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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the Fiscal Year Ended December 31, 2002

Or

Commission File No. 001-15361

Neuberger Berman Inc.

(Exact Name of Registrant As Specified in Its Charter)

Registrant’s telephone number, including area code (212) 476-9000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  x  No  ¨

The aggregate market value of the common stock held by non-affiliates of the Registrant, based upon the closing price of $36.60 on June 30, 2002, on the New York Stock Exchange was approximately $1.5 billion. Calculation of holdings of common stock by non-affiliates is based upon: (i) the assumption, for these purposes only, that executive officers, directors, and certain former principals who are subject to the voting provisions of a stockholders’ agreement are deemed affiliates as of February 28, 2003; (ii) the number of shares of the Registrant’s common stock held by such affiliates, as of February 28, 2003; and (iii) the number of shares of the Registrant’s common stock outstanding as of February 28, 2003, which was 70,189,706.

Documents Incorporated By Reference

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Forward Looking Statements

Our disclosure and analysis in this report and in documents that are incorporated by reference contain some forward looking statements. Forward looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that our expectations and beliefs are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that our actual results will not differ materially from our expectations or beliefs. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation, the adverse effect from a decline in the securities markets or if our products’ performance declines, a general downturn in the economy, changes in government policy or regulation, our inability to attract or retain key employees and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. These statements are provided as permitted by the Private Litigation Reform Act of 1995. We undertake no obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise.

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PART I

Item 1.—BUSINESS

Overview

Neuberger Berman Inc., through its subsidiaries, is an investment advisory firm with approximately $56.1 billion in assets under management as of December 31, 2002. For 63 years, the firm has provided clients with a wide array of investment products, services and strategies. Our business is conducted primarily through our subsidiaries, including Neuberger Berman, LLC and Neuberger Berman Management Inc., both of which are registered investment advisers and broker-dealers, Neuberger Berman Trust Company, N.A., which holds a national bank charter, and Neuberger Berman Trust Company of Delaware, a non-depository limited purpose trust company. Neuberger Berman, LLC is also a member of the New York Stock Exchange, Inc. (“NYSE”).

We were founded in 1939 to be a premier provider of investment products and services to high net worth individuals. We have built upon the qualities that have made us successful in the high net worth market to establish a strong presence in the mutual fund and institutional marketplaces, and to provide estate planning and trust services through our national and Delaware trust companies. Our clients include individuals, institutions, corporations, pension funds, foundations and endowments.

We believe that one of our chief competitive advantages is our dedication to disciplined asset management. We actively seek out experienced investment professionals and strategic acquisitions to expand our competitive advantage. In addition, we continually explore new ways to deliver our asset management expertise to clients through the development of innovative products and the expansion of our distribution outlets.

Our principal offices are located in New York City and we maintain a national presence in centers of concentrated wealth across the United States. As of December 31, 2002, we conducted our business from 18 offices in 16 cities.

In August 1998, Neuberger Berman Inc. was formed to be the holding company for Neuberger Berman, LLC and Neuberger Berman Management Inc., which, together with their predecessors, have conducted business since 1939 and 1970, respectively. In October 1999, we completed an initial public offering (the “IPO”) of our common stock. As of December 31, 2002, our employees, directors, and retired principals whose shares are subject to the transfer provisions of a stockholders’ agreement, held approximately 69% of our common stock.

When we use the terms “Neuberger Berman,” “we,” “us,” and “our,” we mean, prior to the IPO, Neuberger Berman, LLC, a Delaware limited liability company, and its consolidated subsidiaries, and Neuberger Berman Management Inc., a New York corporation, and their predecessors, and, after the IPO, we mean Neuberger Berman Inc., a Delaware corporation, and its consolidated subsidiaries.

When we use the term “Trust Companies,” we mean Neuberger Berman Trust Company, N.A., which holds a national bank charter, and Neuberger Berman Trust Company of Delaware, a non-depository limited purpose trust company chartered under the Delaware Banking Code; however, in certain circumstances, as the context may require, the term “Trust Companies” includes Neuberger Berman Trust Company of Florida and Neuberger Berman Trust Company, which, as the result of the consolidation of our trust business under the framework of our national trust company, were liquidated with a related transfer of certain assets to, and merged with and into Neuberger Berman Trust Company, N.A., respectively, during the third and fourth quarters of 2001.

