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NEUBERGER BERMAN EQUITY ASSETS AND PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1999
AS AMENDED MAY 1, 2000
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Neuberger Berman MANHATTAN Assets (and Neuberger Berman GENESIS Assets (and
Neuberger Berman Manhattan Portfolio) Neuberger Berman Genesis Portfolio)
Neuberger Berman FOCUS Assets (and Neuberger Berman GUARDIAN Assets (and
Neuberger Berman Focus Portfolio) Neuberger Berman Guardian Portfolio)
Neuberger Berman MILLENNIUM Assets Neuberger Berman PARTNERS Assets
(and Neuberger Berman Millennium Portfolio (and Neuberger Berman Partners Portfolio)
Neuberger Berman SOCIALLY RESPONSIVE Assets
(and Neuberger Berman Socially Responsive Portfolio)
No-Load Mutual Funds
605 Third Avenue, 2nd Floor, New York, NY 10158-0180
Toll-Free 800-366-6264
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Neuberger Berman MANHATTAN Assets, Neuberger Berman GENESIS
Assets, Neuberger Berman FOCUS Assets, Neuberger Berman GUARDIAN Assets,
Neuberger Berman MILLENNIUM Assets, Neuberger Berman PARTNERS Assets, and
Neuberger Berman SOCIALLY RESPONSIVE Assets (each a "Fund") are mutual funds
that offer shares pursuant to a Prospectus dated December 1, 1999. The Funds
invest all of their net investable assets in Neuberger Berman MANHATTAN
Portfolio, Neuberger Berman GENESIS Portfolio, Neuberger Berman FOCUS Portfolio,
Neuberger Berman GUARDIAN Portfolio, Neuberger Berman MILLENNIUM Portfolio,
Neuberger Berman PARTNERS Portfolio, and Neuberger Berman SOCIALLY RESPONSIVE
Portfolio (each a "Portfolio"), respectively.
AN INVESTOR CAN BUY, OWN, AND SELL FUND SHARES ONLY THROUGH AN
ACCOUNT WITH AN ADMINISTRATOR, BROKER-DEALER, OR OTHER INSTITUTION THAT PROVIDES
ACCOUNTING, RECORDKEEPING, AND OTHER SERVICES TO INVESTORS AND THAT HAS AN
ADMINISTRATIVE SERVICES AGREEMENT WITH NEUBERGER BERMAN MANAGEMENT INC. ("NB
MANAGEMENT") AND/OR AN AGREEMENT WITH NB MANAGEMENT TO MAKE FUND SHARES
AVAILABLE TO ITS CLIENTS (EACH AN "INSTITUTION").
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The Funds' Prospectus provides basic information that an
investor should know before investing. You can get a free copy of the Prospectus
from NB Management, Institutional Services, 605 Third Avenue, 2nd Floor, New
York, NY 10158-0180, or by calling 800-366-6264.
This Statement of Additional Information ("SAI") is not a
prospectus and should be read in conjunction with the Prospectus.
No person has been authorized to give any information or to
make any representations not contained in the Prospectus or in this SAI in
connection with the offering made by the Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by a Fund or its distributor. The Prospectus and this SAI do not constitute an
offering by a Fund or its distributor in any jurisdiction in which such offering
may not lawfully be made.
The "Neuberger Berman" name and logo are service marks of
Neuberger Berman, LLC. "Neuberger Berman Management Inc." and the fund and
portfolio names in this SAI are either service marks or registered trademarks of
Neuberger Berman Management Inc.(C)2000 Neuberger Berman Management Inc.
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TABLE OF CONTENTS
PAGE
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INVESTMENT INFORMATION............................................................................................1
Investment Policies and Limitations......................................................................1
Investment Insight.......................................................................................5
Neuberger Berman MANHATTAN Portfolio............................................................5
Neuberger Berman GENESIS Portfolio..............................................................6
Neuberger Berman FOCUS Portfolio................................................................8
Neuberger Berman GUARDIAN Portfolio.............................................................9
Neuberger Berman MILLENNIUM Portfolio..........................................................11
Neuberger Berman PARTNERS Portfolio............................................................13
Neuberger Berman SOCIALLY RESPONSIVE Portfolio.................................................14
Additional Investment Information.......................................................................16
Neuberger Berman FOCUS Portfolio - Description of Economic Sectors......................................32
Neuberger Berman SOCIALLY RESPONSIVE Portfolio - Description of Social Policy...........................34
PERFORMANCE INFORMATION..........................................................................................37
Total Return Computations...............................................................................37
Comparative Information.................................................................................38
Other Performance Information...........................................................................39
CERTAIN RISK CONSIDERATIONS......................................................................................40
TRUSTEES AND OFFICERS............................................................................................40
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES................................................................46
Investment Manager and Administrator....................................................................46
Sub-Adviser.............................................................................................50
Investment Companies Managed............................................................................51
Codes of Ethics.........................................................................................53
Management and Control of NB Management and Neuberger Berman............................................53
DISTRIBUTION ARRANGEMENTS........................................................................................54
Distributor.............................................................................................54
Rule 12b-1 Plan.........................................................................................55
Share Prices and Net Asset Value........................................................................56
ADDITIONAL EXCHANGE INFORMATION..................................................................................57
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ADDITIONAL REDEMPTION INFORMATION................................................................................57
Suspension of Redemptions...............................................................................57
Redemptions in Kind.....................................................................................57
DIVIDENDS AND OTHER DISTRIBUTIONS................................................................................58
ADDITIONAL TAX INFORMATION.......................................................................................58
Taxation of the Funds...................................................................................58
Taxation of the Portfolios..............................................................................59
Taxation of the Funds' Shareholders.....................................................................62
PORTFOLIO TRANSACTIONS...........................................................................................62
Portfolio Turnover......................................................................................69
REPORTS TO SHAREHOLDERS..........................................................................................69
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS...................................................................69
CUSTODIAN AND TRANSFER AGENT.....................................................................................72
LEGAL COUNSEL....................................................................................................72
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..............................................................72
REGISTRATION STATEMENT...........................................................................................75
FINANCIAL STATEMENTS.............................................................................................75
Appendix A: RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER....................................................A-1
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INVESTMENT INFORMATION
Each Fund is a separate series of Neuberger Berman Equity
Assets ("Trust"), a Delaware business trust that is registered with the
Securities and Exchange Commission ("SEC") as a diversified, open-end management
investment company. Each Fund seeks its investment objective by investing all of
its net investable assets in a Portfolio of Equity Managers Trust ("Managers
Trust") that has an investment objective identical to, and a name similar to,
that of the Fund. Each Portfolio, in turn, invests in securities in accordance
with an investment objective, policies, and limitations identical to those of
its corresponding Fund. (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 each
Fund and Portfolio. The investment objective and, unless otherwise specified,
the investment policies and limitations of each Fund and Portfolio are not
fundamental. Any investment objective, policy or limitation that is not
fundamental may be changed by the trustees of the Trust ("Fund Trustees") or of
Managers Trust ("Portfolio Trustees") without shareholder approval. The
fundamental investment policies and limitations of a Fund or a Portfolio may not
be changed without the approval of the lesser of:
(1) 67% of the total units of beneficial interest ("shares")
of the Fund or Portfolio represented at a meeting at which more than 50% of the
outstanding Fund or Portfolio shares are represented, or
(2) a majority of the outstanding shares of the Fund or
Portfolio.
These percentages are required by the Investment Company Act
of 1940 ("1940 Act") and are referred to in this SAI as a "1940 Act majority
vote." Whenever a Fund is called upon to vote on a change in a fundamental
investment policy or limitation of its corresponding Portfolio, the Fund casts
its votes in proportion to the votes of its shareholders at a meeting thereof
called for that purpose.
INVESTMENT POLICIES AND LIMITATIONS
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Each Fund (except for Neuberger Berman SOCIALLY RESPONSIVE and
MILLENNIUM Assets) has the following fundamental investment policy, to enable it
to invest in its corresponding Portfolio:
Notwithstanding any other investment policy of the
Fund, the Fund may invest all of its investable assets (cash,
securities, and receivables relating to securities) in an open-end
management investment company having substantially the same
investment objective, policies, and limitations as the Fund.
Neuberger Berman SOCIALLY RESPONSIVE and MILLENNIUM Assets have the
following fundamental investment policy, to enable each Fund to invest in its
corresponding Portfolio:
Notwithstanding any other investment policy of the
Fund, the Fund may invest all of its net investable assets (cash,
securities, and receivables relating to securities) in an open-end
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management investment company having substantially the same
investment objective, policies, and limitations as the Fund.
All other fundamental investment policies and limitations and
the non-fundamental investment policies and limitations of each Fund are
identical to those of its corresponding Portfolio. Therefore, although the
following discusses the investment policies and limitations of the Portfolios,
it applies equally to their corresponding Funds.
Except for the limitation on borrowing, any investment policy
or limitation that involves a maximum percentage of securities or assets will
not be considered to be violated unless the percentage limitation is exceeded
immediately after, and because of, a transaction by a Portfolio.
The following investment policies and limitations are
fundamental and apply to all Portfolios:
1. BORROWING. No Portfolio may borrow money, except that a
Portfolio may (i) borrow money from banks for temporary or emergency purposes
and not for leveraging or investment and (ii) enter into reverse repurchase
agreements for any purpose; provided that (i) and (ii) in combination do not
exceed 33-1/3% of the value of its total assets (including the amount borrowed)
less liabilities (other than borrowings). If at any time borrowings exceed
33-1/3% of the value of a Portfolio's total assets, that Portfolio will reduce
its borrowings within three days (excluding Sundays and holidays) to the extent
necessary to comply with the 33-1/3% limitation.
2. COMMODITIES. No Portfolio may purchase physical commodities
or contracts thereon, unless acquired as a result of the ownership of securities
or instruments, but this restriction shall not prohibit a Portfolio from
purchasing futures 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. No Portfolio may, with respect to 75% of
the value of its total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, (i) more than 5% of the value of the
Portfolio's total assets would be invested in the securities of that issuer or
(ii) the Portfolio would hold more than 10% of the outstanding voting securities
of that issuer.
4. INDUSTRY CONCENTRATION. No Portfolio may purchase any
security if, as a result, 25% or more of its total assets (taken at current
value) would be invested in the securities of issuers having their principal
business activities in the same industry. This limitation does not apply to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
5. LENDING. No Portfolio may lend any security or make any
other loan if, as a result, more than 33-1/3% of its total assets (taken at
current value) would be lent to other parties, except, in accordance with its
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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. No Portfolio may purchase real estate unless
acquired as a result of the ownership of securities or instruments, but this
restriction shall not prohibit a Portfolio from purchasing securities issued by
entities or investment vehicles that own or deal in real estate or interests
therein or instruments secured by real estate or interests therein.
7. SENIOR SECURITIES. No Portfolio may issue senior
securities, except as permitted under the 1940 Act.
8. UNDERWRITING. No Portfolio may underwrite securities of
other issuers, except to the extent that a Portfolio, in disposing of portfolio
securities, may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 ("1933 Act").
For purposes of the limitation on commodities, the Portfolios
do not consider foreign currencies or forward contracts to be physical
commodities.
The following investment policies and limitations are
non-fundamental and apply to all Portfolios unless otherwise indicated:
1. BORROWING. No Portfolio may purchase securities if
outstanding borrowings, including any reverse repurchase agreements, exceed 5%
of its total assets.
2. LENDING. Except for the purchase of debt securities and
engaging in repurchase agreements, no Portfolio may make any loans other than
securities loans.
3. MARGIN TRANSACTIONS. No Portfolio may purchase securities
on margin from brokers or other lenders, except that a Portfolio may obtain such
short-term credits as are necessary for the clearance of securities
transactions. Margin payments in connection with transactions in futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin and shall not be deemed to violate the foregoing
limitation.
4. FOREIGN SECURITIES (ALL PORTFOLIOS EXCEPT NEUBERGER BERMAN
MILLENNIUM PORTFOLIO). No Portfolio may invest more than 10% of the value of its
total assets in securities of foreign issuers, provided that this limitation
shall not apply to foreign securities denominated in U.S. dollars, including
American Depositary Receipts ("ADRs").
FOREIGN SECURITIES (NEUBERGER BERMAN MILLENNIUM PORTFOLIO).
The Portfolio may invest more than 20% of the value of its total assets in
securities of foreign issuers, provided that this limitation shall not apply to
foreign securities denominated in U.S. dollars, including American Depositary
Receipts ("ADRs").
5. ILLIQUID SECURITIES. No Portfolio may purchase any security
if, as a result, more than 15% of its net assets would be invested in illiquid
securities. Illiquid securities include securities that cannot be sold within
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seven days in the ordinary course of business for approximately the amount at
which the Portfolio has valued the securities, such as repurchase agreements
maturing in more than seven days.
6. PLEDGING (NEUBERGER BERMAN GENESIS AND NEUBERGER BERMAN
GUARDIAN PORTFOLIOS). Neither of these Portfolios may pledge or hypothecate any
of its assets, except that (i) Neuberger Berman GENESIS Portfolio may pledge or
hypothecate up to 15% of its total assets to collateralize a borrowing permitted
under fundamental policy 1 above or a letter of credit issued for a purpose set
forth in that policy and (ii) each Portfolio may pledge or hypothecate up to 5%
of its total assets in connection with its entry into any agreement or
arrangement pursuant to which a bank furnishes a letter of credit to
collateralize a capital commitment made by the Portfolio to a mutual insurance
company of which the Portfolio is a member. The other Portfolios are not subject
to any restrictions on their ability to pledge or hypothecate assets and may do
so in connection with permitted borrowings.
7. SECTOR CONCENTRATION (NEUBERGER BERMAN FOCUS PORTFOLIO).
This Portfolio may not invest more than 50% of its total assets in any one
economic sector.
8. SOCIAL POLICY (NEUBERGER BERMAN SOCIALLY RESPONSIVE
PORTFOLIO). The Portfolio may not purchase securities of issuers who derive more
than 5% of their total revenue from alcohol, tobacco, gambling or weapons, or
that are involved in nuclear power.
Although the Portfolios do not have policies limiting their
investment in warrants, no Portfolio currently intends to invest in warrants
unless acquired in units or attached to securities.
TEMPORARY DEFENSIVE POSITION. For temporary defensive
purposes, each Portfolio (except Neuberger Berman SOCIALLY RESPONSIVE Portfolio)
may invest up to 100% of its total assets in cash and cash equivalents, U.S.
Government and Agency Securities, commercial paper and certain other money
market instruments as well as repurchase agreements collateralized by the
forgoing.
Any part of Neuberger Berman SOCIALLY RESPONSIVE Portfolio's
assets may be retained temporarily in investment grade fixed income securities
of non-governmental issuers, U.S. Government and Agency Securities, repurchase
agreements, money market instruments, commercial paper, and cash and cash
equivalents when NB Management believes that significant adverse market,
economic political, or other circumstances require prompt action to avoid
losses. In addition, the feeder funds that invest in Neuberger Berman SOCIALLY
RESPONSIVE Portfolio deal with large institutional investors, and the Portfolio
may hold such instruments pending investment or payout when the Portfolio has
received a large influx of cash due to sales of Neuberger Berman SOCIALLY
RESPONSIVE Fund shares, or shares of another fund which invests in the
Portfolio, or when it anticipates a substantial redemption. Generally, the
foregoing temporary investments for Neuberger Berman SOCIALLY RESPONSIVE
Portfolio are selected with a concern for the social impact of each investment.
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INVESTMENT INSIGHT
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Neuberger Berman's commitment to its asset management approach is
reflected in the more than $125 million the organization's employees and their
families have invested in the Neuberger Berman mutual funds.
In advertisements, each Fund's allocation to a particular market
sector(s) may be discussed as a way to demonstrate how the portfolio managers
uncover stocks that they perceive to fit the Fund's investment parameters. These
discussions may include references to current or former holdings of a Fund.
NEUBERGER BERMAN MANHATTAN PORTFOLIO
------------------------------------
INVESTMENT PROGRAM
------------------
Invests in common stocks of mid-capitalization companies that are in
new or rapidly evolving industries. Seeks growth of capital by investing in
companies with financial strength, above-average growth of earnings, earnings
that have exceeded analysts' expectations, a strong position relative to
competitors and a stock price that is reasonable in light of its growth rate.
MID-CAP GROWTH STOCK INVESTMENTS
The portfolio co-managers consider themselves growth stock investors in
the purest sense of the term. By that, they mean they want to own the stocks of
companies that are growing earnings faster than the average American business
and, ideally, faster than the competitors in their respective industries. Their
exhaustive research efforts are focused on the mid-cap universe and,
specifically, stocks that are in new or rapidly evolving industries. The kind of
fast-growth companies the portfolio co-managers favor generally do not trade at
below market average price-to-earnings ratios. However, they do look for
companies trading at reasonable levels compared to their growth rates. They
believe that attractive valuations in the mid-cap range have been created as a
result of the large-cap area performing well for several years, relative to
other capitalization ranges.
AN INTENSIVE RESEARCH EFFORT
The portfolio co-managers love stocks with positive earnings surprises.
Their extensive research has revealed that the stocks of companies that have
consistently beaten Wall Street earnings estimates have also tended to offer
greater potential for long-term capital appreciation. To find these companies
they scour the mid-cap growth stock universe to isolate stocks whose most recent
earnings have beaten consensus expectations. Then, the real work begins, where
through diligent fundamental research they strive to identify those companies
most likely to record a string of positive earnings surprises. Their ultimate
goal is to invest today in the fast growing mid-sized companies that they
believe are poised to become tomorrow's Fortune 500.
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A DISCIPLINED SELL PROCESS
"We are dispassionate sellers," says one portfolio co-manager. "If a
stock does not live up to our earnings expectations or if we believe its
valuation has become excessive, we will sell and direct the assets to another
opportunity we find more attractive." A stock will also be sold when it reaches
its target price. They prefer to broadly diversify the portfolio's assets among
many different companies and industries rather than heavily concentrating its
holdings in just a few of the fastest growing industry sectors. Broad
diversification helps to manage the overall risk inherent in a portfolio of
equity securities. Nevertheless, the managers acknowledge that currently there
are positive growth opportunities in the technology sector, particularly
biotechnology and Internet-related companies. One portfolio co-manager adds, "We
believe that we are on the verge of a technology-induced industrial revolution,
and there may be an opportunity for investors to build capital by focusing in
this area."
-------------------------------------
INVESTMENT PROCESS
------------------
ACTIVE RISK MANAGEMENT
BETTER MID-CAP GROWTH STOCKS
o Fundamental Verification
MID-CAP GROWTH UNIVERSE
o Proprietary Quantitative Evaluation
STOCK UNIVERSE
o Focus Screens
------------------------------------
MANHATTAN INVESTORS CAN EXPECT:
o Mid-cap growth stock investments
o An intensive research effort
o A disciplined sell process
NEUBERGER BERMAN GENESIS PORTFOLIO
----------------------------------
INVESTMENT PROGRAM
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Invests mainly in common stocks of small-capitalization companies.
Seeks undervalued companies whose current product lines and balance sheets are
6
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strong. The Portfolio regards companies with market capitalizations of up to
$1.5 billion at the time of investment as small-cap companies.
A SMALL-CAP VALUE BIAS
The portfolio co-managers employ a value bias in their stock selection
process. They comb the universe of small-cap stocks specifically looking for
those they consider cheap compared to the market as a whole. Depending on
current market conditions, they sometimes find stocks that are cheap on an
absolute basis as well. They primarily choose from a universe of small-cap
companies whose total market valuation is less than $1.5 billion at the time of
initial investment. The characteristics they look for may include above average
returns, established market niches, high barriers to entry, strong capital
bases, and sound future business prospects.
A PHILOSOPHY THAT CONTRADICTS POPULAR INVESTMENT TRENDS
The portfolio co-managers focus on strong companies in industry niches
that are often overlooked by investors because they lack an exciting new product
or innovation. They aren't interested in buying experimental or cutting-edge
technology names that often trade on high future expectations but have no
established record of earnings. The rationale behind their approach is that
companies in what may be considered "unexciting" industries to some, such as
utilities and oil services, are a safer point of entry into the small-cap
universe because, as they put it, "if there's not a lot of expectation built
into a company, then it tends not to disappoint."
