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NEUBERGER BERMAN GUARDIAN TRUST AND PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1999
AS AMENDED MAY 1, 2000
NO-LOAD MUTUAL FUND
605 THIRD AVENUE, 2ND FLOOR, NEW YORK, NY 10158-0180
TOLL-FREE 800-877-9700
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Neuberger Berman GUARDIAN Trust ("Fund"), a series of Neuberger
Berman Equity Trust ("Trust"), is a no-load mutual fund that offers shares
pursuant to a Prospectus dated December 1, 1999. The Fund invests all of its net
investable assets in Neuberger Berman GUARDIAN Portfolio ("Portfolio").
AN INVESTOR CAN BUY, OWN, AND SELL FUND SHARES ONLY THROUGH AN
ACCOUNT WITH AN ADMINISTRATOR, BROKER-DEALER, OR OTHER INSTITUTION THAT PROVIDES
ACCOUNTING, RECORDKEEPING, AND OTHER SERVICES TO INVESTORS AND THAT HAS AN
ADMINISTRATIVE SERVICES AGREEMENT WITH NEUBERGER BERMAN MANAGEMENT INCORPORATED
(EACH AN "INSTITUTION").
The Fund's 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 the Fund or its distributor. The Prospectus and this SAI do not constitute an
offering by the Fund or its distributor in any jurisdiction in which such
offering may not lawfully be made.
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
Investment Insight.....................................................4
Investment Program.....................................................4
Additional Investment Information......................................6
PERFORMANCE INFORMATION.....................................................19
Total Return Computations.............................................19
Comparative Information...............................................20
Other Performance Information.........................................21
CERTAIN RISK CONSIDERATIONS.................................................22
TRUSTEES AND OFFICERS.......................................................22
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES...........................27
Investment Manager and Administrator..................................27
Management and Administration Fees....................................28
Sub-Adviser...........................................................30
Investment Companies Managed..........................................30
Codes of Ethics.......................................................32
Management and Control of NB Management and Neuberger Berman..........33
DISTRIBUTION ARRANGEMENTS...................................................33
ADDITIONAL PURCHASE INFORMATION.............................................34
Share Prices and Net Asset Value......................................34
ADDITIONAL REDEMPTION INFORMATION...........................................35
Suspension of Redemptions.............................................35
Redemptions in Kind...................................................35
DIVIDENDS AND OTHER DISTRIBUTIONS...........................................35
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ADDITIONAL TAX INFORMATION..................................................36
Taxation of the Fund..................................................36
Taxation of the Portfolio.............................................37
Taxation of the Fund's Shareholders...................................39
PORTFOLIO TRANSACTIONS......................................................39
Portfolio Turnover....................................................43
REPORTS TO SHAREHOLDERS.....................................................43
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS..............................43
CUSTODIAN AND TRANSFER AGENT................................................45
INDEPENDENT AUDITORS........................................................46
LEGAL COUNSEL...............................................................46
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.........................46
FINANCIAL STATEMENTS........................................................47
APPENDIX A.................................................................A-1
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER......................A-1
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INVESTMENT INFORMATION
The Fund is a separate operating series of the Trust, a Delaware
business trust that is registered with the Securities and Exchange Commission
("SEC") as a diversified open-end management investment company. The Fund seeks
its investment objective by investing all of its net investable assets in the
Portfolio, a series of Equity Managers Trust ("Managers Trust") that has an
investment objective identical to that of the Fund. The Portfolio, in turn,
invests in securities in accordance with an investment objective, policies, and
limitations identical to those of the Fund. (The Trust and Managers Trust, which
is an open-end management investment company managed by NB Management, are
together referred to below as the "Trusts.")
The following information supplements the discussion in the
Prospectus of the investment objective, policies, and limitations of the Fund
and Portfolio. The investment objective and, unless otherwise specified, the
investment policies and limitations of the Fund and Portfolio are not
fundamental. Any investment objective, policy or limitation that is not
fundamental may be changed by the trustees of the Trust ("Fund Trustees") or of
Managers Trust ("Portfolio Trustees") without shareholder approval. The
fundamental investment policies and limitations of the Fund or the Portfolio may
not be changed without the approval of the lesser of:
(1) 67% of the total units of beneficial interest ("shares") of the
Fund or Portfolio represented at a meeting at which more than 50% of the
outstanding Fund or Portfolio shares are represented or
(2) a majority of the outstanding shares of the Fund or
Portfolio.
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 the Fund is called upon to vote on a change in a fundamental investment
policy or limitation of the 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
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The Fund has the following fundamental investment policy, to enable
it to invest in the Portfolio:
Notwithstanding any other investment policy of the Fund, the Fund
may invest all of its investable assets (cash, securities, and
receivables relating to securities) in an open-end management
investment company having 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 the Fund are identical to
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those of the Portfolio. Therefore, although the following discusses the
investment policies and limitations of the Portfolio, it applies equally to the
Fund.
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 the Portfolio.
The Portfolio's fundamental investment policies and limitations are
as follows:
1. BORROWING. The Portfolio may not borrow money, except that the
Portfolio may (i) borrow money from banks for temporary or emergency purposes
and not for leveraging or investment and (ii) enter into reverse repurchase
agreements for any purpose; provided that (i) and (ii) in combination do not
exceed 33-1/3% of the value of its total assets (including the amount borrowed)
less liabilities (other than borrowings). If at any time borrowings exceed
33-1/3% of the value of the Portfolio's total assets, the Portfolio will reduce
its borrowings within three days (excluding Sundays and holidays) to the extent
necessary to comply with the 33-1/3% limitation.
2. COMMODITIES. The Portfolio may not purchase physical commodities
or contracts thereon, unless acquired as a result of the ownership of securities
or instruments, but this restriction shall not prohibit the Portfolio from
purchasing futures contracts or options (including options on futures contracts,
but excluding options or futures contracts on physical commodities) or from
investing in securities of any kind.
3. DIVERSIFICATION. The Portfolio may not, with respect to 75% of
the value of its total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, (i) more than 5% of the value of the
Portfolio's total assets would be invested in the securities of that issuer or
(ii) the Portfolio would hold more than 10% of the outstanding voting securities
of that issuer.
4. INDUSTRY CONCENTRATION. The Portfolio may not purchase any
security if, as a result, 25% or more of its total assets (taken at current
value) would be invested in the securities of issuers having their principal
business activities in the same industry. This limitation does not apply to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
5. LENDING. The Portfolio may not lend any security or make any
other loan if, as a result, more than 33-1/3% of its total assets (taken at
current value) would be lent to other parties, except, in accordance with its
investment objective, policies, and limitations, (i) through the purchase of a
portion of an issue of debt securities or (ii) by engaging in repurchase
agreements.
6. REAL ESTATE. The Portfolio may not purchase real estate unless
acquired as a result of the ownership of securities or instruments, but this
restriction shall not prohibit the Portfolio from purchasing securities issued
by entities or investment vehicles that own or deal in real estate or interests
therein or instruments secured by real estate or interests therein.
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7. SENIOR SECURITIES. The Portfolio may not issue senior
securities, except as permitted under the 1940 Act.
8. UNDERWRITING. The Portfolio may not underwrite securities of
other issuers, except to the extent that the Portfolio, in disposing of
portfolio securities, may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 ("1933 Act").
For purposes of the limitation on commodities, the Portfolio does
not consider foreign currencies or forward contracts to be physical commodities.
The Portfolio's non-fundamental investment policies and limitations
are as follows:
1. BORROWING. The Portfolio may not purchase securities if
outstanding borrowings, including any reverse repurchase agreements, exceed 5%
of its total assets.