2002 in Review

During 2002, we took important steps to diversify our product offerings and improve investment performance, while maintaining high levels of client service. We also capitalized on opportunities to broaden product distribution capabilities and grow our professional investor clearing and correspondent services business.

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We believe that we are very well positioned for the future as high net worth investors and institutions, now more than ever, are seeking investment management expertise and sound, unbiased advice from professionals with a proven track record and exemplary reputation.

We significantly diversified and enhanced our investment products to address market demand. In December, we acquired substantially all the assets of LibertyView Capital Management, Inc. (“LibertyView” or “LibertyView Division”), a well-regarded alternative investment manager with approximately $1.0 billion in assets under management as of December 31, 2002. The LibertyView Division has strengthened our presence in alternative investing, which we see as an increasingly important investment option for institutions, as well as high net worth individuals. Earlier in the year we also created a Real Estate Securities Group with the hire of respected professionals and launched a new open-end mutual fund that invests in real estate securities.

Delivering performance to our clients is a top priority for Neuberger Berman, and we took aggressive action to improve investment performance in our mutual fund and institutional business. In December 2002, we brought in a highly regarded team of portfolio mangers to run our Growth Equity Group, which manages growth equity assets for all of our mutual fund and institutional distribution channels. We also reassigned portfolio management responsibility for one of our largest value-oriented mutual funds.

In September 2002, we hired a high yield bond team with a strong performance record to enhance our existing High Yield Fixed Income Group and our fixed income capabilities overall. The team converted in excess of $500 million in assets to Neuberger Berman, including both a domestic and offshore mutual fund, investment partnerships, and separate accounts for both institutional and high net worth clients.

Further diversifying our product mix, we successfully entered the closed-end fund business with the launch of three intermediate municipal bond funds and a real estate income fund, which, in the aggregate, raised over $800 million in new assets under management.

In August 2002, Jack L. Rivkin, a highly experienced securities industry manager, joined Neuberger Berman as Executive Vice President and head of research and research sales. Mr. Rivkin also sits on the Executive Management Committee and was recently named Chief Investment Officer. Mr. Rivkin’s goal at Neuberger Berman, which he has already begun to accomplish, is to expand upon the Firm’s existing equity research capability, building from our strong platform as a provider of high quality, non-conflicted research for the investment community.

We continued to pursue our strategy of enhancing our core business of high net worth asset management through the creation of a private asset management sports group, which delivers sophisticated, personalized services directly to athletes or their advisers. In addition, we continue to develop new strategic alliances with third party professional advisers. We expanded our national presence, opening a new sales office in Newport Beach, California, and increasing our nationwide group of Wealth Advisors, from 40 professionals at the end of 2001 to 43 as of December 31, 2002.

Business Segments

Our principal businesses include:

A fourth segment, “Corporate,” reflects certain corporate results that are not directly related to the day-to-day operations of our principal businesses.

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We derive our revenues primarily from investment advisory and administrative fees, which are based on assets under management. Our fee revenue is supplemented by commissions and by income from our Professional Securities Services segment. We believe our business has attractive margins for several reasons:

Private Asset Management

Our Private Asset Management segment provides customized investment management services for high net worth individuals, families and smaller institutions, and is the cornerstone of our suite of wealth management services. Through our Private Asset Management segment, we offer clients a wide array of money management, advisory and other wealth management services. It represented 50% of net revenues after interest expense in 2002.

Assets under management in this segment were $21.6 billion as of December 31, 2002, including assets managed for clients of the Trust Companies. Net revenues after interest expense for 2002 were $299.8 million. This included $91.0 million in commission revenue, derived principally from listed equity trades executed as broker, on behalf of clients. In this segment, as of December 31, 2002, we managed over 17,000 accounts, in over 6,600 relationships with an average relationship size of $3.3 million.

Private Asset Management includes three areas:

Money Management.    Since our founding, we have specialized in personalized money management for high net worth investors. Our mission is to provide our clients with the highest caliber investment expertise, supported by outstanding personal service. We tailor each client’s portfolio individually, based on investment objectives, planning needs, and risk tolerance. We believe this strategy is best for clients, and it also increases our ability to attract experienced, talented money managers. Our Private Asset Management money managers have, on average, more than 25 years of industry experience, and each is free to pursue his or her investment style, subject to compliance oversight. The Private Asset Management segment has enjoyed long-term client loyalty, sometimes spanning several generations.