SMALL COMPANIES, POTENTIALLY BIG OPPORTUNITIES
The portfolio co-managers favor the small-cap arena because they think
it abounds with opportunities for the long-term investor, specifically
small-caps' potential ability to grow earnings dramatically over time. According
to one portfolio co-manager, "Unlike large-cap stocks, small-cap companies are
starting from a very low base and therefore may have the ability to grow
dramatically."
INVESTMENT PROCESS
(Qualitative Analysis
(Meetings with Company Executives One-on-One
o 300 Face-to-Face Meetings per Year
o Heavy Phone Contact
(Quantitative Characteristics
o Low Price-to-Earnings Ratio
o Low Price-to-Cash Flow Ratio
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GENESIS INVESTORS CAN EXPECT:
o A small-cap value bias
o A philosophy that contradicts popular investment trends
o Small companies, potentially big opportunities
INVESTMENT INSIGHT
The portfolio co-managers seek out small companies that are not well
known and often found in unglamorous industries. Future growth is one area they
focus on, but equally important to them is evidence of solid performance and a
proven management team. As value investors, they look for stocks that are
selling at attractive prices.
THE RISKS INVOLVED IN SEEKING CAPITAL APPRECIATION FROM
INVESTMENTS PRIMARILY IN COMPANIES WITH SMALL MARKET CAPITALIZATION ARE SET
FORTH IN THE PROSPECTUS.
NEUBERGER BERMAN FOCUS PORTFOLIO
--------------------------------
INVESTMENT PROGRAM
------------------
Seeks long-term growth of capital. Invests principally in common stocks
selected from 13 multi-industry sectors of the economy. To maximize potential
return, the Portfolio normally makes at least 90% or more of its investments in
not more than six sectors it identifies as undervalued.
EMPHASIS ON QUALITY, UNDERVALUED COMPANIES OF ALL MARKET
CAPITALIZATIONS
The portfolio manager selects companies with solid fundamentals that he
considers undervalued by the marketplace. Specifically, he looks for industry
leaders with above-average earnings, established market niches, and sound future
business prospects. He believes these types of organizations come in all sizes,
therefore he does not limit his selections to any particular capitalization
range.
A CONCENTRATED PORTFOLIO
In addition to his value bias, the portfolio manager concentrates his
efforts on six out of 13 possible economic sectors. Although the portfolio is
built one stock at a time, he has found that the conditions leading to an
individual stock being undervalued similarly affect other companies in the same
industries or sectors. Thus, an emphasis on relatively few sectors is a natural
outgrowth of the fund's stock selection process. The portfolio manager won't
dedicate more than 50% of assets to any one sector and no more than 25% of
assets to any one industry.
BOTTOM-UP, VALUE-ORIENTED STOCK SELECTION PROCESS
The portfolio manager's bottom-up approach focuses on stocks that are
currently out of favor, due to temporary setbacks. He also likes stocks that
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have been largely ignored by Wall Street, but that he believes still offer good
long-term growth potential. He prefers to buy companies that are industry
leaders, not those that he believes are undervalued for good reasons such as
poor management or limited growth prospects. Ideal investment candidates are
financially sound companies that have little or no debt and exhibit high returns
on equity.
THOROUGH RESEARCH EFFORT
He believes it's the management teams that drive companies and how they
react to changes in their respective industries. As he explains, "The only way
to come to those conclusions is to meet with the people behind the stocks we
like." Furthermore, he does not rely on a company's initial merits after its
stock has been purchased. Instead, he prefers to revisit its fundamentals
regularly and then, as a reality check, look back at the company's performance
to see if it's consistently delivering.
INVESTMENT PROCESS
(Qualitative Analysis
o Meeting with Company Executives One-on-One
(Monitor Exposure to Economic Conditions
o Interest Rate Changes
(Sector Analysis
(Stock Universe
o Quantitative Analysis
FOCUS INVESTORS CAN EXPECT:
o Emphasis on quality, undervalued companies of all market capitalizations
o A concentrated portfolio
o Bottom-up, value-oriented stock selection process
o Thorough research efforts
INVESTMENT INSIGHT
The investment approach for the Focus Fund involves looking for
companies that have low price-to-earnings ratios, solid balance sheets and
strong management. The portfolio manager often finds that these companies are
concentrated in certain sectors of the economy, which prompts him to look
further within these sectors for other companies that meet his criteria.
NEUBERGER BERMAN GUARDIAN PORTFOLIO
-----------------------------------
INVESTMENT PROGRAM
------------------
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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 looks for such
factors as low price-to-earnings ratios, strong balance sheets, solid
management, and consistent earnings.
DISCIPLINED, LARGE-CAP VALUE ORIENTATION
As part of its stock selection process, the portfolio pursues a
disciplined, value-driven investment style, which is Neuberger Berman's historic
strength. Specifically, the portfolio co-managers seek large-capitalization
companies whose stock prices are substantially undervalued. Characteristics of
these firms may include: solid balance sheets, above-average returns, low
valuations, and consistent earnings.
BOTTOM-UP APPROACH TO STOCK SELECTION
According to one of the portfolio co-managers, "Cheap stocks are
plentiful, but true investment bargains are a rare find." To uncover them, the
portfolio co-managers scour a universe of stocks consisting of the bottom 20% of
the market in terms of valuation. Those deemed by the managers as inexpensive
and poised for a turnaround are placed under consideration. They look for
financially sound, well-managed companies that are undervalued relative to their
earnings potential and the market as a whole.
A BROAD VIEW OF RISK MANAGEMENT
Managing risk involves carefully monitoring the way the stocks in the
portfolio react to one another as well as to outside factors. Companies that are
in completely different sectors may in fact react similarly to certain economic,
market or international events. In their efforts to consider these
relationships, the portfolio co-managers use quantitative analysis to evaluate
these factors and their impact on the overall portfolio. It is a process they
believe is a crucial component in controlling risk and one that evolves over
time as new holdings are introduced to the portfolio.
A STRONG SELL DISCIPLINE
The portfolio co-managers will generally make an initial investment in
a stock of between 1-4% of total net assets. A higher weighting indicates that
they believe their research gives them an "edge" over Wall Street analysts, or
they believe the stock has an uncovered value that others may have overlooked.
Once a stock grows beyond the high side of that range, gains are harvested and
the holding is reduced to about 3% of total net assets.
INVESTMENT PROCESS
(Portfolio Risk Management
o Monitor Portfolio's Exposure
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(Selection Criteria
o Improving Financials
o Superior Management
o 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
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.
NEUBERGER BERMAN MILLENNIUM PORTFOLIO
-------------------------------------
INVESTMENT PROGRAM
------------------
Invests primarily in equity securities of small-sized domestic
companies (up to $1.5 billion in market capitalization at time of investment).
Seeks growth of capital and looks for new companies that are in the
developmental stage as well as older companies that appear poised to grow
because of new products, markets or management.
DISCIPLINED STOCK SELECTION PROCESS
The portfolio co-managers employ a three-tiered disciplined investment
process. It begins with a search for fast growing, small companies that exhibit
sustainable earnings growth of at least 15%. Next, they assess a company's
financial and managerial wherewithal to capitalize on opportunities and grow its
business, despite occasional setbacks. Finally, the managers determine whether
or not a stock's price is reasonable. Their analysis attempts to avoid companies
considered overvalued relative to their earnings growth rate.
LONG-TERM GROWTH POTENTIAL OF SMALL-CAP STOCKS
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Simply put, a small company might become a mid-sized one rapidly with
the launch of a single blockbuster product. And, since the potential growth of a
small company is often uninhibited by several layers of management, it might be
able to bring new products or services to the market quickly. What adds to the
attractiveness of small-cap stocks is the fact that they're generally less
researched than large-caps, which presents the managers with more opportunities
to find good companies that are not yet recognized by many investors.
Small-caps, however, are more risky than other securities due to their
volatility and greater sensitivity to market trends, company news and industry
developments.
RISK MANAGEMENT
"We abide by three rules for managing risk: pay only reasonable prices,
remain emotionally detached, and stay diversified", says one of the portfolio
co-managers about their risk-management strategy. First, the Fund focuses on
rapidly growing companies that are selling at reasonable prices relative to
their growth prospects. This is done in an effort to avoid those stocks whose
valuations are out of line with their growth rates because we believe they are
often the most susceptible to steep declines caused by fundamental
disappointments or during a market downturn. Second, our portfolio co-managers
remain emotionally detached from their stock picks. When deteriorating
fundamentals are discovered in a company, the portfolio co-managers take quick
and decisive action to eliminate it from the portfolio. And third, to limit
downside risk, the portfolio co-managers expect to invest in a diversified
portfolio across an array of sectors and industries. Nevertheless, the managers
acknowledge that currently there are positive growth opportunities in the
technology sector, particularly biotechnology and Internet-related companies. No
single stock represents more than 5% of total assets, measured at the time of
investment.
INVESTMENT PROCESS
SCREENS
(3 Price Is this stock price reasonable?
(2 Utility Can the company go the distance?
Financial Strength
Management Depth and Talent
(1 Growth Are earnings growing rapidly?
15%+ Annual Growth Rates
Positive Earnings Surprises
MILLENNIUM INVESTORS CAN EXPECT:
o Disciplined stock selection process
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o Long-term growth potential of small-cap stocks
o Risk management
INVESTMENT INSIGHT
The portfolio co-managers of the Millennium Fund make it their business
to track down promising small-cap companies wherever they may exist. As a
result, this fund enables investors who can accept the risks of small-cap stocks
to pursue the potential for long-term growth that small-caps may provide.
NEUBERGER BERMAN PARTNERS PORTFOLIO
-----------------------------------
INVESTMENT PROGRAM
- ------------------
Invests principally in common stocks of established companies, using
the value-oriented investment approach. Seeks growth of capital through an
investment approach that is designed to increase capital with reasonable risk.
Seeks securities believed to be undervalued based on strong fundamentals such as
a low price-to-earnings ratio, consistent cash flow, and a company's sound track
record through all phases of the market cycle.
UNDISCOVERED VALUES IN THE MID- TO LARGE-CAP ARENA
The Partners' portfolio co-managers comb the universe of mid- and
large-cap stocks in search of those that have yet to be "discovered" by the
majority of investors. They generally shy away from big, well-known companies
because they believe it is harder to gain a competitive edge in a stock that is
covered by many analysts. The managers prefer to focus their efforts outside of
the Fortune 100, where they think many investment bargains abound.
STRONG COMPANIES AT REASONABLE PRICES
Like many of their value-oriented peers, the co-managers try to buy
quality stocks for substantially less than their estimated market values.
However, they differ in their approach by applying another layer of analysis to
their value strategy. For example, in addition to searching for stocks trading
at below market price-to-earnings ratios, they also focus on companies with
strong fundamentals, consistent cash flows, sound track records through all
phases of the market cycle and those selling at the low end of their trading
ranges. They are not interested in buying cheap stocks if they don't meet these
other measures of value as well.
SOLID RESEARCH
The portfolio co-managers believe that through "exhaustive research
efforts, good companies selling for less than their true worth can be
identified." To do this the portfolio co-managers spend a lot of time
interviewing senior company managers. Their philosophy is that when they sit
across the table from a CEO or CFO and question him or her about the company,
they get to know it quite well. They find that there's simply no substitute for
that kind of firsthand knowledge. In addition, the portfolio co-managers
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carefully examine a company's financial statements and contact its suppliers and
competitors. While this type of analysis requires a lot of extra legwork, they
believe it's worth the effort.
INVESTMENT PROCESS
(Executive Management Team Evaluation
o Proven Track Record
o Strategic Plan
o Inside Ownership
(Value Stock Universe
o Qualitative Evaluation: Catalyst for Change
(Stock Universe
o Quantitative Analysis
PARTNERS INVESTORS CAN EXPECT:
O Undiscovered values in the mid- to large-cap arena
O Strong companies at reasonable prices
O Solid research
INVESTMENT INSIGHT
The portfolio co-managers seek companies they believe are undervalued
relative to their earnings potential--where there is a gap between the actual
price of a stock and its intrinsic value in the marketplace. When a company
grows in value or the valuation gap closes, the success of their strategy is
realized.
NEUBERGER BERMAN SOCIALLY RESPONSIVE PORTFOLIO
----------------------------------------------
INVESTMENT PROGRAM
------------------
Seeks long-term capital appreciation through investments primarily in
securities of companies that meet both financial criteria and social policy. The
portfolio co-managers initially screen companies using a value investing
criteria, then look for companies that show leadership in major areas of social
impact such as the environment, workplace diversity and employment.
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FINANCIALLY SOUND COMPANIES WITH A SOCIAL CONSCIENCE
The portfolio co-managers look for the stocks of mid- to large-cap
companies that first meet their stringent financial criteria. Their social
screens are then applied to these stocks. The ones considered worthy from a
financial standpoint are then evaluated using a proprietary database that
develops and monitors information on companies in various categories of social
criteria. Ideal investment candidates are companies that show leadership in the
areas of the environment, workplace diversity and employment. Other
considerations are based on companies' records in other areas of concern,
including public health, type of products, and corporate citizenship.
A TRADITIONAL VALUE APPROACH
The portfolio co-managers' initial financial screens select companies
using a traditional value approach. They look for undervalued companies with
solid balance sheets, strong management, consistent cash flows, and other
value-related factors, such as low price-to-earnings and low price-to-book
ratios. Their value approach examines these companies, searching for those that
may rise in price before other investors realize their worth. They strongly
believe in helping investors put their money to work, while supporting companies
that follow principles of good corporate citizenship.
AN EVER-EVOLVING JOURNEY ON THE PATH TO GOOD CORPORATE CITIZENSHIP
The portfolio co-managers believe that most socially responsive
investors are not utopians. They do not expect instant perfection, but rather
look for signs that a company is evolving and moving toward a corporate
commitment to excellence. As they put it, "Good corporate citizenship is one of
those things that is a journey, not a destination. We've been working in this
field for some time, and know that the social records of most companies are
written in shades of gray. We are pleased to see that more and more companies
are coming to realize that change is a positive force for them."
INVESTMENT PROCESS
(Social Policy
(Quantitative Financial Criteria
O Low Price-to-Earnings Ratio (relative & absolute)
O Strong Balance Sheet
O Free Cash Flow
O Risk Management
(Stock Universe
Focus Screens
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SOCIALLY RESPONSIVE INVESTORS CAN EXPECT:
O Financially sound companies with a social conscience
O A traditional value approach
O An ever-evolving journey on the path to good corporate citizenship
INVESTMENT INSIGHT
The portfolio co-managers believe that sound practices in areas like
employment and the environment can have a positive impact on a company's bottom
line. They look for companies that meet value-investing criteria and also show a
commitment to uphold or improve their standards of corporate citizenship.
* * * * *
Each Portfolio invests in a wide array of stocks, and no single stock
makes up more than a small fraction of any Portfolio's total assets. Of course,
each Portfolio's holdings are subject to change.
ADDITIONAL INVESTMENT INFORMATION
- ---------------------------------
Some or all of the Portfolios, as indicated below, may make
the following investments, among others; some of which are part of the
Portfolios' principal investment strategies and some of which are not. The
principal risks of each Portfolio's principal strategies are discussed in the
Prospectus. They may not buy all of the types of securities or use all of the
investment techniques that are described.
ILLIQUID SECURITIES (ALL PORTFOLIOS). Illiquid securities are
securities that cannot be expected to be sold within seven days at approximately
the price at which they are valued. These may include unregistered or other
restricted securities and repurchase agreements maturing in greater than seven
days. Illiquid securities may also include commercial paper under section 4(2)
of the Securities Act of 1933, as amended, and Rule 144A securities (restricted
securities that may be traded freely among qualified institutional buyers
pursuant to an exemption from the registration requirements of the securities
laws); these securities are considered illiquid unless 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 a Portfolio to value or dispose of due to the absence of an
active trading market. The sale of some illiquid securities by the Portfolios
may be subject to legal restrictions which could be costly to the Portfolios.
POLICIES AND LIMITATIONS. Each Portfolio may invest up to 15%
of its net assets in illiquid securities.
REPURCHASE AGREEMENTS (ALL PORTFOLIOS). In a repurchase
agreement, a Portfolio purchases securities from a bank that is a member of the
Federal Reserve System or from a securities dealer that agrees to repurchase the
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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 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. No
Portfolio may enter into a repurchase agreement with a maturity of more than
seven days if, as a result, more than 15% of the value of its net assets would
then be invested in such repurchase agreements and other illiquid securities. A
Portfolio may enter into a repurchase agreement only if (1) the underlying
securities are of a type that the Portfolio's investment policies and
limitations would allow it to purchase directly, (2) the market value of the
underlying securities, including accrued interest, at all times equals or
exceeds the repurchase price, and (3) payment for the underlying securities is
made only upon satisfactory evidence that the securities are being held for the
Portfolio's account by its custodian or a bank acting as the Portfolio's agent.
SECURITIES LOANS (ALL PORTFOLIOS). Each Portfolio may lend
securities to banks, brokerage firms, and other institutional investors judged
credit-worthy 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. Each Portfolio may lend portfolio
securities with a value not exceeding 33-1/3% of its total assets to banks,
brokerage firms, or other institutional investors judged creditworthy by NB
Management. Borrowers are required continuously to secure their obligations to
return securities on loan from a Portfolio by depositing collateral in a form
determined to be satisfactory by the Portfolio Trustees. The collateral, which
must be marked to market daily, must be equal to at least 100% of the market
value of the loaned securities, which will also be marked to market daily.
Securities lending by Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not
subject to the Social Policy.
RESTRICTED SECURITIES AND RULE 144A SECURITIES (ALL
PORTFOLIOS). Each Portfolio may invest in restricted securities, which are
securities that may not be sold to the public without an effective registration
statement under the 1933 Act. Before they are registered, such securities may be
sold only in a privately negotiated transaction or pursuant to an exemption from
registration. In recognition of the increased size and liquidity of the
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institutional market for unregistered securities and the importance of
institutional investors in the formation of capital, the SEC has adopted Rule
144A under the 1933 Act. Rule 144A is designed to facilitate efficient trading
among institutional investors by permitting the sale of certain unregistered
securities to qualified institutional buyers. To the extent privately placed
securities held by a Portfolio qualify under Rule 144A and an institutional
market develops for those securities, the Portfolio likely will be able to
dispose of the securities without registering them under the 1933 Act. To the
extent that institutional buyers become, for a time, uninterested in purchasing
these securities, investing in Rule 144A securities could increase the level of
a Portfolio's illiquidity. NB Management, acting under guidelines established by
the Portfolio Trustees, may determine that certain securities qualified for
trading under Rule 144A are liquid. Regulation S under the 1933 Act permits the
sale abroad of securities that are not registered for sale in the United States.
Where registration is required, a Portfolio may be obligated
to pay all or part of the registration expenses, and a considerable period may
elapse between the decision to sell and the time the Portfolio may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Portfolio might obtain a
less favorable price than prevailed when it decided to sell. Restricted
securities for which no market exists are priced by a method that the Portfolio
Trustees believe accurately reflects fair value.
POLICIES AND LIMITATIONS. To the extent restricted securities,
including Rule 144A securities, are illiquid, purchases thereof will be subject
to each Portfolio's 15% limit on investments in illiquid securities.
REVERSE REPURCHASE AGREEMENTS (ALL PORTFOLIOS). In a reverse
repurchase agreement, a Portfolio sells portfolio securities subject to its
agreement to repurchase the securities at a later date for a fixed price
reflecting a market rate of interest. There is a risk that the counter-party to
a reverse repurchase agreement will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Portfolio.