2. LENDING. Except for the purchase of debt securities and
engaging in repurchase agreements, the Portfolio may not make any loans other
than securities loans.
3. MARGIN TRANSACTIONS. The Portfolio may not purchase securities
on margin from brokers or other lenders, except that the Portfolio may obtain
such short-term credits as are necessary for the clearance of securities
transactions. Margin payments in connection with transactions in futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
4. FOREIGN SECURITIES. The Portfolio may not invest more than 10%
of the value of its total assets in securities of foreign issuers, provided that
this limitation shall not apply to foreign securities denominated in U.S.
dollars, including American Depositary Receipts ("ADRs").
5. ILLIQUID SECURITIES. The Portfolio may not 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. The Portfolio may not pledge or hypothecate any of its
assets, except that the Portfolio may pledge or hypothecate up to 5% of its
total assets in connection with its entry into any agreement or arrangement
pursuant to which a bank furnishes a letter of credit to collateralize a capital
commitment made by the Portfolio to a mutual insurance company of which the
Portfolio is a member.
Although the Portfolio does not have a policy limiting its
investment in warrants, the Portfolio does not currently intend to invest in
warrants unless acquired in units or attached to securities.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes, the
Portfolio may invest up to 100% of its total assets in cash and cash
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equivalents, U.S. Government and Agency Securities, commercial paper and certain
other money market instruments, as well as repurchase agreements collateralized
by the foregoing.
INVESTMENT INSIGHT
Neuberger Berman's commitment to its asset management approach is
reflected in the more than $125 million the organization's employees and their
families invested in the Neuberger Berman mutual funds.
In advertisements, the 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 the Fund.
INVESTMENT PROGRAM
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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 co-managers look 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 co-managers
pursue 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.
CONSISTENT VALUE STYLE
Guardian is a large cap value fund that searches for:
o Established high-quality companies
o Low price/earnings ratios
o Strong balance sheets
o Solid management
BOTTOM-UP APPROACH TO STOCK SELECTION
The managers believe cheap stocks are plentiful, but true investment
bargains are a rare find. To uncover them, they scour a universe of stocks
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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. Potential investment candidates are financially sound,
well-managed companies that are undervalued relative to their earnings potential
and the market as a whole.
A BROAD VIEW OF RISK MANAGEMENT
Managing risk involves carefully monitoring the way the stocks in
the portfolio react to one another as well as to outside factors. Companies that
are in completely different sectors may in fact react similarly to certain
economic, market or international events. In their efforts to consider these
relationships, the managers use quantitative analysis to evaluate these factors
and their impact on the overall portfolio. It is a process they believe is a
crucial component in controlling risk and one that evolves over time as new
holdings are introduced to the portfolio.
A STRONG SELL DISCIPLINE
The portfolio co-managers will generally make an initial investment
in a stock of between 1-4% of total net assets. A higher weighting indicates
that they believe their research gives them an "edge" over Wall Street analysts,
or they believe the stock has an 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
o Monitor Portfolio's Exposure
(Selection Criteria
o Improving Financials
o Superior Management
Discount Valuations to the Market
(Stock Universe
o Large-Cap Value
GUARDIAN INVESTORS CAN EXPECT:
o Disciplined, large-cap value orientation
o Bottom-up approach to stock selection
o Broad view of risk management
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o Strong sell discipline
INVESTMENT INSIGHT
The portfolio co-managers look for established companies whose
intrinsic value, by their measure, is undiscovered among the majority of
investors. In managing overall risk, a conscious effort is made to determine the
risk/reward scenario of each individual holding as well as its impact at the
portfolio level.
ADDITIONAL INVESTMENT INFORMATION
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The Portfolio may make the following investments, among others; some
of which are part of the Portfolio's principal investment strategies and some of
which are not. The principal risks of the Portfolio's principal strategies are
disclosed in the Prospectus. It may not buy all of the types of securities or
use all of the investment techniques that are described.
ILLIQUID SECURITIES. 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 Managers Trust, determines they are liquid.
Generally, foreign securities freely tradable in their principal market are not
considered restricted or illiquid. Illiquid securities may be difficult for the
Portfolio to value or dispose of due to the absence of an active trading market.
The sale of some illiquid securities by the Portfolio may be subject to legal
restrictions which could be costly to the Portfolio.
POLICIES AND LIMITATIONS. The Portfolio may invest up to 15% of its
net assets in illiquid securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio
purchases securities from a bank that is a member of the Federal Reserve System
or from a securities dealer that agrees to repurchase the securities from the
Portfolio at a higher price on a designated future date. Repurchase agreements
generally are for a short period of time, usually less than a week. 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.
POLICIES AND LIMITATIONS. Repurchase agreements with a maturity of
more than seven days are considered to be illiquid securities. The Portfolio may
not 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. The
Portfolio may enter into a repurchase agreement only if (1) the underlying
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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. The 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.
POLICIES AND LIMITATIONS. The 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 the 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.
RESTRICTED SECURITIES AND RULE 144A SECURITIES. The Portfolio may
invest in restricted securities, which are securities that may not be sold to
the public without an effective registration statement under the 1933 Act.
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 the
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 the Portfolio's
illiquidity. NB Management, acting under guidelines established by the Portfolio
Trustees, may determine that certain securities qualified for trading under Rule
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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, the Portfolio may be obligated to
pay all or part of the registration expenses, and a considerable period may
elapse between the decision to sell and the time the Portfolio may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Portfolio might obtain a
less favorable price than prevailed when it decided to sell. 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 the Portfolio's 15% limit on investments in illiquid securities.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement,
the Portfolio sells portfolio securities subject to its agreement to repurchase
the securities at a later date for a fixed price reflecting a market rate of
interest. 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 the Portfolio's investment policies and
limitations concerning borrowings. While a reverse repurchase agreement is
outstanding, the 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.
FOREIGN SECURITIES. The 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.
The Portfolio also may invest in equity, debt, or other
income-producing securities that are denominated in or indexed to foreign
currencies, including (1) common and preferred stocks, (2) CDs, commercial
paper, fixed time deposits, and bankers' acceptances issued by foreign banks,
(3) obligations of other corporations, and (4) obligations of foreign
governments and their subdivisions, agencies, and instrumentalities,
international agencies, and supranational entities. Investing in foreign
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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.
exchanges, although the Portfolio endeavors to achieve the most favorable net
results on portfolio transactions.
Foreign securities often trade with less frequency and in less
volume than domestic securities and 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 the Portfolio are uninvested
and no return is earned thereon. The inability of the 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 the 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 Portfolio 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, the Portfolio may not
purchase any such security if, as a result, more than 10% of its total assets
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(taken at market value) would be invested in foreign currency denominated
securities. Within that limitation, however, the Portfolio is not restricted in
the amount it may invest in securities denominated in any one foreign currency.
Investments in securities of foreign issuers are subject to the
Portfolio's quality standards. The Portfolio may invest only in securities of
issuers in countries whose governments are considered stable by NB Management.
FUTURES, OPTIONS ON FUTURES, OPTIONS ON SECURITIES AND INDICES,
FORWARD CONTRACTS, AND OPTIONS ON FOREIGN
CURRENCIES (COLLECTIVELY, "FINANCIAL INSTRUMENTS")
FUTURES CONTRACTS AND OPTIONS THEREON. For purposes of managing cash
flow, the 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.
