that may not
be present in the case of exchange-traded currency options.
POLICIES AND LIMITATIONS. A Portfolio would use options on foreign
currencies to protect against declines in the U.S. dollar value of portfolio
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securities or increases in the U.S. dollar cost of securities to be acquired or
to protect the U.S. dollar equivalent of dividends, interest, or other payments
on those securities. In addition, Neuberger Berman INTERNATIONAL Portfolio may
purchase put and call options on foreign currencies for non-hedging purposes
when NB Management anticipates that a currency will appreciate or depreciate in
value, but securities denominated in that currency do not present attractive
investment opportunities and are not included in the Portfolio. The use of
options on currencies by Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not
subject to the Social Policy.
REGULATORY LIMITATIONS ON USING FINANCIAL INSTRUMENTS. To the extent a
Portfolio sells or purchases futures contracts or writes options thereon or
options on foreign currencies that are traded on an exchange regulated by the
CFTC other than for BONA FIDE hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums on those positions (excluding the amount
by which options are "in-the-money") may not exceed 5% of the Portfolio's net
assets.
COVER FOR FINANCIAL INSTRUMENTS. Securities held in a segregated
account cannot be sold while the futures, options, or forward strategy covered
by those securities is outstanding, unless they are replaced with other suitable
assets. As a result, segregation of a large percentage of a Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet current
obligations. A Portfolio may be unable to promptly dispose of assets which
cover, or are segregated with respect to, an illiquid futures, options, or
forward position; this inability may result in a loss to the Portfolio.
POLICIES AND LIMITATIONS. Each Portfolio will comply with SEC
guidelines regarding "cover" for Financial Instruments and, if the guidelines so
require, set aside in a segregated account with its custodian the prescribed
amount of cash or appropriate liquid securities.
GENERAL RISKS OF FINANCIAL INSTRUMENTS. The primary risks in using
Financial Instruments are (1) imperfect correlation or no correlation between
changes in market value of the securities or currencies held or to be acquired
by a Portfolio and the prices of Financial Instruments; (2) possible lack of a
liquid secondary market for Financial Instruments and the resulting inability to
close out Financial Instruments when desired; (3) the fact that the skills
needed to use Financial Instruments are different from those needed to select a
Portfolio's securities; (4) the fact that, although use of Financial Instruments
for hedging purposes can reduce the risk of loss, they also can reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in hedged investments; and (5) the possible inability of a Portfolio
to purchase or sell a portfolio security at a time that would otherwise be
favorable for it to do so, or the possible need for a Portfolio to sell a
portfolio security at a disadvantageous time, due to its need to maintain cover
or to segregate securities in connection with its use of Financial Instruments.
There can be no assurance that a Portfolio's use of Financial Instruments will
be successful.
Each Portfolio's use of Financial Instruments may be limited by the
provisions of the Internal Revenue Code of 1986, as amended ("Code"), with which
it must comply if its corresponding Fund is to continue to qualify as a
regulated investment company ("RIC"). See "Additional Tax Information."
Financial Instruments may not be available with respect to some currencies,
especially those of so-called emerging market countries.
POLICIES AND LIMITATIONS. NB Management intends to reduce the risk of
imperfect correlation by investing only in Financial Instruments whose behavior
is expected to resemble or offset that of a Portfolio's underlying securities or
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currency. NB Management intends to reduce the risk that a Portfolio will be
unable to close out Financial Instruments by entering into such transactions
only if NB Management believes there will be an active and liquid secondary
market.
SHORT SALES (NEUBERGER BERMAN INTERNATIONAL PORTFOLIO). Neuberger
Berman INTERNATIONAL Portfolio may attempt to limit exposure to a possible
decline in the market value of portfolio securities through short sales of
securities that NB Management believes possess volatility characteristics
similar to those being hedged. The Portfolio also may use short sales in an
attempt to realize gain. To effect a short sale, the Portfolio borrows a
security from a brokerage firm to make delivery to the buyer. The Portfolio then
is obliged to replace the borrowed security by purchasing it at the market price
at the time of replacement. Until the security is replaced, the Portfolio is
required to pay the lender any dividends and may be required to pay a premium or
interest.
Neuberger Berman INTERNATIONAL Portfolio will realize a gain if the
security declines in price between the date of the short sale and the date on
which the Portfolio replaces the borrowed security. The Portfolio will incur a
loss if the price of the security increases between those dates. The amount of
any gain will be decreased, and the amount of any loss increased, by the amount
of any premium or interest the Portfolio is required to pay in connection with
the short sale. A short position may be adversely affected by imperfect
correlation between movements in the price of the securities sold short and the
securities being hedged.
Neuberger Berman INTERNATIONAL Portfolio also may make short sales
against-the-box, in which it sells securities short only if it owns or has the
right to obtain without payment of additional consideration an equal amount of
the same type of securities sold.
The effect of short selling on the Portfolio is similar to the effect
of leverage. Short selling may amplify changes in the Portfolio's and Neuberger
Berman INTERNATIONAL Trust's NAVs. Short selling may also produce higher than
normal portfolio turnover, which may result in increased transaction costs to
the Portfolio.
POLICIES AND LIMITATIONS. Under applicable guidelines of the SEC staff,
if the Portfolio engages in a short sale (other than a short sale
against-the-box), it must put in a segregated account (not with the broker) an
amount of cash or appropriate liquid securities equal to the difference between
(1) the market value of the securities sold short at the time they were sold
short and (2) any cash or securities required to be deposited as collateral with
the broker in connection with the short sale (not including the proceeds from
the short sale). In addition, until the Portfolio replaces the borrowed
security, it must daily maintain the segregated account at such a level that (1)
the amount deposited in it plus the amount deposited with the broker as
collateral equals the current market value of the securities sold short, and (2)
the amount deposited in it plus the amount deposited with the broker as
collateral is not less than the market value of the securities at the time they
were sold short.
FIXED INCOME SECURITIES (ALL PORTFOLIOS). While the emphasis of the
Portfolios' investment programs is on common stocks and other equity securities,
the Portfolios may also invest in money market instruments, U.S. Government and
Agency Securities, and other fixed income securities. Each Portfolio may invest
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in investment grade corporate bonds and debentures; Neuberger Berman PARTNERS,
INTERNATIONAL, CENTURY and REGENCY Portfolios each may invest in corporate debt
securities rated below investment grade.
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 (also known as Federal National Mortgage
Association), Freddie Mac (also known as Federal Home Loan Mortgage
Corporation), Student Loan Marketing Association (commonly known as "Sallie
Mae"), and the Tennessee Valley Authority. Some U.S. Government Agency
Securities are supported by the full faith and credit of the United States,
while others may by supported by the issuer's ability to borrow from the U.S.
Treasury, subject to the Treasury's discretion in certain cases, or only by the
credit of the issuer. U.S. Government Agency Securities include U.S. Government
Agency mortgage-backed securities. 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 ("S&P"), or another nationally recognized statistical rating organization
("NRSRO") or, if unrated by any NRSRO, deemed by NB Management to be comparable
to such rated securities ("Comparable Unrated Securities"). Securities rated by
Moody's in its fourth highest rating category (Baa) or Comparable Unrated
Securities may be deemed to have speculative characteristics.
The ratings of an NRSRO represent its opinion as to the quality of
securities it undertakes to rate. Ratings are not absolute standards of quality;
consequently, securities with the same maturity, coupon, and rating may have
different yields. Although the Portfolios may rely on the ratings of any NRSRO,
the Portfolios primarily refer to ratings assigned by S&P and Moody's, which are
described in Appendix A to this SAI.
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and market
liquidity ("market risk"). The value of the fixed income securities in which a
Portfolio may invest is likely to decline in times of rising market interest
rates. Conversely, when rates fall, the value of a Portfolio's fixed income
investments is likely to rise. Foreign debt securities are subject to risks
similar to those of other foreign securities.
Lower-rated securities are more likely to react to developments
affecting market and credit risk than are more highly rated securities, which
react primarily to movements in the general level of interest rates. Debt
securities in the lowest rating categories may involve a substantial risk of
default or may be in default. Changes in economic conditions or developments
regarding the individual issuer are more likely to cause price volatility and
weaken the capacity of the issuer of such securities to make principal and
interest payments than is the case for higher-grade debt securities. An economic
downturn affecting the issuer may result in an increased incidence of default.
The market for lower-rated securities may be thinner and less active than for
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higher-rated securities. Pricing of thinly traded securities requires greater
judgment than pricing of securities for which market transactions are regularly
reported. NB Management will invest in lower-rated securities only when it
concludes that the anticipated return on such an investment to Neuberger Berman
PARTNERS, INTERNATIONAL, CENTURY or REGENCY Portfolio warrants exposure to the
additional level of risk.
POLICIES AND LIMITATIONS. Each Portfolio normally may invest up to 35%
of its total assets in debt securities. Neuberger Berman PARTNERS, CENTURY and
REGENCY Portfolios each may invest up to 15% of its net assets in corporate debt
securities rated below investment grade or Comparable Unrated Securities.
Neuberger Berman INTERNATIONAL Portfolio may invest in domestic and foreign debt
securities of any rating, including those rated below investment grade and
Comparable Unrated Securities.
Subsequent to its purchase by a Portfolio, an issue of debt securities
may cease to be rated or its rating may be reduced, so that the securities would
no longer be eligible for purchase by that Portfolio. In such a case, Neuberger
Berman MILLENNIUM Portfolio and Neuberger Berman SOCIALLY RESPONSIVE Portfolio
each will engage in an orderly disposition of the downgraded securities. Each
other Portfolio (except Neuberger Berman INTERNATIONAL Portfolio) will engage in
an orderly disposition of the downgraded securities to the extent necessary to
ensure that the Portfolio's holdings of securities rated below investment grade
and Comparable Unrated Securities will not exceed 5% of its net assets (15% in
the case of Neuberger Berman PARTNERS, CENTURY and REGENCY Portfolios). NB
Management will make a determination as to whether Neuberger Berman
INTERNATIONAL Portfolio should dispose of the downgraded securities.
COMMERCIAL PAPER (ALL PORTFOLIOS). Commercial paper is a short-term
debt security issued by a corporation or bank, usually for purposes such as
financing current operations. Each Portfolio may invest in commercial paper that
cannot be resold to the public without an effective registration statement under
the 1933 Act. While restricted commercial paper normally is deemed illiquid, NB
Management may in certain cases determine that such paper is liquid, pursuant to
guidelines established by the Portfolio Trustees.
POLICIES AND LIMITATIONS. The Portfolios may invest in commercial paper
only if it has received the highest rating from S&P (A-1) or Moody's (P-1) or is
deemed by NB Management to be of comparable quality. Neuberger Berman
INTERNATIONAL Portfolio may invest in such commercial paper as a defensive
measure, to increase liquidity, or as needed for segregated accounts.
ZERO COUPON SECURITIES (NEUBERGER BERMAN PARTNERS, MILLENNIUM, SOCIALLY
RESPONSIVE, CENTURY AND REGENCY PORTFOLIOS). Each of these Portfolios may invest
in zero coupon securities, which are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or that specify a
future date when the securities begin to pay current interest. Zero coupon
securities are issued and traded at a discount from their face amount or par
value. This discount varies depending on prevailing interest rates, the time
remaining until cash payments begin, the liquidity of the security, and the
perceived credit quality of the issuer.
The discount on zero coupon securities ("original issue discount") must
be taken into income ratably by each such Portfolio prior to the receipt of any
actual payments. Because its corresponding Fund must distribute substantially
all of its net income (including its share of the Portfolio's accrued original
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issue discount) to its shareholders each year for income and excise tax
purposes, each such Portfolio may have to dispose of portfolio securities under
disadvantageous circumstances to generate cash, or may be required to borrow, to
satisfy its corresponding Fund's distribution requirements. See "Additional Tax
Information."
The market prices of zero coupon securities generally are more volatile
than the prices of securities that pay interest periodically. Zero coupon
securities are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having a similar maturity and credit
quality.
CONVERTIBLE SECURITIES (ALL PORTFOLIOS). Each Portfolio may invest in
convertible securities. A convertible security is a bond, debenture, note,
preferred stock, or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities generally have features of both common stocks and debt securities. A
convertible security entitles the holder to receive the 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.
The price of a convertible security often reflects variations in the
price of the underlying common stock in a way that non-convertible debt may not.
Convertible securities are typically issued by smaller capitalization companies
whose stock prices may be volatile. A convertible security may be subject to
redemption at the option of the issuer at a price established in the security's
governing instrument. If a convertible security held by a Portfolio is called
for redemption, the Portfolio will be required to convert it into the underlying
common stock, sell it to a third party or permit the issuer to redeem the
security. Any of these actions could have an adverse effect on the Portfolio's
and its corresponding Fund's ability to achieve their investment objectives.
POLICIES AND LIMITATIONS. Neuberger Berman SOCIALLY RESPONSIVE
Portfolio may invest up to 20% of its net assets in convertible securities. The
Portfolio does not intend to purchase any convertible securities that are not
investment grade. Convertible debt securities are subject to each Portfolio's
investment policies and limitations concerning fixed income securities.
PREFERRED STOCK (ALL PORTFOLIOS). Each Portfolio may invest in
preferred stock. Unlike interest payments on debt securities, dividends on
preferred stock are generally payable at the discretion of the issuer's board of
directors. Preferred shareholders may have certain rights if dividends are not
paid but generally have no legal recourse against the issuer. Shareholders may
suffer a loss of value if dividends are not paid. The market prices of preferred
stocks are generally more sensitive to changes in the issuer's creditworthiness
than are the prices of debt securities.
SWAP AGREEMENTS (NEUBERGER BERMAN INTERNATIONAL AND CENTURY
PORTFOLIOS). Each of these Portfolios may enter into swap agreements to manage
or gain exposure to particular types of investments (including equity securities
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or indices of equity securities in which the Portfolio otherwise could not
invest efficiently). In a swap agreement, one party agrees to make regular
payments equal to a floating rate on a specified amount in exchange for payments
equal to a fixed rate, or a different floating rate, on the same amount for a
specified period.
Swap agreements may involve leverage and may be highly volatile;
depending on how they are used, they may have a considerable impact on the
Portfolio's performance. The risks of swap agreements depend upon the other
party's creditworthiness and ability to perform, as well as the Portfolio's
ability to terminate its swap agreements or reduce its exposure through
offsetting transactions. Swap agreements may be illiquid. The swap market is
relatively new and is largely unregulated.
POLICIES AND LIMITATIONS. In accordance with SEC staff requirements,
each of Neuberger Berman INTERNATIONAL and CENTURY Portfolios will segregate
cash or appropriate liquid securities in an amount equal to its obligations
under swap agreements; when an agreement provides for netting of the payments by
the two parties, the Portfolio will segregate only the amount of its net
obligation, if any.