POLICIES AND LIMITATIONS. Reverse repurchase agreements are
considered borrowings for purposes of each Portfolio's investment policies and
limitations concerning borrowings. While a reverse repurchase agreement is
outstanding, a 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 (ALL PORTFOLIOS). Each Portfolio may invest
in U.S. dollar-denominated securities of foreign issuers and foreign branches of
U.S. banks, including negotiable certificates of deposit ("CDs"), bankers'
acceptances and commercial paper. Foreign issuers are issuers organized and
doing business principally outside the U.S. and include banks, non-U.S.
governments, and quasi-governmental organizations. While investments in foreign
securities are intended to reduce risk by providing further diversification,
such investments involve sovereign and other risks, in addition to the credit
and market risks normally associated with domestic securities. These additional
risks include the possibility of adverse political and economic developments
(including political instability, nationalization, expropriation, or
confiscatory taxation) and the potentially adverse effects of unavailability of
public information regarding issuers, less governmental supervision and
regulation of financial markets, reduced liquidity of certain financial markets,
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and the lack of uniform accounting, auditing, and financial reporting standards
or the application of standards that are different or less stringent than those
applied in the United States.
Each Portfolio also may invest in equity, debt, or other
income-producing securities that are denominated in or indexed to foreign
currencies, including (1) common and preferred stocks, (2) CDs, commercial
paper, fixed time deposits, and bankers' acceptances issued by foreign banks,
(3) obligations of other corporations, and (4) obligations of foreign
governments and their subdivisions, agencies, and instrumentalities,
international agencies, and supranational entities. Investing in foreign
currency denominated securities involves the special risks associated with
investing in non-U.S. issuers, as described in the preceding paragraph, and the
additional risks of (1) adverse changes in foreign exchange rates, and (2)
adverse changes in investment or exchange control regulations (which could
prevent cash from being brought back to the United States). Additionally,
dividends and interest payable on foreign securities (and gains realized on the
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 Portfolios endeavor to achieve the most favorable net
results on portfolio transactions.
Foreign securities often trade with less frequency and in less
volume than domestic securities and therefore may exhibit greater price
volatility. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custody arrangements
and transaction costs of foreign currency conversions.
Foreign markets also have different clearance and settlement
procedures. In certain markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of a Portfolio are uninvested and
no return is earned thereon. The inability of a Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to a Portfolio due
to subsequent declines in value of the securities or, if the Portfolio has
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
Interest rates prevailing in other countries may affect the
prices of foreign securities and exchange rates for foreign currencies. Local
factors, including the strength of the local economy, the demand for borrowing,
the government's fiscal and monetary policies, and the international balance of
payments, often affect interest rates in other countries. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
The Portfolios may invest in ADRs, EDRs, GDRs, and IDRs. ADRs
(sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust
company evidencing its ownership of the underlying foreign securities. Most ADRs
are denominated in U.S. dollars and are traded on a U.S. stock exchange. Issuers
of the securities underlying sponsored ADRs, but not unsponsored ADRs, are
contractually obligated to disclose material information in the United States.
Therefore, the market value of unsponsored ADRs may not reflect the effect of
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<PAGE>
such information. EDRs and IDRs are receipts typically issued by a European bank
or trust company evidencing its ownership of the underlying foreign securities.
GDRs are receipts issued by either a U.S. or non-U.S. banking institution
evidencing its ownership of the underlying foreign securities and are often
denominated in U.S. dollars.
POLICIES AND LIMITATIONS. In order to limit the risks inherent
in investing in foreign currency denominated securities, a Portfolio (except
Neuberger Berman MILLENNIUM Portfolio) may not purchase any such security if, as
a result, more than 10% of its total assets (taken at market value) would be
invested in foreign currency denominated securities. Neuberger Berman MILLENNIUM
Portfolio may not purchase foreign currency denominated securities if, as a
result, more than 20% of its total assets (taken at market value) would be
invested in such securities. Within those limitations, however, no Portfolio is
restricted in the amount it may invest in securities denominated in any one
foreign currency.
Investments in securities of foreign issuers are subject to
each Portfolio's quality standards. Each 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, each Portfolio may purchase and sell stock index futures contracts,
and may purchase and sell options thereon, to increase its exposure to the
performance of a recognized securities index, such as the S&P 500 Index.
Each of Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE
Portfolios may purchase and sell interest rate futures contracts, stock and bond
index futures contracts, and foreign currency futures contracts and may purchase
and sell options thereon in an attempt to hedge against changes in the prices of
securities or, in the case of foreign currency futures and options thereon, to
hedge against changes in prevailing currency exchange rates. Because the futures
markets may be more liquid than the cash markets, the use of futures contracts
permits the Portfolio to enhance portfolio liquidity and maintain a defensive
position without having to sell portfolio securities. Each of Neuberger Berman
MILLENNIUM and SOCIALLY RESPONSIVE Portfolios views investment in (i) interest
rate and securities index futures and options thereon as a maturity management
device and/or a device to reduce risk or preserve total return in an adverse
environment for the hedged securities, and (ii) foreign currency futures and
options thereon as a means of establishing more definitely the effective return
on, or the purchase price of, securities denominated in foreign currencies that
are held or intended to be acquired by the Portfolio.
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
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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. The exchange's affiliated clearing
organization guarantees performance of the contracts between the clearing
members of the exchange.
Although futures contracts by their terms may require the
actual delivery or acquisition of the underlying securities or currency, in most
cases the contractual obligation is extinguished by being offset before the
expiration of the contract. A futures position is offset by buying (to offset an
earlier sale) or selling (to offset an earlier purchase) an identical futures
contract calling for delivery in the same month. This may result in a profit or
loss. While futures contracts entered into by a Portfolio will usually be
liquidated in this manner, the Portfolio may instead make or take delivery of
underlying securities whenever it appears economically advantageous for it to do
so.
"Margin" with respect to a futures contract is the amount of
assets that must be deposited by a Portfolio with, or for the benefit of, a
futures commission merchant in order to initiate and maintain the Portfolio's
futures positions. The margin deposit made by the Portfolio when it enters into
a futures contract ("initial margin") is intended to assure its performance of
the contract. If the price of the futures contract changes - increases in the
case of a short (sale) position or decreases in the case of a long (purchase)
position -- so that the unrealized loss on the contract causes the margin
deposit not to satisfy margin requirements, the Portfolio will be required to
make an additional margin deposit ("variation margin"). However, if favorable
price changes in the futures contract cause the margin deposit to exceed the
required margin, the excess will be paid to the Portfolio. In computing their
NAVs, the Portfolios mark to market the value of their open futures positions.
Each Portfolio also must make margin deposits with respect to options on futures
that it has written (but not with respect to options on futures that it has
purchased). If the futures commission merchant holding the margin deposit goes
bankrupt, the Portfolio could suffer a delay in recovering its funds and could
ultimately suffer a loss.
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.
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Although each Portfolio believes that the use of futures
contracts will benefit it, if NB Management's judgment about the general
direction of the markets or about interest rate or currency exchange rate trends
is incorrect, the Portfolio's overall return would be lower than if it had not
entered into any such contracts. The prices of futures contracts are volatile
and are influenced by, among other things, actual and anticipated changes in
interest or currency exchange rates, which in turn are affected by fiscal and
monetary policies and by national and international political and economic
events. At best, the correlation between changes in prices of futures contracts
and of securities being hedged can be only approximate due to differences
between the futures and securities markets or differences between the securities
or currencies underlying a Portfolio's futures position and the securities held
by or to be purchased for the Portfolio. The currency futures market may be
dominated by short-term traders seeking to profit from changes in exchange
rates. This would reduce the value of such contracts used for hedging purposes
over a short-term period. Such distortions are generally minor and would
diminish as the contract approaches maturity.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage; as a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss, or gain, to the investor. Losses that may arise from certain futures
transactions are potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctuation in
the price of a futures contract or option thereon during a single trading day;
once the daily limit has been reached, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day, however; it thus does not limit potential losses. In
fact, it may increase the risk of loss, because prices can move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing liquidation of unfavorable futures and options positions and
subjecting traders to substantial losses. If this were to happen with respect to
a position held by a Portfolio, it could (depending on the size of the position)
have an adverse impact on the NAV of the Portfolio.
POLICIES AND LIMITATIONS. For purposes of managing cash flow,
each Portfolio may purchase and sell stock index futures contracts, and may
purchase and sell options thereon, to increase its exposure to the performance
of a recognized securities index, such as the S&P 500.
Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE Portfolios
each may purchase and sell futures contracts and may purchase and sell options
thereon in an attempt to hedge against changes in the prices of securities or,
in the case of foreign currency futures and options thereon, to hedge against
prevailing currency exchange rates. The Portfolios do not engage in futures and
options on futures for speculation. The use of futures and options on futures by
Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not subject to the Social
Policy.
CALL OPTIONS ON SECURITIES (ALL PORTFOLIOS). Neuberger Berman
MILLENNIUM and SOCIALLY RESPONSIVE Portfolios each may write covered call
options and may purchase call options on securities. Each of the other
Portfolios may write covered call options and may purchase call options in
related closing transactions. The purpose of writing call options is to hedge
(i.e., to reduce, at least in part, the effect of price fluctuations of
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securities held by the Portfolio on the Portfolio's and its corresponding Fund's
net asset values ("NAVs") or to earn premium income. Portfolio securities on
which call options may be written and purchased by a Portfolio are purchased
solely on the basis of investment considerations consistent with the Portfolio's
investment objective.
When a Portfolio writes a call option, it is obligated to sell
a security to a purchaser at a specified price at any time until a certain date
if the purchaser decides to exercise the option. The Portfolio receives a
premium for writing the call option. So long as the obligation of the call
option continues, the Portfolio may be assigned an exercise notice, requiring it
to deliver the underlying security against payment of the exercise price. The
Portfolio may be obligated to deliver securities underlying an option at less
than the market price.
The writing of covered call options is a conservative
investment technique that is believed to involve relatively little risk but is
capable of enhancing the Portfolios' total return. When writing a covered call
option, a Portfolio, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security above the exercise
price, but conversely retains the risk of loss should the price of the security
decline.
If a call option that a Portfolio has written expires
unexercised, the Portfolio will realize a gain in the amount of the premium;
however, that gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is exercised,
the Portfolio will realize a gain or loss from the sale of the underlying
security.
When a Portfolio purchases a call option, it pays a premium
for the right to purchase a security from the writer at a specified price until
a specified date.
POLICIES AND LIMITATIONS. Each Portfolio may write covered
call options and may purchase call options in related closing transactions. Each
Portfolio writes only "covered" call options on securities it owns (in contrast
to the writing of "naked" or uncovered call options, which the Portfolios will
not do).
A Portfolio would purchase a call option to offset a
previously written call option. Each of Neuberger Berman MILLENNIUM and SOCIALLY
RESPONSIVE Portfolios also may purchase a call option to protect against an
increase in the price of securities it intends to purchase. The use of call
options on securities by Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not
subject to the Social Policy.
PUT OPTIONS ON SECURITIES (NEUBERGER BERMAN MILLENNIUM AND
SOCIALLY RESPONSIVE PORTFOLIOS). These Portfolios may write and purchase put
options on securities.
Each of Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE
Portfolios will receive a premium for writing a put option, which obligates the
Portfolio to acquire a security at a certain price at any time until a certain
date if the purchaser decides to exercise the option. The Portfolio may be
obligated to purchase the underlying security at more than its current value.
When Neuberger Berman MILLENNIUM or SOCIALLY RESPONSIVE
Portfolio purchases a put option, it pays a premium to the writer for the right
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to sell a security to the writer for a specified amount at any time until a
certain date. The Portfolio would purchase a put option in order to protect
itself against a decline in the market value of a security it owns.
Portfolio securities on which put options may be written and
purchased by Neuberger Berman MILLENNIUM or SOCIALLY RESPONSIVE Portfolio are
purchased solely on the basis of investment considerations consistent with the
Portfolio's investment objective. When writing a put option, the Portfolio, in
return for the premium, takes the risk that it must purchase the underlying
security at a price that may be higher than the current market price of the
security. If a put option that the Portfolio has written expires unexercised,
the Portfolio will realize a gain in the amount of the premium.
POLICIES AND LIMITATIONS. Each of Neuberger Berman MILLENNIUM
and SOCIALLY RESPONSIVE Portfolios generally writes and purchases put options on
securities for hedging purposes (I.E., to reduce, at least in part, the effect
of price fluctuations of securities held by the Portfolio on the Portfolio's and
its corresponding Fund's NAVs). The use of put options on securities by
Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not subject to the Social
Policy.
GENERAL INFORMATION ABOUT SECURITIES OPTIONS. The exercise
price of an option may be below, equal to, or above the market value of the
underlying security at the time the option is written. Options normally have
expiration dates between three and nine months from the date written.
American-style options are exercisable at any time prior to their expiration
date. The obligation under any option written by a Portfolio terminates upon
expiration of the option or, at an earlier time, when the Portfolio offsets the
option by entering into a "closing purchase transaction" to purchase an option
of the same series. If an option is purchased by a Portfolio and is never
exercised or closed out, the Portfolio will lose the entire amount of the
premium paid.
Options are traded both on U.S. national securities exchanges
and in the over-the-counter ("OTC") market. 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 a Portfolio and a counter-party, with no clearing organization
guarantee. Thus, when a 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 a Portfolio is
able to effect a closing purchase transaction in a covered OTC call option it
has written, it will not be able to liquidate securities used as cover until the
option expires or is exercised or until different cover is substituted. In the
event of the counter-party's insolvency, a Portfolio may be unable to liquidate
its options position and the associated cover. NB Management monitors the
creditworthiness of dealers with which a Portfolio may engage in OTC options
transactions.
The premium received (or paid) by a Portfolio when it writes
(or purchases) an option is the amount at which the option is currently traded
on the applicable market. The premium may reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying security, the length of the option period, the general supply of and
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demand for credit, and the interest rate environment. The premium received by a
Portfolio for writing an option is recorded as a liability on the Portfolio's
statement of assets and liabilities. This liability is adjusted daily to the
option's current market value.
Closing transactions are effected in order to realize a profit
(or minimize a loss) on an outstanding option, to prevent an underlying security
from being called, or to permit the sale or the put of the underlying security.
Furthermore, effecting a closing transaction permits Neuberger Berman MILLENNIUM
and SOCIALLY RESPONSIVE Portfolios to write another call option on the
underlying security with a different exercise price or expiration date, or both.
There is, of course, no assurance that a Portfolio will be able to effect
closing transactions at favorable prices. If a Portfolio cannot enter into such
a transaction, it may be required to hold a security that it might otherwise
have sold, in which case it would continue to be at market risk on the security.
A Portfolio will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or more than the
premium received from writing the call option. Because increases in the market
price of a call option generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset, in whole or in part, by appreciation of the underlying
security owned by the Portfolio; however, the Portfolio could be in a less
advantageous position than if it had not written the call option.
A Portfolio pays brokerage commissions or spreads in
connection with purchasing or writing options, including those used to close out
existing positions. From time to time, each of Neuberger Berman MILLENNIUM and
SOCIALLY RESPONSIVE Portfolios may purchase an underlying security for delivery
in accordance with an exercise notice of a call option assigned to it, rather
than delivering the security from its portfolio. In those cases, additional
brokerage commissions are incurred.
The hours of trading for options may not conform to the hours
during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets.
POLICIES AND LIMITATIONS. Each Portfolio may use
American-style options.
The assets used as cover (or held in a segregated account) for
OTC options written by a Portfolio will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Portfolio may
repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC call option
written subject to this procedure will be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
The use of put and call options by Neuberger Berman SOCIALLY
RESPONSIVE Portfolio is not subject to the Social Policy.
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PUT AND CALL OPTIONS ON SECURITIES INDICES (ALL PORTFOLIOS).
For purposes of managing cash flow, each Portfolio may purchase put and call
options on securities indices to increase the Portfolio's exposure to the
performance of a recognized securities index, such as the S&P 500 Index.
Unlike a securities option, which gives the holder the right
to purchase or sell a specified security at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (1) the difference between the exercise price of the
option and the value of the underlying securities index on the exercise date (2)
multiplied by a fixed "index multiplier." A securities index fluctuates with
changes in the market values of the securities included in the index. Options on
stock indices are currently traded on the Chicago Board Options Exchange, the
New York Stock Exchange ("NYSE"), the American Stock Exchange, and other U.S.
and foreign exchanges.
The effectiveness of hedging through the purchase of
securities index options will depend upon the extent to which price movements in
the securities being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by the Portfolio will not exactly match the composition
of the securities indices on which options are available.
Securities index options have characteristics and risks
similar to those of securities options, as discussed herein.
POLICIES AND LIMITATIONS. For purposes of managing cash flow,
each Portfolio may purchase put and call options on securities indices to
increase the Portfolio's exposure to the performance of a recognized securities
index, such as the S&P 500 Index. All securities index options purchased by a
Portfolio will be listed and traded on an exchange.
FOREIGN CURRENCY TRANSACTIONS (ALL PORTFOLIOS). Each Portfolio
may enter into contracts for the purchase or sale of a specific currency at a
future date (usually less than one year from the date of the contract) at a
fixed price ("forward contracts"). The Portfolios also may engage in foreign
currency exchange transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market.
The Portfolios enter into forward contracts in an attempt to
hedge against changes in prevailing currency exchange rates. The Portfolios do
not engage in transactions in forward contracts for speculation; they view
investments in forward contracts as a means of establishing more definitely the
effective return on, or the purchase price of, securities denominated in foreign
currencies. Forward contract transactions include forward sales or purchases of
foreign currencies for the purpose of protecting the U.S. dollar value of
securities held or to be acquired by a Portfolio or protecting the U.S. dollar
equivalent of dividends, interest, or other payments on those securities.
Forward contracts are traded in the interbank market directly
between dealers (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
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any stage for trades; foreign exchange dealers realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies.
At the consummation of a forward contract to sell currency, a
Portfolio may either make delivery of the foreign currency or terminate its
contractual obligation to deliver by purchasing an offsetting contract. If the
Portfolio chooses to make delivery of the foreign currency, it may be required
to obtain such currency through the sale of portfolio securities denominated in
such currency or through conversion of other assets of the Portfolio into such
currency. If the Portfolio engages in an offsetting transaction, it will incur a
gain or a loss to the extent that there has been a change in forward contract
prices. Closing purchase transactions with respect to forward contracts are
usually made with the currency dealer who is a party to the original forward
contract.
NB Management believes that the use of foreign currency
hedging techniques, including "proxy-hedges," can provide significant protection
of NAV in the event of a general rise in the U.S. dollar against foreign
currencies. For example, the return available from securities denominated in a
particular foreign currency would diminish if the value of the U.S. dollar
increased against that currency. Such a decline could be partially or completely
offset by an increase in value of a hedge involving a forward contract to sell
that foreign currency or a proxy-hedge involving a forward contract to sell a
different foreign currency whose behavior is expected to resemble the currency
in which the securities being hedged are denominated but which is available on
more advantageous terms.
However, a hedge or proxy-hedge cannot protect against
exchange rate risks perfectly, and, if NB Management is incorrect in its
judgment of future exchange rate relationships, a Portfolio could be in a less
advantageous position than if such a hedge had not been established. If a
Portfolio uses proxy-hedging, it may experience losses on both the currency in
which it has invested and the currency used for hedging if the two currencies do
not vary with the expected degree of correlation. Using forward contracts to
protect the value of a Portfolio's securities against a decline in the value of
a currency does not eliminate fluctuations in the prices of underlying
securities. Because forward contracts are not traded on an exchange, the assets
used to cover such contracts may be illiquid. A Portfolio may experience delays
in the settlement of its foreign currency transactions.
POLICIES AND LIMITATIONS. The Portfolios may enter into
forward contracts for the purpose of hedging and not for speculation. The use of
forward contracts by Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not
subject to the Social Policy.
OPTIONS ON FOREIGN CURRENCIES (ALL PORTFOLIOS). Each 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.
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POLICIES AND LIMITATIONS. A 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. The use of call options on currencies by
Neuberger Berman SOCIALLY RESPONSIVE Portfolio is not subject to the Social
Policy.
REGULATORY LIMITATIONS ON USING FINANCIAL INSTRUMENTS. To the
extent a Portfolio writes options on foreign currencies that are traded on an
exchange regulated by the Commodity Futures Trading Commission ("CFTC") other
than for BONA FIDE hedging purposes (as defined by the CFTC), the aggregate
initial margin and premiums on those positions (excluding the amount by which
options are "in-the-money") may not exceed 5% of the Portfolio's net assets.