Our money managers employ a broad spectrum of investment styles, including growth and value for equities, fixed income and international. They accommodate clients with broadly different objectives or special needs, such as investment restrictions or large holdings of stock options. As of December 31, 2002, we had 62 money managers in our Private Asset Management segment working in 27 teams.

We vigorously seek to expand our assets under management through organic growth, as well as through the opportunistic hiring of experienced money management teams (liftouts) and acquiring of established money management operations. We maintain a disciplined strategy for liftouts and acquisitions, based on certain criteria which require that liftouts and acquisitions: 1) be cash accretive to earnings; 2) be consistent with our overall strategy; and 3) involve individuals who fit the Neuberger Berman culture in terms of client focus, integrity and

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dedication to investment excellence. We believe that by adhering to these criteria the result is stronger, more stable growth.

In 2002, we continued to enhance the products and services we offer to our clients. We believe that offering a wide spectrum of asset management investment options along with a variety of ways to monitor account information, enhance clients’ experience with us, which helps us to retain client relationships and remain competitive with other investment advisory firms. We continue to explore and invest in products and services that support our mission of providing the highest caliber investment expertise with outstanding personal service.

Advisory Services.    We have a nationwide group of Wealth Advisors who are dedicated to selling and supporting the suite of wealth management services provided by our money managers, our Trust Companies and Executive Monetary Management, Inc. (“EMM”). Our Wealth Advisors were previously known as Client Consultants, but have been newly designated to better reflect the full breadth of services they provide to our clients. In 2002, we increased the number of our Wealth Advisors to 43 professionals, supported by 27 client service administrators, focusing on cities in which U.S. wealth is concentrated. These professionals are located in New York and regional offices in Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, Newport Beach, Philadelphia, San Francisco, Tampa, Washington, D.C. and West Palm Beach.

Our Wealth Advisors are highly trained professionals and their average industry experience is approximately 15 years. They work closely with our clients to develop customized asset allocation, trust services, estate planning and tax planning strategies. Our Wealth Advisors also frequently work with our clients’ accountants and attorneys as part of a financial advisory team, and they cultivate relationships with these professional advisors. Our Wealth Advisors generated $1.8 billion in new assets in 2002, compared to $1.7 billion raised in 2001.

Other Wealth Management Services.    We provide comprehensive and individualized wealth planning through an integrated approach to tax planning, trust and fiduciary services, investment policy design and oversight. Working closely with our Trust Companies and EMM, our independent financial advisory subsidiary, we strive to optimize wealth retention plans through flexible and customized solutions, integrating the money management expertise of Neuberger Berman, as appropriate. We believe these strengths provide us with a unique competitive advantage by marrying wealth management services with asset management expertise. Together, with our ongoing investments in technological infrastructure, we believe we continue to strengthen our ability to attract new ultra-affluent clients, to retain existing clients’ assets across generations, and to cross-sell products and services.

Mutual Fund and Institutional

Our Mutual Fund and Institutional segment includes our family of mutual funds, institutional separate account products and wrap products sponsored by third party brokerage firms and banks, which we offer to a wide array of clients, from the smallest individual investors to the largest institutions. This segment generated net revenues after interest expense of $220.3 million, which represented 37% of our net revenues after interest expense in 2002.

Despite the very challenging market conditions of 2002, we achieved net cash inflows of $4.3 billion in our Mutual Fund and Institutional segment, including approximately $2.4 billion in new assets from the high yield bond team hired in the third quarter, the public offering of closed-end funds and the LibertyView asset acquisition. Assets under management in this segment rose to $34.5 billion as of December 31, 2002, including the LibertyView asset acquisition. The strongest performer in this segment was the Consultant Services Group, which recorded net cash inflows of $2.5 billion, more than double the $1.1 billion recorded in 2001. Mutual fund and Sub-advised Accounts had net cash inflows of $1.2 billion, including over $800 million raised in new closed-end fund products, sustaining the positive performance of the previous year. Excluding the $1.0 billion in new

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assets managed by the LibertyView Division, Institutional Separate Accounts experienced net cash outflows of approximately $300 million.

The mutual funds and managed portfolios in this segment cover a large range of asset types, investment styles and market capitalization ranges. Our equity mutual fund offerings cover the broad spectrum of investment styles and capitalization levels, as well as international and socially responsive products. Our fixed income products include domestic taxable and tax-exempt offerings of various duration, as well as global portfolios. We also offer balanced portfolios, real estate security portfolios and money market products. We make our mutual funds available directly to investors, without a sales load, and through third parties and sub-advisory relationships.