JAPANESE INVESTMENTS (NEUBERGER BERMAN INTERNATIONAL PORTFOLIO). All of
the Portfolios may invest in foreign securities, including securities of
Japanese issuers. From time to time, Neuberger Berman INTERNATIONAL Portfolio
may invest a significant portion of its assets in securities of Japanese
issuers. The performance of the Portfolio may therefore be significantly
affected by events influencing the Japanese economy and the exchange rate
between the Japanese yen and the U.S. dollar. Japan has experienced a severe
recession, including a decline in real estate values and other events that
adversely affected the balance sheets of many financial institutions and
indicate that there may be structural weaknesses in the Japanese financial
system. The effects of this economic downturn may be felt for a considerable
period and are being exacerbated by the currency exchange rate. Japan is heavily
dependent on foreign oil. Japan is located in a seismically active area, and
severe earthquakes may damage important elements of the country's
infrastructure. Japan's economic prospects may be affected by the political and
military situations of its near neighbors, notably North and South Korea, China
and Russia.
OTHER INVESTMENT COMPANIES. Neuberger Berman INTERNATIONAL Portfolio
may invest in the shares of other investment companies. Such investment may be
the most practical or only manner in which the Portfolio can participate in
certain foreign markets because of the expenses involved or because other
vehicles for investing in those countries may not be available at the time the
Portfolio is ready to make an investment. Each Portfolio at times may invest in
instruments structured as investment companies to gain exposure to the
performance of a recognized securities index, such as the S&P 500 Index.
As a shareholder in an investment company, a Portfolio would bear its
pro rata share of that investment company's expenses. Investment in other funds
may involve the payment of substantial premiums above the value of such issuer's
portfolio securities. The Portfolios do not intend to invest in such funds
unless, in the judgment of NB Management, the potential benefits of such
investment justify the payment of any applicable premium or sales charge.
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POLICIES AND LIMITATIONS. Each Portfolio's investment in such
securities is limited to (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Portfolio's total assets with respect to any one
investment company and (iii) 10% of the Portfolio's total assets in the
aggregate.
INDEXED SECURITIES (NEUBERGER BERMAN INTERNATIONAL PORTFOLIO).
Neuberger Berman INTERNATIONAL Portfolio may invest in indexed securities whose
values are linked to currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short- to intermediate-term
fixed income securities whose values at maturity or interest rates rise or fall
according to the change in one or more specified underlying instruments. The
value of indexed securities may increase or decrease if the underlying
instrument appreciates, and they may have return characteristics similar to
direct investment in the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself.
Neuberger Berman FOCUS Portfolio - Description of Economic Sectors.
- -------------------------------------------------------------------
Neuberger Berman FOCUS Portfolio seeks to achieve its investment
objective by investing principally in common stocks in the following thirteen
multi-industry economic sectors, normally making at least 90% of its investments
in not more than six such sectors:
(1) AUTOS AND HOUSING SECTOR: Companies engaged in design, production,
or sale of automobiles, automobile parts, mobile homes, or related products
("automobile industries") or design, construction, renovation, or refurbishing
of residential dwellings. The value of securities of companies in the automobile
industries is affected by, among other things, foreign competition, the level of
consumer confidence and consumer debt, and installment loan rates. The housing
construction industry may be affected by the level of consumer confidence and
consumer debt, mortgage rates, tax laws, and the inflation outlook.
(2) CONSUMER GOODS AND SERVICES SECTOR: Companies engaged in providing
consumer goods or services, including design, processing, production, sale, or
storage of packaged, canned, bottled, or frozen foods and beverages and design,
production, or sale of home furnishings, appliances, clothing, accessories,
cosmetics, or perfumes. Certain of these companies are subject to government
regulation affecting the use of various food additives and production methods,
which could affect profitability. Also, the success of food- and fashion-related
products may be strongly affected by fads, marketing campaigns, health concerns,
and other factors affecting supply and demand.
(3) DEFENSE AND AEROSPACE SECTOR: Companies engaged in research,
manufacture, or sale of products or services related to the defense or aerospace
industries, including air transport; data processing or computer-related
services; communications systems; military weapons or transportation; general
aviation equipment, missiles, space launch vehicles, or spacecraft; machinery
for guidance, propulsion, or control of flight vehicles; and airborne or
ground-based equipment essential to the test, operation, or maintenance of
flight vehicles. Because these companies rely largely on U.S. (and foreign)
governmental demand for their products and services, their financial conditions
are heavily influenced by defense spending policies.
(4) ENERGY SECTOR: Companies involved in the production, transmission,
or marketing of energy from oil, gas, or coal, as well as nuclear, geothermal,
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oil shale, or solar sources of energy (but excluding public utility companies).
Also included are companies that provide component products or services for
those activities. The value of these companies' securities varies based on the
price and supply of energy fuels and may be affected by international politics,
energy conservation, the success of exploration projects, environmental
considerations, and the tax and other regulatory policies of various
governments.
(5) FINANCIAL SERVICES SECTOR: Companies providing financial services
to consumers or industry, including commercial banks and savings and loan
associations, consumer and industrial finance companies, securities brokerage
companies, leasing companies, and insurance companies. These companies are
subject to extensive governmental regulations. Their profitability may fluctuate
significantly as a result of volatile interest rates, concerns about particular
banks and savings institutions, and general economic conditions.
(6) HEALTH CARE SECTOR: Companies engaged in design, manufacture, or
sale of products or services used in connection with the provision of health
care, including pharmaceutical companies; firms that design, manufacture, sell,
or supply medical, dental, or optical products, hardware, or services; companies
involved in biotechnology, medical diagnostic, or biochemical research and
development; and companies that operate health care facilities. Many of these
companies are subject to government regulation and potential health care
reforms, which could affect the price and availability of their products and
services. Also, products and services of these companies could quickly become
obsolete.
(7) HEAVY INDUSTRY SECTOR: Companies engaged in research, development,
manufacture, or marketing of products, processes, or services related to the
agriculture, chemicals, containers, forest products, non-ferrous metals, steel,
or pollution control industries, including synthetic and natural materials (for
example, chemicals, plastics, fertilizers, gases, fibers, flavorings, or
fragrances), paper, wood products, steel, and cement. Certain of these companies
are subject to state and federal regulation, which could require alteration or
cessation of production of a product, payment of fines, or cleaning of a
disposal site. Furthermore, because some of the materials and processes used by
these companies involve hazardous components, there are additional risks
associated with their production, handling, and disposal. The risk of product
obsolescence also is present.
(8) MACHINERY AND EQUIPMENT SECTOR: Companies engaged in the research,
development, or manufacture of products, processes, or services relating to
electrical equipment, machinery, pollution control, or construction services,
including transformers, motors, turbines, hand tools, earth-moving equipment,
and waste disposal services. The profitability of most of these companies may
fluctuate significantly in response to capital spending and general economic
conditions. As is the case for the heavy industry sector, there are risks
associated with the production, handling, and disposal of materials and
processes that involve hazardous components and the risk of product
obsolescence.
(9) MEDIA AND ENTERTAINMENT SECTOR: Companies engaged in design,
production, or distribution of goods or services for the media industries
(including television or radio broadcasting or manufacturing, publishing,
recordings and musical instruments, motion pictures, and photography) and the
entertainment industries (including sports arenas, amusement and theme parks,
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<PAGE>
gaming casinos, sporting goods, camping and recreational equipment, toys and
games, travel-related services, hotels and motels, and fast food and other
restaurants). Many products produced by companies in this sector - for example,
video and electronic games - may become obsolete quickly. Additionally,
companies engaged in television and radio broadcast are subject to government
regulation.
(10) RETAILING SECTOR: Companies engaged in retail distribution of home
furnishings, food products, clothing, pharmaceuticals, leisure products, or
other consumer goods, including department stores, supermarkets, and retail
chains specializing in particular items such as shoes, toys, or pharmaceuticals.
The value of these companies' securities fluctuates based on consumer spending
patterns, which depend on inflation and interest rates, the level of consumer
debt, and seasonal shopping habits. The success or failure of a company in this
highly competitive sector depends on its ability to predict rapidly changing
consumer tastes.
(11) TECHNOLOGY SECTOR: Companies that are expected to have or develop
products, processes, or services that will provide, or will benefit
significantly from, technological advances and improvements or future automation
trends, including semiconductors, computers and peripheral equipment, scientific
instruments, computer software, telecommunications equipment, and electronic
components, instruments, and systems. These companies are sensitive to foreign
competition and import tariffs. Also, many of their products may become obsolete
quickly.
(12) TRANSPORTATION SECTOR: Companies involved in providing
transportation of people and products, including airlines, railroads, and
trucking firms. Revenues of these companies are affected by fluctuations in fuel
prices and government regulation of fares.
(13) UTILITIES SECTOR: Companies in the public utilities industry and
companies that derive a substantial majority of their revenues through supplying
public utilities (including companies engaged in the manufacture, production,
generation, transmission, or sale of gas and electric energy) and that provide
telephone, telegraph, satellite, microwave, and other communication facilities
to the public. The gas and electric public utilities industries are subject to
various uncertainties, including the outcome of political issues concerning the
environment, prices of fuel for electric generation, availability of natural
gas, and risks associated with the construction and operation of nuclear power
facilities.
Neuberger Berman SOCIALLY RESPONSIVE Portfolio - Description of Social Policy
- -----------------------------------------------------------------------------
BACKGROUND INFORMATION ON SOCIALLY RESPONSIVE INVESTING
In an era when many people are concerned about the relationship between
business and society, socially responsive investing ("SRI") is a mechanism for
assuring that investors' social values are reflected in their investment
decisions. As such, SRI is a direct descendent of the successful effort begun in
the early 1970's to encourage companies to divest their South African operations
and subscribe to the Sullivan Principles. Today, a growing number of individuals
and institutions are applying similar strategies to a broad range of problems.
Although there are many strategies available to the socially responsive
investor, including proxy activism, below-market loans to community projects,
and venture capital, the SRI strategies used by the Portfolio generally fall
into two categories:
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AVOIDANCE INVESTING. Most socially responsive investors seek to avoid
holding securities of companies whose products or policies are seen as being at
odds with the social good. The most common exclusions historically have involved
tobacco companies and weapons manufacturers.
LEADERSHIP INVESTING. A growing number of investors actively look for
companies with progressive programs that are exemplary or companies which make
it their business to try to solve some of the problems of today's society.
The marriage of social and financial objectives would not have
surprised Adam Smith, who was, first and foremost, a moral philosopher. THE
WEALTH OF NATIONS is firmly rooted in the Enlightenment conviction that the
purpose of capital is the social good and the related belief that idle capital
is both wasteful and unethical. But, what very likely would have surprised Smith
is the sheer complexity of the social issues we face today and the diversity of
our attitudes toward the social good. War and peace, race and gender, the
distribution of wealth, and the conservation of natural resources -- the social
agenda is long and compelling. It is also something about which reasonable
people differ. What should society's priorities be? What can and should be done
about them? And what is the role of business in addressing them? Since
corporations are on the front lines of so many key issues in today's world, a
growing number of investors feel that a corporation's role cannot be ignored.
This is true of some of the most important issues of the day such as equal
opportunity and the environment.
THE SOCIALLY RESPONSIVE DATABASE
Neuberger Berman, LLC ("Neuberger Berman"), the Portfolio's
sub-adviser, maintains a database of information about the social impact of the
companies it follows. NB Management uses the database to evaluate social issues
after it deems a stock acceptable from a financial standpoint for acquisition by
the Portfolio. The aim of the database is to be as comprehensive as possible,
given that much of the information concerning corporate responsibility comes
from subjective sources. Information for the database is gathered by Neuberger
Berman in many categories and then analyzed by NB Management in the following
six categories of corporate responsibility:
WORKPLACE DIVERSITY AND EMPLOYMENT. NB Management looks for companies
that show leadership in areas such as employee training and promotion policies
and benefits, such as flextime, generous profit sharing, and parental leave. NB
Management looks for active programs to promote women and minorities and takes
into account their representation among the officers of an issuer and members of
its board of directors. As a basis for exclusion, NB Management looks for Equal
Employment Opportunity Act infractions and Occupational Safety and Health Act
violations; examines each case in terms of severity, frequency, and time elapsed
since the incident; and considers actions taken by the company since the
violation. NB Management also monitors companies' progress and attitudes toward
these issues.
ENVIRONMENT. A company's impact on the environment depends largely on
the industry. Therefore, NB Management examines a company's environmental record
vis-a-vis those of its peers in the industry. All companies operating in an
industry with inherently high environmental risks are likely to have had
problems in such areas as toxic chemical emissions, federal and state fines, and
Superfund sites. For these companies, NB Management examines their problems in
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terms of severity, frequency, and elapsed time. NB Management then balances the
record against whatever leadership the company may have demonstrated in terms of
environmental policies, procedures, and practices. NB Management defines an
environmental leadership company as one that puts into place strong affirmative
programs to minimize emissions, promote safety, reduce waste at the source,
insure energy conservation, protect natural resources, and incorporate recycling
into its processes and products. NB Management looks for the commitment and
active involvement of senior management in all these areas. Several major
manufacturers which still produce substantial amounts of pollution are among the
leaders in developing outstanding waste source reduction and remediation
programs.
PRODUCT. NB Management considers company announcements, press reports,
and public interest publications relating to the health, safety, quality,
labeling, advertising, and promotion of both consumer and industrial products.
NB Management takes note of companies with a strong commitment to quality and
with marketing practices which are ethical and consumer-friendly. NB Management
pays particular attention to companies whose products and services promote
progressive solutions to social problems.
PUBLIC HEALTH. NB Management measures the participation of companies in
such industries and markets as alcohol, tobacco, gambling and nuclear power. NB
Management also considers the impact of products and marketing activities
related to those products on nutritional and other health concerns, both
domestically and in foreign markets.
WEAPONS. NB Management keeps track of domestic military sales and,
whenever possible, foreign military sales and categorizes them as nuclear
weapons related, other weapons related, and non-weapon military supplies, such
as micro-chip manufacturers and companies that make uniforms for military
personnel.
CORPORATE CITIZENSHIP. NB Management gathers information about a
company's participation in community affairs, its policies with respect to
charitable contributions, and its support of education and the arts. NB
Management looks for companies with a focus, dealing with issues not just by
making financial contributions, but also by asking the questions: What can we do
to help? What do we have to offer? Volunteerism, high-school mentoring programs,
scholarships and grants, and in-kind donations to specific groups are just a few
ways that companies have responded to these questions.
IMPLEMENTATION OF SOCIAL POLICY
Companies deemed acceptable by NB Management from a financial
standpoint are analyzed using Neuberger Berman's database. The companies are
then evaluated by the portfolio manager to determine if the companies' policies,
practices, products, and services withstand scrutiny in the following major
areas of concern: the environment and workplace diversity and employment.
Companies are then further evaluated to determine their track record in issues
and areas of concern such as public health, weapons, product, and corporate
citizenship.
The issues and areas of concern that are tracked lend themselves to
objective analysis in varying degrees. Few, however, can be resolved entirely on
the basis of scientifically demonstrable facts. Moreover, a substantial amount
of important information comes from sources that do not purport to be
49
<PAGE>
disinterested. Thus, the quality and usefulness of the information in the
database depend on Neuberger Berman's ability to tap a wide variety of sources
and on the experience and judgment of the people at NB Management who interpret
the information.
In applying the information in the database to stock selection for the
Portfolio, NB Management considers several factors. NB Management examines the
severity and frequency of various infractions, as well as the time elapsed since
their occurrence. NB Management also takes into account any remedial action
which has been taken by the company relating to these infractions. NB Management
notes any quality innovations made by the company in its effort to create
positive change and looks at the company's overall approach to social issues.