COVER FOR FINANCIAL INSTRUMENTS. Securities held in a
segregated account cannot be sold while the options or forward strategy covered
by those securities is outstanding, unless they are replaced with other suitable
assets. As a result, segregation of a large percentage of a Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet current
obligations. A Portfolio may be unable to promptly dispose of assets which
cover, or are segregated with respect to, an illiquid options or forward
position; this inability may result in a loss to the Portfolio.
POLICIES AND LIMITATIONS. Each Portfolio will comply with SEC
guidelines regarding "cover" for Financial Instruments and, if the guidelines so
require, set aside in a segregated account with its custodian the prescribed
amount of cash or appropriate liquid securities.
GENERAL RISKS OF FINANCIAL INSTRUMENTS. The primary risks in
using Financial Instruments are (1) imperfect correlation or no correlation
between changes in market value of the securities or currencies held or to be
acquired by a Portfolio and the prices of Financial Instruments; (2) possible
lack of a liquid secondary market for Financial Instruments and the resulting
inability to close out Financial Instruments when desired; (3) the fact that the
skills needed to use Financial Instruments are different from those needed to
select a Portfolio's securities; (4) the fact that, although use of Financial
Instruments for hedging purposes can reduce the risk of loss, they also can
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments; and (5) the possible inability
of a Portfolio to purchase or sell a portfolio security at a time that would
otherwise be favorable for it to do so, or the possible need for a Portfolio to
sell a portfolio security at a disadvantageous time, due to its need to maintain
cover or to segregate securities in connection with its use of Financial
Instruments. There can be no assurance that a Portfolio's use of Financial
Instruments will be successful.
Each Portfolio's use of Financial Instruments may be limited
by the provisions of the Internal Revenue Code of 1986, as amended ("Code"),
with which it must comply if its corresponding Fund is to continue to qualify as
a regulated investment company ("RIC"). See "Additional Tax Information."
POLICIES AND LIMITATIONS. NB Management intends to reduce the
risk of imperfect correlation by investing only in Financial Instruments whose
behavior is expected to resemble or offset that of a Portfolio's underlying
securities or currency. NB Management intends to reduce the risk that a
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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 (ALL PORTFOLIOS). While the emphasis
of the Portfolios' investment programs is on common stocks and other equity
securities, the Portfolios may also invest in money market instruments, U.S.
Government and Agency Securities, and other fixed income securities. Each
Portfolio may invest in investment grade corporate bonds and debentures.
Neuberger Berman PARTNERS Portfolio may invest in corporate debt securities
rated below investment grade.
U.S. Government Securities are obligations of the U.S.
Treasury backed by the full faith 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 be supported by the issuer's ability to borrow from the U.S.
Treasury, subject to the Treasury's discretion in certain cases, or only by the
credit of the issuer. U.S. Government Agency Securities include U.S. Government
Agency mortgage-backed securities. The market prices of U.S. Government and
Agency Securities are not guaranteed by the Government.
"Investment grade" debt securities are those receiving one of
the four highest ratings from Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's ("S&P"), or another nationally recognized statistical rating
organization ("NRSRO") or, if unrated by any NRSRO, deemed by NB Management to
be comparable to such rated securities ("Comparable Unrated Securities").
Securities rated by Moody's in its fourth highest rating category (Baa) or
Comparable Unrated Securities may be deemed to have speculative characteristics.
The ratings of an NRSRO represent its opinion as to the
quality of securities it undertakes to rate. Ratings are not absolute standards
of quality; consequently, securities with the same maturity, coupon, and rating
may have different yields. Although the Portfolios may rely on the ratings of
any NRSRO, the Portfolios primarily refer to ratings assigned by S&P and
Moody's, which are described in Appendix A to this SAI.
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and market
liquidity ("market risk"). The value of the fixed income securities in which a
Portfolio may invest is likely to decline in times of rising market interest
rates. Conversely, when rates fall, the value of a Portfolio's fixed income
investments is likely to rise. Foreign debt securities are subject to risks
similar to those of other foreign securities.
Lower-rated securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
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rates. Debt securities in the lowest rating categories may involve a substantial
risk of default or may be in default. Changes in economic conditions or
developments regarding the individual issuer are more likely to cause price
volatility and weaken the capacity of the issuer of such securities to make
principal and interest payments than is the case for higher-grade debt
securities. An economic downturn affecting the issuer may result in an increased
incidence of default. The market for lower-rated securities may be thinner and
less active than for higher-rated securities. Pricing of thinly traded
securities requires greater judgment than pricing of securities for which market
transactions are regularly reported. NB Management will invest in lower-rated
securities only when it concludes that the anticipated return on such an
investment to Neuberger Berman PARTNERS Portfolio warrants exposure to the
additional level of risk.
POLICIES AND LIMITATIONS. Each Portfolio normally may invest
up to 35% of its total assets in debt securities. Neuberger Berman PARTNERS
Portfolio may invest up to 15% of its net assets in corporate debt securities
rated below investment grade or Comparable Unrated Securities.
Subsequent to its purchase by a Portfolio, an issue of debt
securities may cease to be rated or its rating may be reduced, so that the
securities would no longer be eligible for purchase by that Portfolio. In such a
case, Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE Portfolios will engage
in an orderly disposition of the downgraded securities. Each other Portfolio
will engage in an orderly disposition of the downgraded securities to the extent
necessary to ensure that the Portfolio's holdings of securities rated below
investment grade and Comparable Unrated Securities will not exceed 5% of its net
assets (15% in the case of Neuberger Berman PARTNERS Portfolio).
COMMERCIAL PAPER (ALL PORTFOLIOS). Commercial paper is a
short-term debt security issued by a corporation or bank, usually for purposes
such as financing current operations.
Each Portfolio may invest in commercial paper that cannot be
resold to the public without an effective registration statement under the 1933
Act. While restricted commercial paper normally is deemed illiquid, NB
Management may in certain cases determine that such paper is liquid, pursuant to
guidelines established by the Portfolio Trustees.
POLICIES AND LIMITATIONS. The Portfolios may invest in
commercial paper only if it has received the highest rating from S&P (A-1) or
Moody's (P-1) or is deemed by NB Management to be of comparable quality.
ZERO COUPON SECURITIES (NEUBERGER BERMAN PARTNERS, MILLENNIUM
AND SOCIALLY RESPONSIVE PORTFOLIOS). These Portfolios may invest in zero coupon
securities, which are debt obligations that do not entitle the holder to any
periodic payment of interest prior to maturity or that specify a future date
when the securities begin to pay current interest. Zero coupon securities are
issued and traded at a discount from their face amount or par value. This
discount varies depending on prevailing interest rates, the time remaining until
cash payments begin, the liquidity of the security, and the perceived credit
quality of the issuer.
The discount on zero coupon securities ("original issue
discount") must be taken into income ratably by each such Portfolio prior to the
receipt of any actual payments. Because the corresponding fund must distribute
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substantially all of its net income (including its share of the Portfolio's
accrued original issue discount) to its shareholders each year for income and
excise tax purposes, each such Portfolio may have to dispose of portfolio
securities under disadvantageous circumstances to generate cash, or may be
required to borrow, to satisfy that Fund's distribution requirements. See
"Additional Tax Information."
The market prices of zero coupon securities generally are more
volatile than the prices of securities that pay interest periodically. Zero
coupon securities are likely to respond to changes in interest rates to a
greater degree than other types of debt securities having a similar maturity and
credit quality.
CONVERTIBLE SECURITIES (ALL PORTFOLIOS). Each Portfolio may
invest in convertible securities. A convertible security is a bond, debenture,
note, preferred stock, or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or different issuer within a
particular period of time at a specified price or formula. Convertible
securities generally have features of both common stocks and debt securities. A
convertible security entitles the holder to receive the interest paid or accrued
on debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, such
securities ordinarily provide a stream of income with generally higher yields
than common stocks of the same or similar issuers, but lower than the yield on
non-convertible debt. Convertible securities are usually subordinated to
comparable-tier non-convertible securities but rank senior to common stock in a
corporation's capital structure. The value of a convertible security is a
function of (1) its yield in comparison to the yields of other securities of
comparable maturity and quality that do not have a conversion privilege and (2)
its worth if converted into the underlying common stock.
The price of a convertible security often reflects variations
in the price of the underlying common stock in a way that non-convertible debt
may not. Convertible securities are typically issued by smaller capitalization
companies whose stock prices may be volatile. A convertible security may be
subject to redemption at the option of the issuer at a price established in the
security's governing instrument. If a convertible security held by a Portfolio
is called for redemption, the Portfolio will be required to convert it into the
underlying common stock, sell it to a third party or permit the issuer to redeem
the security. Any of these actions could have an adverse effect on the
Portfolio's and its corresponding Fund's ability to achieve their investment
objectives.
POLICIES AND LIMITATIONS. Neuberger Berman SOCIALLY RESPONSIVE
Portfolio may invest up to 20% of its net assets in convertible securities. The
Portfolio does not intend to purchase any convertible securities that are not
investment grade. Convertible debt securities are subject to each Portfolio's
investment policies and limitations concerning fixed income securities.
PREFERRED STOCK (ALL PORTFOLIOS). Each Portfolio may invest in
preferred stock. Unlike interest payments on debt securities, dividends on
preferred stock are generally payable at the discretion of the issuer's board of
directors. Preferred shareholders may have certain rights if dividends are not
paid but generally have no legal recourse against the issuer. Shareholders may
suffer a loss of value if dividends are not paid. The market prices of preferred
stocks are generally more sensitive to changes in the issuer's creditworthiness
than are the prices of debt securities.
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OTHER INVESTMENT COMPANIES. For purposes of managing cash
flow, each Portfolio at times may invest in instruments structured as investment
companies to gain exposure to the performance of a recognized securities index,
such as the S&P 500.
As a shareholder in an investment company, a Portfolio would
bear its pro rata share of that investment company's expenses. Investment in
other funds may involve the payment of substantial premiums above the value of
such issuer's portfolio securities. The Portfolios do not intend to invest in
such funds unless, in the judgment of NB Management, the potential benefits of
such investment justify the payment of any applicable premium or sales charge.
POLICIES AND LIMITATIONS. Each Portfolio's investment in such
securities is limited to (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Portfolio's total assets with respect to any one
investment company and (iii) 10% of the Portfolio's total assets in the
aggregate.
NEUBERGER BERMAN FOCUS PORTFOLIO - DESCRIPTION OF ECONOMIC SECTORS.
- -------------------------------------------------------------------
Neuberger Berman FOCUS Portfolio seeks to achieve its
investment objective by investing principally in common stocks in the following
thirteen multi-industry economic sectors, normally making at least 90% of its
investments in not more than six such sectors:
(1) AUTOS AND HOUSING SECTOR: Companies engaged in design, production,
or sale of automobiles, automobile parts, mobile homes, or related products
("automobile industries") or design, construction, renovation, or refurbishing
of residential dwellings. The value of securities of companies in the automobile
industries is affected by, among other things, foreign competition, the level of
consumer confidence and consumer debt, and installment loan rates. The housing
construction industry may be affected by the level of consumer confidence and
consumer debt, mortgage rates, tax laws, and the inflation outlook.
(2) CONSUMER GOODS AND SERVICES SECTOR: Companies engaged in providing
consumer goods or services, including design, processing, production, sale, or
storage of packaged, canned, bottled, or frozen foods and beverages and design,
production, or sale of home furnishings, appliances, clothing, accessories,
cosmetics, or perfumes. Certain of these companies are subject to government
regulation affecting the use of various food additives and production methods,
which could affect profitability. Also, the success of food- and fashion-related
products may be strongly affected by fads, marketing campaigns, health concerns,
and other factors affecting supply and demand.
(3) DEFENSE AND AEROSPACE SECTOR: Companies engaged in research,
manufacture, or sale of products or services related to the defense or aerospace
industries, including air transport; data processing or computer-related
services; communications systems; military weapons or transportation; general
aviation equipment, missiles, space launch vehicles, or spacecraft; machinery
for guidance, propulsion, or control of flight vehicles; and airborne or
ground-based equipment essential to the test, operation, or maintenance of
flight vehicles. Because these companies rely largely on U.S. (and foreign)
governmental demand for their products and services, their financial conditions
are heavily influenced by defense spending policies.
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(4) ENERGY SECTOR: Companies involved in the production, transmission,
or marketing of energy from oil, gas, or coal, as well as nuclear, geothermal,
oil shale, or solar sources of energy (but excluding public utility companies).
Also included are companies that provide component products or services for
those activities. The value of these companies' securities varies based on the
price and supply of energy fuels and may be affected by international politics,
energy conservation, the success of exploration projects, environmental
considerations, and the tax and other regulatory policies of various
governments.
(5) FINANCIAL SERVICES SECTOR: Companies providing financial services
to consumers or industry, including commercial banks and savings and loan
associations, consumer and industrial finance companies, securities brokerage
companies, leasing companies, and insurance companies. These companies are
subject to extensive governmental regulations. Their profitability may fluctuate
significantly as a result of volatile interest rates, concerns about particular
banks and savings institutions, and general economic conditions.
(6) HEALTH CARE SECTOR: Companies engaged in design, manufacture, or
sale of products or services used in connection with the provision of health
care, including pharmaceutical companies; firms that design, manufacture, sell,
or supply medical, dental, or optical products, hardware, or services; companies
involved in biotechnology, medical diagnostic, or biochemical research and
development; and companies that operate health care facilities. Many of these
companies are subject to government regulation and potential health care
reforms, which could affect the price and availability of their products and
services. Also, products and services of these companies could quickly become
obsolete.
(7) HEAVY INDUSTRY SECTOR: Companies engaged in research, development,
manufacture, or marketing of products, processes, or services related to the
agriculture, chemicals, containers, forest products, non-ferrous metals, steel,
or pollution control industries, including synthetic and natural materials (for
example, chemicals, plastics, fertilizers, gases, fibers, flavorings, or
fragrances), paper, wood products, steel, and cement. Certain of these companies
are subject to state and federal regulation, which could require alteration or
cessation of production of a product, payment of fines, or cleaning of a
disposal site. Furthermore, because some of the materials and processes used by
these companies involve hazardous components, there are additional risks
associated with their production, handling, and disposal. The risk of product
obsolescence also is present.
(8) MACHINERY AND EQUIPMENT SECTOR: Companies engaged in the research,
development, or manufacture of products, processes, or services relating to
electrical equipment, machinery, pollution control, or construction services,
including transformers, motors, turbines, hand tools, earth-moving equipment,
and waste disposal services. The profitability of most of these companies may
fluctuate significantly in response to capital spending and general economic
conditions. As is the case for the heavy industry sector, there are risks
associated with the production, handling, and disposal of materials and
processes that involve hazardous components and the risk of product
obsolescence.
33
<PAGE>
(9) MEDIA AND ENTERTAINMENT SECTOR: Companies engaged in design,
production, or distribution of goods or services for the media industries
(including television or radio broadcasting or manufacturing, publishing,
recordings and musical instruments, motion pictures, and photography) and the
entertainment industries (including sports arenas, amusement and theme parks,
gaming casinos, sporting goods, camping and recreational equipment, toys and
games, travel-related services, hotels and motels, and fast food and other
restaurants). Many products produced by companies in this sector --for example,
video and electronic games --may become obsolete quickly. Additionally,
companies engaged in television and radio broadcast are subject to government
regulation.
(10) RETAILING SECTOR: Companies engaged in retail distribution of home
furnishings, food products, clothing, pharmaceuticals, leisure products, or
other consumer goods, including department stores, supermarkets, and retail
chains specializing in particular items such as shoes, toys, or pharmaceuticals.
The value of these companies' securities fluctuates based on consumer spending
patterns, which depend on inflation and interest rates, the level of consumer
debt, and seasonal shopping habits. The success or failure of a company in this
highly competitive sector depends on its ability to predict rapidly changing
consumer tastes.
(11) TECHNOLOGY SECTOR: Companies that are expected to have or develop
products, processes, or services that will provide, or will benefit
significantly from, technological advances and improvements or future automation
trends, including semiconductors, computers and peripheral equipment, scientific
instruments, computer software, telecommunications equipment, and electronic
components, instruments, and systems. These companies are sensitive to foreign
competition and import tariffs. Also, many of their products may become obsolete
quickly.
(12) TRANSPORTATION SECTOR: Companies involved in providing
transportation of people and products, including airlines, railroads, and
trucking firms. Revenues of these companies are affected by fluctuations in fuel
prices and government regulation of fares.
(13) UTILITIES SECTOR: Companies in the public utilities industry and
companies that derive a substantial majority of their revenues through supplying
public utilities (including companies engaged in the manufacture, production,
generation, transmission, or sale of gas and electric energy) and that provide
telephone, telegraph, satellite, microwave, and other communication facilities
to the public. The gas and electric public utilities industries are subject to
various uncertainties, including the outcome of political issues concerning the
environment, prices of fuel for electric generation, availability of natural
gas, and risks associated with the construction and operation of nuclear power
facilities.
NEUBERGER BERMAN SOCIALLY RESPONSIVE PORTFOLIO - DESCRIPTION OF SOCIAL POLICY
- -----------------------------------------------------------------------------
BACKGROUND INFORMATION ON SOCIALLY RESPONSIVE INVESTING
In an era when many people are concerned about the
relationship between business and society, socially responsive investing ("SRI")
is a mechanism for assuring that investors' social values are reflected in their
investment decisions. As such, SRI is a direct descendent of the successful
effort begun in the early 1970's to encourage companies to divest their South
African operations and subscribe to the Sullivan Principles. Today, a growing
34
<PAGE>
number of individuals and institutions are applying similar strategies to a
broad range of problems.
Although there are many strategies available to the socially
responsive investor, including proxy activism, below-market loans to community
projects, and venture capital, the SRI strategies used by the Portfolio
generally fall into two categories:
AVOIDANCE INVESTING. Most socially responsive investors seek
to avoid holding securities of companies whose products or policies are seen as
being at odds with the social good. The most common exclusions historically have
involved tobacco companies and weapons manufacturers.
LEADERSHIP INVESTING. A growing number of investors actively
look for companies with progressive programs that are exemplary or companies
which make it their business to try to solve some of the problems of today's
society.
The marriage of social and financial objectives would not have
surprised Adam Smith, who was, first and foremost, a moral philosopher. THE
WEALTH OF NATIONS is firmly rooted in the Enlightenment conviction that the
purpose of capital is the social good and the related belief that idle capital
is both wasteful and unethical. But, what very likely would have surprised Smith
is the sheer complexity of the social issues we face today and the diversity of
our attitudes toward the social good. War and peace, race and gender, the
distribution of wealth, and the conservation of natural resources -- the social
agenda is long and compelling. It is also something about which reasonable
people differ. What should society's priorities be? What can and should be done
about them? And what is the role of business in addressing them? Since
corporations are on the front lines of so many key issues in today's world, a
growing number of investors feel that a corporation's role cannot be ignored.
This is true of some of the most important issues of the day such as equal
opportunity and the environment.
THE SOCIALLY RESPONSIVE DATABASE
Neuberger Berman, LLC ("Neuberger Berman"), the Portfolio's
sub-adviser, maintains a database of information about the social impact of the
companies it follows. NB Management uses the database to evaluate social issues
after it deems a stock acceptable from a financial standpoint for acquisition by
the Portfolio. The aim of the database is to be as comprehensive as possible,
given that much of the information concerning corporate responsibility comes
from subjective sources. Information for the database is gathered by Neuberger
Berman in many categories and then analyzed by NB Management in the following
six categories of corporate responsibility:
WORKPLACE DIVERSITY AND EMPLOYMENT. NB Management looks for
companies that show leadership in areas such as employee training and promotion
policies and benefits, such as flextime, generous profit sharing, and parental
leave. NB Management looks for active programs to promote women and minorities
and takes into account their representation among the officers of an issuer and
members of its board of directors. As a basis for exclusion, NB Management looks
for Equal Employment Opportunity Act infractions and Occupational Safety and
Health Act violations; examines each case in terms of severity, frequency, and
35
<PAGE>
time elapsed since the incident; and considers actions taken by the company
since the violation. NB Management also monitors companies' progress and
attitudes toward these issues.