Mutual Fund and Institutional includes three areas:

Mutual Fund and Sub-Advised Accounts.    As of December 31, 2002, we managed a total of $17.1 billion in assets in Mutual Funds and Sub-advised Accounts. We managed 30 open-end mutual funds (the “Funds”) as both adviser and sub-adviser that span the range of our investment strategies, as well as four newly established closed-end funds. We also acted as sub-adviser for 18 additional funds for non-affiliated financial services companies. Net revenues after interest expense for our Mutual Fund and Sub-advised Account business were $152.6 million in 2002, consisting primarily of investment advisory and administrative fees and commissions. In addition to advisory and sub-advisory fees, we also derive revenues from administrative and service fees for accounting services, general mutual fund administration (such as coordinating board meetings, compliance programs and prospectuses, annual and semi-annual reports) and shareholder services.

In September 2002, we launched the Neuberger Berman High Income Bond Fund, which was created through a reorganization of the Lipper High Income Bond Fund and the Neuberger Berman High Yield Bond Fund, which had both been top performing funds in their peer group.

Also in September, we entered the closed-end fund business with the launch of three intermediate municipal bond funds: Neuberger Berman Intermediate Municipal Fund Inc.; Neuberger Berman California Intermediate Municipal Fund Inc.; and Neuberger Berman New York Intermediate Municipal Fund Inc. In November, we launched the Neuberger Berman Real Estate Income Fund Inc. As of December 31, 2002, assets under management related to these closed-end fund products exceeded $800 million. We believe the closed-end mutual fund structure is an excellent vehicle to deliver selective investment strategies to a wider investor population, creating a significant new revenue opportunity for the firm.

In May 2002, we launched the Neuberger Berman Real Estate Fund, a mutual fund that seeks capital growth and current income by investing in real estate securities. We believe this strategy enhances our mutual fund product line by offering investors an asset class with attractive income potential and portfolio diversification potential.

We offer 19 of our open-end Funds directly to the public with no sales charge. These include growth, value and blend investment styles across all capitalization ranges, as well as international, socially responsive, fixed income and real estate portfolios. Assets managed in these Funds totaled approximately $8.9 billion at December 31, 2002.

We also make our open-end Funds available through mutual fund supermarkets, broker-dealers, banks and through our internet site, where mutual fund investors can access account information and buy, sell and exchange Fund shares. Fund prospectuses and applications, daily share prices and performance, as well as articles and

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educational materials are made available through our internet site. During 2002, we continued to foster shareholder education and acceptance of electronic delivery of certain compliance materials through ongoing marketing programs.

Strategic alliances are an increasingly important distribution channel. As of December 31, 2002, we had alliances with 105 administrators of defined contribution plans (such as 401(k), 403(b) and nonqualified deferred compensation plans). These alliances allow us, as investment adviser, and these administrators, as recordkeepers and plan participant service providers, to perform the task each of us is best suited to carry out. Defined contribution plan assets under management in our Funds were $3.5 billion at December 31, 2002.

We also have relationships with 50 insurance companies that offer variable annuity and variable life insurance products that may be invested, at the direction of policy holders, in certain of our Funds. As of December 31, 2002, our mutual fund assets under management related to these insurance products totaled $1.7 billion.

In addition, assets under management in sub-advised funds for non-affiliated financial services companies were $2.2 billion at December 31, 2002. Our continuing efforts to expand this business have been successful, and we believe we have excellent relationships with some of the leading financial services companies.

We also make available mutual fund investment advisory services through our Advisory Services business. Advisory Services offers professional portfolio management and consolidated recordkeeping services for mutual fund investors seeking to build and monitor a customized portfolio of mutual funds from well-known fund groups, including our own Funds and mutual funds managed by third parties. As of December 31, 2002, we had nine “private-label” arrangements in which financial advisory companies market our Advisory Services product under another name with Neuberger Berman as the sub-adviser.

When third parties make our products available to their clients, we generally pay the third parties for recordkeeping, sub-accounting or other services that they perform with respect to assets that are invested, either directly or indirectly, in the Funds.

Institutional Separate Accounts (Equity, Fixed Income and Alternative Investments).    As of December 31, 2002, we managed $11.7 billion of institutional separate account assets, including $1.0 billion in assets invested in LibertyView’s alternative investment products. Excluding the LibertyView assets, this segment showed net cash outflows in 2002. Net revenues after interest expense for the institutional separate account business were $53.6 million in 2002, consisting primarily of investment advisory fees and commissions.