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical results and are
not intended to indicate future performance. The share price and total return of
each Fund will vary, and an investment in a Fund, when redeemed, may be worth
more or less than an investor's original cost.
Total Return Computations
- -------------------------
Each 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 smoothes out year-to-year variations in
performance and, in that respect, differs from actual year-to-year results. As
of the date of this SAI, Neuberger Berman REGENCY Trust had been in existence
only a very short time and had no meaningful performance history. The Funds
commenced operations in August 1993 except for Neuberger Berman INTERNATIONAL
Trust, which commenced operations in June 1998, and Neuberger Berman MILLENNIUM
TRUST, which commenced operations in November 1998. However, each Fund's
investment objective, policies, and limitations are the same as those of another
mutual fund that is a series of Neuberger Berman Equity Funds and that has a
name similar to the Fund's and invests in the same Portfolio ("Sister Fund").
Each Sister Fund had a predecessor. The following total return data is for each
Fund since its inception and, for periods prior to each Fund's inception, its
Sister Fund (which, as used herein, includes data for that Sister Fund's
predecessor). The total returns for periods prior to the Funds' inception would
have been lower had they reflected the higher fees of the Funds, as compared to
those of the Sister Funds.
Average Annual Total Returns
Fund Periods Ended 8/31/1999
ONE YEAR FIVE YEARS TEN YEARS PERIOD FROM INCEPTION
-------- ---------- --------- ---------------------
MANHATTAN +36.24% +15.45% +12.13% +16.75%
GENESIS +19.15% +15.15% +11.45% +13.14%
FOCUS +38.07% +16.72% +14.69% +12.23%
GUARDIAN +26.07% +12.68% +12.36% +12.84%
PARTNERS +25.91% +18.13% +14.03% +17.61%
INTERNATIONAL +21.99% +10.50% N/A +10.99%
SOCIALLY RESPONSIVE +36.76% +19.14% N/A +17.53%
MILLENNIUM N/A N/A N/A +95.00%*
* Gross Return
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Prior to January 5, 1989, the investment policies of Neuberger Berman
FOCUS Trust's Sister Fund required that at least 80% of its investments normally
be in energy-related investments; prior to November 1, 1991, those investment
policies required that at least 25% of its investments normally be in the energy
sector. Neuberger Berman FOCUS Trust may include information reflecting the
Sister Fund's performance and expenses for periods before November 1, 1991, in
its advertisements, sales literature, financial statements, and other documents
filed with the SEC and/or provided to current and prospective shareholders.
Investors should be aware that such information may not necessarily reflect the
level of performance and expenses that would have been experienced had the
Fund's current investment policies been in effect.
NB Management may from time to time waive a portion of its fees due
from any Fund or Portfolio or reimburse a Fund or Portfolio for a portion of its
expenses. Such action has the effect of increasing total return. Actual
reimbursements and waivers are described in the Prospectus and in "Investment
Management and Administration Services" below.
Comparative Information
- -----------------------
From time to time each 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, The New York Times, Kiplinger's
Personal Finance, and Barron's Newspaper, 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, Russell Midcap(TM) Index, Dow Jones Industrial Average ("DJIA"),
Wilshire 1750 Index, Nasdaq Composite Index, Montgomery Securities
Growth Stock Index, Value Line Index, U.S. Department of Labor Consumer
Price Index ("Consumer Price Index"), College Board Annual Survey of
Colleges, Kanon Bloch's Family Performance Index, the Barra Growth
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Index, the Barra Value Index, the EAFE(R) Index, the Financial Times
World XUS Index, and various other domestic, international, and global
indices. The S&P 500 Index is a broad index of common stock prices,
while the DJIA represents a narrower segment of industrial companies.
The S&P 600 Index includes stocks that range in market value from $35
million to $6.1 billion, with an average of $572 million. The S&P 400
Index measures mid-sized companies that have an average market
capitalization of $2.1 billion. The EAFE(R) Index is an unmanaged index
of common stock prices of more than 1,000 companies from Europe,
Australia, and the Far East translated into U.S. dollars. The Financial
Times World XUS Index is an index of 24 international markets,
excluding the U.S. market. Each assumes reinvestment of distributions
and is calculated without regard to tax consequences or the costs of
investing. Each Portfolio may invest in different types of securities
from those included in some of the above indices.
Neuberger Berman SOCIALLY RESPONSIVE Trust's performance may also be
compared to various socially responsive indices. These include The Domini Social
Index and the indices developed by the quantitative department of Prudential
Securities, such as that department's Large and Mid-Cap portfolio indices for
various breakdowns ("Sin" Stock Free, Cigarette-Stock Free, S&P Composite,
etc.).
Evaluations of the Funds' performance, their total returns, and
comparisons may be used in advertisements and in information furnished to
current and prospective shareholders (collectively, "Advertisements"). The Funds
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 a Portfolio's portfolio allocation
and holdings as of a particular date may be included in Advertisements for the
corresponding Fund. This information may include the Portfolio's portfolio
diversification by asset type, or, in the case of Neuberger Berman SOCIALLY
RESPONSIVE Portfolio, by the social characteristics of companies owned.
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.
NB 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 Neuberger Berman PARTNERS Trust, Neuberger
Berman GUARDIAN Trust, Neuberger Berman FOCUS Trust, Neuberger Berman REGENCY
Trust or Neuberger Berman CENTURY Trust to be an attractive investment vehicle
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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. Estimates of total four-year costs (tuition, room and
board, books and other expenses) for students starting college in various years
may be included in Advertisements, based on the College Board Annual Survey of
Colleges.
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.)
Information regarding the effects of investing at market highs and/or
lows, and investing early versus late for retirement plans also may be included
in Advertisements, if appropriate.
CERTAIN RISK CONSIDERATIONS
Although each Portfolio seeks to reduce risk by investing in a
diversified portfolio of securities, diversification does not eliminate all
risk. There can, of course, be no assurance that any Portfolio will achieve its
investment objective.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the trustees and
officers of the Trust and Managers Trust, including their addresses and
principal business experience during the past five years. Some persons named as
trustees and officers also serve in similar capacities for other funds and their
corresponding portfolios administered or managed by NB Management and Neuberger
Berman.
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<TABLE>
<CAPTION>
THE TRUST AND EQUITY MANAGERS TRUST:
- ------------------------------------
Position Held
With the Trusts
Name, Age, and and EQUITY
Address (1) MANAGERS TRUST PRINCIPAL OCCUPATION(S)(2)
- -------------- -------------- --------------------------
<S> <C> <C>
Claudia A. Brandon(43) Secretary of each Trust Employee of Neuberger Berman since 1999;
Vice President of NB Management from
1986 to 1999; Secretary of nine other
mutual funds for which NB Management acts
as investment manager or administrator.
Faith Colish(64) Trustee of each Trust Attorney at Law, Faith Colish, A
63 Wall Street Professional Corporation.
24th Floor
New York, NY 10005
Stacy Cooper-Shugrue(37) Assistant Secretary of Employee of Neuberger Berman since 1999;
each Trust Assistant Vice President of NB Management
from 1993 to 1999; Assistant Secretary of
nine other mutual funds for which NB
Management acts as investment manager or
administrator.
Barbara DiGiorgio(41) Assistant Treasurer of Employee of NB Management; Assistant
each Trust Vice President of NB Management from
1993 to 1999; Assistant Treasurer
since 1996 of nine other mutual funds
for which NB Management acts as invest-
ment manager or administrator.
Michael M. Kassen*(47) President and Trustee Executive Vice President, Chief
of each Trust Investment Officer and Director of
Neuberger Berman, Inc. (holding company);
Executive Vice President, Chief Investment
Officer and Director of NB Management;
President and/or Trustee of five other
mutual funds for which NB Management
acts as investment manager or administrator.
Howard A. Mileaf (63) Trustee of each Trust Vice President and Special Counsel to
WHX Corporation WHX Corporation (holding company)
110 East 59th Street since 1992; Director of Kevlin
30th Floor Corporation (manufacturer of
New York, NY 10022 microwave and other products).
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Positions Held
With the Trust
Name, Age, and and EQUITY
ADDRESS(1) MANAGERS TRUST PRINCIPAL OCCUPATION(S)(2)
- -------------- -------------- --------------------------
<S> <C> <C>
Edward I. O'Brien*(71) Trustee of each Trust Until 1993, President of the Securities
12 Woods Lane Industry Association ("SIA")
Scarsdale, NY 10583 (securities 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.(72) Trustee of each Trust Retired. Formerly,
7082 Siena Court President of SOBRO (South Bronx
Boca Raton, FL 33433 Overall Economic Development
Corporation).
John P. Rosenthal(67) Trustee of each Trust Senior Vice President of Burnham
Burnham Securities Inc. Securities Inc. (a registered broker-
Burnham Asset Management Corp. dealer) since 1991; Director, Cancer
1325 Avenue of the Americas Treatment Holdings, Inc.
17th Floor
New York, NY 10019
Richard Russell(54) Treasurer and Employee of NB Management since 1993;
Principal Accounting Treasurer and Principal Accounting Officer
Officer of each Trust of nine mutual funds for which
NB Management acts as investment
manager or administrator.
Cornelius T. Ryan(68) Trustee of each General Partner of Oxford Partners
Oxford Bioscience Trust and Oxford Bioscience Partners
Partners (venture capital partnerships) and
315 Post Road West President of Oxford Venture
Westport, CT 06880 Corporation; Director of Capital Cash
Management Trust (money market
fund) and Prime Cash Fund.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Positions Held
With the Trust
Name, Age, and and EQUITY
ADDRESS(1) MANAGERS TRUST PRINCIPAL OCCUPATION(S)(2)
- -------------- -------------- --------------------------
<S> <C> <C>
Gustave H. Shubert(71) Trustee of each Trust Senior Fellow/Corporate Advisor and
13838 Sunset Boulevard Advisory Trustee of Rand (a non-
Pacific Palisades, CA 90272 profit public interest research
institution) since 1989; Honorary
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.
Daniel J. Sullivan(60) Vice President of each Senior Vice President of NB
Trust Management since 1992; Vice
President of nine other mutual funds
for which NB Management acts as
investment manager or administrator.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Positions Held
With the Trust
Name, Age, and and EQUITY
ADDRESS(1) MANAGERS TRUST PRINCIPAL OCCUPATION(S)(2)
- -------------- -------------- --------------------------
<S> <C> <C>
Peter E. Sundman*(40) Chairman of the Executive Vice President
Board, Chief and Director of Neuberger Berman, Inc.
Executive Officer, (holding company); President and
and Trustee of each Director of NB Management;
Trust Principal of Neuberger Berman from
1997 to 1999; Chairman of the
Board, Chief Executive Officer and
Trustee of five other mutual funds
for which NB Management acts as
investment manager or administrator;
President and Chief Executive
Officer of three other mutual funds
for which NB Management acts as
investment manager or administrator;
President and Principal Executive
Officer of one other mutual fund for
which NB Management acts as
investment adviser or administrator.
Michael J. Weiner(53) Vice President and Principal of Neuberger Berman from
Principal Financial 1998-99; Senior Vice President of NB
Officer of each Trust Management since 1992; Treasurer of NB
Management from 1992-1996; Vice President
and Principal Financial Officer of nien
other mutual funds for which NB Management
acts as investment manager or administrator.
Celeste Wischerth(39) Assistant Treasurer of Employee of NB Management; Assistant
each Trust Treasurer since 1996 of nine
other mutual funds for which NB
Management acts as investment
manager or administrator.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
GLOBAL MANAGERS TRUST:
- ---------------------
<S> <C> <C>
Positions Held with
Name, Age, and Global
ADDRESS(1) Managers Trust Principal Occupation(s)(2)
- ---------- -------------- ----------------------
Claudia A. Brandon(43) Secretary (See above)
Stacy Cooper-Shugrue(37) Assistant Secretary (See above)
Barbara DiGiorgio(41) Assistant Treasurer (See above)
Jacqueline Henning(57) Assistant Treasurer Managing Director, State Street
Cayman Trust Co., Ltd. since 1994;
Assistant Director, Morgan Grenfell,
1993-94; Bank of Nova Scotia Trust
Co. (Cayman) Ltd., Managing Director,
1988-93.
Michael M. Kassen*(47) President (See above)
Lenore Joan McCabe(38) Assistant Secretary Operations Supervisor, State Street
Cayman Trust Co., Ltd.; Project
Manager, State Street Canada, Inc.
1992-94.
Howard A. Mileaf(63) Trustee (See above)
WHX Corporation
110 East 59th Street
30th Floor
New York, NY 10022
John T. Patterson, Jr. (72) Trustee (See above)
7082 Siena Court
Boca Raton, FL 33433
John P. Rosenthal(67) Trustee (See above)
Burnham Securities Inc.
Burnham Asset Management
Corp.
1325 Avenue of the Americas
17th Floor
New York, NY 10019
Richard Russell(54) Treasurer and Principal (See above)
Accounting Officer
Daniel J. Sullivan(60) Vice President (See above)
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Positions Held with
Name, Age, and Global
ADDRESS(1) Managers Trust Principal Occupation(s)(2)
- ---------- -------------- ----------------------
<S> <C> <C>
Peter E. Sundman*(40) Chairman of the (See above)
Board, Chief
Executive Officer and
Trustee
Michael J. Weiner(53) Vice President and (See above)
Principal Financial
Officer
Celeste Wischerth(39) Assistant Treasurer (See above)
</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 a trustee who is an "interested person" of each Trust
within the meaning of the 1940 Act. Messrs. Kassen and Sundman are interested
persons by virtue of the fact that they are officers and/or directors of NB
Management and Managing Directors of Neuberger Berman. Mr. O'Brien is an
interested person of the Trust and Equity Managers Trust 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 Portfolios and other
funds for which NB Management serves as investment manager.
The Trust's Trust Instrument and Managers Trust's Declaration of Trust
provide that each such Trust 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 (a) engaged in bad faith, willful misfeasance, gross
negligence, or reckless disregard of the duties involved in the conduct of their
offices, or (b) did not act in good faith in the reasonable belief that their
action was in the best interest of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined (by a court
or other body approving the settlement or other disposition, 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.
The following table sets forth information concerning the compensation
of the trustees of the Trust. None of the Neuberger Berman Funds has any
retirement plan for its trustees.