ENVIRONMENT. A company's impact on the environment depends
largely on the industry. Therefore, NB Management examines a company's
environmental record vis-a-vis those of its peers in the industry. All companies
operating in an industry with inherently high environmental risks are likely to
have had problems in such areas as toxic chemical emissions, federal and state
fines, and Superfund sites. For these companies, NB Management examines their
problems in terms of severity, frequency, and elapsed time. NB Management then
balances the record against whatever leadership the company may have
demonstrated in terms of environmental policies, procedures, and practices. NB
Management defines an environmental leadership company as one that puts into
place strong affirmative programs to minimize emissions, promote safety, reduce
waste at the source, insure energy conservation, protect natural resources, and
incorporate recycling into its processes and products. NB Management looks for
the commitment and active involvement of senior management in all these areas.
Several major manufacturers which still produce substantial amounts of pollution
are among the leaders in developing outstanding waste source reduction and
remediation programs.
PRODUCT. NB Management considers company announcements, press
reports, and public interest publications relating to the health, safety,
quality, labeling, advertising, and promotion of both consumer and industrial
products. NB Management takes note of companies with a strong commitment to
quality and with marketing practices which are ethical and consumer-friendly. NB
Management pays particular attention to companies whose products and services
promote progressive solutions to social problems.
PUBLIC HEALTH. NB Management measures the participation of
companies in such industries and markets as alcohol, tobacco, gambling and
nuclear power. NB Management also considers the impact of products and marketing
activities related to those products on nutritional and other health concerns,
both domestically and in foreign markets.
WEAPONS. NB Management keeps track of domestic military sales
and, whenever possible, foreign military sales and categorizes them as nuclear
weapons related, other weapons related, and non-weapon military supplies, such
as micro-chip manufacturers and companies that make uniforms for military
personnel.
CORPORATE CITIZENSHIP. NB Management gathers information about
a company's participation in community affairs, its policies with respect to
charitable contributions, and its support of education and the arts. NB
Management looks for companies with a focus, dealing with issues not just by
making financial contributions, but also by asking the questions: What can we do
to help? What do we have to offer? Volunteerism, high-school mentoring programs,
scholarships and grants, and in-kind donations to specific groups are just a few
ways that companies have responded to these questions.
36
<PAGE>
IMPLEMENTATION OF SOCIAL POLICY
Companies deemed acceptable by NB Management from a financial
standpoint are analyzed using Neuberger Berman's database. The companies are
then evaluated by the portfolio manager to determine if the companies' policies,
practices, products, and services withstand scrutiny in the following major
areas of concern: the environment and workplace diversity and employment.
Companies are then further evaluated to determine their track record in issues
and areas of concern such as public health, weapons, product, and corporate
citizenship.
The issues and areas of concern that are tracked lend
themselves to objective analysis in varying degrees. Few, however, can be
resolved entirely on the basis of scientifically demonstrable facts. Moreover, a
substantial amount of important information comes from sources that do not
purport to be disinterested. Thus, the quality and usefulness of the information
in the database depend on Neuberger Berman's ability to tap a wide variety of
sources and on the experience and judgment of the people at NB Management who
interpret the information.
In applying the information in the database to stock selection
for the Portfolio, NB Management considers several factors. NB Management
examines the severity and frequency of various infractions, as well as the time
elapsed since their occurrence. NB Management also takes into account any
remedial action which has been taken by the company relating to these
infractions. NB Management notes any quality innovations made by the company in
its effort to create positive change and looks at the company's overall approach
to social issues.
PERFORMANCE INFORMATION
Each Fund's performance figures are based on historical
results and are not intended to indicate future performance. The share price and
total return of each Fund will vary, and an investment in a Fund, when redeemed,
may be worth more or less than an investor's original cost.
TOTAL RETURN COMPUTATIONS
- -------------------------
Each Fund may advertise certain total return information. An
average annual compounded rate of return ("T") may be computed by using the
redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment of $1,000 ("P") over a period of time ("n") according to the
formula:
P(1+T)n = ERV
Average annual total return smoothes out year-to-year
variations in performance and, in that respect, differs from actual year-to-year
results.
The Funds commenced operations in August or September 1996,
except for Neuberger Berman GENESIS Assets, which commenced operations in April
1997, and Neuberger Berman MILLENNIUM Assets, which commenced operations on
37
<PAGE>
December 1, 1999. However, six mutual funds that are series of Neuberger Berman
Equity Funds ("Equity Funds"), each of which has a name similar to a Fund and
the same investment objective, policies, and limitations as that Fund ("Sister
Fund"), also invest in the six Portfolios described herein. Each Sister Fund had
a predecessor. The following total return data is for each Fund since its
inception and, for periods prior to each Fund's inception, its Sister Fund
(which, as used herein, includes data for that Sister Fund's predecessor). The
Sister Funds have a different fee structure than the Funds and do not pay 12b-1
fees. Had the higher fees of the Funds been reflected, the total returns shown
below would have been lower.
Average Annual Total Returns
Periods Ended 8/31/1999
ONE YEAR FIVE YEARS TEN YEARS PERIOD FROM INCEPTION
MANHATTAN +36.09% +15.31% +12.04% +16.70%
GENESIS +18.75% +15.07% +11.35% +13.05%
FOCUS +43.15% +17.39% +14.69% +12.23%
GUARDIAN +25.25% +12.28% +12.16% +12.80%
PARTNERS +25.51% +17.81% +13.86% +17.54%
SOCIALLY RESPONSIVE +36.80% +19.16% N/A +17.55%
Prior to January 5, 1989, the investment policies of Neuberger
Berman FOCUS Assets' Sister Fund required that at least 80% of its investments
normally be in energy-related investments; prior to November 1, 1991, those
investment policies required that at least 25% of its investments normally be in
the energy sector. Neuberger Berman FOCUS Assets may include information
reflecting the Sister Fund's performance and expenses for periods before
November 1, 1991, in its advertisements, sales literature, financial statements,
and other documents filed with the SEC and/or provided to current and
prospective shareholders. Investors should be aware that such information may
not necessarily reflect the level of performance and expenses that would have
been experienced had the Fund's current investment policies been in effect.
NB Management may from time to time waive a portion of its
fees due from any Fund or Portfolio or reimburse a Fund or Portfolio for a
portion of its expenses. Such action has the effect of increasing total return.
Actual reimbursements and waivers are described in the Prospectus and in
"Investment Management and Administration Services" below.
COMPARATIVE INFORMATION
- -----------------------
From time to time each Fund's performance may be compared
with:
(1) data (that may be expressed as rankings or ratings)
published by independent services or publications (including
newspapers, newsletters, and financial periodicals) that monitor the
performance of mutual funds, such as Lipper Analytical Services, Inc.,
C.D.A. Investment Technologies, Inc., Wiesenberger Investment Companies
38
<PAGE>
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 Growth 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 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. Each Portfolio may invest in different types of securities
from those included in some of the above indices.
Neuberger Berman SOCIALLY RESPONSIVE Assets' performance may
also be compared to various socially responsive indices. These include The
Domini Social Index and the indices developed by the quantitative department of
Prudential Securities, such as that department's Large and Mid-Cap portfolio
indices for various breakdowns ("Sin" Stock Free, Cigarette-Stock Free, S&P
Composite, etc.).
Evaluations of the Funds' performance, their total returns,
and comparisons may be used in advertisements and in information furnished to
current and prospective shareholders (collectively, "Advertisements"). The Funds
may also be compared to individual asset classes such as common stocks,
small-cap stocks, or Treasury bonds, based on information supplied by Ibbotson
and Sinquefield.
OTHER PERFORMANCE INFORMATION
- -----------------------------
From time to time, information about a Portfolio's portfolio
allocation and holdings as of a particular date may be included in
Advertisements for the corresponding Fund. This information may include the
Portfolio's portfolio diversification by asset type, or in the case of Neuberger
Berman SOCIALLY RESPONSIVE Portfolio, by the social characteristics of companies
owned. Information used in Advertisements may include statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed to meet specific financial goals, such as (1)
funding retirement, (2) paying for children's education, and (3) financially
supporting aging parents.
39
<PAGE>
NB Management believes that many of its common stock funds may
be attractive investment vehicles for conservative investors who are interested
in long-term appreciation from stock investments, but who have a moderate
tolerance for risk. Such investors may include, for example, individuals (1)
planning for or facing retirement, (2) receiving or expecting to receive
lump-sum distributions from individual retirement accounts ("IRAs"),
self-employed individual retirement plans ("Keogh plans", or other retirement
plans, (3) anticipating rollovers of CDs or IRAs, Keogh plans, or other
retirement plans, and (4) receiving a significant amount of money as a result of
inheritance, sale of a business, or termination of employment.
Investors who may find Neuberger Berman PARTNERS Assets,
Neuberger Berman GUARDIAN Assets or Neuberger Berman FOCUS Assets 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 (including tuition, room and board, books and other expenses) for students
starting college in various years may be included in Advertisements, based on
the College Board Annual Survey of Colleges.
Information relating to inflation and its effects on the
dollar also may be included in Advertisements. For example, after ten years, the
purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465, and
$12,100, respectively, if the annual rates of inflation during that period were
4%, 5%, 6%, and 7%, respectively. (To calculate the purchasing power, the value
at the end of each year is reduced by the inflation rate for the ten-year
period.)
Information regarding the effects of investing at market highs and/or
lows, and investing early versus late for retirement plans also may be included
in Advertisements, if appropriate.
CERTAIN RISK CONSIDERATIONS
Although each Portfolio seeks to reduce risk by investing in a
diversified portfolio of securities, diversification does not eliminate all
risk. There can, of course, be no assurance that any Portfolio will achieve its
investment objective.
TRUSTEES AND OFFICERS
The following table sets forth information concerning the
trustees and officers of the 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").
40
<PAGE>
<TABLE>
<CAPTION>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
---------- --------------- --------------------------
<S> <C> <C>
Claudia A. Brandon (43) Secretary of each Trust Employee of Neuberger Berman
since 1999; Vice President of NB
Management from 1986 to 1999;
Secretary of nine other mutual
funds for which NB Management
acts as investment manager or
administrator.
Faith Colish (64) Trustee of each Trust Attorney at Law, Faith Colish, A
63 Wall Street Professional Corporation.
24th Floor
New York, NY 10005
Stacy Cooper-Shugrue (37) Assistant Secretary of each Employee of Neuberger Berman
Trust since 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.
Barbara DiGiorgio (41) Assistant Treasurer of each Employee NB Management; Assistant
Trust Vice President of NB Management
from 1993 to 1999; Assistant
Treasurer since 1996 of nine other
mutual funds for which NB
Management acts as 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
WHX Corporation Counsel to WHX Corporation
110 East 59th Street (holding company) since 1992;
30th Floor Director of Kevlin Corporation
New York, NY 10022 (manufacturer of microwave and
other products).
41
<PAGE>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
---------- --------------- --------------------------
<S> <C> <C>
Edward I. O'Brien* (71) Trustee of each Trust Until 1993, President of the
12 Woods Lane Securities Industry Association
Scarsdale, NY 10583 ("SIA") (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).
John P. Rosenthal (67) Trustee of each Trust Senior Vice President of
Burnham Securities Inc. Burnham Securities Inc. (a
Burnham Asset Management registered broker-dealer) since
Corp. 1991; Director, Cancer Treatment
1325 Avenue of the Americas Holdings, Inc.
17th Floor
New York, NY 10019
Cornelius T. Ryan (68) Trustee of each Trust General Partner of Oxford
Oxford Bioscience Partners and Oxford Bioscience
Partners Partners (venture capital
315 Post Road West partnerships) and President of
Westport, CT 06880 Oxford Venture Corporation;
Director of Capital Cash
Management Trust (money
market fund) and Prime Cash
Fund.
Richard Russell (54) Treasurer and Principal Employee of NB Management since
Accounting Officer of each 1993; Treasurer and Principal
Trust Accounting Officer of nine other
mutual funds for which NB Management
acts as investment manager or
administrator.
42
<PAGE>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
---------- --------------- --------------------------
<S> <C> <C>
Gustave H. Shubert (71) Trustee of each Trust Senior Fellow/Corporate
13838 Sunset Boulevard Advisor and Advisory Trustee of
Pacific Palisades, CA 90272 Rand (a 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.
Daniel J. Sullivan (60) Vice President of each Trust Senior Vice President of NB
Management since 1992; Vice
President of nine other mutual
funds for which NB Management
acts as investment manager or
administrator.
43
<PAGE>
Name, Age, and Positions Held
Address(1) With the Trusts Principal Occupation(s)(2)
---------- --------------- --------------------------
<S> <C> <C>
Peter E. Sundman* (40) Chairman of the Board, Executive Vice President and
Chief Executive Officer, and Director of Neuberger Berman,
Trustee of each Trust Inc. (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 Principal of Neuberger Berman
Financial Officer of each from 1998-99; Senior Vice
Trust President of NB since 1992;
Treasurer of NB Management
from 1992 to 1996; 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 each Employee of NB Management;
Trust Assistant Treasurer since 1996 of
nine other mutual funds for
which NB Management acts as
investment manager or
administrator.
</TABLE>
44
<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 each Trust within the
meaning of the 1940 Act. Mr. Sundman and Mr. 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
Portfolios and other funds for which NB Management serves as investment manager.
The Trust's Trust Instrument and Managers Trust's Declaration
of Trust provide that each such Trust will indemnify its trustees and officers
against liabilities and expenses reasonably incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, unless it is adjudicated that they (a) engaged in bad faith, willful
misfeasance, gross negligence, or reckless disregard of the duties involved in
the conduct of their offices, or (b) did not act in good faith in the reasonable
belief that their action was in the best interest of the Trust. In the case of
settlement, such indemnification will not be provided unless it has been
determined (by a court or other body approving the settlement or other
disposition, by a majority of disinterested trustees based upon a review of
readily available facts, or in a written opinion of independent counsel) that
such officers or trustees have not engaged in willful misfeasance, bad faith,
gross negligence, or reckless disregard of their duties.
The following table sets forth information concerning the
compensation of the trustees of the Trust. None of the Neuberger Berman Funds(R)
has any retirement plan for its trustees.
<TABLE>
<CAPTION>
TABLE OF COMPENSATION
FOR FISCAL YEAR ENDED 8/31/99
-----------------------------
Aggregate Total Compensation from Investment
Compensation Companies in the Neuberger Berman
Name and Position with the Trust from the Fund Complex Paid to Trustee
- ------------------------------- Trust ----------------------------
-----
<S> <C> <C>
Faith Colish $339 $96,500
Trustee (5 other investment companies)
Stanley Egener* $ 0 $ 0
Chairman of the Board, Chief (9 other investment companies)
Executive Officer, and Trustee
Howard A. Mileaf $346 $64,250
Trustee (4 other investment companies)
45
<PAGE>
Aggregate Total Compensation from Investment
Compensation Companies in the Neuberger Berman
Name and Position with the Trust from the Fund Complex Paid to Trustee
- ------------------------------- Trust ----------------------------
-----
<S> <C> <C>
Edward I. O'Brien $359 $61,750
Trustee (3 other investment companies)
John T. Patterson, Jr. $364 $66,500
Trustee (4 other investment companies)
John P. Rosenthal $349 $64,250
Trustee (4 other investment companies)
Cornelius T. Ryan $318 $52,750
Trustee (3 other investment companies)
Gustave H. Shubert $344 $59,500
Trustee (3 other investment companies)
Lawrence Zicklin* $ 0 $ 0
President and Trustee (5 other investment companies)
*Retired, October 27, 1999
</TABLE>
At November 22, 1999, the trustees and officers of the Trusts,
as a group, owned beneficially or of record less than 1% of the outstanding
shares of each Fund.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
INVESTMENT MANAGER AND ADMINISTRATOR
- ------------------------------------
Because all of the Funds' net investable assets are invested
in their corresponding Portfolios, the Funds do not need an investment manager.
NB Management serves as the Portfolios' investment manager pursuant to a
management agreement with Managers Trust, dated as of August 2, 1993 ("EMT
Management Agreement").
The Management Agreement was approved for each Portfolio
(except Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE Portfolios) by the
Portfolio Trustees, including a majority of the Portfolio Trustees who were not
"interested persons" of NB Management or Managers Trust ("Independent Portfolio
Trustees"), on July 15, 1993, and for Neuberger Berman MILLENIUM and SOCIALLY
RESPONSIVE Portfolios on July 29, 1998 and October 20, 1993, respectively. The
Management Agreement was approved by the holders of the interests in all the
46
<PAGE>
Portfolios (except Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE
Portfolios) on August 2, 1993, and by the holders of the interests in Neuberger
Berman MILLENNIUM and SOCIALLY RESPONSIVE Portfolios on October 19, 1998 and
March 9, 1994, respectively.
The Management Agreement provides, in substance, that NB
Management will make and implement investment decisions for the Portfolios in
its discretion and will continuously develop an investment program for the
Portfolios' assets. The Management Agreement permits NB Management to effect
securities transactions on behalf of each 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 Portfolios, although NB
Management has no current plans to pay a material amount of such compensation.
NB Management provides to each Portfolio, without separate
cost, office space, equipment, and facilities and the personnel necessary to
perform executive, administrative, and clerical functions. NB Management pays
all salaries, expenses, and fees of the officers, trustees, and employees of
Managers Trust who are officers, directors, or employees of NB Management. One
director of NB Management (who is also an officer and/or director of Neuberger
Berman), serves as an officer of NB Management, and presently serves as a
trustee and officer of the Trusts. See "Trustees and Officers." Each Portfolio
pays NB Management a management fee based on the Portfolio's average daily net
assets, as described below.
NB Management provides facilities, services and personnel to
each Fund pursuant to an administration agreement with the Trust, dated November
1, 1994, as amended August 2, 1996 and January 1, 1999 ("Administration
Agreement"). For such administrative services, each Fund pays NB Management a
fee based on the Fund's average daily net assets, as described below.
NB Management enters into administrative services agreements
with Institutions, pursuant to which it compensates Institutions for accounting,
recordkeeping and other services that they provide in connection with
investments in the Funds.
Institutions may be subject to federal or state laws that
limit their ability to provide certain administrative or distribution related
services. For example, the Glass-Steagall Act is generally interpreted to
prohibit most banks from underwriting mutual fund shares. NB Management intends
to contract with Institutions for only those services they may legally provide.
If, due to a change in the laws governing Institutions or in the interpretation
of any such law, an Institution is prohibited from performing some or all of the
above-described services, NB Management may be required to find alternative
means of providing those services. Any such change is not expected to impact the
Funds or their shareholders adversely.
MANAGEMENT AND ADMINISTRATION FEES
----------------------------------
NB Management provides investment management services to each Portfolio
that include, among other things, making and implementing investment decisions
and providing facilities and personnel necessary to operate the Portfolio. For
investment management services, each Portfolio (except Neuberger Berman GENESIS
and MILLENNIUM Portfolios) pays NB Management a fee at the annual rate of 0.55%
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<PAGE>
of the first $250 million of that Portfolio's average daily net assets, 0.525%
of the next $250 million, 0.50% of the next $250 million, 0.475% of the next
$250 million, 0.45% of the next $500 million, and 0.425% of average daily net
assets in excess of $1.5 billion. Neuberger Berman GENESIS and MILLENNIUM
Portfolio each pay NB Management a fee for investment management services at the
annual rate of 0.85% of the first $250 million of the Portfolio's average daily
net assets, 0.80% of the next $250 million, 0.75% of the next $250 million,
0.70% of the next $250 million, and 0.65% of average daily net assets in excess
of $1 billion.
NB Management provides administrative services to each Fund that
include furnishing facilities and personnel for the Fund and performing
accounting, recordkeeping, and other services. For such administrative services,
each Fund pays NB Management a fee at the annual rate of 0.40% of that Fund's
average daily net assets, plus certain out-of-pocket expenses for technology
used for shareholder servicing and shareholder communications subject to the
prior approval of an annual budget by the Trust' s Board of Trustees, including
a majority of those Trustees who are not interested persons of the Trust or of
NB Management, and periodic reports to the Board of Trustees on actual expenses.