"Margin" with respect to a futures contract is the amount of assets
that must be deposited by the 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 its NAV,
the Portfolio marks to market the value of its open futures positions. The
Portfolio also must make margin deposits with respect to options on futures that
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it has written (but not with respect to options on futures that it has
purchased). If the futures commission merchant holding the margin deposit goes
bankrupt, the Portfolio could suffer a delay in recovering its funds and could
ultimately suffer a loss.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in the contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume a short futures
position (if the option is a call) or a long futures position (if the option is
a put). Upon exercise of the option, the accumulated cash balance in the
writer's futures margin account is delivered to the holder of the option. That
balance represents the amount by which the market price of the futures contract
at exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option. Options on futures have characteristics
and risks similar to those of securities options, as discussed herein.
Although the 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 the 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 the Portfolio, it could (depending on the size of the
position) have an adverse impact on the NAV of the Portfolio.
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<PAGE>
POLICIES AND LIMITATIONS. The Portfolio may purchase and sell stock
index futures contracts, and may purchase and sell options thereon. For purposes
of managing cash flow, the managers may use such futures and options to increase
the Portfolio's exposure to the performance of a recognized securities index,
such as the S&P 500 Index.
CALL OPTIONS ON SECURITIES. The Portfolio 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 the Fund's net asset values ("NAVs")) or to earn premium income.
Portfolio securities on which call options may be written and purchased by the
Portfolio are purchased solely on the basis of investment considerations
consistent with the Portfolio's investment objective.
When the Portfolio writes a call option, it is obligated to sell a
security to a purchaser at a specified price at any time 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 Portfolio's total return. When writing a covered call option, the
Portfolio, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security decline.
If a call option that the Portfolio has written expires unexercised,
the Portfolio will realize a gain in the amount of the premium; however, that
gain may be offset by a decline in the market value of the underlying security
during the option period. If the call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security.
When the Portfolio purchases a call option, it pays a premium for
the right to purchase a security from the writer at a specified price until a
specified date.
POLICIES AND LIMITATIONS. The Portfolio may write covered call
options and may purchase call options in related closing transactions. The
Portfolio writes only "covered" call options on securities it owns (in contrast
to the writing of "naked" or uncovered call options, which the Portfolio will
not do). The Portfolio would purchase a call option to offset a previously
written call option.
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. The
obligation under any option written by the 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
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<PAGE>
series. If an option is purchased by the 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. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed; the clearing organization in effect guarantees
completion of every exchange-traded option. In contrast, OTC options are
contracts between the Portfolio and a counter-party, with no clearing
organization guarantee. Thus, when the Portfolio writes an OTC option, it
generally will be able to "close out" the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to whom the
Portfolio originally sold the option. There can be no assurance that the
Portfolio would be able to liquidate an OTC option at any time prior to
expiration. Unless the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option it has written, it will not be able to
liquidate securities used as cover until the option expires or is exercised or
until different cover is substituted. In the event of the counter-party's
insolvency, the Portfolio may be unable to liquidate its options position and
the associated cover. NB Management monitors the creditworthiness of dealers
with which the Portfolio may engage in OTC options transactions.
The premium received (or paid) by the Portfolio when it writes (or
purchases) an option is the amount at which the option is currently traded on
the applicable 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 the Portfolio for
writing an option is recorded as a liability on the Portfolio's statement of
assets and liabilities. This liability is adjusted daily to the option's current
market value.
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.
There is, of course, no assurance that the Portfolio will be able to effect
closing transactions at favorable prices. If the Portfolio cannot enter into
such a transaction, it may be required to hold a security that it might
otherwise have sold, in which case it would continue to be at market risk on the
security.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the call option. 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.
The Portfolio pays brokerage commissions or spreads in connection
with purchasing or writing options, including those used to close out existing
positions.
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The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the options markets.
POLICIES AND LIMITATIONS. The Portfolio may use American-style
options. The assets used as cover (or held in a segregated account) for OTC
options written by the Portfolio will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Portfolio may
repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC call option
written subject to this procedure will be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
PUT AND CALL OPTIONS ON SECURITIES INDICES. For purposes of managing
cash flow, the Portfolio may purchase put and call options on securities indices
to increase its 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. For purposes of managing cash flow, the
Portfolio may purchase put and call options on securities indices to increase
its exposure to the performance of a recognized securities index, such as the
S&P 500 Index. All securities index options purchased by the Portfolio will be
listed and traded on an exchange.
FOREIGN CURRENCY TRANSACTIONS. The Portfolio may enter into
contracts for the purchase or sale of a specific currency at a future date
(usually less than one year from the date of the contract) at a fixed price
("forward contracts"). The Portfolio also may engage in foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
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<PAGE>
The Portfolio enters into forward contracts in an attempt to hedge
against changes in prevailing currency exchange rates. The Portfolio does not
engage in transactions in forward contracts for speculation; it views
investments in forward contracts as a means of establishing more definitely the
effective return on, 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 the 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, the
Portfolio may either make delivery of the foreign currency or terminate its
contractual obligation to deliver by purchasing an offsetting contract. If the
Portfolio chooses to make delivery of the foreign currency, it may be required
to obtain such currency through the sale of portfolio securities denominated in
such currency or through conversion of other assets of the Portfolio into such
currency. If the Portfolio engages in an offsetting transaction, it will incur a
gain or a loss to the extent that there has been a change in forward contract
prices. Closing purchase transactions with respect to forward contracts are
usually made with the currency dealer who is a party to the original forward
contract.
NB Management believes that the use of foreign currency hedging
techniques, including "proxy-hedges," can provide significant protection of NAV
in the event of a general rise in the U.S. dollar against foreign currencies.
For example, the return available from securities denominated in a particular
foreign currency would diminish if the value of the U.S. dollar increased
against that currency. Such a decline could be partially or completely offset by
an increase in value of a hedge involving a forward contract to sell that
foreign currency or a proxy-hedge involving a forward contract to sell a
different foreign currency whose behavior is expected to resemble the currency
in which the securities being hedged are denominated but which is available on
more advantageous terms.
However, a hedge or proxy-hedge cannot protect against exchange rate
risks perfectly, and if NB Management is incorrect in its judgment of future
exchange rate relationships, the Portfolio could be in a less advantageous
position than if such a hedge had not been established. If the 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 the Portfolio's securities against a decline in the value of a currency
does not eliminate fluctuations in the prices of underlying securities. Because
forward contracts are not traded on an exchange, the assets used to cover such
contracts may be illiquid. The Portfolio may experience delays in the settlement
of its foreign currency transactions.
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<PAGE>
POLICIES AND LIMITATIONS. The Portfolio may enter into forward
contracts for the purpose of hedging and not for speculation.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write and purchase
covered call and put options on foreign currencies. 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. The Portfolio would use options on foreign
currencies to protect against declines in the U.S. dollar value of portfolio
securities or increases in the U.S. dollar cost of securities to be acquired or
to protect the U.S. dollar equivalent of dividends, interest, or other payments
on those securities.
REGULATORY LIMITATIONS ON USING FINANCIAL INSTRUMENTS. To the extent
the 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 the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet current
obligations. The Portfolio may be unable promptly to dispose of assets which
cover, or are segregated with respect to, an illiquid futures, options or
forward position; this inability may result in a loss to the Portfolio.
POLICIES AND LIMITATIONS. The 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 the 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
the 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 the Portfolio to purchase or sell a portfolio security at a time that would
otherwise be favorable for it to do so, or the possible need for the Portfolio
to sell a portfolio security at a disadvantageous time, due to its need to
maintain cover or to segregate securities in connection with its use of
Financial Instruments. There can be no assurance that the Portfolio's use of
Financial Instruments will be successful.