59
<PAGE>
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/99
Aggregate Total Compensation from Investment
Compensation Companies in the
Name and Position from Neuberger Berman Neuberger Berman Fund
with each Trust Equity Trust Complex Paid to Trustees
- --------------- ------------ ------------------------
<S> <C> <C>
Faith Colish $7,284 $93,900
Trustee (9 other investment companies)
Stanley Egener* $0 $0
Chairman of the (5 other investment companies)
Board, Chief
Executive Officer,
and Trustee
Howard A. Mileaf $7,570 $64,250
Trustee (4 other investment companies)
Edward I. O'Brien $7,797 $61,750
Trustee (3 other investment companies)
John T. Patterson, Jr. $7,895 $66,500
Trustee (4 other investment companies)
John P. Rosenthal $7,572 $64,250
Trustee (4 other investment companies)
Cornelius T. Ryan $6,636 $52,750
Trustee (3 other investment companies)
Gustave H. Shubert $7,505 $59,500
Trustee (3 other investment companies)
Lawrence Zicklin* $0 $0
President and Trustee (5 other investment companies)
*Retired, October 27, 1999
</TABLE>
At November 22, 1999, the trustees and officers of the Trust and the
corresponding Managers Trusts, as a group, owned beneficially or of record less
than 1% of the outstanding shares of each Fund.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
Investment Manager and Administrator
- ------------------------------------
Because all of the Funds' net investable assets are invested in their
corresponding Portfolios, the Funds do not need an investment manager. NB
Management serves as the investment manager to all the Portfolios (except
Neuberger Berman INTERNATIONAL Portfolio) pursuant to a management agreement
with Equity Managers Trust, dated as of August 2, 1993 ("EMT Management
Agreement").
60
<PAGE>
The EMT Management Agreement was approved by the holders of the
interests in all the Portfolios (except Neuberger Berman SOCIALLY RESPONSIVE
Portfolio, MILLENNIUM Portfolio, Neuberger Berman REGENCY Portfolio and
Neuberger Berman CENTURY Portfolio) on August 2, 1993, and by the holders of the
interests in Neuberger Berman SOCIALLY RESPONSIVE, MILLENNIUM, REGENCY and
CENTURY Portfolios on March 9, 1994, October 19, 1998, June 1, 1999 and July 29,
1999, respectively. Neuberger Berman SOCIALLY RESPONSIVE, Neuberger Berman
MILLENNIUM, Neuberger Berman REGENCY Neuberger Berman and CENTURY Portfolios
were authorized to become subject to the EMT Management Agreement by vote of the
Portfolio Trustees on October 20, 1993, July 29, 1998, April 28, 1999, and July
29, 1999 respectively.
NB Management serves as the investment manager to Neuberger Berman
INTERNATIONAL Portfolio pursuant to a management agreement with Global Managers
Trust, dated as of November 1, 1995 ("GMT Management Agreement"). The GMT
Management Agreement was approved by the holders of the interests in Neuberger
Berman INTERNATIONAL Portfolio on October 26, 1995. That Portfolio was
authorized to become subject to the GMT Management Agreement by vote of the
Portfolio Trustees on August 8, 1995.
The EMT Management Agreement and GMT Management Agreement ("Management
Agreements") provide, in substance, that NB Management will make and implement
investment decisions for the Portfolios in its discretion and will continuously
develop an investment program for the Portfolios' assets. The Management
Agreements permit NB Management to effect securities transactions on behalf of
each Portfolio through associated persons of NB Management. The Management
Agreements also specifically permit NB Management to compensate, through higher
commissions, brokers and dealers who provide investment research and analysis to
the Portfolios, although NB Management has no current plans to pay a material
amount of such compensation.
NB Management provides to each Portfolio, without separate cost, office
space, equipment, and facilities and the personnel necessary to perform
executive, administrative, and clerical functions. NB Management pays all
salaries, expenses, and fees of the officers, trustees, and employees of the
Trusts who are officers, directors, or employees of NB Management. One director
of NB Management (who also is an officer and director of Neuberger Berman), who
also serves as an officer of NB Management, presently serves as a trustee and
officer of the Trusts. See "Trustees and Officers." Each Portfolio pays NB
Management a management fee based on the Portfolio's average daily net assets,
as described below.
NB Management provides facilities, services and personnel, as well as
accounting, recordkeeping, and other services, to each Fund pursuant to an
administration agreement with the Trust, dated August 3, 1993, as amended on
August 2, 1996 ("Administration Agreement"). Neuberger Berman INTERNATIONAL,
MILLENNIUM, REGENCY and CENTURY Trusts were authorized to become subject to the
Administration Agreement by vote of the Fund Trustees on January 22, 1997, July
29, 1998, April 28, 1999 and July 29, 1999, respectively. NB Management enters
into administrative services agreements with Institutions, pursuant to which it
compensates Institutions for accounting, recordkeeping and other services that
they provide in connection with investments in the Funds.
Because Neuberger Berman INTERNATIONAL Portfolio has its principal
offices in the Cayman Islands, Global Managers Trust has entered into an
61
<PAGE>
Administrative Services Agreement with State Street Cayman Trust Company Ltd.
("State Street Cayman"), Elizabethan Square, P.O. Box 1984, George Town, Grand
Cayman, Cayman Islands, British West Indies, effective August 31, 1994. Under
the Administrative Services Agreement, State Street Cayman provides sufficient
personnel and suitable facilities for the principal offices of Neuberger Berman
INTERNATIONAL Portfolio and provides certain administrative, fund accounting,
and transfer agency services with respect to that Portfolio. The Administrative
Services Agreement terminates if assigned by State Street Cayman; however, State
Street Cayman is permitted to, and does, employ an affiliate, State Street
Canada, Inc., to perform certain accounting functions.
Management and Administration Fees
- ----------------------------------
For investment management services, each Portfolio (except Neuberger
Berman GENESIS, MILLENNIUM and INTERNATIONAL Portfolios) pays NB Management a
fee at the annual rate of 0.55% of the first $250 million of that Portfolio's
average daily net assets, 0.525% of the next $250 million, 0.50% of the next
$250 million, 0.475% of the next $250 million, 0.45% of the next $500 million,
and 0.425% of average daily net assets in excess of $1.5 billion. Neuberger
Berman GENESIS Portfolio and Neuberger Berman MILLENNIUM Portfolio each pay NB
Management a fee for investment management services at the annual rate of 0.85%
of the first $250 million of the Portfolio's average daily net assets, 0.80% 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. Neuberger
Berman INTERNATIONAL Portfolio pays NB Management a fee for investment
management services at the annual rate of 0.85% of the first $250 million of the
Portfolio's average daily net assets, 0.825% of the next $250 million, 0.80% of
the next $250 million, 0.775% of the next $250 million, 0.75% of the next $500
million and 0.725% of average daily net assets in excess of $1.5 billion.
For administrative services, each Fund pays NB Management a fee at the
annual rate of 0.40% of that Fund's average daily net assets, plus certain
out-of-pocket expenses for technology used for shareholder servicing and
shareholder communications subject to the prior approval of an annual budget by
the Trust's Board of Trustees, including a majority of those Trustees who are
not interested persons of the Trust or of Neuberger Berman Management Inc., and
periodic reports to the Board of Trustees on actual expenses. With a Fund's
consent NB Management may subcontract some of its responsibilities to that Fund
under the Administration Agreement and may compensate each Institution that
provides such services. (A portion of this payment may be derived from the Rule
12b-1 fee paid to NB Management by certain of the Funds; see "Distribution and
Shareholder Services Plan," below.)
During the fiscal years ended August 31, 1999, 1998 and 1997, each Fund
accrued management and administration fees as follows:
62
<PAGE>
Management and Administration Fees
Accrued for Fiscal Years
Ended August 31
Fund 1999 1998 1997
- ---- ---- ---- ----
MANHATTAN $480,941 $525,466 $415,355
GENESIS $8,235,517 $8,034,410 $1,870,816
FOCUS $2,063,717 $1,953,132 $936,458
GUARDIAN $12,732,406 $19,092,633 $14,839,636
INTERNATIONAL $26,186 $4,582* N/A
PARTNERS $7,492,692 $6,210,071 $2,313,486
SOCIALLY RESPONSIVE $183,688 $111,257 $16,656****
MILLENNIUM $12,525** N/A N/A
REGENCY $532*** N/A N/A
- --------------------
* From June 29, 1998 (commencement of operations) to August 31, 1998.
** From November 4, 1998 (commencement of operations) to August 31, 1999.
*** From June 10, 1999 (commencement of operations) to August 31, 1999.
**** From March 3, 1997 (commencement of operations) to August 31, 1997.
Waivers and Reimbursements
- --------------------------
From May 1, 1995 to December 14, 1997, NB Management voluntarily waived
a portion of the management fee borne by Neuberger Berman GENESIS Portfolio to
reduce the fee by 0.10% per annum of the average daily net assets of that
Portfolio.
Portion of Management Fee Waived
For Period Ended For Fiscal Year Ended
Fund December 14, 1997 August 31, 1997
GENESIS $157,077 $153,513
NB Management has voluntarily undertaken to reimburse each of Neuberger
Berman FOCUS Trust and Neuberger Berman SOCIALLY RESPONSIVE Trust for its total
operating expenses so that each Fund's expense ratio per annum will not exceed
the expense ratio of its Sister Fund by more than 0.20% of the Fund's average
daily net assets. Similarly, NB Management has voluntarily undertaken to
63
<PAGE>
reimburse each of Neuberger Berman GENESIS Trust, Neuberger Berman GUARDIAN
Trust, Neuberger Berman MANHATTAN Trust, Neuberger Berman PARTNERS Trust, and
Neuberger Berman INTERNATIONAL Trust for its total operating expenses so that
each 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, but in
the case of Neuberger Berman INTERNATIONAL Trust not to exceed 1.70%. Each
undertaking can be terminated by NB Management by giving a Fund at least 60
days' prior written notice.
NB Management has also voluntarily undertaken to reimburse Neuberger
Berman MILLENNIUM Trust through December 31, 2009 so that the Fund's expense
ratio per annum will not exceed 1.75% of the Fund's average daily net assets.
Neuberger Berman MILLENNIUM Trust has in turn agreed to repay NB Management
through December 31, 2000, for the excess total annual operating expenses that
NB Management reimbursed to the Fund through December 31, 1999, so long as the
Fund's Total Operating Expenses do not exceed the above expense limitation.
NB Management has agreed to reimburse certain expenses of each of
Neuberger Berman REGENCY Trust and Neuberger Berman CENTURY Trust through
December 31, 2002, so that the total annual operating expenses of each Fund are
limited to 1.50% of average net assets, or, in the case of Neuberger Berman
REGENCY Trust, to not more than 0.20% above the total annual operating expenses
of another Neuberger Berman fund that invests in the same Portfolio as that
Fund, whichever is less. Each Fund has in turn agreed to repay NB Management for
expenses reimbursed to the Fund, provided that repayment does not cause the
Fund's total annual operating expenses to exceed 1.50% of its average net assets
and the repayment is made within three years of the year in which NB Management
incurred the expense.
Amount of Total Operating Expenses
Reimbursed by NB Management
for Fiscal Years Ended August 31
Fund 1999 1998 1997
- ---- ---- ---- ----
MANHATTAN $37,105 $59,281 $64,448
GENESIS $0 $0 $0
FOCUS $58,587 $67,257 $102,407
GUARDIAN $0 $0 $0
INTERNATIONAL $89,443 $15,821* N/A
PARTNERS $0 $45,387 $89,923
MILLENNIUM $115,640** N/A N/A
REGENCY $72,144*** N/A N/A
64
<PAGE>
SOCIALLY RESPONSIVE $101,048 $100,537 $30,470****
- --------------------
*From June 29, 1998 (commencement of operations) to August 31, 1998.
** From November 4, 1998 (commencement of operations) to August 31, 1999.
***From June 10, 1999 (commencement of operations) to August 31, 1999.
**** From March 3, 1997 (commencement of operations) to August 31, 1997.
The Management Agreements continue until August 2, 2000. The Management
Agreements are renewable thereafter from year to year with respect to each
Portfolio, so long as their continuance is approved at least annually (1) by the
vote of a majority of the Portfolio Trustees who are not "interested persons" of
NB Management or the corresponding Managers Trust ("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 interests in that Portfolio. The
Administration Agreement continues until August 2, 2000. The Administration
Agreement is renewable from year to year with respect to a 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 NB 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 that
Fund.
The Management Agreements are terminable, without penalty, with respect
to a Portfolio on 60 days' written notice either by the corresponding Managers
Trust or by NB Management. The Administration Agreement is terminable, without
penalty, with respect to a Fund on 60 days' written notice either by NB
Management or by the Trust. Each Agreement terminates automatically if it is
assigned.
Sub-Adviser
- -----------
NB Management retains Neuberger Berman, 605 Third Avenue, New York, NY
10158-3698, as sub-adviser with respect to each Portfolio (except Neuberger
Berman INTERNATIONAL Portfolio) pursuant to a sub-advisory agreement dated
August 2, 1993 ("EMT Sub-Advisory Agreement").
The EMT Sub-Advisory Agreement was approved by the holders of the
interests in the Portfolios (except Neuberger Berman MILLENNIUM, and REGENCY
Portfolios) on August 2, 1993, and by the holders of the interests in Neuberger
Berman MILLENNIUM Portfolio on October 19, 1998, and Neuberger Berman REGENCY
Portfolio on June 1, 1999. Neuberger Berman MILLENNIUM Portfolio and REGENCY
Portfolio were authorized to become subject to the Sub-Advisory Agreement by
vote of the Portfolio Trustees on July 29, 1998 and April 28, 1999,
respectively.
65
<PAGE>
NB Management retains Neuberger Berman as sub-adviser with respect to
Neuberger Berman INTERNATIONAL Portfolio pursuant to a sub-advisory agreement
dated November 1, 1995 ("GMT Sub-Advisory Agreement"). The GMT Sub-Advisory
Agreement was approved by the holders of the interests in Neuberger Berman
INTERNATIONAL Portfolio on October 26, 1995. That Portfolio was authorized to
become subject to the GMT Sub-Advisory Agreement by vote of the Portfolio
Trustees on August 8, 1995.
The EMT Sub-Advisory Agreement and GMT Sub-Advisory Agreement
("Sub-Advisory Agreements") provide in substance that Neuberger Berman will
furnish to NB Management, upon reasonable request, the same type of investment
recommendations and research that Neuberger Berman, from time to time, provides
to its principals and employees for use in managing client accounts. In this
manner, NB Management expects to have available to it, in addition to research
from other professional sources, the capability of the research staff of
Neuberger Berman. This staff consists of numerous 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 NB
Management. The Sub-Advisory Agreements provide that NB 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 NB
Management.
The Sub-Advisory Agreements continue until August 2, 2000 and are
renewable from year to year, subject to approval of their continuance in the
same manner as the Management Agreements. The Sub-Advisory Agreements are
subject to termination, without penalty, with respect to each Portfolio by the
Portfolio Trustees or a 1940 Act majority vote of the outstanding interests in
that Portfolio, by NB Management, or by Neuberger Berman on not less than 30 nor
more than 60 days' prior written notice. The Sub-Advisory Agreements also
terminate automatically with respect to each Portfolio if they are assigned or
if the Management Agreement terminates with respect to that Portfolio.
Most money managers that come to the Neuberger Berman organization have
at least fifteen years experience. Neuberger Berman and NB Management employ
experienced professionals that work in a competitive environment.