With a Fund's consent, NB Management may subcontract to Institutions some of its
responsibilities to that Fund under the administration agreement and may
compensate each Institution that provides such services (a portion of this
payment may be derived from the Rule 12b-1 fee paid to NB Management by the
Fund; see "Rule 12b-1 Plan' below).
During the fiscal years ended August 31, 1999, 1998 and 1997, each Fund
accrued management and administration fees as follows:
Management and Administration Fees
Accrued for Fiscal Years
Ended August 31
1999 1998 1997
---- ---- ----
MANHATTAN $4,849 $1,954 $1,108 *
GENESIS $643,622 $89,788 $1,123 **
FOCUS $13,659 $2,762 $1,083 *
GUARDIAN $201,255 $141,953 $20,291 *
PARTNERS $516,328 $170,854 $11,490 *
SOCIALLY RESPONSIVE $237*** N/A N/A
*/Period from September 4, 1996 (commencement of operations) to August 31, 1997.
**/Period from April 2, 1997 (commencement of operations) to August 31, 1997.
***/Period from June 9, 1999 (commencement of operations) to August 31, 1999.
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<PAGE>
WAIVERS AND REIMBURSEMENTS
- --------------------------
From May 1, 1995 to December 14, 1997, NB Management
voluntarily waived a portion of the management fee born by Neuberger Berman
GENESIS Portfolio to reduce the fee by 0.10% per annum of the average daily net
assets of that Portfolio.
Portion of Management Fee Waived
For Period Ended Fiscal Year Ended
DECEMBER 14, 1997 AUGUST 31, 1997
----------------- ---------------
GENESIS Portfolio $165 $94
Until December 31, 2009, NB Management has agreed to reimburse
each Fund (except Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE Assets)
for its total operating expenses which exceed 1.50% per annum of the Fund's
average net assets (excluding interest, taxes, brokerage commissions and
extraordinary expenses).
NB Management has contractually undertaken to reimburse
certain expenses of Neuberger Berman SOCIALLY RESPONSIVE Assets through December
31, 2002 so that the total annual operating expenses of the Fund are limited to
1.50% of average net assets (excluding interest, taxes, brokerage commissions
and extraordinary expenses). The table below shows the amounts reimbursed by NB
Management pursuant to these arrangements:
Amount of Total Operating Expenses
Reimbursed by NB Management
for Fiscal Years Ended August 31
FUND 1999 1998 1997
- ---- ---- ---- ----
MANHATTAN $96,084 $85,971 $90,551 *
GENESIS $73,117 $72,484 $22,622 **
FOCUS $85,679 $82,521 $90,760 *
GUARDIAN $13,221 $21,582 $99,842 *
PARTNERS $0 $10,825 $96,351 *
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<PAGE>
SOCIALLY $127,061*** N/A N/A
RESPONSIVE
*/Period from September 4, 1996 (commencement of operations) to August 31, 1997.
**/Period from April 2, 1997 (commencement of operations) to August 31, 1997.
***/Period from June 9, 1999 (commencement of operations) to August 31, 1999.
NB Management has contractually agreed to reimburse certain
expenses of Neuberger Berman MILLENNIUM Assets through December 31, 2002 so that
the total annual operating expenses of the Fund are limited to 1.75% of average
net assets (excluding interest, taxes, brokerage commissions, and extraordinary
expenses).
The Management Agreement continues until August 2, 2000. The
Management Agreement is renewable thereafter from year to year with respect to
each 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 that Portfolio. The Administration
Agreement continues until August 2, 1999. The Administration Agreement is
renewable from year to year with respect to a Fund, so long as its continuance
is approved at least annually (1) by the vote of a majority of the Fund Trustees
who are not "interested persons" of NB Management or the Trust ("Independent
Fund Trustees"), cast in person at a meeting called for the purpose of voting on
such approval, and (2) by the vote of a majority of the Fund Trustees or by a
1940 Act majority vote of the outstanding shares in that Fund.
The Management Agreement is terminable, without penalty, with
respect to a Portfolio on 60 days' written notice either by Managers Trust or by
NB Management. The Administration Agreement is terminable, without penalty, with
respect to a Fund on 60 days' written notice either by NB Management or by the
Trust. Each Agreement terminates automatically if it is assigned.
SUB-ADVISER
- -----------
NB Management retains Neuberger Berman, 605 Third Avenue, New
York, NY 10158-3698, as sub-adviser with respect to each Portfolio 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
Portfolios (except Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE and
Portfolios) on August 2, 1993. It was approved by the holders of the interests
in Neuberger Berman MILLENNIUM Portfolio on October 19, 1998, and by the holders
of the interests in Neuberger Berman SOCIALLY RESPONSIVE Portfolio on March 9,
1994.
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
50
<PAGE>
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 each Portfolio by the Portfolio
Trustees or a 1940 Act majority vote of the outstanding interests in that
Portfolio, by NB Management, or by Neuberger Berman on not less than 30 nor more
than 60 days' prior written notice. The Sub-Advisory Agreement also terminates
automatically with respect to each Portfolio if it is assigned or if the
Management Agreement terminates with respect to that Portfolio.
Most money managers that come to the Neuberger Berman
organization have at least fifteen years experience. Neuberger Berman and NB
Management employ experienced professionals that work in a competitive
environment.
INVESTMENT COMPANIES MANAGED
- ----------------------------
As of September 30, 1999, the investment companies managed by
NB Management had aggregate net assets of approximately $17.8 billion. NB
Management currently serves as investment manager of the following investment
companies:
<TABLE>
<CAPTION>
Approximate
Net Assets at
NAME September 30, 1999
- ---- ------------------
<S> <C>
Neuberger Berman Cash Reserves Portfolio....................................................$1,129,792,312
(investment portfolio for Neuberger Berman Cash Reserves)
Neuberger Berman Government Money Portfolio...................................................$701,999,455
(investment portfolio for Neuberger Berman Government Money Fund)
Neuberger Berman High Yield Bond Portfolio.....................................................$25,041,449
(investment portfolio for Neuberger Berman High Yield Bond Fund)
Neuberger Berman Limited Maturity Bond Portfolio..............................................$274,532,907
(investment portfolio for Neuberger Berman Limited Maturity Bond Fund and
Neuberger Berman Limited Maturity Bond Trust)
Neuberger Berman Municipal Money Portfolio....................................................$275,065,503
(investment portfolio for Neuberger Berman Municipal Money Fund)
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<PAGE>
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)
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 Portfolio................................................$376,629,789
(investment portfolio for Neuberger Berman Socially Responsive Fund,
Neuberger Berman Socially Responsive Trust, and Neuberger Berman
Socially Responsive Assets)
Advisers Managers Trust.....................................................................$2,026,088,252
(eight series)
</TABLE>
The investment decisions concerning the Portfolios and the
other mutual funds managed by NB Management (collectively, "Other NB Funds")
have been and will continue to be made independently of one another. In terms of
52
<PAGE>
their investment objectives, most of the Other NB Funds differ from the
Portfolios. Even where the investment objectives are similar, however, the
methods used by the Other NB Funds and the Portfolios to achieve their
objectives may differ. The investment results achieved by all of the mutual
funds managed by NB Management have varied from one another in the past and are
likely to vary in the future.
There may be occasions when a Portfolio and one or more of the
Other NB Funds or other accounts managed by Neuberger Berman are
contemporaneously engaged in purchasing or selling the same securities from or
to third parties. When this occurs, the transactions are averaged as to price
and allocated, in terms of amount, in accordance with a formula considered to be
equitable to the funds involved. Although in some cases this arrangement may
have a detrimental effect on the price or volume of the securities as to a
Portfolio, in other cases it is believed that a Portfolio's ability to
participate in volume transactions may produce better executions for it. In any
case, it is the judgment of the Portfolio Trustees that the desirability of the
Portfolios' having their advisory arrangements with NB Management outweighs any
disadvantages that may result from contemporaneous transactions.
The Portfolios are subject to certain limitations imposed on
all advisory clients of Neuberger Berman (including the Portfolios, the Other NB
Funds, and other managed accounts) and personnel of Neuberger Berman and its
affiliates. These include, for example, limits that may be imposed in certain
industries or by certain companies, and policies of Neuberger Berman that limit
the aggregate purchases, by all accounts under management, of the outstanding
shares of public companies.
CODES OF ETHICS
- ---------------
The Trusts, NB Management and Neuberger Berman have personal
securities trading policies that restrict the personal securities transactions
of employees, officers, and trustees. Their primary purpose is to ensure that
personal trading by these individuals does not disadvantage any fund managed by
NB Management. The portfolio managers and other investment personnel who comply
with the policies' preclearance and disclosure procedures may be permitted to
purchase, sell or hold certain types of securities which also may be or are held
in the funds they advise, but are restricted from trading in close conjunction
with their Portfolios or taking personal advantage of investment opportunities
that may belong to a Portfolio.
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.
53
<PAGE>
The directors and officers of Neuberger Berman, who are deemed
"control persons," all of whom have offices at the same address as Neuberger
Berman, are Jeffrey B. Lane, President and Chief Executive Officer; Robert
Matza, Executive Vice President and Chief Administrative Officer; Michael M.
Kassen, Executive Vice President and Chief Investment Officer; Heidi L.
Schneider, Executive Vice President; Peter E. Sundman, Executive Vice President;
Philip Ambrosio, Senior Vice President and Chief Financial Officer; Kevin
Handwerker, Senior Vice President, General Counsel and Secretary; Robert Akeson,
Senior Vice President; Salvatore A. Buonocore, Senior Vice President; Seth J.
Finkel, Senior Vice President; Robert Firth, Senior Vice President; Brian
Gaffney, Senior Vice President; Brian E. Hahn, Senior Vice President; Lawrence
J. Cohn, Senior Vice President; Joseph K. Herlihy, Senior Vice President and
Treasurer; Barbara R. Katersky, Senior Vice President; Diane E. Lederman, Senior
Vice President; Peter B. Phelan, Senior Vice President; Robert H. Splan, Senior
Vice President; Andrea Trachtenberg, Senior Vice President; Michael J. Weiner,
Senior Vice President; Marvin C. Schwartz, Managing Director.
Mr. Sundman and Mr. Kassen are trustees and officers of the
Trust and Managers Trust. Messrs. Sullivan and Weiner are officers of each
Trust.
Neuberger Berman and NB Management are wholly owned
subsidiaries of Neuberger Berman, Inc. a publicly owned holding company owned
primarily by the employees of Neuberger Berman.
DISTRIBUTION ARRANGEMENTS
DISTRIBUTOR
- -----------
NB Management serves as the distributor ("Distributor") in
connection with the offering of each Fund's shares on a no-load basis to
Institutions. In connection with the sale of its shares, each Fund has
authorized the Distributor to give only the information, and to make only the
statements and representations, contained in the Prospectus and this SAI or that
properly may be included in sales literature and advertisements in accordance
with the 1933 Act, the 1940 Act, and applicable rules of self-regulatory
organizations. Sales may be made only by the Prospectus, which may be delivered
personally, through the mails, or by electronic means. The Distributor is the
Funds' "principal underwriter" within the meaning of the 1940 Act and, as such,
acts as agent in arranging for the sale of each Fund's shares to Institutions
without sales commission and bears advertising and promotion expenses incurred
in the sale of the Funds' shares.
The Trust, on behalf of each Fund, and the Distributor are
parties to a Distribution and Services Agreement dated February 12, 1996, as
amended August 2, 1996 ("Distribution Agreement"). The Distribution Agreement
was approved by the Fund Trustees, including a majority of the Independent Fund
Trustees and a majority of those Independent Fund Trustees who have no direct or
indirect financial interest in the Distribution Agreement or the Trust's plan
pursuant to Rule 12b-1 under the 1940 Act ("Plan") ("Rule 12b-1 Trustees"), on
October 25, 1995, and with respect to Neuberger Berman MILLENNIUM and SOCIALLY
RESPONSIVE Assets on July 29, 1998 and October 22, 1998, respectively. The
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<PAGE>
Distribution Agreement continues until August 2, 2000. The Distribution
Agreement may be renewed annually if specifically approved by (1) the vote of a
majority of the Fund Trustees or a 1940 Act majority vote of the Fund's
outstanding shares and (2) the vote of a majority of the Independent Fund
Trustees and a majority of the Rule 12b-1 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.
RULE 12B-1 PLAN
- ---------------
The Fund Trustees adopted the Plan on October 25, 1995, as
amended on January 31, 1996 and August 2, 1996. Neuberger Berman GENESIS,
MILLENNIUM and SOCIALLY RESPONSIVE Assets were authorized to become subject to
the Plan by vote of the Fund Trustees on October 24, 1996 July 29, 1998 and
October 22, 1998, respectively. The Plan provides that each Fund will compensate
NB Management for administrative and other services provided to the Funds, its
activities and expenses related to the sale and distribution of Fund shares, and
ongoing services to investors in the Funds. Under the Plan, NB Management
receives from each Fund a fee at the annual rate of 0.25% of that Fund's average
daily net assets. NB Management may pay up to the full amount of this fee to
Institutions that make available Fund shares and/or provide services to the
Funds and their shareholders. The fee paid to an Institution is based on the
level of such services provided. Institutions may use the payments for, among
other purposes, compensating employees engaged in sales and/or shareholder
servicing. The amount of fees paid by a Fund during any year may be more or less
than the cost of distribution and other services provided to the Fund and its
investors. NASD rules limit the amount of annual distribution and service fees
that may be paid by a mutual fund and impose a ceiling on the cumulative
distribution fees paid. The Trust's plan complies with these rules.
The table below sets forth the amount of fees accrued for the
funds indicated below:
Period Ended August 31,
FUND 1999 1998 1997
- ---- ---- ---- ----
MANHATTAN $1,011 $213 $0
GENESIS $141,456 $20,147 $21
GUARDIAN $59,598 $42,298 $5,738
FOCUS $3,488 $471 $0
PARTNERS $151,403 $50,214 $3,176
SOCIALLY RESPONSIVE $47 N/A N/A
The Plan requires that NBMI provide the Fund Trustees for
their review a quarterly written report identifying the amounts expended by each
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<PAGE>
Fund and the purposes for which such expenditures were made must be provided to
the Fund Trustees for their review at least quarterly.
Prior to approving the Plan, the Fund Trustees considered
various factors relating to the implementation of the Plan and determined that
there is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders. The Fund Trustees noted that the purpose of the master/feeder fund
structure is to permit access to a variety of markets. To the extent the Plan
allows the Funds to penetrate markets to which they would not otherwise have
access, the Plan may result in additional sales of Fund shares; this, in turn,
may enable the Funds to achieve economies of scale that could reduce expenses.
In addition, certain on-going shareholder services may be provided more
effectively by Institutions with which shareholders have an existing
relationship.
The Plan continues until August 2, 2000. The Plan is renewable
thereafter from year to year with respect to each Fund, so long as its
continuance is approved at least annually (1) by the vote of a majority of the
Fund Trustees and (2) by a vote of the majority of the Rule 12b-1 Trustees, cast
in person at a meeting called for the purpose of voting on such approval. The
Plan may not be amended to increase materially the amount of fees paid by any
Fund thereunder unless such amendment is approved by a 1940 Act majority vote of
the outstanding shares of the Fund and by the Fund Trustees in the manner
described above. The Plan is terminable with respect to a Fund at any time by a
vote of a majority of the Rule 12b-1 Trustees or by a 1940 Act majority vote of
the outstanding shares in the Fund.
ADDITIONAL PURCHASE INFORMATION
SHARE PRICES AND NET ASSET VALUE
- --------------------------------
Each Fund's shares are bought or sold at a price that is the
Fund's NAV per share. The NAVs for each Fund and its corresponding Portfolio are
calculated by subtracting total liabilities from total assets (in the case of a
Portfolio, the market value of the securities the Portfolio holds plus cash and
other assets; in the case of a Fund, its percentage interest in its
corresponding Portfolio, multiplied by the Portfolio's NAV, plus any other
assets). Each Fund's per share NAV is calculated by dividing its NAV by the
number of Fund shares outstanding and rounding the result to the nearest full
cent. Each Fund and its corresponding Portfolio calculate their NAVs as of the
close of regular trading on the NYSE, usually 4 p.m. Eastern time, on each day
the NYSE is open.
Each Portfolio 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 sale price on the day the
securities are being valued. If there is no reported sale of such a security on
that day, the security is valued at the mean between its closing bid and asked
prices on that day. These Portfolios value all other securities and assets,
including restricted securities, by a method that the trustees of Managers Trust
believe accurately reflects fair value.
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<PAGE>
If NB Management believes that the price of a security
obtained under a Portfolio's valuation procedures (as described above) does not
represent the amount that the Portfolio reasonably expects to receive on a
current sale of the security, the Portfolio will value the security based on a
method that the trustees of the Managers Trust believe accurately reflects fair
value.
ADDITIONAL EXCHANGE INFORMATION
As more fully set forth in the section of the Prospectus
entitled "Maintaining Your Account," an Institution may exchange shares of any
Fund for shares of one or more of the other Funds, if made available through
that Institution. Any Fund may terminate or modify its exchange privilege in the
future.
Before effecting an exchange, Fund shareholders must obtain
and should review a currently effective Prospectus of the Fund into which the
exchange is to be made. An exchange is treated as a sale for federal income tax
purposes and, depending on the circumstances, a capital gain or loss may be
realized.
ADDITIONAL REDEMPTION INFORMATION
SUSPENSION OF REDEMPTIONS
- -------------------------
The right to redeem a Fund's shares may be suspended or
payment of the redemption price postponed (1) when the NYSE is closed, (2) when
trading on the NYSE is restricted, (3) when an emergency exists as a result of
which it is not reasonably practicable for its corresponding Portfolio to
dispose of securities it owns or fairly to determine the value of its net
assets, or (4) for such other period as the SEC may by order permit for the
protection of the Fund's shareholders. Applicable SEC rules and regulations
shall govern whether the conditions prescribed in (2) or (3) exist. If the right
of redemption is suspended, shareholders may withdraw their offers of
redemption, or they will receive payment at the NAV per share in effect at the
close of business on the first day the NYSE is open ("Business Day") after
termination of the suspension.
REDEMPTIONS IN KIND
- -------------------
Each Fund reserves the right, under certain conditions, to
honor any request for redemption (or a combination of requests from the same
shareholder in any 90-day period) exceeding $250,000 or 1% of the net assets of
the Fund, whichever is less, by making payment in whole or in part in securities
valued as described under "Share Prices and Net Asset Value" above. If payment
is made in securities, an Institution generally will incur brokerage expenses or
other transaction costs in converting those securities into cash and will be
57
<PAGE>
subject to fluctuation in the market prices of those securities until they are
sold. The Funds do not redeem in kind under normal circumstances, but would do
so when the Fund Trustees determined that it was in the best interests of a
Fund's shareholders as a whole.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes to its shareholders substantially all of
its share of any net investment income (after deducting expenses incurred
directly by the Fund), any net realized capital gains, and any net realized
gains from foreign currency transactions earned or realized by its corresponding
Portfolio. A Portfolio's net investment income consists of all income accrued on
portfolio assets less accrued expenses, but does not include capital and foreign
currency gains and losses. Net investment income and realized gains and losses
are reflected in a Portfolio's NAV (and, hence, its corresponding Fund's NAV)
until they are distributed. Each Fund calculates its net investment income and
NAV per share as of the close of regular trading on the NYSE on each Business
Day (usually 4:00 p.m. Eastern time).
Dividends from net investment income and distributions of net
realized capital and foreign currency gains, if any, normally are paid once
annually, in December, except that Neuberger Berman GUARDIAN Assets distributes
substantially all of its share of Neuberger Berman GUARDIAN Portfolio's net
investment income (after deducting expenses incurred directly by Neuberger
Berman GUARDIAN Assets), if more than a de minimis amount, near the end of each
other calendar quarter.