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<PAGE>
The 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 the 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 the Portfolio's underlying
securities or currency. NB Management intends to reduce the risk that the
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.
FIXED INCOME SECURITIES. While the emphasis of the Portfolio's
investment program is on common stocks and other equity securities, it may also
invest in money market instruments, U.S. Government and Agency Securities, and
other fixed income securities. The Portfolio may invest in investment grade
corporate bonds and debentures.
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 Standard & Poor's ("S&P"), Moody's Investors Service, Inc.
("Moody's"), 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 Portfolio may rely on the ratings of any NRSRO,
the Portfolio primarily refers 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
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<PAGE>
sensitivity, market perception of the creditworthiness of the issuer, and market
liquidity ("market risk"). The value of the fixed income securities in which the
Portfolio may invest is likely to decline in times of rising market interest
rates. Conversely, when rates fall, the value of the Portfolio's fixed income
investments is likely to rise. 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.
POLICIES AND LIMITATIONS. The Portfolio normally may invest up to
35% of its total assets in debt securities. Subsequent to its purchase by the
Portfolio, an issue of debt securities may cease to be rated or its rating may
be reduced, so that the securities would no longer be eligible for purchase by
the Portfolio. In such a case, the 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.
COMMERCIAL PAPER. Commercial paper is a short-term debt security
issued by a corporation or bank, usually for purposes such as financing current
operations. The Portfolio may invest in commercial paper that cannot be resold
to the public without an effective registration statement under the 1933 Act.
While restricted commercial paper normally is deemed illiquid, NB Management may
in certain cases determine that such paper is liquid, pursuant to guidelines
established by the Portfolio Trustees.
POLICIES AND LIMITATIONS. The Portfolio may invest in commercial
paper only if it has received the highest rating from S&P (A-1) or Moody's (P-1)
or deemed by NB Management to be of comparable quality.
CONVERTIBLE SECURITIES. The 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
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<PAGE>
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 the 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 the Fund's ability to achieve their investment objectives.
POLICIES AND LIMITATIONS. Convertible debt securities are subject to
the Portfolio's investment policies and limitations concerning fixed income
securities.
PREFERRED STOCK. The Portfolio may invest in preferred stock. Unlike
interest payments on debt securities, dividends on preferred stock are generally
payable at the discretion of the issuer's board of directors. 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.
OTHER INVESTMENT COMPANIES. The 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, the 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 Portfolio does not intend to invest in such funds
unless, in the judgment of NB Management, the potential benefits of such
investment justify the payment of any applicable premium or sales charge.
POLICIES AND LIMITATIONS. The 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.
PERFORMANCE INFORMATION
The Fund's performance figures are based on historical results and
are not intended to indicate future performance. The share price and total
return of the Fund will vary, and an investment in the Fund, when redeemed, may
be worth more or less than an investor's original cost.
TOTAL RETURN COMPUTATIONS
- -------------------------
The Fund may advertise certain total return information. An average
annual compounded rate of return ("T") may be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment of $1,000 ("P") over a period of time ("n") according to the formula:
P(1+T)n = ERV
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Average annual total return smoothes out year-to-year variations in
performance and, in that respect, differs from actual year-to-year results.
The Fund commenced operations in August 1993. However, the Fund's
investment objective, policies, and limitations are the same as those of
Neuberger Berman GUARDIAN Fund, which is a series of Neuberger Berman Equity
Funds(R) and invests in the Portfolio ("Sister Fund"). The Sister Fund had a
predecessor. The following total return data is for the Fund since its inception
and, for periods prior to the Fund's inception, its Sister Fund (which, as used
herein, includes data for that Sister Fund's predecessor). The total returns for
periods prior to the Fund's inception would have been lower had they reflected
the higher fees of the Fund, as compared to those of the Sister Fund.
Average Annual Total Returns
Periods Ended 8/31/1999
ONE YEAR FIVE YEARS TEN YEARS PERIOD FROM INCEPTION
-------- ---------- --------- ---------------------
GUARDIAN TRUST +26.07% +12.68% +12.36% +12.84%
NB Management may from time to time waive a portion of its fees due
from the Fund or Portfolio or reimburse the Fund or Portfolio for a portion of
its expenses. Such action has the effect of increasing total return. Actual
reimbursements are described in the Prospectus and in "Investment Management and
Administration Services" below.
COMPARATIVE INFORMATION
- -----------------------
From time to time the Fund's performance may be compared with:
(1) data (that may be expressed as rankings or ratings)
published by independent services or publications (including
newspapers, newsletters, and financial periodicals) that monitor
the performance of mutual funds, such as Lipper Analytical
Services, Inc., C.D.A. Investment Technologies, Inc.,
Wiesenberger Investment Companies Service, Investment Company
Data Inc., Morningstar, Inc., Micropal Incorporated, and
quarterly mutual fund rankings by Money, Fortune, Forbes,
Business Week, Personal Investor, and U.S. News & World Report
magazines, The Wall Street Journal, 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 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 Index, the Barra Value
Index and various other domestic, international, and global
indices. The S&P 500 Index is a broad index of common stock
20
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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. Each assumes
reinvestment of distributions and is calculated without regard to
tax consequences or the costs of investing. The Portfolio may
invest in different types of securities from those included in
some of the above indices.
Evaluations of the Fund's performance, its total returns, and
comparisons may be used in advertisements and in information furnished to
current and prospective shareholders (collectively, "Advertisements"). The Fund
may also be compared to individual asset classes such as common stocks,
small-cap stocks, or Treasury bonds, based on information supplied by Ibbotson
and Sinquefield.
OTHER PERFORMANCE INFORMATION
- -----------------------------
From time to time, information about the Portfolio's portfolio
allocation and holdings as of a particular date may be included in
Advertisements for the Fund. This information may include the Portfolio's
portfolio diversification by asset type. Information used in Advertisements may
include statements or illustrations relating to the appropriateness of types of
securities and/or mutual funds that may be employed to meet specific financial
goals, such as (1) funding retirement, (2) paying for children's education, and
(3) financially supporting aging parents.
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 the Fund to be an attractive investment
vehicle also include parents saving to meet college costs for their children.
For instance, the cost of a college education is rapidly approaching the cost of
the average family home. 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.)
21
<PAGE>
Information regarding the effects of automatic 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 the 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 the Portfolio will achieve its
investment objective.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the trustees
and officers of the Trusts, including their addresses and principal business
experience during the past five years. Some persons named as trustees and
officers also serve in similar capacities for other funds and their
corresponding portfolios administered or managed by NB Management and Neuberger
Berman, LLC ("Neuberger Berman").
THE TRUST AND EQUITY MANAGERS TRUST:
- -----------------------------------
<TABLE>
<CAPTION>
Positions Held
With the Trust and Equity
Name, Age, and Address (1) Managers Trust Principal Occupation(s) (2)
- ----------------------------- ---------------------- ---------------------------
<S> <C> <C>
Claudia A. Brandon (43) Secretary of each Employee of Neuberger Berman
Trust 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
each Trust 1999; 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.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Positions Held
With the Trust and
Name, Age, and Address (1) Equity Managers Trust Principal Occupation(s) (2)
- ----------------------------- ---------------------- ---------------------------
<S> <C> <C>
Barbara DiGiorgio (41) Assistant Treasurer of Employee of NB Management;
each Trust Assistant Vice President of NB
Management from 1993 to 1999;
Assistant Treasurer since 1996 of nine
other mutual funds for which NB
Management acts as investment
manager or administrator.
Michael M. Kassen* (47) President and Trustee of Executive Vice President, Chief
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 of
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).