Investment Companies Managed
- ----------------------------
As of September 30, 1999, the investment companies managed by NB
Management had aggregate net assets of approximately $17.8 billion. NB
Management currently serves as investment manager of the following investment
companies:
66
<PAGE>
<TABLE>
<CAPTION>
Approximate
Net Assets at
Name SEPTEMBER 30, 1999
- ---- ------------------
<S> <C>
Neuberger Berman Cash Reserves Portfolio.....................................................$1,129,792,312
(investment portfolio for Neuberger Berman Cash Reserves)
Neuberger Berman Government Money Portfolio....................................................$701,999,455
(investment portfolio for Neuberger Berman Government Money Fund)
Neuberger Berman High Yield Bond Portfolio......................................................$25,041,449
(investment portfolio for Neuberger Berman High Yield Bond Fund)
Neuberger Berman Limited Maturity Bond Portfolio...............................................$274,532,907
(investment portfolio for Neuberger Berman Limited Maturity Bond Fund and Neuberger
Berman Limited Maturity Bond Trust)
Neuberger Berman Municipal Money Portfolio.....................................................$275,065,503
(investment portfolio for Neuberger Berman Municipal Money Fund)
Neuberger Berman Century Portfolio..........................................(in registration as of 9/30/99)
(investment portfolio for Neuberger Berman Century Fund and Neuberger Berman
Century Trust)
Neuberger Berman Focus Portfolio.............................................................$1,463,580,020
(investment portfolio for Neuberger Berman Focus Fund, Neuberger Berman Focus Trust and
Neuberger Berman Focus Assets)
Neuberger Berman Genesis Portfolio...........................................................$1,647,532,448
(investment portfolio for Neuberger Berman Genesis Fund, Neuberger Berman Genesis Trust,
Neuberger Berman Genesis Assets and Neuberger Berman Genesis Institutional)
Neuberger Berman Guardian Portfolio..........................................................$4,423,729,801
(investment portfolio for Neuberger Berman Guardian Fund, Neuberger Berman Guardian
Trust and Neuberger Berman Guardian Assets)
Neuberger Berman International Portfolio.......................................................$117,925,499
(investment portfolio for Neuberger Berman International Fund and Neuberger Berman
International Trust)
Neuberger Berman Manhattan Portfolio...........................................................$606,962,000
(investment portfolio for Neuberger Berman Manhattan Fund, Neuberger Berman Manhattan
Trust and Neuberger Berman Manhattan Assets)
Neuberger Berman Millennium Portfolio...........................................................$78,666,423
(investment portfolio for Neuberger Berman Millennium Fund, Neuberger Berman Millennium
Trust and Neuberger Berman Millennium Assets)
Neuberger Berman Partners Portfolio..........................................................$3,553,329,259
(investment portfolio for Neuberger Berman Partners Fund, Neuberger Berman Partners Trust
and Neuberger Berman Partners Assets)
Neuberger Berman Regency Portfolio..............................................................$30,848,996
(investment portfolio for Neuberger Berman Regency Fund and Neuberger Berman Regency
Trust)
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Neuberger Berman Socially Responsive Portfolio.................................................$376,629,789
(investment portfolio for Neuberger Berman Socially Responsive Fund, Neuberger Berman
Socially Responsive Trust, and Neuberger Berman Socially Responsive Assets)
Advisers Managers Trust......................................................................$2,026,088,252
(eight series)
</TABLE>
The investment decisions concerning the Portfolios and the other mutual
funds managed by NB Management (collectively, "Other NB Funds") have been and
will continue to be made independently of one another. In terms of their
investment objectives, most of the Other NB Funds differ from the Portfolios.
Even where the investment objectives are similar, however, the methods used by
the Other NB Funds and the Portfolios to achieve their objectives may differ.
The investment results achieved by all of the mutual funds managed by NB
Management have varied from one another in the past and are likely to vary in
the future.
There may be occasions when a Portfolio and one or more of the Other NB
Funds or other accounts managed by Neuberger Berman are contemporaneously
engaged in purchasing or selling the same securities from or to third parties.
When this occurs, the transactions are averaged as to price and allocated, in
terms of amount, in accordance with a formula considered to be equitable to the
funds involved. Although in some cases this arrangement may have a detrimental
effect on the price or volume of the securities as to a Portfolio, in other
cases it is believed that a Portfolio's ability to participate in volume
transactions may produce better executions for it. In any case, it is the
judgment of the Portfolio Trustees that the desirability of the Portfolios'
having their advisory arrangements with NB Management outweighs any
disadvantages that may result from contemporaneous transactions.
The Portfolios are subject to certain limitations imposed on all
advisory clients of Neuberger Berman (including the Portfolios, the Other NB
Funds, and other managed accounts) and personnel of Neuberger Berman and its
affiliates. These include, for example, limits that may be imposed in certain
industries or by certain companies, and policies of Neuberger Berman that limit
the aggregate purchases, by all accounts under management, of the outstanding
shares of public companies.
Codes of Ethics
- ---------------
The Trusts, NB Management and Neuberger Berman have personal securities
trading policies that restrict the personal securities transactions of
employees, officers, and trustees. Their primary purpose is to ensure that
personal trading by these individuals does not disadvantage any fund managed by
NB Management. The portfolio managers and other investment personnel who comply
with the policies' preclearance and disclosure procedures may be permitted to
purchase, sell or hold certain types of securities which also may be or are held
in the funds they advise, but are restricted from trading in close conjunction
with their Portfolios or taking personal advantage of investment opportunities
that may belong to a Portfolio.
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MANAGEMENT AND CONTROL OF NB MANAGEMENT
The directors and officers of NB Management, who are deemed "control
persons," all of whom have offices at the same address as NB Management, are
Richard A. Cantor, Director; Robert Matza, Director; Theodore P. Giuliano,
Director and Vice President; Michael M. Kassen, Director and Chairman; Barbara
Katersky, Senior Vice President; Daniel J. Sullivan, Senior Vice President;
Philip Ambrosio, Senior Vice President and Chief Financial Officer; Peter E.
Sundman, Director and President; Michael J. Weiner, Senior Vice President; and
Lawrence Zicklin, Director.
The directors and officers of Neuberger Berman, who are deemed "control
persons," all of whom have offices at the same address as Neuberger Berman, are
Jeffrey B. Lane, President and Chief Executive Officer; Robert Matza, Executive
Vice President and Chief Administrative Officer; Michael M. Kassen, Executive
Vice President and Chief Investment Officer; Heidi L. Schneider, Executive Vice
President; Peter E. Sundman, Executive Vice President; Philip Ambrosio, Senior
Vice President and Chief Financial Officer; Kevin Handwerker, Senior Vice
President, General Counsel and Secretary; Robert Akeson, Senior Vice President;
Salvatore A. Buonocore, Senior Vice President; Seth J. Finkel, Senior Vice
President; Robert Firth, Senior Vice President; Brian Gaffney, Senior Vice
President; Brian E. Hahn, Senior Vice President; Lawrence J. Cohn, Senior Vice
President; Joseph K. Herlihy, Senior Vice President and Treasurer; Barbara R.
Katersky, Senior Vice President; Diane E. Lederman, Senior Vice President; Peter
B. Phelan, Senior Vice President; Robert H. Splan, Senior Vice President; Andrea
Trachtenberg, Senior Vice President; Michael J. Weiner, Senior Vice President;
Marvin C. Schwartz, Managing Director.
Mr. Sundman and Mr. Kassen are trustees and officers of the Trust and
Managers Trust. Messrs. Sullivan and Weiner are officers of each Trust.
Neuberger Berman and NB Management are wholly owned subsidiaries of
Neuberger Berman Inc., a publicly owned holding company owned primarily by the
employees of Neuberger Berman.
DISTRIBUTION ARRANGEMENTS
Distributor
- -----------
NB Management serves as the distributor ("Distributor") in connection
with the offering of each Fund's shares on a no-load basis to Institutions. In
connection with the sale of its shares, each 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 personally, through
the mails, or by electronic means. The Distributor is the Funds' "principal
underwriter" within the meaning of the 1940 Act and, as such, acts as agent in
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arranging for the sale of each Fund's shares to Institutions without sales
commission or other compensation and bears all advertising and promotion
expenses incurred in the sale of the Funds' shares.
From time to time, NB 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 each Fund, and the Distributor are parties to a
Distribution Agreement that continues until August 2, 2000. 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
terminate automatically on its assignment, in the same manner as the Management
Agreements.
Distribution and Shareholder Services Plan
- ------------------------------------------
The Fund Trustees adopted the Plan on July 29, 1999. The Plan provides
that Neuberger Berman CENTURY Trust, FOCUS Trust, MILLENNIUM Trust, REGENCY
Trust and SOCIALLY RESPONSIVE Trust will compensate NB Management for
administrative and other services provided to the Funds, its activities and
expenses related to the sale and distribution of Fund shares, and ongoing
services to investors in the Funds. Under the Plan, NB Management receives from
each Fund a fee at the annual rate of 0.10% of that Fund's average daily net
assets. NB Management may pay up to the full amount of this fee to Institutions
that make available Fund shares and/or provide services to the Funds and their
shareholders. The fee paid to an Institution is based on the level of such
services provided. Institutions may use the payments for, among other purposes,
compensating employees engaged in sales and/or shareholder servicing. The amount
of fees paid by a Fund during any year may be more or less than the cost of
distribution and other services provided to the Fund and its investors. NASD
rules limit the amount of annual distribution and service fees that may be paid
by a mutual fund and impose a ceiling on the cumulative distribution fees paid.
The Trust's plan complies with these rules.
The Plan requires that NBMI provide the Fund Trustees for their review
a quarterly written report identifying the amounts expended by each Fund and the
purposes for which such expenditures were made.
Prior to approving the Plan, the Fund Trustees considered various
factors relating to the implementation of the Plan and determined that there is
a reasonable likelihood that the Plan will benefit the Funds and their
shareholders. The Fund Trustees noted that the purpose of the master/feeder fund
structure is to permit access to a variety of markets. To the extent the Plan
allows the Funds to penetrate markets to which they would not otherwise have
access, the Plan may result in additional sales of Fund shares; this, in turn,
may enable the Funds to achieve economies of scale that could reduce expenses.
In addition, certain on-going shareholder services may be provided more
effectively by Institutions with which shareholders have an existing
relationship.
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The Plan continues until August 2, 2000. The Plan is renewable
thereafter from year to year with respect to each Fund, so long as its
continuance is approved at least annually (1) by the vote of a majority of the
Fund Trustees and (2) by a vote of the majority of the Rule 12b-1 Trustees, cast
in person at a meeting called for the purpose of voting on such approval. The
Plan may not be amended to increase materially the amount of fees paid by any
Fund thereunder unless such amendment is approved by a 1940 Act majority vote of
the outstanding shares of the Fund and by the Fund Trustees in the manner
described above. The Plan is terminable with respect to a Fund at any time by a
vote of a majority of the Rule 12b-1 Trustees or by a 1940 Act majority vote of
the outstanding shares in the Fund.
ADDITIONAL PURCHASE INFORMATION
Share Prices and Net Asset Value
Each Fund's shares are bought or sold at a price that is the Fund's NAV
per share. The NAVs for each Fund and its corresponding Portfolio are calculated
by subtracting total liabilities from total assets (in the case of a Portfolio,
the market value of the securities the Portfolio holds plus cash and other
assets; in the case of a Fund, its percentage interest in its corresponding
Portfolio, multiplied by the Portfolio's NAV, plus any other assets). Each
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. Each Fund
and its corresponding 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.
Each Portfolio (except Neuberger Berman INTERNATIONAL Portfolio) values
securities (including options) listed on the NYSE, the American Stock Exchange
or other national securities exchanges or quoted on The Nasdaq Stock Market, and
other securities for which market quotations are readily available, at the last
reported sale price on the day the securities are being valued. If there is no
reported sale of such a security on that day, the security is valued at the mean
between its closing bid and asked prices on that day. These Portfolios value all
other securities and assets, including restricted securities, by a method that
the trustees of Equity Managers Trust believe accurately reflects fair value.
Neuberger Berman INTERNATIONAL Portfolio values equity securities at
the last reported sale price on the principal exchange or in the principal
over-the-counter market in which such securities are traded, as of the close of
regular trading on the NYSE on the day the securities are being valued or, if
there are no sales, at the last available bid price on that day. Debt
obligations are valued at the last available bid price for such securities or,
if such prices are not available, at prices for securities of comparable
maturity, quality, and type. Foreign securities are translated from the local
currency into U.S. dollars using current exchange rates. The Portfolio values
all other types of securities and assets, including restricted securities and
securities for which market quotations are not readily available, by a method
that the trustees of Global Managers Trust believe accurately reflects fair
value.
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Neuberger Berman INTERNATIONAL Portfolio's portfolio securities are
traded primarily in foreign markets which may be open on days when the NYSE is
closed. As a result, the NAV of Neuberger Berman INTERNATIONAL Trust may be
significantly affected on days when shareholders have no access to that Fund.
If NB Management believes that the price of a security obtained under a
Portfolio's valuation procedures (as described above) does not represent the
amount that the Portfolio reasonably expects to receive on a current sale of the
security, the Portfolio will value the security based on a method that the
trustees of the corresponding Managers Trust believe accurately reflects fair
value.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus entitled
"Maintaining Your Account," an Institution may exchange shares of any Fund for
shares of one or more of the other Funds or the income fund that is briefly
described below ("Income Fund"), if made available through that Institution.
INCOME FUND
- -----------
Neuberger Berman Seeks the highest current income consistent with
Limited Maturity Bond Trust low risk to principal and liquidity and,
secondarily, total return. The corresponding
portfolio invests in debt securities, primarily
investment grade; maximum 10% below investment
grade, but no lower than B.(*) Maximum average
duration of four years.
Any Fund described herein, and the Income Fund, may terminate or modify
its exchange privilege in the future.
Before effecting an exchange, Fund shareholders must obtain and should
review a currently effective prospectus of the fund into which the exchange is
to be made. An exchange is treated as a sale for federal income tax purposes
and, depending on the circumstances, a capital gain or loss may be realized.
ADDITIONAL REDEMPTION INFORMATION
SUSPENSION OF REDEMPTIONS
The right to redeem a Fund's shares may be suspended or payment of the
redemption price postponed (1) when the NYSE is closed, (2) when trading on the
NYSE is restricted, (3) when an emergency exists as a result of which it is not
- --------------------
* As rated by Moody's or S&P or, if unrated by either of those entities,
determined by NB Management to be of comparable quality.
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reasonably practicable for its corresponding 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. 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
- -------------------
Each Fund reserves the right, under certain conditions, to honor any
request for redemption (or a combination of requests from the same shareholder
in any 90-day period) exceeding $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued as
described under "Share Prices and Net Asset Value" above. If payment is made in
securities, an Institution generally will incur brokerage expenses or other
transaction costs in converting those securities into cash and will be subject
to fluctuation in the market prices of those securities until they are sold. The
Funds do not redeem in kind under normal circumstances, but would do so when the
Fund Trustees determined that it was in the best interests of a Fund's
shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders substantially all of its
share of any net investment income (after deducting expenses incurred directly
by the Fund), any net realized capital gains, and any net realized gains from
foreign currency transactions earned or realized by its corresponding Portfolio.
A Portfolio's net investment income consists of all income accrued on portfolio
assets less accrued expenses, but does not include capital and foreign currency
gains and losses. Net investment income and realized gains and losses are
reflected in a Portfolio's NAV (and, hence, its corresponding Fund's NAV) until
they are distributed. Each 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).