Dividends and other distributions are automatically reinvested
in additional shares of the distributing Fund, unless the Institution elects to
receive them in cash ("cash election"). To the extent dividends and other
distributions are subject to federal, state, or local income taxation, they are
taxable to the shareholders whether received in cash or reinvested in Fund
shares. A cash election with respect to any Fund remains in effect until the
Institution notifies the Fund in writing to discontinue the election.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUNDS
- ---------------------
To continue to qualify for treatment as a RIC under the Code,
each Fund must distribute to its shareholders for each taxable year at least 90%
of its investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. With respect to each Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or foreign
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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 a 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 Funds, have received rulings from the Internal
Revenue Service ("Service") that each such fund, as an investor in its
corresponding portfolio, will be deemed to own a proportionate share of the
portfolio's assets and income for purposes of determining whether the fund
satisfies all the requirements described above to qualify as a RIC. Although
these rulings may not be relied on as precedent by the Funds, NB Management
believes that the reasoning thereof and, hence, their conclusion apply to the
Funds as well.
Each Fund will be subject to a nondeductible 4% excise tax
("Excise Tax") to the extent it fails to distribute by the end of any calendar
year substantially all of its ordinary income for that year and capital gain net
income for the one-year period ended on October 31 of that year, plus certain
other amounts.
See the next section for a discussion of the tax consequences
to the Funds of distributions to them from the Portfolios, investments by the
Portfolios in certain securities, and hedging transactions engaged in by the
Portfolios.
TAXATION OF THE PORTFOLIOS
- --------------------------
The Portfolios (except Neuberger Berman MILLENNIUM and
SOCIALLY RESPONSIVE Portfolios) have received rulings from the Service to the
effect that, among other things, each Portfolio will be treated as a separate
partnership for federal income tax purposes and will not be a "publicly traded
partnership." Although these rulings may not be relied on as precedent by
Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE Portfolios, NB Management
believes the reasoning thereof and, hence, their conclusion apply to that
Portfolio as well. As a result, no Portfolio is subject to federal income tax;
instead, each investor in a Portfolio, such as a Fund, is required to take into
account in determining its federal income tax liability its share of the
Portfolio's income, gains, losses, and deductions, without regard to whether it
has received any cash distributions from the Portfolio. Each Portfolio also is
not subject to Delaware or New York income or franchise tax.
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<PAGE>
Because each Fund is deemed to own a proportionate share of
its corresponding Portfolio's assets and income for purposes of determining
whether the Fund satisfies the requirements to qualify as a RIC, each Portfolio
intends to continue to conduct its operations so that its corresponding Fund
will be able to continue to satisfy all those requirements.
Distributions to a Fund from its corresponding Portfolio
(whether pursuant to a partial or complete withdrawal or otherwise) will not
result in the Fund's recognition of any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, (3)
loss will be recognized if a liquidation distribution consists solely of cash
and/or unrealized receivables, and (4) gain or loss may be recognized on a
distribution to a Fund that contributed property to a Portfolio (that is, all
Funds except Neuberger Berman MILLENNIUM and SOCIALLY RESPONSIVE Assets). A
Fund's basis for its interest in its corresponding Portfolio generally equals
the amount of cash the Fund invests in the Portfolio, increased by the Fund's
share of the Portfolio's net income and capital gains and decreased by (1) the
amount of cash and the basis of any property the Portfolio distributes to the
Fund and (2) the Fund's share of the Portfolio's losses.
Dividends and interest received by a Portfolio, and gains
realized by a Portfolio, may be subject to income, withholding, or other taxes
imposed by foreign countries and U.S. possessions ("foreign taxes") that would
reduce the total return on its securities. Tax treaties between certain
countries and the United States may reduce or eliminate foreign taxes, however,
and many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors.
A Portfolio may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, if a Portfolio holds stock of a PFIC, its corresponding Fund
(indirectly through its interest in the Portfolio) will be subject to federal
income tax on its share of a portion of any "excess distribution" received by
the Portfolio on the stock or of any gain on the Portfolio's disposition of the
stock (collectively, "PFIC income"), plus interest thereon, even if the Fund
distributes its share of the PFIC income as a taxable dividend to its
shareholders. The balance of the Fund's share of the PFIC income will be
included in its investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
If a Portfolio invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund" ("QEF"), then in lieu of its corresponding Fund's
incurring the foregoing tax and interest obligation, the Fund would be required
to include in income each year its share of the Portfolio's pro rata share of
the QEF's annual ordinary earnings and net capital gain - which the Fund most
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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
PFIC's stock over the adjusted basis therein as of the end of that year.
Pursuant to the election, a deduction (as an ordinary, not capital, loss) also
would be allowed for the excess, if any, of the holder's adjusted basis in PFIC
stock over the fair market value thereof as of the taxable year-end, but only to
the extent of any net mark-to-market gains with respect to that stock included
in income for prior taxable years under the election (and under regulations
proposed in 1992 that provided a similar election with respect to the stock of
certain PFICs). The adjusted basis in each PFIC's stock subject to the election
would be adjusted to reflect the amounts of income included and deductions taken
thereunder.
The Portfolios' use of hedging strategies, such as writing
(selling) and purchasing options and entering into forward contracts, involves
complex rules that will determine for income tax purposes the amount, character,
and timing of recognition of the gains and losses the Portfolios realize in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
Financial Instruments derived by the Portfolio with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income for its corresponding Fund under the Income Requirement.
Exchange-traded futures contracts and certain forward
contracts subject to Section 1256 of the Code ("Section 1256 contracts") are
required to be marked to market (that is, treated as having been sold at market
value)for federal income tax purposes at the end of a Portfolio's taxable year.
Sixty percent of any net gain or loss recognized as a result of these "deemed
sales," and 60% of any net realized gain or loss from any actual sales, of
Section 1256 contracts are treated as long-term capital gain or loss; the
remainder is treated as short-term capital gain or loss. Section 1256 contracts
also may be marked-to-market for purposes of Excise Tax. These rules may operate
to increase the amount that a Fund must distribute to satisfy the Distribution
Requirement, which will be taxable to the shareholders as ordinary income, and
to increase the net capital gain recognized by the Fund, without in either case
increasing the cash available to the Fund. A Portfolio may elect to exclude
certain transactions from the operation of section 1256, although doing so may
have the effect of increasing the relative proportion of net short-term capital
gain (taxable to its corresponding Fund's shareholders as ordinary income when
distributed to them) and/or increasing the amount of dividends that Fund must
distribute to meet the Distribution Requirement and avoid imposition of the
Excise Tax.
Each of Neuberger Berman PARTNERS, MILLENNIUM and SOCIALLY
RESPONSIVE Portfolios may acquire zero coupon securities or other securities
issued with original issue discount ("OID"). As a holder of those securities,
the Portfolios (and, through it, Neuberger Berman PARTNERS, MILLENNIUM and
SOCIALLY RESPONSIVE Assets) must take into income the OID that accrues on the
securities during the taxable year, even if it receives no corresponding payment
on them during the year. Because the Fund annually must distribute substantially
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all of its investment company taxable income (including its share of the
Portfolio's accrued OID) to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax, the Fund may be required in a particular year to
distribute as a dividend an amount that is greater than its share of the total
amount of cash the Portfolio actually receives. Those distributions will be made
from such a Fund's (or its share of the Portfolio's cash assets or, if
necessary, from the proceeds of sales of the Portfolio's securities. The
Portfolio may realize capital gains or losses from those sales, which would
increase or decrease Neuberger Berman PARTNERS, MILLENNIUM and SOCIALLY
RESPONSIVE Assets' investment company taxable income and/or net capital gain.
TAXATION OF THE FUNDS' SHAREHOLDERS
- -----------------------------------
If Fund shares are sold at a loss after being held for six
months or less, the loss will be treated as long-term, instead of short-term,
capital loss to the extent of any capital gain distributions received on those
shares.
PORTFOLIO TRANSACTIONS
Neuberger Berman acts as principal broker for each Portfolio
in the purchase and sale of its portfolio securities (other than certain
securities traded on the OTC market). A substantial portion of the portfolio
transactions of Neuberger Berman GENESIS and MILLENNIUM Portfolios involves
securities traded on the OTC market; that Portfolio purchases and sells OTC
securities in principal transactions with dealers who are the principal market
makers for such securities.
During the fiscal year ended August 31, 1997, Neuberger Berman
MANHATTAN Portfolio paid brokerage commissions of $971,026, of which $458,679
was paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
Neuberger Berman MANHATTAN Portfolio paid brokerage commissions of $1,132,309,
of which $546,227 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
MANHATTAN Portfolio paid brokerage commissions of $1,155,067, of which $495,351
was paid to Neuberger Berman. Transactions in which that Portfolio used
Neuberger Berman as broker comprised 45.46% of the aggregate dollar amount of
transactions involving the payment of commissions, and 42.89% of the aggregate
brokerage commissions paid by the Portfolio, during the fiscal year ended August
31, 1999. 99.63% of the $657,243 paid to other brokers by that Portfolio during
that fiscal year (representing commissions on transactions involving
approximately $398,886,704) was directed to those brokers because of research
services they provided. During the fiscal year ended August 31, 1999, that
Portfolio acquired securities of the following of its "regular brokers or
dealers" (as defined in the 1940 Act) ("Regular B/Ds"): American Express Credit
Corp., Donaldson, Lufkin, & Jenrette Securities Corp., Ford Motor Credit Co.,
General Electric Capital Corp., Goldman, Sachs & Co., Lehman Brothers Inc. and
State Street Bank & Trust Company, at that date, that Portfolio held the
securities of its Regular B/Ds with an aggregate value as follows: Ford Motor
Credit Co., $10,996,258; Lehman Brothers Inc., $5,138,500; and State Street Bank
& Trust Company $12,240,000.
During the fiscal year ended August 31, 1997, Neuberger Berman
GENESIS Portfolio paid brokerage commissions of $860,097, of which $516,040 was
paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
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Neuberger Berman GENESIS Portfolio paid brokerage commissions of $2,419,159, of
which $1,159,143 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
GENESIS Portfolio paid brokerage commissions of $2,150,168, of which $1,034,712
was paid to Neuberger Berman. Transactions in which that Portfolio used
Neuberger Berman as broker comprised 49.53% of the aggregate dollar amount of
transactions involving the payment of commissions, and 48.12% of the aggregate
brokerage commissions paid by the Portfolio, during the fiscal year ended August
31, 1999. 94.48% of the $1,053,905 paid to other brokers by that Portfolio
during that fiscal year (representing commissions on transactions involving
approximately $425,499,870) was directed to those brokers because of research
services they provided. During the fiscal year ended August 31, 1999, that
Portfolio acquired securities of the following of its Regular B/Ds: American
Express Credit Corp., Ford Motor Credit Co., General Electric Capital Corp.,
Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley Dean Witter & Co.,
and State Street Bank and Trust Company, 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., $9,997,150; General Electric Capital Corp., $9,989,831;
and State Street Bank & Trust Company,N.A., $26,740,000.
During the fiscal year ended August 31, 1997, Neuberger Berman
FOCUS Portfolio paid brokerage commissions of $1,825,493, of which $920,202 was
paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
Neuberger Berman FOCUS Portfolio paid brokerage commissions of $2,051,007, of
which $998,930 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
FOCUS Portfolio paid brokerage commissions of $1,972,390, of which $983,860 was
paid to Neuberger Berman. Transactions in which that Portfolio used Neuberger
Berman as broker comprised 55.54% of the aggregate dollar amount of transactions
involving the payment of commissions, and 49.88% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
91.88% of the $908,219 paid to other brokers by that Portfolio during that
fiscal year (representing commissions on transactions involving approximately
$534,330,876) was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: Ford Motor Credit Co., General
Electric Capital Corp., Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan
Stanley Dean Witter & Co., and State Street Bank & Trust Company; at that date,
that Portfolio held the securities of its Regular B/Ds with an aggregate value
as follows: Morgan Stanley Dean Witter & Co., $87,957,813 and State Street Bank
& Trust Company,N.A., $22,890,000.
During the fiscal year ended August 31, 1997, Neuberger Berman
GUARDIAN Portfolio paid brokerage commissions of $8,540,335, of which $4,806,913
was paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
Neuberger Berman GUARDIAN Portfolio paid brokerage commissions of $11,558,523,
of which $5,733,976 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
GUARDIAN Portfolio paid brokerage commissions of $10,793,418, of which
$3,975,341 was paid to Neuberger Berman. Transactions in which that Portfolio
used Neuberger Berman as broker comprised 42.88% of the aggregate dollar amount
of transactions involving the payment of commissions, and 36.83% of the
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aggregate brokerage commissions paid by the Portfolio, during the fiscal year
ended August 31, 1999. 89.21% of the $6,082,366 paid to other brokers by that
Portfolio during that fiscal year (representing commissions on transactions
involving approximately $4,098,122,468) was directed to those brokers because of
research services they provided. During the fiscal year ended August 31, 1999,
that Portfolio acquired securities of the following of its Regular B/Ds:
American Express Credit Corp., Donaldson, Lufkin, & Jenrette Securities Corp.,
Ford Motor Credit Co., General Electric Capital Corp., Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley Dean Witter & Co.,
and State Street Bank & Trust Company; at that date, that Portfolio held the
securities of its Regular B/Ds with an aggregate value as follows: American
Express Credit Corp., $49,992,736; Ford Motor Credit Co., $49,948,667; General
Electric Capital Corp., $49,985,833; Morgan Stanley Dean Witter & Co.,
$49,728,344; and State Street Bank & Trust Company, $111,170,000.
During the fiscal year ended August 31, 1997, Neuberger Berman
PARTNERS Portfolio paid brokerage commissions of $5,413,453, of which $3,508,790
was paid to Neuberger Berman. During the fiscal year ended August 31, 1998,
Neuberger Berman PARTNERS Portfolio paid brokerage commissions of $10,028,713,
of which $6,281,978 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
PARTNERS Portfolio paid brokerage commissions of $14,228,430 of which $7,694,359
was paid to Neuberger Berman. Transactions in which that Portfolio used
Neuberger Berman as broker comprised 55.60% of the aggregate dollar amount of
transactions involving the payment of commissions, and 54.08% of the aggregate
brokerage commissions paid by the Portfolio, during the fiscal year ended August
31, 1999. 90.92% of the $5,940,877 paid to other brokers by that Portfolio
during that fiscal year (representing commissions on transactions involving
approximately $4,178,855,517) was directed to those brokers because of research
services they provided. During the fiscal year ended August 31, 1999, that
Portfolio acquired securities of the following of its Regular B/Ds: American
Express Credit Corp., Ford Motor Credit Co., General Electric Capital Corp.,
Goldman, Sachs & Co., Morgan Stanley Dean Witter & Co., and State Street Bank &
Trust Company; at that date, that Portfolio held the securities of its Regular
B/Ds with an aggregate value as follows: American Express Credit Corp.,
$49,948,375; Ford Motor Credit Co., $49,992,764; Morgan Stanley Dean Witter &
Co., $28,318,125; and State Street Bank & Trust Company, $63,300,000.
During the fiscal year ended August 31, 1997, Neuberger Berman
SOCIALLY RESPONSIVE Portfolio paid brokerage commissions of $305,640, of which
$232,238 was paid to Neuberger Berman. During the fiscal year ended August 31,
1998, Neuberger Berman SOCIALLY RESPONSIVE Portfolio paid brokerage commissions
of $401,601, of which $296,353 was paid to Neuberger Berman.
During the fiscal year ended August 31, 1999, Neuberger Berman
SOCIALLY RESPONSIVE Portfolio paid brokerage commissions of $485,040, of which
$329,666 was paid to Neuberger Berman. Transactions in which that Portfolio used
Neuberger Berman as broker comprised 69.99% of the aggregate dollar amount of
transactions involving the payment of commissions, and 67.97% of the aggregate
brokerage commissions paid by the Portfolio, during the fiscal year ended August
31, 1999. 99.97% of the $155,324 paid to other brokers by that Portfolio during
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that fiscal year (representing commissions on transactions involving
approximately $97,201,802) was directed to those brokers because of research
services they provided. During the fiscal year ended August 31, 1999, that
Portfolio acquired securities of the following of its Regular B/Ds: Goldman,
Sachs & Co. and State Street Bank & Trust Company; at that date, that Portfolio
held the securities of its Regular B/Ds with an aggregate value as follows:
Goldman, Sachs & Co., $556,256; and State Street Bank & Trust Company,
$8,370,000.
During the fiscal year ended August 31, 1999, Neuberger Berman
MILLENNIUM Portfolio paid brokerage commissions of $50,656, of which $28,188 was
paid to Neuberger Berman. Transactions in which that Portfolio used Neuberger
Berman as broker comprised 52.82% of the aggregate dollar amount of transactions
involving the payment of commissions, and 55.65% of the aggregate brokerage
commissions paid by the Portfolio, during the fiscal year ended August 31, 1999.
99.14% of the $22,275 paid to other brokers by that Portfolio during that fiscal
year (representing commissions on transactions involving approximately
$9,372,700) was directed to those brokers because of research services they
provided. During the fiscal year ended August 31, 1999, that Portfolio acquired
securities of the following of its Regular B/Ds: Donaldson, Lufkin, & Jenrette
Securities Corp., Ford Motor Credit Co., General Electric Capital Corp., Merrill
Lynch, Pierce, Fenner & Smith Inc., and State Street Bank & Trust Company; at
that date, that Portfolio held the securities of its Regular B/Ds with an
aggregate value as follows: Ford Motor Credit Co., $1,499,783; and State Street
Bank & Trust Company, $2,090,000.
Insofar as portfolio transactions of Neuberger Berman PARTNERS
Portfolio result from active management of equity securities, and insofar as
portfolio transactions of Neuberger Berman MANHATTAN Portfolio result from
seeking capital appreciation by selling securities whenever sales are deemed
advisable without regard to the length of time the securities may have been
held, it may be expected that the aggregate brokerage commissions paid by those
Portfolios to brokers (including Neuberger Berman where it acts in that
capacity) may be greater than if securities were selected solely on a long-term
basis.
Portfolio securities may, from time to time, be loaned by a
Portfolio to Neuberger Berman in accordance with the terms and conditions of an
order issued by the SEC. The order exempts such transactions from provisions of
the 1940 Act that would otherwise prohibit such transactions, subject to certain
conditions. In accordance with the order, securities loans made by a Portfolio
to Neuberger Berman are fully secured by cash collateral. The portion of the
income on the cash collateral which may be shared with Neuberger Berman is to be
determined by reference to concurrent arrangements between Neuberger Berman and
non-affiliated lenders with which it engages in similar transactions. In
addition, where Neuberger Berman borrows securities from a Portfolio in order to
re-lend them to others, Neuberger Berman may be required to pay that Portfolio,
on a quarterly basis, certain of the earnings that Neuberger Berman otherwise
has derived from the re-lending of the borrowed securities. When Neuberger
Berman desires to borrow a security that a Portfolio has indicated a willingness
to lend, Neuberger Berman must borrow such security from that Portfolio, rather
than from an unaffiliated lender, unless the unaffiliated lender is willing to
lend such security on more favorable terms (as specified in the order) than that
Portfolio. If, in any month, a Portfolio's expenses exceed its income in any
securities loan transaction with Neuberger Berman, Neuberger Berman must
reimburse that Portfolio for such loss.
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A committee of Independent Portfolio Trustees from time to
time reviews, among other things, information relating to securities loans by
the Portfolios. The following information reflects interest income earned by the
Portfolios from the cash collateralization of securities loans during the fiscal
years ended 1998, and 1997. As reflected below, Neuberger Berman received a
portion of the interest income from the cash collateral.