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, President of
7082 Siena Court SOBRO (South Bronx Overall
Boca Raton, FL 33433 Economic Development Corporation).
23
<PAGE>
Positions Held
With the Trust and
Name, Age, and Address (1) Equity Managers Trust Principal Occupation(s) (2)
- ----------------------------- ---------------------- ---------------------------
John P. Rosenthal (67) Trustee of each Trust Senior Vice President of Burnham
Burnham Securities Inc. Securities Inc. (a registered
Burnham Asset Management Corp. broker-dealer) since 1991;
1325 Avenue of the Americas Director, Cancer Treatment
17th Floor Holdings, Inc.
New York, NY 10019
Richard Russell (54) Treasurer and Principal Employee of NB Management since
Accounting Officer of 1993; Treasurer and Principal
each Trust Accounting Officer of nine other
mutual funds for which NB
Management acts as investment
manager or administrator.
Cornelius T. Ryan (68) Trustee of each Trust General Partner of Oxford Partners
Oxford Bioscience Partners and Oxford Bioscience Partners
315 Post Road West (venture capital partnerships) and
Westport, CT 06880 President of Oxford Venture
Corporation; Director of Capital
Cash Management Trust (money market
fund) and Prime Cash Fund.
Gustave H. Shubert (71) Trustee of each Trust Senior Fellow/Corporate Advisor and
13838 Sunset Boulevard Advisory Trustee of Rand (a
Pacific Palisades, CA 90272 non-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.
24
<PAGE>
Positions Held
With the Trust and
Name, Age, and Address (1) Equity Managers Trust Principal Occupation(s) (2)
- ----------------------------- ---------------------- ---------------------------
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.
Peter E. Sundman* (40) Chairman of the Board, Executive Vice President and
Chief Executive Officer Director of Neuberger Berman, Inc.
and Trustee of each Trust (holding company); President and
Director of NB Management;
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
Officer of each Trust NB Management since 1992; Treasurer
of NB Management from 1992 to 1996;
Vice President and Principal
Financial Officer of nine other
mutual funds for which NB
Management acts as investment
manager or administrator.
Celeste Wischerth (39) Assistant Treasurer of Employee of NB Management;
each Trust Assistant Treasurer since 1996 of
nine other mutual funds for which
NB Management acts as investment
manager or administrator.
</TABLE>
25
<PAGE>
(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 the Trust within the
meaning of the 1940 Act. Messrs. Sundman and Kassen 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 by
virtue of the fact that he is a director of Legg Mason, Inc., a wholly owned
subsidiary of which, from time to time, serves as a broker or dealer to the
Portfolio and other funds for which 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.
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/99
Total Compensation from
Investment Companies in
Name and Position Aggregate Compensation the Neuberger Berman Fund
With Each Trust From the Trust Complex Paid to Trustees
- --------------- -------------- ------------------------
<S> <C> <C>
Faith Colish $7,284 $96,500
Trustee (5 other investment
companies)
Stanley Egener* $0 $0
Chairman of the Board, (9 other investment
Chief Executive companies)
Officer, and Trustee
26
<PAGE>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/99
Total Compensation from
Investment Companies in
Name and Position Aggregate Compensation the Neuberger Berman Fund
With Each Trust From the Trust Complex Paid to Trustees
- --------------- -------------- ------------------------
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)
</TABLE>
*Retired October 27, 1999.
At November 22, 1999, the trustees and officers of the Trusts, as a
group, owned beneficially or of record less than 1% of the outstanding shares of
the Fund.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
INVESTMENT MANAGER AND ADMINISTRATOR
Because all of the Fund's net investable assets are invested in the
Portfolio, the Fund does not need an investment manager. NB Management serves as
the Portfolio's investment manager pursuant to a management agreement with
Managers Trust, dated as of August 2, 1993 ("Management Agreement").
27
<PAGE>
The Management Agreement was approved by the holders of the
interests in the Portfolio on August 2, 1993. The Management Agreement provides,
in substance, that NB Management will make and implement investment decisions
for the Portfolio in its discretion and will continuously develop an investment
program for the Portfolio's assets. The Management Agreement permits NB
Management to effect securities transactions on behalf of the Portfolio through
associated persons of NB Management. The Management Agreement also specifically
permits NB Management to compensate, through higher commissions, brokers and
dealers who provide investment research and analysis to the Portfolio, although
NB Management has no current plans to pay a material amount of such
compensation.
NB Management provides to the 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
Managers Trust who are officers, directors, or employees of NB Management. Two
directors of NB Management (who also are principals of Neuberger Berman), one of
whom also serves as an officer of NB Management, presently serve as trustees and
officers of the Trusts. See "Trustees and Officers." The 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 the Fund pursuant to an
administration agreement with the Trust, dated August 3, 1993, as amended on
August 2, 1996. ("Administration Agreement"). For such administrative services,
the Fund pays NB Management a fee based on the Fund's average daily net assets,
as described in the Prospectus. 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 Fund.
MANAGEMENT AND ADMINISTRATION FEES
For investment management services, the Portfolio 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.
NB Management provides administrative services to the Fund that
includes furnishing facilities and personnel for the Fund and performing
accounting, recordkeeping, and other services. For such administrative services,
the Fund pays NB Management a fee at the annual rate of 0.40% of the 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 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 the Fund's consent NB Management may subcontract some of its
responsibilities to the Fund under the Administration Agreement and may
compensate each Institution that provides such services.
28
<PAGE>
During the fiscal years ended August 31, 1999, 1998, and 1997, the
Fund accrued management and administration fees as follows:
MANAGEMENT AND ADMINISTRATION FEES
ACCRUED FOR FISCAL YEARS
ENDED AUGUST 31
1999 1998 1997
---- ---- ----
GUARDIAN TRUST $12,732,406 $19,092,633 $14,839,636
NB Management has voluntarily undertaken to reimburse the Fund for
its Total Operating Expenses (as defined in the Prospectus) so that the Fund's
expense ratio per annum will not exceed the expense ratio of its Sister Fund by
more than 0.10% of the Fund's average daily net assets. This undertaking can be
terminated by NB Management by giving the Fund at least 60 days' prior written
notice. During the period from August 3, 1993 (commencement of operations of the
Fund) to December 31, 1994, NB Management voluntarily undertook to reimburse the
Fund for its Total Operating Expenses so that the Fund's expense ratio per annum
would not exceed the expense ratio of the Sister Fund. The table below shows the
amounts reimbursed by NB Management pursuant to this arrangement:
AMOUNT OF TOTAL OPERATING EXPENSES
REIMBURSED BY NB MANAGEMENT
FOR FISCAL YEARS ENDED AUGUST 31
FUND 1999 1998 1997
---- ---- ----
GUARDIAN TRUST $0 $0 $0
The Management Agreement continues until August 2, 2000. The
Management Agreement is renewable thereafter from year to year with respect to
the Portfolio, so long as its continuance is approved at least annually (1) by
the vote of a majority of the Portfolio Trustees who are not "interested
persons" of NB Management or 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 the Portfolio. The Administration
Agreement continues until August 2, 1999. The Administration Agreement is
renewable from year to year with respect to the Fund, so long as its continuance
is approved at least annually (1) by the vote of a majority of the Fund Trustees
who are not "interested persons" of 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 the Fund.
29
<PAGE>
The Management Agreement is terminable, without penalty, with
respect to the Portfolio on 60 days' written notice either by Managers Trust or
by NB Management. The Administration Agreement is terminable, without penalty,
with respect to the 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 the Portfolio pursuant to a
sub-advisory agreement dated August 2, 1993 ("Sub-Advisory Agreement"). The
Sub-Advisory Agreement was approved by the holders of the interests in the
Portfolio on August 2, 1993.