Dividends from net investment income and distributions of net realized
capital and foreign currency gains, if any, normally are paid once annually, in
December, except that Neuberger Berman GUARDIAN Trust distributes substantially
all of its share of Neuberger Berman GUARDIAN Portfolio's net investment income
(after deducting expenses incurred directly by Neuberger Berman GUARDIAN Trust),
if any, near the end of each other calendar quarter.
Dividends and other distributions are automatically reinvested in
additional shares of the distributing Fund, unless 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 any Fund remains in effect until the
Institution notifies the Fund in writing to discontinue the election.
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ADDITIONAL TAX INFORMATION
Taxation of the Funds
- ---------------------
To continue to qualify for treatment as a RIC under the Code, each 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 each 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 Financial Instruments) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); and(2) 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, securities of
other RICs, and other securities limited, in respect of any one issuer, to an
amount that does not exceed 5% of the value of the Fund's total assets and that
does not represent more than 10% of the issuer's outstanding voting securities,
and (ii) not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or securities of other RICs)
of any one issuer. If the fund failed to qualify as a RIC for any taxable year,
it would be taxed on the full amount of its taxable income for that year without
being able to deduct the distributions it makes to its shareholders and the
shareholders would treat all those distributions, including distributions of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), as dividends (that is, ordinary income) to the extent of the
Fund's earnings and profits.
Certain funds that invest in portfolios managed by NB Management,
including most of the Sister Funds have received rulings from the Internal
Revenue Service ("Service") that each such fund, as an investor in its
corresponding portfolio, will be deemed to own a proportionate share of the
portfolio's assets and income for purposes of determining whether the fund
satisfies all the requirements described above to qualify as a RIC. Although
these rulings may not be relied on as precedent by the Funds, NB Management
believes that the reasoning thereof and, hence, their conclusion apply to the
Funds as well.
Each 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 consequences to the
Funds of distributions to them from the Portfolios, investments by the
Portfolios in certain securities, and hedging transactions engaged in by the
Portfolios.
Taxation of the PortfolioS
- --------------------------
The Portfolios (except Neuberger Berman SOCIALLY RESPONSIVE, Neuberger
Berman MILLENNIUM, Neuberger Berman REGENCY, Neuberger Berman CENTURY and
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Neuberger Berman INTERNATIONAL Portfolios) have received rulings from the
Service to the effect that, among other things, each such Portfolio will be
treated as a separate partnership for federal income tax purposes and will not
be a "publicly traded partnership." Although these rulings may not be relied on
as precedent by the excepted Portfolios, NB Management believes the reasoning
thereof and, hence, their conclusion apply to those Portfolios as well. As a
result, no Portfolio is subject to federal income tax; instead, each investor in
a Portfolio, such as a 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. Each Portfolio also is not subject to Delaware
or New York income or franchise tax.
Because each Fund is deemed to own a proportionate share of its
corresponding Portfolio's assets and income for purposes of determining whether
the Fund satisfies the requirements to qualify as a RIC, each Portfolio intends
to continue to conduct its operations so that its corresponding Fund will be
able to continue to satisfy all those requirements.
Distributions to a Fund from its corresponding 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. A Fund's basis for its interest in its
corresponding 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
capital gains and decreased by (1) the amount of cash and the basis of any
property the Portfolio distributes to the Fund and (2) the Fund's share of the
Portfolio's losses.
Dividends and interest received by a Portfolio, and gains realized by a
Portfolio, may be subject to income, withholding, or other taxes imposed by
foreign countries and U.S. possessions ("foreign taxes") that would reduce the
yield and/or total return 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.
If more than 50% of the value of Neuberger Berman INTERNATIONAL Trust's
total assets (taking into account its share of Neuberger Berman INTERNATIONAL
Portfolio's total assets) at the close of its taxable year consists of
securities of foreign corporations, that Fund will be eligible to, and may, file
an election with the Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to the Fund's share
of any foreign taxes paid by the Portfolio ("Fund's foreign taxes"). Pursuant to
the election, Neuberger Berman INTERNATIONAL Trust would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, his or her share
of those taxes, (2) treat his or her share of those taxes and of any dividend
paid by the Fund that represents its share of the Portfolio's income from
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foreign or U.S. possessions sources as his or her own income from those sources,
and (3) either deduct the taxes deemed paid by him or her in computing his or
her taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against his or her federal income tax.
Neuberger Berman INTERNATIONAL Trust will report to its shareholders shortly
after each taxable year their respective shares of the Fund's foreign taxes and
income (taking into account its share of the Portfolio's income) from sources
within foreign countries and U.S. possessions if it makes this election.
Individual shareholders of the Fund who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign taxes included on Forms 1099 and
all of whose foreign source income is "qualified passive income" may elect each
year to be exempt from the extremely complicated foreign tax credit limitation
and will be able to claim a foreign tax credit without having to file the
detailed Form 1116 that otherwise is required.
A Portfolio may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, if a Portfolio holds stock of a PFIC, its corresponding Fund
(indirectly through its interest in the Portfolio) will be subject to federal
income tax on its share of a portion of any "excess distribution" received by
the Portfolio on the stock or of any gain on the Portfolio's disposition of the
stock (collectively, "PFIC income"), plus interest thereon, even if the Fund
distributes its share of the PFIC income as a taxable dividend to its
shareholders. The balance of the Fund's share of the PFIC income will be
included in its investment company taxable income and, accordingly, will not be
taxable to it to the extent that it distributes income to its shareholders.
If a Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of its corresponding Fund's
incurring the foregoing tax and interest obligation, the Fund would be required
to include in income each year its share of the Portfolio's pro rata share of
the QEF's annual ordinary earnings and net capital gain -- which the Fund most
likely would have to distribute to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax -- even if the Portfolio did not receive
those earnings and gain from the QEF. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
A holder of stock in any PFIC may elect to include in ordinary income
for each taxable year the excess, if any, of the fair market value of the stock
over the adjusted basis therein as of the end of that year. Pursuant to the
election, a deduction (as an ordinary, not capital, loss) also would be allowed
for the excess, if any, of the holder's adjusted basis in PFIC stock over the
fair market value thereof as of the taxable year-end, but only to the extent of
any net mark-to-market gains with respect to that stock included in income for
prior taxable years under the election (and under regulations proposed in 1992
that provided a similar election with respect to the stock of certain PFICs).
The adjusted basis in each PFIC's stock subject to the election would be
adjusted to reflect the amounts of income included and deductions taken
thereunder.
The Portfolios' use of hedging strategies, such as writing (selling)
and purchasing options and futures contracts and entering into forward
contracts, involves complex rules that will determine for income tax purposes
the amount, character, and timing of recognition of the gains and losses the
Portfolios realize in connection therewith. Gains from the disposition of
foreign currencies (except certain gains that may be excluded by future
regulations), and gains from Financial Instruments derived by a Portfolio with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income for its corresponding Fund under the Income
Requirement.
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Exchange-traded futures contracts and certain forward contracts subject
to section 1256 of the Code ("Section 1256 contracts") are required to be marked
to market (that is, treated as having been sold at market value) for federal
income tax purposes at the end of a Portfolio's taxable year. Sixty percent of
any net gain or loss recognized as a result of these "deemed sales," and 60% of
any net realized gain or loss from any actual sales, of Section 1256 contracts
are treated as long-term capital gain or loss; the remainder is treated as
short-term capital gain or loss. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax. These rules may operate to
increase the amount that a Fund must distribute to satisfy the Distribution
Requirement, which will be taxable to the shareholders as ordinary income, and
to increase the net capital gain recognized by the Fund, without in either case
increasing the cash available to the Fund. A Portfolio may elect to exclude
certain transactions from the operation of section 1256, although doing so may
have the effect of increasing the relative proportion of net short-term capital
gain (taxable to its corresponding Fund's shareholders as ordinary income when
distributed to them) and/or increasing the amount of dividends that Fund must
distribute to meet the Distribution Requirement and avoid imposition of the
Excise Tax.
If a Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the position, the
Portfolio will be treated as having made an actual sale thereof, with the result
that gain will be recognized at that time. A constructive sale generally
consists of a short sale, an offsetting notional principal contract, or a
futures or forward contract entered into by a Fund or a related person with
respect to the same or substantially identical property. In addition, if the
appreciated financial position is itself a short sale or such a contract,
acquisition of the underlying property or substantially identical property will
be deemed a constructive sale. The foregoing will not apply, however, to any
transaction during any taxable year that otherwise would be treated as a
constructive sale if the transaction is closed within 30 days after the end of
that year and the Portfolio holds the appreciated financial position unhedged
for 60 days after that closing (I.E., at no time during that 60-day period is
the Portfolio's risk of loss regarding that position reduced by reason of
certain specified transactions with respect to substantially identical or
related property, such as having an option to sell, being contractually
obligated to sell, making a short sale, or granting an option to buy
substantially identical stock or securities).
Each of Neuberger Berman PARTNERS, Neuberger Berman MILLENNIUM,
Neuberger Berman REGENCY, Neuberger Berman CENTURY and Neuberger Berman SOCIALLY
RESPONSIVE Portfolios may acquire zero coupon securities or other securities
issued with original issue discount ("OID"). As a holder of those securities,
each such Portfolio (and, through it, its corresponding Fund) must take into
income the OID that accrues on the securities during the taxable year, even if
it receives no corresponding payment on them during the year. Because each such
Fund annually must distribute substantially all of its investment company
taxable income (including its share of its corresponding Portfolio's accrued
OID) to satisfy the Distribution Requirement and avoid imposition of the Excise
Tax, such a Fund may be required in a particular year to distribute as a
dividend an amount that is greater than its share of the total amount of cash
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its corresponding Portfolio actually receives. Those distributions will be made
from a Fund's (or its share of its corresponding Portfolio's) cash assets or, if
necessary, from the proceeds of sales of that Portfolio's securities. A
Portfolio may realize capital gains or losses from those sales, which would
increase or decrease its corresponding Fund's investment company taxable income
and/or net capital gain.
Taxation of the Funds' 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.
PORTFOLIO TRANSACTIONS
Neuberger Berman acts as principal broker for each Portfolio (except
Neuberger Berman INTERNATIONAL Portfolio) in the purchase and sale of its
portfolio securities (other than certain securities traded on the OTC market).
Neuberger Berman may act as broker for Neuberger Berman INTERNATIONAL Portfolio.
A substantial portion of the portfolio transactions of Neuberger Berman GENESIS
and Neuberger Berman MILLENNIUM Portfolios involves securities traded on the OTC
market; those Portfolios purchase and sell OTC securities in principal
transactions with dealers who are the principal market makers for such
securities. In effecting securities transactions, each Portfolio seeks to obtain
the best price and execution of orders.
During the fiscal year ended August 31, 1997, Neuberger Berman
MANHATTAN Portfolio paid brokerage commissions of $971,026, of which $458,679
was paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
Neuberger Berman MANHATTAN Portfolio paid brokerage commissions of $1,132,309,
of which $546,227 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
MANHATTAN Portfolio paid brokerage commissions of $1,155,067, of which $495,351
was paid to Neuberger Berman. Transactions in which that Portfolio used
Neuberger Berman as broker comprised 45.46% of the aggregate dollar amount of
transactions involving the payment of commissions, and 42.89% of the aggregate
brokerage commissions paid by the Portfolio, during the fiscal year ended August
31, 1999. 99.63% of the $657,243 paid to other brokers by that Portfolio during
that fiscal year (representing commissions on transactions involving
approximately $398,886,704) was directed to those brokers because of research
services they provided. During the fiscal year ended August 31, 1999, that
Portfolio acquired securities of the following of its "regular brokers or
dealers" (as defined in the 1940 Act) ("Regular B/Ds"): American Express Credit
Corp., Donaldson, Lufkin, & Jenrette Securities Corp., Ford Motor Credit Co.,
General Electric Capital Corp., Goldman, Sachs & Co., Lehman Brothers Inc. and
State Street Bank and Trust Company, at that date, that Portfolio held the
securities of its Regular B/Ds with an aggregate value as follows: Ford Motor
Credit Corp., $10,996,258; Lehman Brothers Inc., $5,138,500; and State Street
Bank & Trust Company, $12,240,000.
During the fiscal year ended August 31, 1997, Neuberger Berman GENESIS
Portfolio paid brokerage commissions of $860,097, of which $516,040 was paid to
Neuberger Berman. During the fiscal year ended August 31, 1998, Neuberger Berman
GENESIS Portfolio paid brokerage commissions of $2,419,159, of which $1,159,143
was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman GENESIS
Portfolio paid brokerage commissions of $2,150,168, of which $1,034,712 was paid
to Neuberger Berman. Transactions in which that Portfolio used Neuberger Berman
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as broker comprised 49.53% of the aggregate dollar amount of transactions
involving the payment of commissions, and 48.12% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
94.48% of the $1,053,905 paid to other brokers by that Portfolio during that
fiscal year (representing commissions on transactions involving approximately
$425,499,870) was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: American Express Credit Corp.,
Ford Motor Credit Co., General Electric Capital Corp., Merrill Lynch, Pierce,
Fenner & Smith Inc., Morgan Stanley Dean Witter & Co., and State Street Bank and
Trust Company, at that date, that Portfolio held the securities of its Regular
B/Ds with an aggregate value as follows: American Express Credit Corp.,
$9,997,150; General Electric Capital Corp., $9,989,831; and State Street Bank &
Trust Company, $26,740,000.
During the fiscal year ended August 31, 1997, Neuberger Berman FOCUS
Portfolio paid brokerage commissions of $1,825,493, of which $920,202 was paid
to Neuberger Berman. During the fiscal year ended August 31, 1998, Neuberger
Berman FOCUS Portfolio paid brokerage commissions of $2,051,007, of which
$998,930 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman FOCUS
Portfolio paid brokerage commissions of $1,972,390, of which $983,860 was paid
to Neuberger Berman. Transactions in which that Portfolio used Neuberger Berman
as broker comprised 55.54% of the aggregate dollar amount of transactions
involving the payment of commissions, and 49.88% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
91.88% of the $908,219 paid to other brokers by that Portfolio during that
fiscal year (representing commissions on transactions involving approximately
$534,330,876) was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: Ford Motor Credit Co., General
Electric Capital Corp., Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan
Stanley Dean Witter & Co., and State Street Bank and Trust Company, at that
date, that Portfolio held the securities of its Regular B/Ds with an aggregate
value as follows: Morgan Stanley Dean Witter & Co., $87,957,813 and State Street
Bank & Trust Company, $22,890,000.
During the fiscal year ended August 31, 1997, Neuberger Berman GUARDIAN
Portfolio paid brokerage commissions of $8,540,335, of which $4,806,913 was paid
to Neuberger Berman. During the fiscal year ended August 31, 1998, Neuberger
Berman GUARDIAN Portfolio paid brokerage commissions of $11,558,523, of which
$5,733,976 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman GUARDIAN
Portfolio paid brokerage commissions of $10,793,418, of which $3,975,341 was
paid to Neuberger Berman. Transactions in which that Portfolio used Neuberger
Berman as broker comprised 42.88% of the aggregate dollar amount of transactions
involving the payment of commissions, and 36.83% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
89.21% of the $6,082,366 paid to other brokers by that Portfolio during that
fiscal year (representing commissions on transactions involving approximately
$4,098,122,468) was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: American Express Credit Corp.,
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Donaldson, Lufkin, & Jenrette Securities Corp., Ford Motor Credit Co., General
Electric Capital Corp., Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner &
Smith Inc., Morgan Stanley Dean Witter & Co., and State Street Bank and Trust
Company, at that date, that Portfolio held the securities of its Regular B/Ds
with an aggregate value as follows: American Express Credit Corp., $49,992,736;
Ford Motor Credit Co., $49,948,667; General Electric Capital Corp., $49,985,833;
Morgan Stanley Dean Witter & Co., $49,728,344; and State Street Bank & Trust
Company, $111,170,000.