Our equity separate accounts include domestic equity portfolios across the capitalization spectrum, as well as international, global, emerging markets and socially responsive equity portfolios. With the creation of the Real Estate Group, during 2002 we diversified our product offerings to include real estate security portfolios. Our fixed income separate account strategies include cash management, limited and intermediate maturity, total return, municipal, high yield and international. As bond managers, we are value-oriented and use sector rotation and security selection to earn incremental yield. We use active duration management and volatility analysis to control risk, and, depending on market conditions, to protect principal or add capital appreciation. In addition, we manage balanced portfolios for several of our clients. As of December 31, 2002, we serviced approximately 240 client relationships including defined benefit and defined contribution plans for corporations and municipalities, Taft-Hartley plans, insurance companies, endowments and foundations, and hospital and health care organizations.

The year-end acquisition of substantially all of the assets of LibertyView brings significant new capabilities in the alternative investment arena to Neuberger Berman. LibertyView has a 10-year history, primarily serving institutional clients worldwide. All of the LibertyView Division’s key trading, marketing, risk management and administration professionals have joined Neuberger Berman and will remain in their current offices in Hoboken, New Jersey.

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The LibertyView Division manages seven master funds. Their investment products include both multi-strategy and single strategy funds that focus on achieving market neutral returns utilizing equity, credit, volatility and mortgage-backed arbitrage trading strategies. The LibertyView Division takes a conservative approach to alternative investment management, maintaining hedged portfolios with minimal directional exposure; a conservative risk/return profile; a cautious use of leverage; strict adherence to defined risk limits; and portfolio transparency to investors.

Consultant Services Group (Wrap Accounts).    Our assets under management in wrap accounts continued to show strong growth during 2002. Through our participation in 14 wrap account programs sponsored by third party banks and brokerage firms, our assets under management rose from $3.0 billion at December 31, 2001 to $5.7 billion at December 31, 2002. We attribute this growth to a combination of strong product performance, excellent customer support, and the continued popularity of this product with investors and financial intermediaries. Wrap account programs, which are designed to meet the needs of individuals and smaller institutions, offer comprehensive investment management services under a single fee structure covering all charges, including investment management, brokerage, custody, recordkeeping and reporting. Net revenues after interest expense for the wrap account business were $14.1 million in 2002, consisting primarily of investment advisory fees.

We have relationships with several of the largest sponsors of wrap account programs. Through these programs, we provide portfolio management in a variety of investment styles, including value, growth, blend, socially responsible and international equities across the capitalization spectrum, as well as taxable and tax-exempt fixed income, and balanced portfolios. We believe the financial intermediaries who sponsor wrap account programs will continue to grow in importance as a distribution channel for our money management expertise. We intend to continue to seek new relationships, as well as to increase the variety of investment styles that we offer through this channel. In addition to their separate account wrap programs, some of the sponsors also offer mutual fund wrap programs in which we participate.

Professional Securities Services

Our Professional Securities Services segment leverages our asset management infrastructure to provide services to the professional investment community.

Clients of our Professional Securities Service segment call upon us for trade execution, clearing, custody, margin financing, portfolio reporting and trust services. We provide our research to more than 200 outside investment managers. Because these services are based upon the capabilities and resources developed for our asset management businesses, we generally can provide these services at a modest incremental cost. Commissions, clearance fees and net interest income provide a significant portion of this segment’s revenues. Net revenues after interest expense were $86.1 million in 2002.

Professional Securities Services includes four areas:

Professional Investor Clearing Services.    As of December 31, 2002, we provided prime brokerage services to 56 private investment partnerships, registered investment advisers and family offices. We provided correspondent clearing services to 27 introducing brokers. These services include trade execution, custody, clearance and settlement, margin financing and the borrowing of securities to meet short sale obligations, and portfolio reporting. In some instances, we provide our clients with the use of a fully equipped office facility. A

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dedicated sales team markets these services directly and through advertising in trade publications. We also seek to cross-sell our other services to these clients, including research sales and trust and custody services. Net revenues after interest expense were $42.3 million in 2002, consisting primarily of commissions, clearance fees and net interest income.