The Sub-Advisory Agreement provides 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 Agreement provides 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 Agreement continues until August 2, 2000 and is
renewable from year to year, subject to approval of its continuance in the same
manner as the Management Agreement. The Sub-Advisory Agreement is subject to
termination, without penalty, with respect to the Portfolio by the Portfolio
Trustees or a 1940 Act majority vote of the outstanding interests in the
Portfolio, by NB Management, or by Neuberger Berman on not less than 30 nor more
than 60 days' written notice. The Sub-Advisory Agreement also terminates
automatically with respect to the Portfolio if it is assigned or if the
Management Agreement terminates with respect to the Portfolio.
Most money managers that come to the Neuberger Berman organization
have at least fifteen years experience. Neuberger Berman and 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:
30
<PAGE>
Approximate
Net Assets at
Name September 30, 1999
- ---- ------------------
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 Municipal Securities Portfolio....................$35,080,349
(investment portfolio for Neuberger Berman Municipal Securities 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)
31
<PAGE>
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)
Neuberger Berman Socially Responsive..............................$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)
The investment decisions concerning the Portfolio 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 Portfolio.
Even where the investment objectives are similar, however, the methods used by
the Other NB Funds and the Portfolio 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 the 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 the
Portfolio, in other cases it is believed that the Portfolio's ability to
participate in volume transactions may produce better executions for it. In any
case, it is the judgment of the Portfolio Trustees that the desirability of the
Portfolio's having its advisory arrangements with NB Management outweighs any
disadvantages that may result from contemporaneous transactions.
The Portfolio is subject to certain limitations imposed on all
advisory clients of Neuberger Berman (including the Portfolio, 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
32
<PAGE>
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 the Portfolio or taking personal advantage of investment opportunities that
may belong to the Portfolio.
MANAGEMENT AND CONTROL OF NB MANAGEMENT AND NEUBERGER BERMAN
The directors and officers of NB Management, who are deemed
"control persons," all of whom have offices at the same address as NB
Management, are 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
NB Management serves as the distributor ("Distributor") in
connection with the offering of the Fund's shares on a no-load basis to
Institutions. In connection with the sale of its shares, the Fund has authorized
the Distributor to give only the information, and to make only the statements
and representations, contained in the Prospectus and this SAI or that properly
33
<PAGE>
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 Fund's
"principal underwriter" within the meaning of the 1940 Act and, as such, acts as
agent in arranging for the sale of the Fund's shares to Institutions without
sales commission or other compensation and bears all advertising and promotion
expenses incurred in the sale of the Fund's shares.
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 the Fund, and the Distributor are parties to
a Distribution Agreement that continues until August 2, 1999. 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
Agreement.
ADDITIONAL PURCHASE INFORMATION
SHARE PRICES AND NET ASSET VALUE
The Fund's shares are bought or sold at a price that is the Fund's
NAV per share. The NAVs for the Fund and the Portfolio are calculated by
subtracting total liabilities from total assets (in the case of the Portfolio,
the market value of the securities the Portfolio holds plus cash and other
assets; in the case of the Fund, its percentage interest in the Portfolio,
multiplied by the Portfolio's NAV, plus any other assets). The Fund's per share
NAV is calculated by dividing its NAV by the number of Fund shares outstanding
and rounding the result to the nearest full cent. The Fund and the Portfolio
calculate their NAVs as of the close of regular trading on the NYSE, usually 4
p.m. Eastern time, on each day the NYSE is open.
The Portfolio values securities (including options) listed on the
NYSE, the American Stock Exchange or other national securities exchanges or
quoted on 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. The Portfolio values all other securities and assets,
including restricted securities, by a method that the trustees of the Trust
believe accurately reflects fair value.
If NB Management believes that the price of a security obtained
under the Portfolio's valuation procedures (as described above) does not
represent the amount that the Portfolio reasonably expects to receive on a
current sale of the security, the Portfolio will value the security based on a
method that the trustees of the Managers Trust believe accurately reflects fair
value.
34
<PAGE>
ADDITIONAL REDEMPTION INFORMATION
SUSPENSION OF REDEMPTIONS
The right to redeem the Fund's shares may be suspended or payment of
the redemption price postponed (1) when the NYSE is closed, (2) when trading on
the NYSE is restricted, (3) when an emergency exists as a result of which it is
not reasonably practicable for the Portfolio to dispose of securities it owns or
fairly to determine the value of its net assets, or (4) for such other period as
the SEC may by order permit for the protection of the Fund's shareholders.
Applicable SEC rules and regulations shall govern whether the conditions
prescribed in (2) or (3) exist. If the right of redemption is suspended,
shareholders may withdraw their offers of redemption, or they will receive
payment at the NAV per share in effect at the close of business on the first day
the NYSE is open ("Business Day") after termination of the suspension.
REDEMPTIONS IN KIND
The Fund reserves the right, under certain conditions, to honor any
request for redemption (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 in "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
Fund does not redeem in kind under normal circumstances, but would do so when
the Fund Trustees determined that it was in the best interests of the Fund's
shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
The 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 the Portfolio. The
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 the Portfolio's NAV (and, hence, the Fund's NAV) until they are
distributed. The Fund calculates its net investment income and NAV per share as
of the close of regular trading on the NYSE on each Business Day (usually 4:00
p.m. Eastern time).
The Fund generally distributes substantially all of its share of the
Portfolio's net investment income, (after deducting expenses incurred directly
by the Fund), if any, near the end of each other calendar quarter. Distributions
of net realized capital and foreign currency gains, if any, normally are paid
once annually, in December.
Dividends and other distributions are automatically reinvested in
additional shares of the 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
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shareholders whether received in cash or reinvested in Fund shares. A cash
election with respect to the Fund remains in effect until the Institution
notifies the Fund in writing to discontinue the election.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUND
To continue to qualify for treatment as a RIC under the Code, the
Fund must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. 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 for treatment as a RIC for any taxable year, it would be taxed on the
full amount of its taxable income for that year without being able to deduct the
distributions it makes to its shareholders and the shareholders would treat all
those distributions, including distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss), as dividends (that
is, ordinary income) to the extent of the Fund's earnings and profits.
Certain funds that invest in portfolios managed by NB Management,
including the Sister Fund, 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 Fund, NB Management believes that the reasoning
thereof and, hence, their conclusion apply to the Fund as well.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ended on October 31 of that year, plus certain
other amounts.
See the next section for a discussion of the tax consequences to the
Fund of distributions to it from the Portfolio, investments by the Portfolio in
certain securities, and hedging transactions engaged in by the Portfolio.
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TAXATION OF THE PORTFOLIO
The Portfolio has received a ruling from the Service to the effect
that, among other things, the Portfolio will be treated as a separate
partnership for federal income tax purposes and will not be a "publicly traded
partnership." As a result, the Portfolio is not subject to federal income tax;
instead, each investor in the Portfolio, such as the Fund, is required to take
into account in determining its federal income tax liability its share of the
Portfolio's income, gains, losses, and deductions, without regard to whether it
has received any cash distributions from the Portfolio. The Portfolio also is
not subject to Delaware or New York income or franchise tax.
Because the Fund is deemed to own a proportionate share of the
Portfolio's assets and income for purposes of determining whether the Fund
satisfies the requirements to qualify as a RIC, the Portfolio intends to
continue to conduct its operations so that the Fund will be able to continue to
satisfy all those requirements.