<TABLE>
<CAPTION>
Interest Income from
Collateralization of Amount Paid to
Name of Portfolio Fiscal Year End Securities Loans Neuberger Berman
- ----------------- --------------- ---------------- ----------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Neuberger Berman
MANHATTAN Portfolio 8/31/98 $ 469,745 $ 212,611
8/31/97 $ 988,931 $ 326,403
- --------------------------------------------------------------------------------
Neuberger Berman GENESIS
Portfolio 8/31/98 $ 285,737 $ 152,375
8/31/97 $ 168,552 $ 69,948
- --------------------------------------------------------------------------------
Neuberger Berman
GUARDIAN Portfolio 8/31/98 $1,355,093 $ 1,035,708
8/31/97 $4,005,765 $ 3,523,486
- --------------------------------------------------------------------------------
Neuberger Berman FOCUS
Portfolio 8/31/98 $ 139,877 $ 101,879
8/31/97 $1,053,272 $ 898,127
- --------------------------------------------------------------------------------
Neuberger Berman
PARTNERS Portfolio 8/31/98 $ 280,193 $ 141,707
8/31/97 $ 787,133 $ 688,624
- --------------------------------------------------------------------------------
Neuberger Berman SOCIALLY
RESPONSIVE Portfolio 8/31/98 $ 20,023 $ 10,803
8/31/97 $ 80,484 $ 51,639
- --------------------------------------------------------------------------------
</TABLE>
In effecting securities transactions, each Portfolio generally
seeks to obtain the best price and execution of orders. Commission rates, being
a component of price, are considered along with other relevant factors. Each
Portfolio plans to continue to use Neuberger Berman as its principal broker
where, in the judgment of NB Management, that firm is able to obtain a price and
execution at least as favorable as other qualified brokers. To the Portfolios'
knowledge, no affiliate of any Portfolio receives give-ups or reciprocal
business in connection with their securities transactions.
The use of Neuberger Berman as a broker for each Portfolio is
subject to the requirements of Section 11(a) of the Securities Exchange Act of
1934. Section 11(a) prohibits members of national securities exchanges from
retaining compensation for executing exchange transactions for accounts which
they or their affiliates manage, except where they have the authorization of the
persons authorized to transact business for the account and comply with certain
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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 a Portfolio to
Neuberger Berman in connection with a purchase or sale of securities on a
securities exchange may not exceed the usual and customary broker's commission.
Accordingly, it is each Portfolio's policy that the commissions paid to
Neuberger Berman must, in NB Management's judgment, be (1) at least as favorable
as those charged by other brokers having comparable execution capability and (2)
at least as favorable as commissions contemporaneously charged by Neuberger
Berman on comparable transactions for its most favored unaffiliated customers,
except for accounts for which Neuberger Berman acts as a clearing broker for
another brokerage firm and customers of Neuberger Berman considered by a
majority of the Independent Portfolio Trustees not to be comparable to the
Portfolio. The Portfolios do not deem it practicable and in their best interests
to solicit competitive bids for commissions on each transaction effected by
Neuberger Berman. However, consideration regularly is given to information
concerning the prevailing level of commissions charged by other brokers on
comparable transactions during comparable periods of time. The 1940 Act
generally prohibits Neuberger Berman from acting as principal in the purchase of
portfolio securities from, or the sale of portfolio securities to, a Portfolio
unless an appropriate exemption is available.
A committee of Independent Portfolio Trustees from time to
time reviews, among other things, information relating to the commissions
charged by Neuberger Berman to the Portfolios and to its other customers and
information concerning the prevailing level of commissions charged by other
brokers having comparable execution capability. In addition, the procedures
pursuant to which Neuberger Berman effects brokerage transactions for the
Portfolios must be reviewed and approved no less often than annually by a
majority of the Independent Portfolio Trustees.
To ensure that accounts of all investment clients, including a
Portfolio, are treated fairly in the event that Neuberger Berman receives
transaction instructions regarding a security for more than one investment
account at or about the same time, Neuberger Berman may combine orders placed on
behalf of clients, including advisory accounts in which affiliated persons have
an investment interest, for the purpose of negotiating brokerage commissions or
obtaining a more favorable price. Where appropriate, securities purchased or
sold may be allocated, in terms of amount, to a client according to the
proportion that the size of the order placed by that account bears to the
aggregate size of orders contemporaneously placed by the other accounts, subject
to de minimis exceptions. All participating accounts will pay or receive the
same price.
Under policies adopted by the Board of Trustees, Neuberger
Berman may enter into agency cross-trades on behalf of a Portfolio. An agency
cross-trade is a securities transaction in which the same broker acts as agent
on both sides of the trade and the broker or an affiliate has discretion over
one of the participating accounts. In this situation, Neuberger Berman would
receive brokerage commissions from both participants in the trade. The other
account participating in an agency cross-trade with a Portfolio cannot be an
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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
confirmations of each agency cross-trade that the Portfolios participate in.
Each Portfolio expects that it will continue to execute a
portion of its transactions through brokers other than Neuberger Berman. In
selecting those brokers, NB Management considers the quality and reliability of
brokerage services, including execution capability, performance, and financial
responsibility, and may consider research and other investment information
provided by, and sale of Fund shares effected through, those brokers.
A committee comprised of officers of NB Management and
employees of Neuberger Berman who are portfolio managers of some of the
Portfolios and Other NB Funds (collectively, "NB Funds") and some of Neuberger
Berman's managed accounts ("Managed Accounts") evaluates semi-annually the
nature and quality of the brokerage and research services provided by other
brokers. Based on this evaluation, the committee establishes a list and
projected rankings of preferred brokers for use in determining the relative
amounts of commissions to be allocated to those brokers. Ordinarily, the brokers
on the list effect a large portion of the brokerage transactions for the NB
Funds and the Managed Accounts that are not effected by Neuberger Berman.
However, in any semi-annual period, brokers not on the list may be used, and the
relative amounts of brokerage commissions paid to the brokers on the list may
vary substantially from the projected rankings. These variations reflect the
following factors, among others: (1) brokers not on the list or ranking below
other brokers on the list may be selected for particular transactions because
they provide better price and/or execution, which is the primary consideration
in allocating brokerage; (2) adjustments may be required because of periodic
changes in the execution capabilities of or research provided by particular
brokers or in the execution or research needs of the NB Funds and/or the Managed
Accounts; and (3) the aggregate amount of brokerage commissions generated by
transactions for the NB Funds and the Managed Accounts may change substantially
from one semi-annual period to the next.
The commissions paid to a broker other than Neuberger Berman
may be higher than the amount another firm might charge if NB Management
determines in good faith that the amount of those commissions is reasonable in
relation to the value of the brokerage and research services provided by the
broker. NB Management believes that those research services benefit the
Portfolios by supplementing the information otherwise available to NB
Management. That research may be used by NB Management in servicing Other NB
Funds and, in some cases, by Neuberger Berman in servicing the Managed Accounts.
On the other hand, research received by NB Management from brokers effecting
portfolio transactions on behalf of the Other NB Funds and by Neuberger Berman
from brokers effecting portfolio transactions on behalf of the Managed Accounts
may be used for the Portfolios' benefit.
Kent C. Simons; Kevin L. Risen and Allan R. White III; Judith
M. Vale and Robert W. D'Alelio; Jennifer K. Silver and Brooke A. Cobb; Michael
F. Malouf and Jennifer K. Silver; Robert I. Gendelman and S. Basu Mullick, and
Janet W. Prindle, each of whom is a Vice President of NB Management and a
principal of Neuberger Berman, are the persons primarily responsible for making
decisions as to specific action to be taken with respect to the investment
portfolios of Neuberger Berman FOCUS, Neuberger Berman GUARDIAN, Neuberger
Berman GENESIS, Neuberger Berman MANHATTAN, Neuberger Berman MILLENNIUM,
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Neuberger Berman PARTNERS and Neuberger Berman SOCIALLY RESPONSIVE Portfolios,
respectively. Each of them has full authority to take action with respect to
portfolio transactions and may or may not consult with other personnel of NB
Management prior to taking such action.
PORTFOLIO TURNOVER
- ------------------
A Portfolio's portfolio turnover rate is calculated by
dividing (1) the lesser of the cost of the securities purchased or 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 each Fund receive unaudited semi-annual financial
statements, as well as year-end financial statements audited by the independent
auditors or independent accountants for the Fund and its corresponding
Portfolio. Each Fund's statements show the investments owned by its
corresponding Portfolio and the market values thereof and provide other
information about the Fund and its operations, including the Fund's beneficial
interest in its corresponding Portfolio.
ORGANIZATION, CAPITALIZATION AND OTHER MATTERS
THE FUNDS
- ---------
Each Fund is a separate ongoing series of the Trust, a
Delaware business trust organized pursuant to a Trust Instrument dated as of
October 18, 1993. The Trust is registered under the Investment Company Act of
1940 as a diversified, open-end management investment company, commonly known as
a mutual fund. The Trust has six separate series. Each Fund invests all of net
investable assets in its corresponding Portfolio, in each case receiving a
beneficial interest in that Portfolio. The trustees of the Trust may establish
additional series or classes of shares without the approval of shareholders. The
assets of each series belong only to that series, and the liabilities of each
series are borne solely by that series and no other.
Prior to November 9, 1998, the name of the Trust was
"Neuberger & Berman Equity Assets" and the term "Neuberger Berman" in each
Fund's name was "Neuberger & Berman."
Prior to January 1, 1995, the name of Neuberger and Berman
FOCUS Portfolio was Neuberger Berman Selected Sectors Portfolio.
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DESCRIPTION OF SHARES. Each Fund is authorized to issue an
unlimited number of shares of beneficial interest (par value $0.001 per share).
Shares of each Fund represent equal proportionate interests in the assets of
that Fund only and have identical voting, dividend, redemption, liquidation, and
other rights. All shares issued are fully paid and non-assessable, and
shareholders have no preemptive or other rights to subscribe to any additional
shares.
SHAREHOLDER MEETINGS. The trustees of the Trust do not intend
to hold annual meetings of shareholders of the Funds. The trustees will call
special meetings of shareholders of a Fund only if required under the 1940 Act
or in their discretion or upon the written request of holders of 10% or more of
the outstanding shares of that Fund entitled to vote.
CERTAIN PROVISIONS OF TRUST INSTRUMENT. Under Delaware law,
the shareholders of a Fund will not be personally liable for the obligations of
any Fund; a shareholder is entitled to the same limitation of personal liability
extended to shareholders of a corporation. To guard against the risk that
Delaware law might not be applied in other states, the Trust Instrument requires
that every written obligation of the Trust or a Fund contain a statement that
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 if the Institution no longer has a contract with NB Management
to perform services. Depending on the policies of the Institution involved, an
investor may be able to transfer an account from one Institution to another.
THE PORTFOLIOS
- --------------
Each Portfolio (is a separate operating series of Managers
Trust, a New York common law trust organized as of December 1, 1992. Managers
Trust has seven 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.
FUNDS' INVESTMENTS IN PORTFOLIOS. Each Fund is a "feeder fund"
that seeks to achieve its investment objective by investing all of its net
investable assets in its corresponding Portfolio, which is a "master fund." The
Portfolio, which has the same investment objective, policies, and limitations as
the Fund, in turn invests in securities; the Fund thus acquires an indirect
interest in those securities.
Each Fund's investment in its corresponding Portfolio is in
the form of a non-transferable beneficial interest. Members of the general
public may not purchase a direct interest in a Portfolio. The Sister Funds that
are series of Equity Funds and other mutual funds that are series of Neuberger
Berman Equity Trust ("Equity Trust") and Neuberger Berman Equity Series ("Equity
Series") invest all of their respective net investable assets in corresponding
Portfolios of Managers Trust. The shares of each series of Equity Funds (but not
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of Equity Trust or Equity Series) are available for purchase by members of the
general public. The Trust does not sell its shares directly to members of the
general public.
Each Portfolio may also permit other investment companies
and/or other institutional investors to invest in the Portfolio. All investors
will invest in a Portfolio on the same terms and conditions as a Fund and will
pay a proportionate share of the Portfolio's expenses. Other investors in a
Portfolio (including the series of Equity Funds, Equity Trust and Equity Series)
are not required to sell their shares at the same public offering price as a
Fund, could have a different administration fee and expenses than a Fund, and
(except Equity Funds, Equity Trust 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 a Portfolio is
available from NB Management by calling 800-366-6264.
The trustees of the Trust believe that investment in a
Portfolio by a series of Equity Funds, Equity Trust or Equity Series or by other
potential investors in addition to a Fund may enable the Portfolio to realize
economies of scale that could reduce its operating expenses, thereby producing
higher returns and benefiting all shareholders. However, a Fund's investment in
its corresponding Portfolio may be affected by the actions of other large
investors in the Portfolio, if any. For example, if a large investor in a
Portfolio (other than a Fund) redeemed its interest in the Portfolio, the
Portfolio's remaining investors (including the Fund) might, as a result,
experience higher pro rata operating expenses, thereby producing lower returns.
Each Fund may withdraw its entire investment from its
corresponding Portfolio at any time, if the trustees of the Trust determine that
it is in the best interests of the Fund and its shareholders to do so. A Fund
might withdraw, for example, if there were other investors in a Portfolio with
power to, and who did by a vote of all investors (including the Fund), change
the investment objective, policies, or limitations of the Portfolio in a manner
not acceptable to the trustees of the Trust. A withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
by the Portfolio to the Fund. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's investment portfolio. If the Fund decided to convert
those securities to cash, it usually would incur brokerage fees or other
transaction costs. If a Fund withdrew its investment from a Portfolio, the
trustees of the Trust would consider what actions might be taken, including the
investment of all of the Fund's net investable assets in another pooled
investment entity having substantially the same investment objective as the Fund
or the retention by the Fund of its own investment manager to manage its assets
in accordance with its investment objective, policies, and limitations. The
inability of the Fund to find a suitable replacement could have a significant
impact on shareholders.
INVESTOR MEETINGS AND VOTING. Each Portfolio normally will not
hold meetings of investors except as required by the 1940 Act. Each investor in
a Portfolio will be entitled to vote in proportion to its relative beneficial
interest in the Portfolio. On most issues subjected to a vote of investors, a
Fund will solicit proxies from its shareholders and will vote its interest in
the Portfolio in proportion to the votes cast by the Fund's shareholders. If
there are other investors in a Portfolio, there can be no assurance that any
issue that receives a majority of the votes cast by Fund shareholders will
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<PAGE>
receive a majority of votes cast by all Portfolio investors; indeed, if other
investors hold a majority interest in a Portfolio, they could have voting
control of the Portfolio.
CERTAIN PROVISIONS. Each investor in a Portfolio, including
a Fund, will be liable for all obligations of the Portfolio. However, the risk
of an investor in a Portfolio incurring financial loss beyond the amount of its
investment on account of such liability would be limited to circumstances in
which the Portfolio had inadequate insurance and was unable to meet its
obligations out of its assets. Upon liquidation of a Portfolio, investors would
be entitled to share pro rata in the net assets of the Portfolio available for
distribution to investors.
CUSTODIAN AND TRANSFER AGENT
Each Fund and Portfolio has selected State Street Bank & Trust
Company ("State Street"), 225 Franklin Street, Boston, MA 02110, as custodian
for its securities and cash. State Street also serves as each Fund's transfer
agent, administering purchases, redemptions, and transfers of Fund shares with
respect to Institutions and the payment of dividends and other distributions to
Institutions. All correspondence should be mailed to Neuberger Berman Funds,
Institutional Services, 605 Third Avenue, 2nd Floor, New York, NY 10158-0180. In
addition, State Street serves as transfer agent for each Portfolio.
INDEPENDENT AUDITORS/ACCOUNTANTS
Each Fund and Portfolio (other than Neuberger Berman
MANHATTAN, MILLENNIUM and SOCIALLY RESPONSIVE Assets and Portfolios) has
selected Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116, as the
independent auditors who will audit its financial statements. Neuberger Berman
MANHATTAN, MILLENNIUM and SOCIALLY RESPONSIVE Assets and Portfolios have
selected PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02109, as
the independent accountants who will audit their financial statements.
LEGAL COUNSEL
Each Fund and Portfolio has selected Kirkpatrick & Lockhart
LLP, 1800 Massachusetts Avenue, N.W., 2nd Floor, Washington, D.C. 20036-1800, as
its legal counsel.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the name, address, and
percentage of ownership of each person who was known by each Fund to own
beneficially or of record 5% or more of that Fund's outstanding shares at
October 30, 1999.
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<TABLE>
<CAPTION>
Percentage of
Ownership at
Name and Address October 30, 1999
---------------- ----------------
<S> <C> <C>
Neuberger Berman Neuberger Berman 8.02%
MANHATTAN Assets Management Inc.
605 Third Avenue
2nd Floor
New York, NY 10158-0180
BHC Securities, Inc. 56.92%
FAO 58900009
Mutual Funds
One Commerce Square
20005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
BHC Securities, Inc. 29.32%
FAO 58900014
Mutual Funds
One Commerce Square
20005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Neuberger Berman GENESIS Key Trust Co. 22.31%
Assets FBO Prism
4900 Tiedeman Rd.
Brooklyn, OH 44144-2338
Donaldson, Lufkin & Jenrette 51.42%
Securities Corporation
Pershing Corporation
Mutual Fund Balancing
P.O. Box 2052
Jersey City, NJ 07303-2052
Neuberger Berman Smith Barney Corp. Trust Co., Trustee 44.64%
FOCUS Assets Smith Barney 401K
Advisor Group Trust
Two Tower Center
P.O. Box 1063
E. Brunswick, NJ 08816-1063
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<S> <C> <C>
Key Trust 48.70%
FBO Prism
4900 Tiedeman Rd.
Brooklyn, OH 44144-2338
Neuberger Berman Travelers Insurance Co. 97.23%
GUARDIAN Assets 5MS - One Tower Square
Hartford, CT 06183-0002
Neuberger Berman Travelers Insurance Co. 47.43%
PARTNERS Assets 5MS - One Tower Square
Hartford, CT 06183-0001
Key Trust Co. 25.97%
FBO Prism
4900 Tiedeman Rd.
Brooklyn, OH 44144-2338
Brown Brothers & Harriman 17.18%
40 Water Street
Boston, MA 02109-3661
Neuberger Berman Neuberger & Berman Management Inc. 86.88%
SOCIALLY RESPONSIVE Assets Attn: Emad Hanna
605 Third Avenue, 37th Floor
New York, NY 10158-0180
Fidelity Investments Institutional 12.08%
Operations Co. Inc.
(FIIOC) as Agent for PEET's Tea Coffee
Inc.
Savings Retirement Plan #09771
100 Magellan Way
Covington, KY 41015-1999
</TABLE>
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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.
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 Annual Report to Shareholders of
Neuberger Berman Equity Assets for the fiscal year ended August 31, 1999:
The audited financial statements of the Funds and Portfolios
and notes thereto for the fiscal year ended August 31, 1999,
and the reports of Ernst & Young LLP, independent auditors,
with respect to such audited financial statements of Neuberger
Berman FOCUS Assets and Portfolio, Neuberger Berman GENESIS
Assets and Portfolio and Neuberger Berman GUARDIAN Assets and
Portfolio, and Neuberger Berman PARTNERS Assets and Portfolio,
and the report of PricewaterhouseCoopers LLP, independent
accountants, with respect to such audited financial statements
of Neuberger Berman MANHATTAN Assets and Portfolio, Neuberger
Berman MILLENNIUM Assets and Portfolio, Neuberger Berman
SOCIALLY RESPONSIVE Assets and Portfolio.
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Appendix A
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
S&P CORPORATE BOND RATINGS:
---------------------------
AAA - Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the higher rated issues only in
small degree.
A - Bonds rated A have a strong capacity to pay interest and
repay principal, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CI - The rating CI is reserved for income bonds on which no
interest is being paid.
D - Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
PLUS (+) OR MINUS (-) - The ratings above may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S CORPORATE BOND RATINGS:
-------------------------------
Aaa - Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or an exceptionally
stable margin, and principal is secure. Although the various protective elements
are likely to change, the changes that can be visualized are most unlikely to
impair the fundamentally strong position of the issuer.
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.
A-2
<PAGE>
S&P COMMERCIAL PAPER RATINGS:
A-1 - This highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+).
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated PRIME-1 (or related supporting institutions),
also known as P-1, have a superior capacity for repayment of short-term
promissory obligations. PRIME-1 repayment capacity will normally be evidenced by
the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial
markets and assured sources of alternate liquidity.
A-3