During the fiscal year ended August 31, 1997, Neuberger Berman PARTNERS
Portfolio paid brokerage commissions of $5,413,453, of which $3,508,790 was paid
to Neuberger Berman. During the fiscal year ended August 31, 1998, Neuberger
Berman PARTNERS Portfolio paid brokerage commissions of $10,028,713, of which
$6,281,978 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman PARTNERS
Portfolio paid brokerage commissions of $14,228,430 of which $7,694,359 was paid
to Neuberger Berman. Transactions in which that Portfolio used Neuberger Berman
as broker comprised 55.60% of the aggregate dollar amount of transactions
involving the payment of commissions, and 54.08% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
90.92% of the $5,940,877 paid to other brokers by that Portfolio during that
fiscal year (representing commissions on transactions involving approximately
$4,178,855,517) was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: American Express Credit Corp.,
Ford Motor Credit Co., General Electric Capital Corp., Goldman, Sachs & Co.,
Morgan Stanley Dean Witter & Co., and State Street Bank and Trust Company, at
that date, that Portfolio held the securities of its Regular B/Ds with an
aggregate value as follows: American Express Credit Corp., $49,948,375; Ford
Motor Credit Co., $49,992,764; Morgan Stanley Dean Witter & Co., $28,318,125;
and State Street Bank & Trust Company, $63,300,000.
During the fiscal year ended August 31, 1997, Neuberger Berman SOCIALLY
RESPONSIVE Portfolio paid brokerage commissions of $305,640, of which $232,238
was paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
Neuberger Berman SOCIALLY RESPONSIVE Portfolio paid brokerage commissions of
$401,601, of which $296,353 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman SOCIALLY
RESPONSIVE Portfolio paid brokerage commissions of $485,040, of which $329,666
was paid to Neuberger Berman. Transactions in which that Portfolio used
Neuberger Berman as broker comprised 69.99% of the aggregate dollar amount of
transactions involving the payment of commissions, and 67.97% of the aggregate
brokerage commissions paid by the Portfolio, during the fiscal year ended August
31, 1999. 99.97% of the $155,324 paid to other brokers by that Portfolio during
that fiscal year (representing commissions on transactions involving
approximately $97,201,802) was directed to those brokers because of research
services they provided. During the fiscal year ended August 31, 1999, that
Portfolio acquired securities of the following of its Regular B/Ds: Goldman,
Sachs & Co. and State Street Bank and Trust Company; at that date, that
Portfolio held the securities of its Regular B/Ds with an aggregate value as
follows: Goldman, Sachs & Co., $556,256; and State Street Bank & Trust Company,
$8,370,000.
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During the fiscal year ended August 31, 1997, Neuberger Berman
INTERNATIONAL Portfolio paid brokerage commissions of $297,431, of which $5,910
was paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
Neuberger Berman INTERNATIONAL Portfolio paid brokerage commissions of $345,192,
of which $3,435 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
INTERNATIONAL Portfolio paid brokerage commissions of $717,488, of which $5,632
was paid to Neuberger Berman. Transactions in which the Portfolio used Neuberger
Berman as broker comprised 1.67% of the aggregate dollar amount of transactions
involving the payment of commissions, and 0.79% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
Of the $664,624 paid to other brokers by that Portfolio during that fiscal year,
93.37% (representing commissions on transactions involving approximately
$201,189,337 was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: Exxon Credit Corp., General
Electric Capital Corp., HSBC Securities, Inc., Samsung Securities (America),
Inc., State Street Bank and Trust Company, and Vickers Ballas (USA) Inc.; at
that date, that Portfolio held the securities of its Regular B/Ds with an
aggregate value as follows: State Street Bank & Trust Company, $3,920,000.
During the fiscal year ended August 31, 1999, Neuberger Berman
MILLENNIUM Portfolio paid brokerage commissions of $50,656, of which $28,188 was
paid to Neuberger Berman. Transactions in which that Portfolio used Neuberger
Berman as broker comprised 52.82% of the aggregate dollar amount of transactions
involving the payment of commissions, and 55.65% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
99.14% of the $22,275 paid to other brokers by that Portfolio during that fiscal
year (representing commissions on transactions involving approximately
$9,372,700) was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: Donaldson, Lufkin, & Jenrette
Securities Corp., Ford Motor Credit Co., General Electric Capital Corp., Merrill
Lynch, Pierce, Fenner & Smith Inc., and State Street Bank and Trust Company, at
that date, that Portfolio held the securities of its Regular B/Ds with an
aggregate value as follows: Ford Motor Credit Co., $1,499,783; and State Street
Bank & Trust Company, $2,090,000.
During the fiscal year ended August 31, 1999, Neuberger Berman REGENCY
Portfolio paid brokerage commissions of $17,045, of which $15,488 was paid to
Neuberger Berman. Transactions in which that Portfolio used Neuberger Berman as
broker comprised 90.37% of the aggregate dollar amount of transactions involving
the payment of commissions, and 90.87% of the aggregate brokerage commissions
paid by the Portfolio, during the fiscal year ended August 31, 1999. 96.47% of
the $1,502 paid to other brokers by that Portfolio during that fiscal year
(representing commissions on transactions involving approximately $840,736) was
directed to those brokers because of research services they provided. During the
fiscal year ended August 31, 1999, that Portfolio acquired securities of the
following of its Regular B/Ds: American Express Credit Corp., Ford Motor Credit
Co., General Electric Capital Corp., and State Street Bank and Trust Company, at
that date, that Portfolio held the securities of its Regular B/Ds with an
aggregate value as follows: State Street Bank & Trust Company, $370,000.
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Insofar as portfolio transactions of Neuberger Berman PARTNERS
Portfolio result from active management of equity securities, and insofar as
portfolio transactions of Neuberger Berman MANHATTAN Portfolio result from
seeking capital appreciation by selling securities whenever sales are deemed
advisable without regard to the length of time the securities may have been
held, it may be expected that the aggregate brokerage commissions paid by those
Portfolios to brokers (including Neuberger Berman where it acts in that
capacity) may be greater than if securities were selected solely on a long-term
basis.
Portfolio securities may, from time to time, be loaned by a 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. In accordance with the order, securities loans made by a Portfolio
to Neuberger Berman are fully secured by cash collateral. The portion of the
income on the cash collateral which may be shared with Neuberger Berman is to be
determined by reference to concurrent arrangements between Neuberger Berman and
non-affiliated lenders with which it engages in similar transactions. In
addition, where Neuberger Berman borrows securities from a Portfolio in order to
re-lend them to others, Neuberger Berman may be required to pay that Portfolio,
on a quarterly basis, certain of the earnings that Neuberger Berman otherwise
has derived from the re-lending of the borrowed securities. When Neuberger
Berman desires to borrow a security that a Portfolio has indicated a willingness
to lend, Neuberger Berman must borrow such security from that Portfolio, rather
than from an unaffiliated lender, unless the unaffiliated lender is willing to
lend such security on more favorable terms (as specified in the order) than that
Portfolio. If, in any month, a Portfolio's expenses exceed its income in any
securities loan transaction with Neuberger Berman, Neuberger Berman must
reimburse that Portfolio for such loss.
A committee of Independent Portfolio Trustees from time to time
reviews, among other things, information relating to securities loans by the
Portfolios. The following information reflects interest income earned by the
Portfolios from the cash collateralization of securities loans through Neuberger
Berman during the fiscal years ended 1998 and 1997. As reflected below,
Neuberger Berman received a portion of the interest income from the cash
collateral.
Interest Income
from Amount Paid to
Name of portfolio Fiscal Year End Collateralization of Neuberger Berman
- ----------------- --------------- ----------------
Securities Loans
----------------
Neuberger Berman 8/31/98 $ 469,745 $ 212,611
MANHATTAN Portfolio 8/31/97 $ 988,931 $ 326,403
- --------------------------------------------------------------------------------
Neuberger Berman 8/31/98 $ 285,737 $ 152,375
GENESIS Portfolio 8/31/97 $ 168,552 $ 69,948
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Neuberger Berman 8/31/98 $ 1,355,093 $ 1,035,708
GUARDIAN Portfolio 8/31/97 $ 4,005,765 $ 3,523,486
- --------------------------------------------------------------------------------
Neuberger Berman 8/31/98 $ 139,877 $ 101,879
FOCUS Portfolio 8/31/97 $ 1,053,272 $ 898,127
- --------------------------------------------------------------------------------
Neuberger Berman 8/31/98 $ 280,193 $ 141,707
PARTNERS Portfolio 8/31/97 $ 797,133 $ 688,624
- --------------------------------------------------------------------------------
Neuberger Berman 8/31/98 $ 31,250 0
INTERNATIONAL 8/31/97 $ 0 0
Portfolio
- --------------------------------------------------------------------------------
Neuberger Berman 8/31/98 $ 20,023 $ 10,803
SOCIALLY RESPONSIVE 8/31/97 $ 80,484 $ 51,639
- --------------------------------------------------------------------------------
In effecting securities transactions, each Portfolio generally seeks to
obtain the best price and execution of orders. Commission rates, being a
component of price, are considered along with other relevant factors. Each
Portfolio plans to continue to use Neuberger Berman as its principal broker
where, in the judgment of NB Management, that firm is able to obtain a price and
execution at least as favorable as other qualified brokers. To the Portfolios'
knowledge, no affiliate of any Portfolio receives give-ups or reciprocal
business in connection with their securities transactions.
The use of Neuberger Berman as a broker for each Portfolio 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. Managers Trusts and NB Management have expressly
authorized Neuberger Berman to retain such compensation, and Neuberger Berman
has agreed to comply with the reporting requirements of Section 11(a).
Under the 1940 Act, commissions paid by a Portfolio to Neuberger Berman
in connection with a purchase or sale of securities on a securities exchange may
not exceed the usual and customary broker's commission. Accordingly, it is each
Portfolio's policy that the commissions paid to Neuberger Berman must, in NB
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
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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 Portfolios do not
deem it practicable and in their best interests to solicit competitive bids for
commissions on each transaction effected by Neuberger Berman. However,
consideration regularly is given 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 of portfolio securities from, or the
sale of portfolio securities to, a Portfolio 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 Portfolios and to its other customers and information
concerning the prevailing level of commissions charged by other brokers having
comparable execution capability. In addition, the procedures pursuant to which
Neuberger Berman effects brokerage transactions for the Portfolios must be
reviewed and approved no less often than annually by a majority of the
Independent Portfolio Trustees.
To ensure that accounts of all investment clients, including a
Portfolio, are treated fairly in the event that Neuberger Berman receives
transaction instructions regarding a security for more than one investment
account at or about the same time, Neuberger Berman may combine orders placed on
behalf of clients, including advisory accounts in which affiliated persons have
an investment interest, for the purpose of negotiating brokerage commissions or
obtaining a more favorable price. Where appropriate, securities purchased or
sold may be allocated, in terms of amount, to a client according to the
proportion that the size of the order placed by that account bears to the
aggregate size of orders contemporaneously placed by the other accounts, subject
to de minimis exceptions. All participating accounts will pay or receive the
same price.
Under policies adopted by the Board of Trustees, Neuberger Berman may
enter into agency cross-trades on behalf of a Portfolio. An agency cross-trade
is a securities transaction in which the same broker acts as agent on both sides
of the trade and the broker or an affiliate has discretion over one of the
participating accounts. In this situation, Neuberger Berman would receive
brokerage commissions from both participants in the trade. The other account
participating in an agency cross-trade with a Portfolio cannot be an account
over which Neuberger Berman exercises investment discretion. A member of the
Board of Trustees who is not affiliated with Neuberger Berman reviews
confirmations of each agency cross-trade that the Portfolios participate in.
Each Portfolio expects that it will continue to execute a portion of
its transactions through brokers other than Neuberger Berman. In selecting those
brokers, NB Management 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.
A committee comprised of officers of NB Management and principals of
Neuberger Berman who are portfolio managers of some of the Portfolios and Other
NB Funds (collectively, "NB Funds") and some of Neuberger Berman's managed
accounts ("Managed Accounts") evaluates semi-annually the nature and quality of
the brokerage and research services provided by other brokers. Based on this
evaluation, the committee establishes a list and projected rankings of preferred
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brokers for use in determining the relative amounts of commissions to be
allocated to those brokers. Ordinarily, the brokers on the list effect a large
portion of the brokerage transactions for the NB Funds and the Managed Accounts
that are not effected by Neuberger Berman. However, in any semi-annual period,
brokers not on the list may be used, and the relative amounts of brokerage
commissions paid to the brokers on the list may vary substantially from the
projected rankings. These variations reflect the following factors, among
others: (1) brokers not on the list or ranking below other brokers on the list
may be selected for particular transactions because they provide better price
and/or execution, which is the primary consideration in allocating brokerage;
(2) adjustments may be required because of periodic changes in the execution
capabilities of or research provided by particular brokers or in the execution
or research needs of the NB Funds and/or the Managed Accounts; and (3) the
aggregate amount of brokerage commissions generated by transactions for the NB
Funds and the Managed Accounts may change substantially from one semi-annual
period to the next.
The commissions paid to a broker other than Neuberger Berman may be
higher than the amount another firm might charge if NB Management determines in
good faith that the amount of those commissions is reasonable in relation to the
value of the brokerage and research services provided by the broker. NB
Management believes that those research services benefit the Portfolios by
supplementing the information otherwise available to NB Management. That
research may be used by NB Management in servicing Other NB Funds and, in some
cases, by Neuberger Berman in servicing the Managed Accounts. On the other hand,
research received by NB Management from brokers effecting portfolio transactions
on behalf of the Other NB Funds and by Neuberger Berman from brokers effecting
portfolio transactions on behalf of the Managed Accounts may be used for the
Portfolios' benefit.
Kent C. Simons; Kevin L. Risen and Allan R. White III; Judith M. Vale
and Robert W. D'Alelio; Valerie Chang; Jennifer K. Silver and Brooke A. Cobb;
Michael F. Malouf and Jennifer K. Silver; Michael M. Kassen, Robert I. Gendelman
and S. Basu Mullick; and Janet W. Prindle, each of whom is a Vice President of
NB Management and a Managing Director of Neuberger Berman are the persons
primarily responsible for making decisions as to specific action to be taken
with respect to the investment portfolios of Neuberger Berman FOCUS, Neuberger
Berman GUARDIAN, Neuberger Berman GENESIS, Neuberger Berman INTERNATIONAL,
Neuberger Berman MANHATTAN, Neuberger Berman MILLENNIUM, Neuberger Berman
PARTNERS Neuberger Berman REGENCY and Neuberger Berman SOCIALLY RESPONSIVE
Portfolios, respectively. Each of them has full authority to take action with
respect to portfolio transactions and may or may not consult with other
personnel of NB Management prior to taking such action. If Ms. Prindle is
unavailable to perform her responsibilities, Robert Ladd and/or Ingrid
Saukaitis, each of whom is a Vice President of NB Management, will assume
responsibility for the portfolio of Neuberger Berman Socially Responsive
Portfolio.