Distributions to the Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) will not result in the Fund's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds the
Fund's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, and (3) loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables. The Fund's basis for its interest in the Portfolio
generally equals the amount of cash the Fund invests in the Portfolio, increased
by the Fund's share of the Portfolio's net income and 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 the Portfolio, and gains realized
by the Portfolio, may be subject to income, withholding, or other taxes imposed
by foreign countries and U.S. possessions ("foreign taxes") that would reduce
the 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.
The 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 the Portfolio holds stock of a PFIC, the 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 it distributes that income to its shareholders.
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If the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the Fund's incurring the
foregoing tax and interest obligation, the Fund would be required to include in
income each year its 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 Portfolio's use of hedging strategies, such as writing (selling)
and purchasing options and entering into forward contracts, involves complex
rules that will determine for income tax purposes the amount, character, and
timing of recognition of the gains and losses the Portfolio realizes 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 the Portfolio with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income for the Fund under the Income Requirement.
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 the 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 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 the 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
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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 the Portfolio 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).
TAXATION OF THE FUND'S SHAREHOLDERS
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
PORTFOLIO TRANSACTIONS
Neuberger Berman acts as principal broker for the Portfolio in the
purchase and sale of its portfolio securities (other than certain securities
traded on the OTC market).
During the fiscal year ended August 31, 1997, the 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, the 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, the Portfolio paid
brokerage commissions of $10,793,418, of which $3,975,341 was paid to Neuberger
Berman. Transactions in which the 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 the 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, the Portfolio acquired
securities of the following of its Regular B/Ds: American Express Credit Corp.,
Donaldson, Lufkin, & Jenrette Securities Corp., Ford Motor Credit Co., General
Electric Capital Corp., Goldman, Sachs
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& Co., Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley Dean Witter &
Co., and State Street Bank and Trust Company, N.A.; 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.
Portfolio securities may, from time to time, be loaned by the
Portfolio to Neuberger Berman in accordance with the terms and conditions of an
order issued by the SEC. The order exempts such transactions from provisions of
the 1940 Act that would otherwise prohibit such transactions, subject to certain
conditions. In accordance with the order, securities loans made by the 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 the Portfolio in order
to re-lend them to other Neuberger Berman Portfolios, Neuberger Berman may be
required to pay the 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 the
Portfolio has indicated a willingness to lend, Neuberger Berman must borrow such
security from the Portfolio, rather than from an unaffiliated lender, unless the
unaffiliated lender is willing to lend such security on more favorable terms (as
specified in the order) than the Portfolio. If, in any month, the Portfolio's
expenses exceed its income in any securities loan transaction with Neuberger
Berman, Neuberger Berman must reimburse the 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
Portfolio. The following information reflects interest income earned by the
Portfolio from the cash collateralization of securities loans 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
Collateralization of Amount Paid to
Name of Portfolio Fiscal Year End Securities Loans Neuberger Berman
- ----------------- --------------- ---------------- ----------------
- --------------------------------------------------------------------------------
Neuberger Berman
GUARDIAN Portfolio 8/31/98 $1,355,093 $1,035,708
8/31/97 $4,005,765 $3,523,486
- --------------------------------------------------------------------------------
In effecting securities transactions, the 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. The
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 Portfolio's
knowledge, no affiliate of the Portfolio receives give-ups or reciprocal
business in connection with its securities transactions.
The use of Neuberger Berman as a broker for the 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
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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 Trust 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 the Portfolio to Neuberger
Berman in connection with a purchase or sale of securities on a securities
exchange may not exceed the usual and customary broker's commission.
Accordingly, it is the Portfolio's policy that the commissions paid to Neuberger
Berman must, in 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 transactions for its most favored unaffiliated customers, except for
accounts for which Neuberger Berman acts as a clearing broker for another
brokerage firm and customers of Neuberger Berman considered by a majority of the
Independent Portfolio Trustees not to be comparable to the Portfolio. The
Portfolio does not deem it practicable and in its best interests to solicit
competitive bids for commissions on each transaction effected by Neuberger
Berman. However, consideration regularly is given 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, the 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 Portfolio and to its other customers and information
concerning the prevailing level of commissions charged by other brokers having
comparable execution capability. In addition, the procedures pursuant to which
Neuberger Berman effects brokerage transactions for the Portfolio must be
reviewed and approved no less often than annually by a majority of the
Independent Portfolio Trustees.
To ensure that accounts of all investment clients, including the
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 the 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 other participants in the trade. The other
account participating in an agency cross-trade with the Portfolio cannot be an
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account over which Neuberger Berman exercises investment discretion. A member of
the Board of Trustees who is not affiliated with Neuberger Berman reviews
confirmation of each agency cross- trade that the Portfolio participates in.
The 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 employees of
Neuberger Berman who are portfolio managers of the Portfolio and Other NB Funds
(collectively, "NB Funds") and some of Neuberger Berman's managed accounts
("Managed Accounts") evaluates semi-annually the nature and quality of the
brokerage and research services provided by other brokers. Based on this
evaluation, the committee establishes a list and projected rankings of preferred
brokers for use in determining the relative amounts of commissions to be
allocated to those brokers. Ordinarily, the brokers on the list effect a large
portion of the brokerage transactions for the NB Funds and the Managed Accounts
that are not effected by Neuberger Berman. However, in any semi-annual period,
brokers not on the list may be used, and the relative amounts of brokerage
commissions paid to the brokers on the list may vary substantially from the
projected rankings. These variations reflect the following factors, among
others: (1) brokers not on the list or ranking below other brokers on the list
may be selected for particular transactions because they provide better price
and/or execution, which is the primary consideration in allocating brokerage;
(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 Portfolio 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
Portfolio's benefit.
Kevin L. Risen and Allan R. White III, 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 portfolio of the Portfolio. Each of them
has full authority to take action with respect to portfolio transactions and may
or may not consult with other personnel of NB Management prior to taking such
action.
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PORTFOLIO TURNOVER
- ------------------
The 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.
REPORTS TO SHAREHOLDERS
Shareholders of the Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors for the Fund and Portfolio. The Fund's statements show the investments
owned by the Portfolio and the market values thereof and provide other
information about the Fund and its operations, including the Fund's beneficial
interest in the Portfolio.
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS
THE FUND
- --------
The Fund is a separate ongoing series of the Trust, a Delaware
business trust organized pursuant to a Trust Instrument dated as of December 23,
1992. 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 ten separate operating series. The Fund invests all of its
net investable assets in the Portfolio, receiving a beneficial interest in the
Portfolio. The trustees of the Trust may establish additional series or classes
of shares without the approval of shareholders. The assets of each series belong
only to that series, and the liabilities of each series are borne solely by that
series and no other.
Prior to November 9, 1998, the name of the Trust was "Neuberger &
Berman Equity Trust" and the term "Neuberger Berman" in the Fund's name was
"Neuberger & Berman".
DESCRIPTION OF SHARES. The Fund is authorized to issue an unlimited
number of shares of beneficial interest (par value $0.001 per share). Shares of
the Fund represent equal proportionate interests in the assets of the Fund only
and have identical voting, dividend, redemption, liquidation, and other rights.
All shares issued are fully paid and non-assessable, and shareholders have no
preemptive or other rights to subscribe to any additional shares.
SHAREHOLDER MEETINGS. The trustees of the Trust do not intend to
hold annual meetings of shareholders of the Fund. The trustees will call special
meetings of shareholders of the Fund only if required under the 1940 Act or in
their discretion or upon the written request of holders of 10% or more of the
outstanding shares of the Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law, the
shareholders of the Fund will not be personally liable for the obligations of
the Fund; a shareholder is entitled to the same limitation of personal liability
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extended to shareholders of a corporation. To guard against the risk that
Delaware law might not be applied in other states, the Trust Instrument requires
that every written obligation of the Trust or the Fund contain a statement that
such obligation may be enforced only against the assets of the Trust or Fund and
provides for indemnification out of Trust or Fund property of any shareholder
nevertheless held personally liable for Trust or Fund obligations, respectively.