Wealth Management Services.    We provide financial advice independent of our other business segments, through our Trust Companies and EMM. The services offered to high net worth individuals, wealthy families, foundations, endowments, institutions and family offices include:

The professionals of our Trust Companies work closely with high net worth individuals and families and their advisors to customize and implement plans designed with an integrated approach to investment management and estate and tax planning and administration, with the goal of providing continuity and consistency of performance over time. In addition, our Trust Companies provide personal fiduciary, administrative, trustee and executor services.

Additional services offered to business owners include employee benefit plan and employee stock ownership plan (“ESOP”) design, management and administrative services. We also furnish investment and administrative services for charities’ planned giving programs. Clients can also benefit from our Trust Companies’ ability to deliver multi-manager custody services, consolidated performance reporting and risk management oversight.

Enhancing our comprehensive wealth management capabilities, EMM acts as an independent counselor to ultra-affluent clients to assist them in preserving and enhancing their financial position. Among its personal and professional management services, EMM provides: comprehensive tax planning and administration; estate, trust and gift planning strategies; family office management; contract structuring and analysis; and insurance planning. As do our Trust Companies, EMM provides independent investment advisory services, which include: asset allocation; objective investment manager selection among a wide array of asset managers, which may include Neuberger Berman; and performance monitoring.

We believe that the sophisticated wealth management advisory expertise provided by EMM and our Trust Companies enhances our ability to attract new clients with substantial assets, retain existing clients’ assets, and cross-sell Neuberger Berman’s products and services. Net revenues after interest expense provided by our Wealth Management Services were $8.3 million in 2002, consisting primarily of investment advisory fees.

Research Sales.    Our centralized research department regularly prepares and updates research reports for our Private Asset Management and Mutual Fund and Institutional businesses. As an independent asset manager, the primary goal of our research capability is to advance the creative sharing of ideas among our portfolio managers. As of December 31, 2002, 12 sales professionals in the research sales group also made these research reports available to more than 200 third-party investment managers. If these third-party managers decide to buy or sell securities based on this research, they usually place their trades through us, although they have no obligation to do so. As of December 31, 2002, the research sales group also included eight traders who execute these brokerage transactions. Research Sales net revenues after interest expense were $22.2 million for the year ended December 31, 2002, consisting primarily of commissions.

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During 2002, we launched a growth initiative for our research sales business. We believe that the bear market environment of the past three years and the highly publicized exposure of conflicts of interest at some large Wall Street research departments have created strong demand for high quality research unconflicted by investment banking advisory services. We believe that we have the foundation and management team in place to meet this demand and significantly expand our research sales business.

Other Activities.    Professional Securities Services also includes global securities lending, custody and recordkeeping services and treasury management. We provide custody and recordkeeping services to clients of our Trust Companies. We also generate net interest income by managing cash available as a result of our broker-dealer activities. Until this year, we acted as market maker for certain securities listed on the Nasdaq National Market System. In the fourth quarter of 2002, we made the decision to eliminate all Nasdaq principal trading activities due to the structural changes in that market which we believe have permanently reduced profitability potential. Net revenues after interest expense were $13.3 million for the year ended December 31, 2002. These net revenues consist primarily of net interest income.

Investment Process and Research

Our portfolio managers generally base their decisions on fundamental research using their knowledge and experience about the investment merits of industry groups and specific companies. Our centralized research department supports all of our investment professionals. Organized primarily by industry, our securities analysts are responsible for understanding developments within the companies and industries they follow. To do this, they meet with senior management of companies they follow and interview customers and competitors of those companies. In some cases, they employ specialized consultants and develop earnings and cash flow estimates. As of December 31, 2002, our research department was comprised of 20 analysts, supported by 12 associate analysts. They actively follow approximately 180 companies.

In addition to our centralized research department, many of our investment groups employ dedicated analysts who focus on securities of particular interest to their specific investment approach. Their research is augmented by an established program of on-site visits between our portfolio managers and analysts and the senior management teams of corporations. Hundreds of such meetings occurred in 2002. They provide the portfolio managers and analysts with valuable insight and perspective into a company’s business, management strategy and financial prospects. We believe that our long-standing dedication to unbiased, fundamental research that is not conflicted by investment banking advisory services distinguishes us from many of our competitors. Ultimately, each money manager is responsible for stock selection, tax sensitivity and the timing of purchases and sales of securities. This permits the manager to adhere to his or her investment style and to respond quickly to market opportunities or risks. This flexibility allows our money managers to do what they believe is best for our clients, without the administrative delays of a system where an investment committee dictates security selection.