Portfolio Turnover
- ------------------
A Portfolio's portfolio turnover rate is calculated by dividing (1) the
lesser of the cost of the securities purchased or the proceeds from the
securities sold by the Portfolio during the fiscal year (other than securities,
including options, whose maturity or expiration date at the time of acquisition
was one year or less) by (2) the month-end average of the value of such
securities owned by the Portfolio during the fiscal year.
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REPORTS TO SHAREHOLDERS
Shareholders of each Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors or independent accountants for the Fund and its corresponding
Portfolio. Each Fund's statements show the investments owned by its
corresponding Portfolio and the market values thereof and provide other
information about the Fund and its operations, including the Fund's beneficial
interest in its corresponding Portfolio.
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS
The Funds
- ---------
Each Fund is a separate ongoing 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 as a
diversified, open-end management investment company, commonly known as a mutual
fund. The Trust has nine separate series. Each Fund invests all of net
investable assets in its corresponding Portfolio, in each case receiving a
beneficial interest in that Portfolio. The trustees of the Trust may establish
additional series or classes of shares without the approval of shareholders. The
assets of each series belong only to that series, and the liabilities of each
series are borne solely by that series and no other.
Prior to January 1, 1995, the names of Neuberger Berman FOCUS Trust and
Neuberger Berman FOCUS Portfolio were "Neuberger & Berman Selected Sectors
Trust" and "Neuberger & Berman Selected Sectors Portfolio," respectively.
Prior to November 17, 1995, the name of Neuberger Berman INTERNATIONAL
Portfolio was International Portfolio.
Prior to November 9, 1998, the name of the Trust was "Neuberger &
Berman Equity Trust" and the term "Neuberger Berman" in each Fund's name was
"Neuberger & Berman".
DESCRIPTION OF SHARES. Each Fund is authorized to issue an unlimited
number of shares of beneficial interest (par value $0.001 per share). Shares of
each Fund represent equal proportionate interests in the assets of that 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 Funds. The trustees will call special
meetings of shareholders of a 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 that Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the
shareholders of a Fund will not be personally liable for the obligations of any
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 a Fund contain a statement that
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such obligation may be enforced only against the assets of that 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 NB Management to
perform services. Depending on the policies of the Institution involved, an
investor may be able to transfer an account from one Institution to another.
The Portfolios
- --------------
Each Portfolio (except Neuberger Berman INTERNATIONAL Portfolio) is a
separate operating series of Equity Managers Trust, a New York common law trust
organized as of December 1, 1992. Neuberger Berman INTERNATIONAL Portfolio is a
separate operating series of Global Managers Trust, a New York common law trust
organized as of March 18, 1994. The Managers Trusts are registered under the
1940 Act as diversified, open-end management investment companies. Equity
Managers Trust has nine separate Portfolios. Global Managers Trust currently has
one operating Portfolio. The assets of each Portfolio belong only to that
Portfolio, and the liabilities of each Portfolio are borne solely by that
Portfolio and no other.
FUNDS' INVESTMENTS IN PORTFOLIOS. Each Fund is a "feeder fund" that
seeks to achieve its investment objective by investing all of its net investable
assets in its corresponding 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.
Each Fund's investment in its corresponding Portfolio is in the form of
a non-transferable beneficial interest. Members of the general public may not
purchase a direct interest in a Portfolio. The Sister Funds that are series of
Neuberger Berman Equity Funds(R) ("Equity Funds") and the other mutual funds
that are series of other trusts invest all of their respective net assets in
corresponding Portfolios of Equity Managers Trust. The shares of each series of
Equity Funds are available for purchase by members of the general public. The
Trust does not sell its shares directly to members of the general public.
Each Portfolio may also permit other investment companies and/or other
institutional investors to invest in the Portfolio. All investors will invest in
a Portfolio on the same terms and conditions as a Fund and will pay a
proportionate share of the Portfolio's expenses. Other investors in a Portfolio
(including the series of Equity Funds, Equity Assets and Equity Series) are not
required to sell their shares at the same public offering price as a Fund, could
have a different administration fee and expenses than a Fund, and (except Equity
Funds and 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 a Portfolio is available from NB Management by calling
800-877-9700.
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The trustees of the Trust believe that investment in a Portfolio by a
series of Equity Funds, Equity Assets or Equity Series by other potential
investors in addition to a Fund may enable the Portfolio to realize economies of
scale that could reduce its operating expenses, thereby producing higher returns
and benefiting all shareholders. However, a Fund's investment in its
corresponding Portfolio may be affected by the actions of other large investors
in the Portfolio, if any. For example, if a large investor in a Portfolio (other
than a Fund) redeemed its interest in the Portfolio, the Portfolio's remaining
investors (including the Fund) might, as a result, experience higher pro rata
operating expenses, thereby producing lower returns.
Each Fund may withdraw its entire investment from its corresponding
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. A Fund might withdraw,
for example, if there were other investors in a Portfolio with power to, and who
did by a vote of all investors (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 a Fund withdrew its investment from a 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. Each Portfolio normally will not hold
meetings of investors except as required by the 1940 Act. Each investor in a
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, a
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 a 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 a Portfolio, they could have voting
control of the Portfolio.
CERTAIN PROVISIONS. Each investor in a Portfolio, including a Fund,
will be liable for all obligations of the Portfolio. However, the risk of an
investor in a 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 a Portfolio, investors would
be entitled to share pro rata in the net assets of the Portfolio available for
distribution to investors.
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street Bank and Trust
Company, 225 Franklin Street, Boston, MA 02110, as custodian for its securities
and cash. State Street also serves as each 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
88
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Institutions. All correspondence should be mailed to Neuberger Berman Funds,
Institutional Services, 605 Third Avenue, 2nd Floor, New York, NY 10158-0180. In
addition, State Street serves as transfer agent for each Portfolio (except
Neuberger Berman INTERNATIONAL Portfolio). State Street Cayman serves as
transfer agent for Neuberger Berman INTERNATIONAL Portfolio.
INDEPENDENT AUDITORS/ACCOUNTANTS
Each Fund and Portfolio (other than Neuberger Berman INTERNATIONAL
Portfolio, Neuberger Berman MANHATTAN Trust and Portfolio, Neuberger Berman
MILLENNIUM Trust and Portfolio, Neuberger Berman SOCIALLY RESPONSIVE Trust and
Portfolio, and Neuberger Berman REGENCY Trust and Portfolio) has selected Ernst
& Young LLP, 200 Clarendon Street, Boston, MA 02116, as the independent auditors
who will audit its financial statements. Neuberger Berman INTERNATIONAL
Portfolio has selected Ernst & Young, Shedden Road, George Town, Grand Cayman,
Cayman Islands, British West Indies as the independent auditors who will audit
its financial statements. Neuberger Berman MANHATTAN Trust and Portfolio,
Neuberger Berman SOCIALLY RESPONSIVE Trust and Portfolio, Neuberger Berman
MILLENNIUM Trust and Portfolio, and Neuberger Berman REGENCY Trust and Portfolio
have selected PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110,
as the independent accountants who will audit their financial statements.
LEGAL COUNSEL
Each Fund and Portfolio has selected Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as its 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 was known by each Fund to own beneficially or of
record 5% or more of that Fund's outstanding shares at October 30, 1999:
Percentage of
Ownership at
Name and Address October 30, 1999
- --------------------------------------------------------------------------------
Neuberger Berman MAC & Co. 17.94%
MANHATTAN Trust A/C 195-643
AEOF 1956432
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
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<PAGE>
Percentage of
Ownership at
Name and Address October 30, 1999
------------------------------------------------------
The Northern Trust Co., Trustee 44.77%
FBO Case Corporation
22-75833
P.O. Box 92956
Chicago, IL 60675-2956
Fleet National Bank
AETNA/FLEET DIRECTED TRUSTEE 12.87%
151 Farmington Avenue, Suite T531
Neuberger Berman Nationwide Life Insurance 19.32%
PARTNERS Trust QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
National Financial Services Corp.* 9.90%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PRC Inc. 9.27%
c/o T. Rowe Price Financial
Attn: Asset Recon.
P.O. Box 17215
Baltimore, MD 21297-0354
Connecticut General Life 12.32%
Insurance Company
350 Church St.
P.O. Box 2975 M-110
Hartford, CT 06103-1106
Fidelity Investments Institutional Oper. 7.39%
Co.
Agent for certain benefit pln
100 Magellan Way
Mailzone KWIC
Covington, KY 41015-1987
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<PAGE>
Percentage of
Ownership at
Name and Address October 30, 1999
------------------------------------------------------
The Northern Trust Co., Trustee 6.18%
Phycor Savings Plan
P.O. Box 92956
Chicago, IL 60675-2956
Neuberger Berman National Financial Services Corp.* 5.54%
GUARDIAN Trust P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Fidelity Investments Institutional 13.39%
Ops. Co.
Agent for certain EE benefit plans
Mailzone KWIC
Covington, KY 41015
The Manufacturers Life Insurance Co. 19.41%
200 Bloor St. E NT3
Toronto ON M4W 1E5
Canada
Nationwide Life Insurance Co. 8.25%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Wachovia Bank of North Carolina, 7.75%
Master Trustee
Incentive Savings Plan
301 N. Main Street MC-NC 32213
Winston-Salem, NC 27101-3819
Connecticut General Life 5.50%
Insurance Company
350 Church Street
P.O. Box 2975 M-110
Hartford, CT 06104-2975
Neuberger Berman FOCUS National Financial Services Corp.* 7.55%
Trust P.O. Box 3908
Church Street Station
New York, NY 10008-3908
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<PAGE>
Percentage of
Ownership at
Name and Address October 30, 1999
------------------------------------------------------
American Express Trust Co. 12.65%
Benefit of American Express
Trust Retirement Service Plans
1200 Northstar West
P.O. Box 534
Minneapolis, MN 55440-0534
Smith Barney Inc. 14.28%
00109801250
388 Greenwich Street
New York, NY 10013-2375
Emjayco 12.31%
Omnibus Account
P.O. Box 17909
Milwaukee, Wi 53217-0909
Aetna Life Insurance & Annuity Co. 9.61%
ACES - Separate Account F
15 Farmington Ave.
Hartford, CT 06156-0001
Boston Safe Deposit & Trust Co., 12.12%
Trustee TWA Inc. Pilots Directed
Account Plan & 401K Plan for Pilots
of TWO Inc.
Mallzone 028-0031
One Cabot Road
Medford, MA 02155-5141
MAC & Co. A/C 195-643 5.62%
AEOF 1956432
P.O. Box 3198
Mutual Fund Operations
Pittsburgh, PA 15230-3198
Neuberger Berman National Financial Services Corp.* 14.22%
GENESIS Trust P.O. Box 3908
Church Street Station
New York, NY 10008-3908
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Percentage of
Ownership at
Name and Address October 30, 1999
------------------------------------------------------
Nationwide Life Insurance Co. 6.93%
IPO Portfolio Accounting
P.O. Box 182029
AETNA Life Insurance Co. 5.11%
Valuation Unit
151 Farmington Avenue
Hartford, CT 06156-0001
Smith Barney, Inc. 15.28%
00109801250
388 Greenwich Street
New York, NY 10013-2375
Fidelity Investments Institutional 18.98%
Ops Co.
Agent for certain EE benefit plans
Mailzone KWIC
Covington, KY 41015
Neuberger Berman Chase Manhattan Bank Trustee 51.94%
INTERNATIONAL Trust Professional Pensions Inc.
Retirement Programs
444 Foxon Road
East Haven, CT 06513-2019
Fleet Trust Corporation 34.42%
Third Party M F Alliances
P.O. Box 2197
Boston, MA 02106-2197
Neuberger Berman Trust 9.22%
Lillian Vernon Corp.
401K Prifit Sharing Plan
1 Theall Road
Rye, NY 10580-1404
Neuberger Berman National Financial Service Corp.* 76.23%
MILLIENNIUM Trust P.O. Box 3908
Church Street Station
New York, NY 10008-3908
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Percentage of
Ownership at
Name and Address October 30, 1999
------------------------------------------------------
Donaldson, Lufkin & Jenrette 19.15%
Securities Corporation
Pershing Division
Mutual Fund Balancing
P.O. Box 2052
Jersey City, NJ 07303-2052
Neuberger Berman Boston Safe Deposit & Trust Co. 98.54%
REGENCY Trust TWA Inc. Pilots Directed Account
Plan &
401K Plan for Pilots of TWA Inc.
135 Santilli Hwy. #26-0320
Everett, MA 02149-1906
Neuberger Berman ICMA Retirement Trust 65.31%
SOCIAL RESPONSIVE Trust 777 N. Capitol Street, N.E.
Washington, D.C. 20002-4239
* National Financial Services Corp. holds these shares of record for
the account of certain of its clients and has informed the Funds of its policy
to maintain the confidentiality of holdings in its client accounts unless
disclosure is expressly required by law.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included
in the Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered by the Prospectus. The registration statement,
including the exhibits filed therewith, may be examined at the SEC's offices in
Washington, D.C. The SEC maintains a Website (http://www.sec.gov) that contains
this SAI, material incorporated by reference, and other information regarding
the Funds and Portfolios.
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. In each instance where reference is made to the copy of any contract
or other document filed as an exhibit to a registration statement, each such
statement is qualified in all respects by such reference.
FINANCIAL STATEMENTS
The following financial statements and related documents are
incorporated herein by reference from the Funds' Annual Report to shareholders
for the fiscal year ended August 31, 1999:
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<PAGE>
The audited financial statements of the Funds and Portfolios and notes
thereto for the fiscal year ended August 31, 1999, and the reports of Ernst &
Young LLP, independent auditors, with respect to such audited financial
statements of Neuberger Berman GENESIS Trust and Portfolio, Neuberger Berman
FOCUS Trust and Portfolio, Neuberger Berman GUARDIAN Trust and Portfolio,
Neuberger Berman PARTNERS Trust and Portfolio, and Neuberger Berman
INTERNATIONAL Trust; the report of Ernst & Young, independent auditors, with
respect to such audited financial statements of Neuberger Berman INTERNATIONAL
Portfolio; and the reports of PricewaterhouseCoopers LLP, independent
accountants, with respect to such audited financial statements of Neuberger
Berman MANHATTAN Trust and Portfolio, Neuberger Berman REGENCY Trust and
Portfolio, Neuberger Berman MILLENNIUM Trust and Portfolio and Neuberger Berman
SOCIALLY RESPONSIVE Trust and Portfolio.
95
<PAGE>
Appendix A
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
- -----------------------------------------------
S&P CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-) - The ratings above may be modified by the addition of a
plus or minus sign to show relative standing within the major 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.
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
A-1
<PAGE>
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.
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:
A-2
<PAGE>
- - 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.
A-3