OTHER. Because Fund shares can be bought, owned and sold only
through an account with an Institution, a client of an Institution may be unable
to purchase additional shares and/or may be required to redeem shares (and
possibly incur a tax liability) if the client no longer has a relationship with
the Institution or if the Institution no longer has a contract with 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 PORTFOLIO
- -------------
The Portfolio is a separate operating series of Managers Trust, a
New York common law trust organized as of December 1, 1992. Managers Trust is
registered under the 1940 Act as a diversified, open-end management investment
company. Managers Trust has nine separate Portfolios. 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.
FUND'S INVESTMENTS IN THE PORTFOLIO. The Fund is a "feeder fund"
that seeks to achieve its investment objective by investing all of its net
investable assets in the Portfolio, which is a "master fund." The Portfolio,
which has the same investment objective, policies, and limitations as the Fund,
in turn invests in securities; the Fund thus acquires an indirect interest in
those securities.
The Fund's investment in the Portfolio is in the form of a
non-transferable beneficial interest. Members of the general public may not
purchase a direct interest in the Portfolio. Series of two other investment
companies, Neuberger Berman Equity Funds ("Equity Funds"), Neuberger Berman
Equity Assets ("Equity Assets"), and Neuberger Berman Equity Series ("Equity
Series") invest all of their respective net assets in corresponding Portfolios
of Managers Trust. The shares of the series of Equity Funds are available for
purchase by members of the general public. Equity Assets and Equity Series do
not sell their shares directly to members of the general public.
The Portfolio may also permit other investment companies and/or
other institutional investors to invest in the Portfolio. All investors will
invest in the Portfolio on the same terms and conditions as the Fund and will
pay a proportionate share of the Portfolio's expenses. Other investors in the
Portfolio (including the series of Equity Funds, Equity Assets, and Equity
Series) are not required to sell their shares at the same public offering price
as the Fund, could have a different administration fee and expenses than the
Fund, and (except Equity Funds, Equity Assets and Equity Series) might charge a
sales commission. Therefore, Fund shareholders may have different returns than
shareholders in another investment company that invests exclusively in the
Portfolio. Information regarding any fund that invests in the Portfolio is
available from NB Management by calling 800-877-9700.
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The trustees of the Trust believe that investment in the Portfolio
by a series of Equity Funds, Equity Assets or Equity Series or by other
potential investors in addition to the Fund may enable the Portfolio to realize
economies of scale that could reduce its operating expenses, thereby producing
higher returns and benefiting all shareholders. However, the Fund's investment
in the Portfolio may be affected by the actions of other large investors in the
Portfolio, if any. For example, if a large investor in the Portfolio (other than
the 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.
The Fund may withdraw its entire investment from the Portfolio at
any time, if the trustees of the Trust determine that it is in the best
interests of the Fund and its shareholders to do so. The Fund might withdraw,
for example, if there were other investors in the Portfolio with power to, and
who did by a vote of all investors (including the Fund), change the investment
objective, policies, or limitations of the Portfolio in a manner not acceptable
to the trustees of the Trust. A withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio to the Fund. That distribution could result in a less diversified
portfolio of investments for the Fund and could affect adversely the liquidity
of the Fund's investment portfolio. If the Fund decided to convert those
securities to cash, it usually would incur brokerage fees or other transaction
costs. If the Fund withdrew its investment from the Portfolio, the trustees of
the Trust would consider what actions might be taken, including the investment
of all of the Fund's net investable assets in another pooled investment entity
having substantially the same investment objective as the Fund or the retention
by the Fund of its own investment manager to manage its assets in accordance
with its investment objective, policies, and limitations. The inability of the
Fund to find a suitable replacement could have a significant impact on
shareholders.
INVESTOR MEETINGS AND VOTING. The Portfolio normally will not hold
meetings of investors except as required by the 1940 Act. Each investor in the
Portfolio will be entitled to vote in proportion to its relative beneficial
interest in the Portfolio. On most issues subjected to a vote of investors, the
Fund will solicit proxies from its shareholders and will vote its interest in
the Portfolio in proportion to the votes cast by the Fund's shareholders. If
there are other investors in the Portfolio, there can be no assurance that any
issue that receives a majority of the votes cast by Fund shareholders will
receive a majority of votes cast by all Portfolio investors; indeed, if other
investors hold a majority interest in the Portfolio, they could have voting
control of the Portfolio.
CERTAIN PROVISIONS. Each investor in the Portfolio, including the
Fund, will be liable for all obligations of the Portfolio. However, the risk of
an investor in the Portfolio incurring financial loss beyond the amount of its
investment on account of such liability would be limited to circumstances in
which the Portfolio had inadequate insurance and was unable to meet its
obligations out of its assets. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors.
CUSTODIAN AND TRANSFER AGENT
The Fund and Portfolio have selected State Street Bank and Trust
Company ("State Street"), 225 Franklin Street, Boston, MA 02110, as custodian
for their respective securities and cash. State Street also serves as the Fund's
transfer agent, administering purchases, redemptions, and transfers of Fund
45
<PAGE>
shares with respect to Institutions and the payment of dividends and other
distributions to 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 the
Portfolio.
INDEPENDENT AUDITORS
The Fund and Portfolio have selected Ernst & Young LLP, 200
Clarendon Street, Boston, MA 02116, as the independent auditors who will audit
their financial statements.
LEGAL COUNSEL
The Fund and Portfolio have selected Kirkpatrick & Lockhart LLP,
1800 Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as
their legal counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and percentage of
ownership of each person who was known by the Fund to own beneficially or of
record 5% or more of the Fund's outstanding shares at October 30, 1999:
<TABLE>
<CAPTION>
Percentage of Ownership
Name and Address At October 30, 1999
---------------- -------------------
<S> <C> <C>
Neuberger Berman
GUARDIAN Trust
National Financial Services Corp.* 5.54%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Fidelity Investments Institutional Ops 13.39%
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
46
<PAGE>
Percentage of Ownership
Name and Address At October 30, 1999
---------------- -------------------
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
</TABLE>
* National Financial Services Corp. holds these shares of record for the account
of certain of its clients and has informed the Fund of its policy to maintain
the confidentiality of holdings in its client accounts unless disclosure is
expressly required by law.
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 Fund and Portfolio.
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 the 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 Fund's Annual Report to shareholders
for the fiscal year ended August 31, 1999:
47
<PAGE>
The audited financial statements of the Fund and Portfolio 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.
48
<PAGE>
Appendix A
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
S&P CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
PLUS (+) OR MINUS (-) - The ratings above may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S CORPORATE BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or an exceptionally
stable margin, and principal is secure. Although the various protective elements
are likely to change, the changes that can be visualized are most unlikely to
impair the fundamentally strong position of the issuer.
A-1
<PAGE>
Aa - Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as "high-grade bonds." They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa-rated securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa-rated
securities.
A - Bonds rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
MODIFIERS--Moody's may apply numerical modifiers 1, 2, and 3 in each generic
rating classification described above. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issuer
ranks in the lower end of its generic rating.
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 (+).
A-2
<PAGE>
Moody's commercial paper ratings
Issuers rated PRIME-1 (or related supporting institutions), also
known as P-1, have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
A-3