Technology

Technology is a key element of our mission to provide excellent investment performance and customer service. We continue to make prudent investments in technology in order to enhance our clients’ experience; to provide our money managers with state of the art tools; and to continue to achieve operating cost savings.

In 2002, we enhanced our website to provide our clients with the ability to view their account information at their convenience. We expanded our electronic capability for delivery of important client communications, including account statements, trade confirmations and compliance materials, which should result in a reduction in certain of our operating costs.

Additionally, we implemented several major technology initiatives for our money management and trading groups, including enhanced fixed income analytics, additional performance analysis tools, and advanced trading systems, all designed to maintain a flexible and robust technology platform.

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Competition

We face substantial competition in every aspect of our business. Factors affecting our business include brand recognition, business reputation, investment performance, quality of service and the continuity of both client relationships and assets under management. Fee competition also affects the business, as do commissions, compensation, administration and/or other expenses paid to intermediaries.

We compete with a large number of investment management firms. These include global and domestic investment management companies, commercial banks, brokerage firms and broker-dealers, insurance companies and other financial institutions. Many competing firms are parts of larger financial services companies and attract business through numerous avenues including retail bank offices, investment banking and underwriting contacts, insurance agencies and broker-dealers.

U.S. banks and insurance companies can now affiliate with securities firms. This has accelerated consolidation within the money management and financial services industries. It has also increased the variety of competition for traditional money management firms, which businesses are limited to investing assets on behalf of institutional and individual clients. Foreign banks and investment firms have entered the U.S. money management industry, either directly or through partnerships or acquisitions.

Our competitors seek to expand their market share in many of the same arenas that we serve. Financial intermediaries that provide our products to their clients may also provide competing products from competing firms, many of which employ such advisers. Many current and potential competitors have greater brand name recognition and more extensive client bases, which could be used to our disadvantage.

We face significant competition from other registered open-end investment companies. They vary both in size and investment philosophy. Their shares are offered to the public on a load and no-load basis. Advertising, sales promotions, the type and quality of services offered, and investment performance influence competition for mutual fund sales.

We also face intense competition in attracting and retaining qualified employees. The ability to continue to compete effectively in our businesses depends in part on our ability to compete effectively in the labor market. As part of our strategy to retain the best staff, in connection with the IPO, each employee who did not own shares of our common stock received a restricted stock grant. Additionally, we offer competitive compensation, a wide range of benefits and two stock-based incentive plans that allow employees to buy restricted stock at discounted prices.

Regulation

Our business and the securities industry in general are subject to extensive regulation in the United States at both the federal and state level, as well as by self-regulatory organizations. The financial services industry is one of the nation’s most extensively regulated industries. The Securities and Exchange Commission (“SEC”) is responsible for enforcing the federal securities laws and serves as a supervisory body for all federally registered investment advisers, as well as for national securities exchanges and associations. Our subsidiaries, Neuberger Berman, LLC and Neuberger Berman Management Inc., are registered investment advisers and broker-dealers. The regulation of broker-dealers has, to a large extent, been delegated by the federal securities laws to self-regulatory organizations. These self-regulatory organizations include all the national securities and commodities exchanges and the National Association of Securities Dealers (“NASD”). Subject to approval by the SEC and the Commodity Futures Trading Commission (“CFTC”), the self-regulatory organizations (“SRO’s”) adopt rules that govern the industry. The SRO’s regularly conduct periodic examinations of the operations of Neuberger Berman, LLC and Neuberger Berman Management Inc. The NYSE and the NASD are the respective designated SRO’s for Neuberger Berman, LLC and Neuberger Berman Management Inc. In addition, these subsidiaries are subject to regulation under the laws of the fifty states, the District of Columbia and certain foreign countries in which they are registered to conduct securities, investment advisory or commodities businesses.

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Neuberger Berman, LLC, Neuberger Berman Management Inc. and certain of our subsidiaries, are registered as investment advisers with the SEC. As registered investment advisers, each is subject to the requirements and regulations of the Investment Advisers Act of 1940. Such requirements relate to, among other things, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and principal transactions between an adviser and advisory clients, as well as general anti-fraud prohibitions. Moreover, Neuberger Berman, LLC and Neuberger Berman Management Inc. and the Funds are subject to the Investment Company Act of 1940 rules and regulations. The Investment Company Act of 1940 regulates the relationship between a mutual fund and its investment adviser and prohibits or severely restricts principal transactions and joint transactions.

Neuberger Berman, LLC is registered with the CFTC as a futures commission merchant and, along with one of our subsidiaries, is registered as a commodity pool operator and commodity trading adviser. Our commodity futures and options activities are also regulated by the National Futures Association. Neuberger Berman, LLC limits its futures and options activities to those permitted by the CFTC to be provided with reduced disclosure and other requirements to certain eligible clients.

Broker-dealers are subject to regulations which cover all aspects of the securities business, including sales practices, market making and trading among broker-dealers, use and safekeeping of clients’ funds and securities, capital structure, recordkeeping and the conduct of directors, officers and employees. Violation of applicable regulations can result in the revocation of broker-dealer licenses, the imposition of censures or fines and the suspension or expulsion of a firm, its officers or employees.

Our registered broker-dealer subsidiaries are each subject to certain net capital requirements under the Securities Exchange Act of 1934. The net capital requirements, which specify minimum net capital levels for registered broker-dealers, are designed to measure the financial soundness and liquidity of broker-dealers. Neuberger Berman, LLC and Neuberger Berman Management Inc. are also subject to “Risk Assessment Rules” imposed by the SEC which require, among other things, that certain broker-dealers maintain and preserve certain information, describe risk management policies and procedures and report on the financial condition of certain affiliates whose financial and securities activities are reasonably likely to have material impact on the financial and operational condition of broker-dealers.

Our Trust Companies are supervised by federal or state banking authorities, which regulate such matters as policies and procedures relating to conflicts of interest, account administration and overall governance and supervisory procedures. Neuberger Berman Trust Company, N.A. is regulated by the Office of the Comptroller of the Currency of the United States. Neuberger Berman Trust Company of Delaware is subject to oversight by the State Bank Commissioner of the State of Delaware.

In addition to being regulated in the United States, our business is subject to regulation by various foreign governments and regulatory bodies. Neuberger Berman, LLC is registered with and subject to regulation by the Ontario Securities Commission, the Alberta Securities Commission and the British Columbia Securities Commission. Foreign regulations govern all aspects of the investment business, including regulatory capital, sales and trading practices, use and safekeeping of client funds and securities, recordkeeping, margin practices and procedures, registration standards, reporting and disclosure. To the extent that we decide to engage in securities activities in other jurisdictions, additional regulations may apply.

The USA Patriot Act of 2001 (the “Act”), enacted in response to the terrorist attacks on September 11, 2001, contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and other financial services companies, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Through these and other provisions, the Act seeks to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. Anti-money laundering laws outside of the U.S. contain some similar provisions. The increased

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obligations of financial institutions to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions, requires the implementation and maintenance of internal practices, procedures and controls which may subject us to liability.

Recent financial scandals have led to insecurity and uncertainty in the financial markets and contributed to declines in capital markets during 2002. In response to these scandals, the Sarbanes-Oxley Act of 2002 and the rules and rule proposals (if adopted) of the SEC, the NYSE and Nasdaq necessitate significant changes to corporate governance and public disclosure. These provisions generally apply to companies with securities listed on U.S. securities exchanges, and some provisions apply to non-U.S. issuers with securities traded on U.S. securities exchanges.

Additional legislation and regulations, including those relating to the activities of investment advisers and broker-dealers, changes in rules imposed by the SEC or other U.S. or foreign regulatory authorities and self-regulatory organizations or changes in the interpretation or enforcement of existing laws and rules may adversely affect our business and profitability. Our businesses may be materially affected not only by regulations applicable to it as an investment adviser or broker-dealer, but also by regulations of general application. For example, the volume of our principal investment advisory business in a given time period could be affected by, among other things, existing and proposed tax legislation and other governmental regulations and policies (including the interest rate policies of the Federal Reserve Board) and changes in the interpretation or enforcement of existing laws and rules that affect the business and financial communities.

Client Protection and Insurance

Neuberger Berman, LLC is a member of the Securities Investor Protection Corporation (“SIPC”). Clients of Neuberger Berman, LLC are protected by SIPC against some losses. SIPC provides protection against lost, stolen or missing securities (except loss in value due to a rise or fall in market prices) for clients in the event of the failure of the broker-dealer. Accounts are protected up to $500,000 per client with a limit of $100,000 for cash balances. In addition to being a member of SIPC, Neuberger Berman, LLC carries excess SIPC protection which increa